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Venture capitalist to the poor

Published by Forbes on 1999-05-31

Prince Karim, a 20-year-old Harvard undergraduate majoring in Islamic history, receives word that his grandfather, Sir Sultan Mahomed Shah, Aga Khan III, has died. Sir Sultan's will names young Prince Karim his successor as spiritual head of the world's Ismaili Shia Muslims. Millions of Ismailis (and gossip columnists) around the world are caught by surprise. Not passing the title to Prince Karim's father, the dashing and fun loving. Aly Khan, divorced from Hollywood's Rita Hayworth, is understandable. But could the shy Prince Karim possibly lead millions of scattered Ismailis into the new millennium?

Today the doubts have been put to rest, and in ways few could imagine. Now 62, Prince Karim Aga Khan IV was early to push the idea that the dispossessed could find hope in private economic enterprise. He grasped that government handouts and multilaterally funded mega projects -- like those from the United Nations or the World Bank -- can often foster dependence in the people they're meant to help.

Instead, the Aga Khan has become a kind of venture capitalist to the Third World. Through his economic development institutions, he is increasingly taking equity positions in small-scale commercial enterprises -- about 100 so far. His goal: to spur sustainable economic development and individual self-reliance at the grassroots level in South and Central Asia and Africa. Poor countries like Tanzania, Pakistan and Tajikistan don't otherwise hold much hope of attracting high-profile foreign investors.

"The era of giveaways is gone," the Aga Khan declares in the course of a long interview at his secretariat in Gouvieux, outside Paris. "This is a time to enhance self-reliance, for grassroots groups to generate profits and use money for promoting social good."

This is sober talk from a man whose glittering lifestyle has long been fodder for the world's media -- his racehorses, his alpine skiing, his yacht on the Costa Esmeralda. The media hounds especially went to town on his divorce in 1995 from his British-born first wife, Princess Salma, and subsequent remarriage to close friend Gabriele zu Leiningen, a 35-year-old German princess.

His private life, however, is considerably less colorful than this tabloid image. What turns the Aga Khan on is changing lives through entrepreneurial capitalism -- adapted to the historical and cultural -- adapted to the historical and cultural needs of particular Ismaili communities.

The Aga Khan Development Network focuses largely on health care, early childhood and female education, building business opportunities, clean water, farming and housing.

This year it will disburse more than $ 200 million. Much of the money will go into direct equity investments, which are under the auspices of the Aga Khan Fund for Economic Development. (The Aga Khan also makes grants to social development and cultural projects.)

Of the 100 companies the network has financed, 95 are earning profits, the Aga Khan says. About a dozen of these ventures are now traded publicly on regional stock exchanges in East and West Africa, India and Pakistan (see table, p. 62).

Seed money

Here are some companies that were funded through the Aga Khan Development Network and later went public.
Company/location %owned by Network
Diamond Trust Bank/Nairobi, Kenya 32
Filtisac/Abidjan, Ivory Coast 46
Industrial Development Leasing Co/Dhaka, Bangladesh 3
Jubilee Insurance Co/Nairobi, Kenya 37
New Jubilee Insurance Co/Karachi, Pakistan 32
Tourism Promotion Services/Nairobi, Kenya 64

Source: The Aga Khan Development Network.

Example: In the former Soviet republic of Tajikistan, where a million Ismailis are being exposed to Western ways for the first time, the Aga Khan is focusing on promoting agriculture and agribusinesses. Scorning the old collectivist communes and cooperatives, he gives loans to farmers and agro-entrepreneurs. In the last three years he has made more than 600 loans ranging from the equivalent of $ 100 to $ 5,000 -- big money in the local context. Farmers can now take pride in owning their land and not slaving for some faceless state bureaucracy. Plus, a new entrepreneurial class of shoemakers, pharmacists and shopkeepers is springing up to cater to the more well-off community.

Like a Silicon Valley venture capitalist, he looks at the equity stakes as future sources of new money that can be reinvested in the businesses -- and eventually new projects.

Another source of funding are Ismaili Shia Muslims themselves. There are some 15 million Ismailis scattered across 25 nations, with large communities in Bombay, Nairobi, Dar es Salaam as well as in North America and Europe. Imbued with deep-seated notions of charity, Ismaili communities regularly give a portion of their wealth to the poor, often through their local congregations. In one way or another, every year many tens of millions of dollars flow through the Imamate.

The Ismailis do not expect their Aga Khan to live a monk's life, nor do they begrudge him his personal fortune. The Ismailis do, however, expect their Imam to choose investments wisely.

Filtisac, located in Abidjan on the Ivory Coast, West Africa, is a good example of the impact the Aga Khan hopes his investment activities will have. The Aga Khan Fund for Economic Development set up Filtisac in the 1960s to provide jute bags for Ivory Coast exports such as cocoa and coffee. In the last ten years, annual production of such bags has risen from 3 million to 18 million. The company, which employs 2,000 people and expects revenues of $ 60 million this year, has now expanded operations across West Africa. The government divested its 24% participation in Filtisac as part of its privatization program, and now everyday Ivorians can buy Filtisac stock on the Abidjan Stock Exchange.

Tourism is another success story for the Aga Khan Network, particularly in Kenya, where the Network's Tourism Promotion Services Ltd. is traded on the local stock exchange. Tourism has been the major generator of foreign exchange -- in some cases it has overtaken the traditional foreign exchange earners of tea and coffee. Aga Khan-funded companies have built three lodges in Kenyan game parks and reserves, and hotels in Nairobi and on the Mombasa coast. In 1997-98 the company added three new lodges and a luxury tented camp in Tanzania's fabled Serengeti game reserve and a big hotel on the island of Zanzibar.

And then there's banking and finance. Long-held ventures such as the Jubilee Insurance Co. in Kenya have been successfully replicated in neighboring Uganda and Tanzania. Diamond Trust, a banking company, now trades on the Nairobi Stock Exchange.

In India, the Aga Khan Network started the Development Cooperative Bank. It was originally a grassroots cooperative bank for the Ismaili community, but has gone far beyond the roots of the community. Three years ago, the DCB was the first cooperative bank in India to be converted to a private sector commercial bank, giving shareholder status to its 55,000 customers.

You don't have to be an Ismaili Muslim to participate in the Aga Khan Network. You can be a Jew in Syria, or a Hindu in Pakistan or a Catholic in Kenya, and be very much eligible to participate in his programs. The Frigoken Co. offers an example. The Aga Khan Network established it with $ 5 million in 1994 in Kenya -- where there's been an Ismaili community for a century -- to assist non-Ismaili local African farmers to grow and can beans, and export them to European supermarket chains. Frigoken provided seeds and fertilizers, as well as crop expertise, that enabled the farmers to increase yields and also cultivate crops on a year-round basis.

Results? In five years the number of farmers associated with the company has grown from 100 to 21,000. A by-product is a big increase in the number of schools and health clinics in the region where these farmers work. Frigoken's revenues this year will exceed $ 12 million.

Some of Aga Khan's projects are better described as social development programs. Example: He recently undertook a rehabilitation of Ugandan schools that had been seized by dictator Idi Amin Dada in the early 1970s, run down during his regime and finally returned to Uganda's Ismailis a few years ago.

As he channels resources to local entrepreneurial ventures, the Aga Khan is also reordering his own private portfolio. His much-publicized involvement with the 8,500-acre Costa Esmeralda resort in Sardinia is ending, although he retains a minor interest in property development there.

Long an enthusiastic student of architecture, he has established the prestigious Aga Khan Award for Architecture, given every three years. He has also funded a graduate program at Harvard and the Massachusetts Institute of Technology combining Islamic art and history with architectural design.

What of the future? Prince Karim is still relatively young. He's the leader of the Ismaili community until the day he dies. Most likely one of his two sons will succeed him. Prince Rahim, 28, is executive director of the Aga Khan Fund for Economic Development. Prince Hussein, 25, is involved in the Aga Khan Trust for Culture. Princess Zahra, 29, looks after the Network's health and education programs, focusing on women.

As Aga Khan for life, Prince Karim has the luxury of being able to take a long-term view. He puts it this way: "If I have to wait 12, 15, 20 years to achieve goals which I think are important, I will wait 12, 15 or 20 years."

Pranay Gupte,
Senior Writer and Global-Affairs Columnist

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