Venture Capitalist to the Third World
Cambridge, Massachusetts, 1957. 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 muslims. Millions of Ismailis (and gossip columnists) around the world are caught by surprise. Not passing the title to Prince Karim’s fun-loving father, the dashing Aly Khan, once married to Hollywood’s Rita Hayworth, is understandable. But could the shy young Prince Karim possibly lead millions of scattered Ismailis through Cold War dangers and into the new millennium?
Today the doubts have been put to rest. As the Ismaili Shia Muslims’ 49th imam, Prince Karim Aga Khan IV has not only helped his people. He has also changed the face of global philanthropy. Now 62, he was early among experts in Third World development to grasp that government handouts and multilaterally funded megaprojects often foster dependence, not self-reliance, in the people they’re meant to help. To counter this danger, 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. His goals: to reduce what he calls “aid dependence,” and to spur sustainable economic development and individual self-reliance at the grassroots level in countries such as Tanzania, Pakistan and Tajikistan that otherwise don’t have much hope of attracting high- profile foreign investors.
“My sense is that people in developing countries want new ways to address the question of their economic and social well-being,” the Aga Khan told FORBES GLOBAL in the course of a long interview at his secretariat in Gouvieux, outside Paris. “What we’re saying through the Aga Khan Development Network is that the era of giveaways is gone. This is a time to enhance self-reliance, for grassroots groups to generate profits and use money for promoting social good.”
The international media, especially the British tabloids, have long slobbered over the Aga Khan’s glittery lifestyle — his race horses and a yacht on the Costa Smeralda. The media hounds went to town on the Aga Khan’s 1995 divorce from his British-born first wife, Princess Salma, and subsequent remarriage to Gabriele zu Leiningen, a 35-year-old German princess.
His private life, however, is considerably less colorful than this tabloid image. Rejecting the one-ideology-fits-all strategies of collectivists and extreme laissez-faire types alike, the Aga Khan uses his resources to support and encourage communities and ventures across South and Central Asia and Africa — “in the context [he says] of their individual cultural, economic, and physical environments, to assume responsibility for actions which lead to long-term improvement in their health, their education, their incomes and their environment.”
There are some 15 million Ismaili Shia Muslims scattered across 25 nations, with large communities in Bombay, Nairobi, Dar es Salaam and North America and Europe. Among Muslims, the Ismailis are known for their prominent doctors, lawyers, scientists, writers and other professionals. Deep in their faith is the notion that successful members of Ismaili communities should help provide for the needy members. For example, prosperous Ismaili communities are helping Ismaili refugees leaving Afghanistan start new lives abroad.
Unlike other Shia Muslims, the Ismailis believe in the Islamic interpretation of a living spiritual leader — the Aga Khan — who traces his lineage directly back to the prophet Muhammad’s cousin and son-in-law, Hazrat Ali. This assures that Islam adapts to the times. The Imam regularly sends his greetings and homilies to his congregation around the world. His photograph graces literally every Ismaili home, Jamatkhana (community center), school, hospital, factory.
Consistent with their deep-seated notions of giving, the Ismaili communities regularly donate a portion of their wealth to their less fortunate brethren. Administered through a complex process centered around Ismaili Jamatkhanas, the contributions take many forms and flow through diverse channels. One way:In the Third World, community donations stay on the spot, helping to support local hospitals, schools and water purification projects. On top of this, every year many tens of millions of dollars are channeled to the Imamate for redistribution to worthwhile projects, with the wealthier Ismaili communities (and individuals within those communities) contributing disproportionately larger shares.
In 1931 the Ismailis celebrated Sir Sultan’s 50th anniversary as Aga Khan by sending him his weight in gold. Twenty-five years later they sent the portly fellow his weight in diamonds. But these and other contributions belong to the Ismaili community, not the Imamate: the gold and diamonds were quickly pumped back into Ismaili communities. Prince Karim has stopped such weighing practices, but the wealth continues to flow into the Imamate’s coffers and back out to Ismailis in need.
The Ismailis do not expect their Imam to live like a monk. They do, however, expect him to make wise investment decisions. Simply put, the institution of the Imamate rests upon the Ismailis’ continuing confidence in their Imam’s vision and wisdom. This fact was no doubt at the forefront of Sir Sultan Aga Khan III’s mind when he passed over his playboy son Aly Khan and tapped the studious Prince Karim to lead the Ismailis.
Through the Aga Khan Foundation (see box, p. 72) and the Trust for Culture, the Imamate will distribute $85 million in outright grants for social development and cultural projects. In addition, the Aga Khan Development Network will disburse around $150 million in direct equity investments this year, mainly through the $1 billion (assets) Aga Khan Fund for Economic Development (AKFED).
Filtisac, in Cte d’Ivoire, West Africa, is a good example of the impact the Aga Khan hopes his investment activities will have. AKFED set up Filtisac in 1965 to provide jute bags for key Ivorian 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 and expects revenues of $60 million this year — has expanded across West Africa.
In 1992 Filtisac set up a subsidiary in France to manufacture and distribute large polypropylene bags; the company now also produces high- quality jute yarn that’s used in carpet-making. Ordinary Ivorians can buy Filtisac stock on the Abidjan Stock Exchange. Filtisac employees have also been given special stakeholdings in the company. Peoples’ capitalism, at its best.
Tourism is another Aga Khan Development Network success. In Kenya and Tanzania, AKFED’s Tourism Promotion Services Ltd. (TPS) is publicly traded. Aga Khan-funded companies have built three lodges in Kenyan game parks and reserves, 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. AKFED is also developing tourism in Pakistan.
In banking and finance, long-held ventures such as Kenya’s Jubilee Insurance Company have been successfully replicated in Uganda and Tanzania. The Diamond Trust, a banking company, now trades on the Nairobi Stock Exchange.
In India, the Aga Khan Network started the Development Cooperative Bank. 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. Consider, for example, the Frigoken Company. The Aga Khan 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 expert help, that enabled the farmers to increase yields and also cultivate crops on a year-round basis. In five years, the number of farmers associated with the company has grown from 100 to 21,000. The $12 million (revenues) company’s success has meant that the number of local schools has grown, as have the number of health clinics in what were once deprived rural areas.
How do the Shia Ismailis feel about the Aga Khan spreading their money to other, sometimes competing ethnic or religious groups?
Apparently they feel no qualms. And for good reason. Lifting competing groups’ boats increases the Ismailis’ own sense of security in places like Uganda and Kenya, where demagogues can easily turn the ignorant poor against the relatively well-educated and well-off Ismailis.
Like a Silicon Valley venture capitalist, AKFED looks at its equity stakes in small-scale entrepreneurial projects as future sources of new money that can be reinvested in the businesses and, eventually, fund new projects.
For example, dividends from successful ventures have helped the Aga Khan network expand its activities in the former Soviet republic of Tajikistan, where almost one million Ismailis are being exposed to Western ways for the first time. There the Aga Khan is focusing on promoting agriculture and agribusinesses. Not through the old collectivist communes and cooperatives but through making loans to farmers and agri-entrepreneurs. In the last three years, more than 600 loans ranging from the equivalent of $100 to $5,000 — big money in the local context — have been made. As a result, in addition to farmers who take pride in owning their land rather than slaving for some faceless state bureaucracy, a new entrepreneurial class of shoemakers, pharmacists and shopkeepers is springing up to serve the needs of the newly prosperous community.
As he channels resources to local entrepreneurial ventures, the Aga Khan is also reordering his own personal portfolio. (In his own right, he has a substantial personal fortune.) His much-publicized involvement with the 3,400-hectare Costa Smeralda resort in Sardinia is ending, although he retains a minor interest in property development there. His Sardinia hotels are now owned by U.S.-based Starwood. He has a big shareholding in Meridiana, the biggest private airline in Italy, but is likely to gradually divest his holding.
One business the Aga Khan will expand is his media business in Kenya.
In the early 1960s he founded The Nation, a daily and Sunday newspaper based in Nairobi and distributed throughout in Uganda, Kenya and Tanzania. Several satellite publications have since been added. A recent survey showed that The Nation enjoys 23 readers per copy — in excess of 4 million readers a day. (The daily print run is around 200,000, but street vendors rent the paper out for the equivalent of 7 U.S. cents for a few hours of reading time.)
Do you want to invest in this growing Third World media franchise?
You can: Since 1973, The Nation Group has traded on the Nairobi Stock Exchange. Stock market capitalization: $72 million as of May 7. There are now some 8,000 small shareholders in the company; the Aga Khan retains 45%. Gerard M. Wilkinson, an Irishman who serves as the Aga Khan’s principal media adviser, says a move into broadcast media is imminent. “And broadcast is music and entertainment as well as news and education,” says Wilkinson.
At 62, Prince Karim is still a relatively young Imam. He’s the leader of the Ismaili community until 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 Trust for Culture. Twenty-nine-year-old Princess Zahra looks after the network’s health and education programs, with a particular emphasis on the concerns of women. The Aga Khan has also brought in some professional managers, such as Tom Kessinger, former president of Haverford College in the U.S.; he runs the Aga Khan’s Trust for Culture.
As Aga Khan for life, Prince Karim has the rare luxury of being able to take a truly long-term view in the ventures he backs: “When you inherit an office, which is a life office, you are simply a link in the chain. And you therefore look at life somewhat differently than if you were, I suppose, a professional who moves around and is free to do what he wishes. Now some things are impossible to achieve. I well know that. And if that is the case, I simply have to try and move the issues forward as much as I can. The next Imam will then decide how he wishes to handle the issues. But, it is the continuum which is at the back of my mind. And that’s why perhaps my time dimension appears different than it might for other people. 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.
“What I can tell you,” he adds, smiling at the Ismailis’ growing roster of thriving commercial businesses, “is that I have a higher level of comfort today than I would have had four decades ago.”