Investing for social and financial returns: OPIC’s perspective [Part 3/5 Perspectives in Impact Investing series]
Note from Global Partnerships: This is the third installment of our "Perspectives in Impact Investing" series, which presents the variety of perspectives of different actors in the impact investing space. Read:
- Part 1: How wealth advisors can facilitate impact investments by Cynthia Muller, Senior Director of Impact Investing, Arabella Advisors
- Part 2: 4 ways to use grant funding to catalyze innovation and de-risk early-stage enterprises by Richard Gomes, Head of Policy and Advocacy, Shell Foundation
Part 3: Investing for social and financial returns: OPIC's perspective
by Loren Rodwin, Managing Director, Overseas Private Investment Corporation (OPIC)
It is fitting that I write about the Overseas Private Investment Corporation's (OPIC) impact investing strategy, challenges and goals on Global Partnerships’ (GP's) blog because GP is one of OPIC's highly successful impact investments. OPIC has lent to four of GP’s past five funds, which have collectively supported more than one million people in 10 countries with loans, healthcare, entrepreneurship training and other services. The first of these funds has already been repaid in full.
Investing with impact was a core mission of OPIC long before the term impact investing was in vogue. As the U.S. Government’s development finance institution OPIC has worked for more than four decades to support private sector investment in emerging markets in projects that have built infrastructure, improved agriculture, introduced schools and otherwise had a lasting impact on people and communities. In recent years, as impact investing has captured the imagination of more investors, OPIC has not only continued to seek out these investments, but also worked to refine the definition of impact investing and establish some tools and practices for effective impact investing.
Below are four of OPIC’s key areas of focus that have informed our approach to this still relatively new and rapidly evolving sector.
1. Reaching individual recipients
OPIC has money to invest and a strong interest in investing in individuals and communities that are most in need. But because we are a small Agency with our staff of 229 based mostly in Washington, D.C., we often must rely on our partners to get these funds to the end recipients. One of the reasons our work with Global Partnerships has been so successful is because Global Partnerships has, through its extensive network in Latin America, been able to reach groups such as women and rural residents that have traditionally been underserved by banks and lending institutions.
OPIC is particularly excited by Global Partnerships’ newest fund, the Social Investment Fund 5.0, which seeks to invest in microfinance institutions and cooperatives that, in addition to access to finance, provide clients with access health care, agricultural supply chains, environmental goods and entrepreneurship training.
Some of our other partnerships have served a similar purpose, enabling us to support lending to many of the smaller microfinance institutions in places in sub-Saharan Africa, where individuals, small farmers and entrepreneurs have used funds to start or expand small businesses or schools.
2. Attracting other investors
OPIC recognizes that private sector capital is essential to addressing the world’s biggest challenges and one of the Agency’s core goals across all of the projects we support is to catalyze additional private sector investment. OPIC seeks opportunities to invest in projects where the nature and structure of its investment encourages private investors to make investments that might not otherwise consider. For example, OPIC has invested in a more junior position, or has provided a longer tenor debt instrument in well-managed investment funds. This has provided private sector investors with the additional protection needed to invest in these funds.
Another example is OPIC’s ability to make loans to businesses that are just beginning to attract commercial capital. Often these are early stage social enterprises that have a proven business model, but have not yet reached the scale required to allow the business to grow in a sustainable manner. OPIC seeks to support these companies by providing a source of “expansion capital” at the critical stage in the enterprise’s life cycle. Such investments may have a powerful long-term impact in enabling the enterprise to grow sustainably, thereby serving more clients, and, in so doing, helping these clients to solve critical developmental challenges.
3. Setting standards for impact investing
As impact investing has increasingly become recognized as a bona fide investment category, OPIC has worked to establish a clear definition of what constitutes impact investing. While many investments may ultimately lead to a positive environmental or social change, there is a difference between those projects that happen to yield good results and those that were designed from the outset with such a specific intention in mind. In 2012, OPIC set out to determine how much of our portfolio met the strict definition of impact investing by addressing social, or environmental problems while generating sustainable financial returns. You can read more about this exhaustive process in a piece my colleagues published in the Stanford Social Innovation Review.
One recent project that was officially tagged an impact investment under OPIC’s new tagging system is OPIC’s investment in Bridge International Academies, a chain of schools in Kenya that exemplifies OPIC’s focus on both the positive social benefit and the positive bottom line. Bridge has a scalable business model designed to reach large numbers of students while also earning a profit. The schools operate under a for-profit model, but provide a quality education at less than $6 per month, to be affordable to even low income families.
4. Earning a return on investment
One of the questions that initially inspired this series was, what are the motivations of the institutional investor in pursuing impact investments? OPIC, like any serious investor, makes positive financial returns a priority. Our consistent ability to earn a profit from our investments has put us in a strong financial position that enables us to grow our portfolio and increase our investments in the developing world. While we actively pursue impact investments, we also rigorously review potential projects and look for a strong management team and investment strategy. Because OPIC’s mission is to be self-sustaining—as exemplified by its record of making a profit for 43 years--it must carefully evaluate the risk of repayment for each debt investment under consideration.
OPIC is the U.S. Government’s development finance institution. It mobilizes private capital to help address critical development challenges and in doing so, advances U.S. foreign policy. Because OPIC works with the U.S. private sector, it helps U.S. businesses gain footholds in emerging markets, catalyzing revenues, jobs and growth opportunities both at home and abroad. OPIC achieves its mission by providing investors with financing, guarantees, political risk insurance, and support for private equity investment funds.
4 ways to use grant funding to catalyze innovation and de-risk early-stage enterprises [Part 2/5 Perspectives in Impact Investing series]
Note from Global Partnerships: This is the second installment of our "Perspectives in Impact Investing" series, which presents the variety of perspectives of different actors in the impact investing space. Read: Part 1: How wealth advisors can facilitate impact investments
Part 2: 4 ways to use grant funding to catalyze innovation and de-risk early-stage enterprises
By Richard Gomes, Head of Policy and Advocacy, Shell Foundation
The topic of innovation was widely debated at the Sankalp Africa Summit in Nairobi, a regional convening of social investors who aim to spur inclusive growth in Africa by supporting new market-based solutions. Innovation is sexy we all agreed, and yes, these solutions have the potential to tackle major development challenges at scale. Yet examples of global impact and replication remain puzzlingly rare. As you can imagine, there was no easy answer – but the emergence of new models such as venture philanthropy suggested that foundations may be a missing piece of the jigsaw puzzle. Similarly, at the latest Mission Investors Exchange conference, one of the key take-aways was the increasing notion that foundations have a catalytic role to play in growing the impact investing space.
Shell Foundation (SF) has been trying to work out how grant funding and business support can be deployed to accelerate the growth of social enterprise pioneers for some time now. Spoiler alert: we haven’t cracked the nut yet! However, if I muse on where we’ve failed and where our partners have succeeded, there are perhaps four broad areas where philanthropic capital is very well-suited to play a catalytic role in the social investment sector:
1) Supporting early-stage innovation
Backing early-stage businesses with new models and technologies to tackle entrenched global challenges is risky business – too much so for most investors. When we started looking at the problem of inefficient cooking back in 2002 (which results in pollution that claims 4m lives each year and high fuel costs that drain family income) clean cookstoves were widely-recognised as the best solution. Yet it took five years of piloting different technologies, fuels and business models before we could understand what customers really wanted and how this demand could be met. At this point we established a long-term partnership with Envirofit, a US-based social enterprise, and it took a further seven years to develop new technology, find the right value proposition and construct a viable model for a clean cookstoves business with a global reach.
Perhaps we could have gotten there quicker, and we are always learning and (I hope!) improving. On the other hand, we wouldn’t be able to look for holiday deals on our iPad, use a GPS navigator to get to the airport or even take a plane ride without the astronomic public funding that was needed to develop today’s consumer technology in its earliest forms. In this context there is a chronic lack of early-stage support for pioneers who are working in the world’s toughest operating environments.
2) Building capacity for global scale-up
A second lesson from our partners’ work is that getting the product or service right is only part of the challenge they face. Social enterprises often have to create whole value chains from scratch and to overcome major market barriers related to demand creation, consumer finance, working capital and particularly distribution.
Partners like Envirofit or M-Kopa, an asset financing company that uses embedded mobile technology and M-PESA to make solar home systems affordable to low-income consumers in Kenya, have had to overcome these challenges while simultaneously building the systems, processes and human capacity needed for national or regional expansion.
This means that early-stage pioneers of these markets need larger, more patient and more flexible support than we had ever imagined when we set out – and a wide-range of non-financial support to help build critical skills, access markets and overcome emerging barriers to growth. With a ready source of risk-tolerant capital and extensive networks spanning public and private boundaries, foundations are well placed to provide these resources. Grants are also a particularly appropriate tool at this early stage, where the need to service debt or equity investment could force a business to focus on more lucrative customers or restrict investment in capacity.
3) Unlocking impact investment and private capital
In reality, most of the social enterprises we work with are well into scale-up before they can attract and serve their first non-grant investments. We’re looking at new ways to use grant instruments to offset risk and bring impact investors in earlier, for example by blending impact investment with smart subsidy (to fund R&D or capacity-building) or by using loan guarantees, first-lost investments or recoverable grants. (We are equally mindful of the need for social enterprises to move away from grants at the right time. In addition to creating the wrong mindset, displacing private capital would distort markets, not catalyse them.)
Four years after SF made its first grant to M-Kopa, the business has sold 50,000 solar home systems in Kenya and has attracted a range of investment from foundations, social investors and the UK Department for International Development. Just last month they secured US$10 million debt from the Commercial Bank of Africa to fund their national and pan-African expansion.
4) Creating markets to support replication and leverage investment
Pioneers of new product or service categories also rely on the right market enablers and infrastructure to succeed – and their absence adds to the risk and uncertainty of investing in these businesses. Envirofit met several major barriers to growth in its early years and these applied in equal measure to every type of clean cookstove manufacturer. No one business could solve these alone. In response, we’ve co-created several independent businesses to address these barriers at a market level; addressing problems such as last-mile distribution, demand creation or lack of working capital across the value chain.
Envirofit have now sold over 800,000 stoves across Asia, Africa and Latin America – benefitting 4 million people – and many other manufacturers now exist offering a range of products using different fuels and at different price points. Leveraging the investment required to meet the demand for these products will require supporting infrastructure to codify best practice, monitor impact, create industry standards and advocate for policy change. Co-creating the Global Alliance for Clean Cookstoves initiative with the UN Foundation in 2009 was a step in this direction.
Moving from coordination to collaboration
Many challenges remain and few market-solutions have reached the stage where they can show long-term impact on challenges that affect half the world’s population. Nevertheless, strong demand clearly exists for the right social-impact products and services, and the social investment sector, in its broadest sense, contains the right ingredients to support inclusive businesses to meet this need. We’re finding a growing number of foundations, impact investors, government agencies and corporations who are on a similar journey and eager to join forces to drive greater collective impact.
Social innovation may be sexy but achieving large-scale impact is exceptionally difficult and this is a long-term game. If networks like Sankalp, EVPA and the GIIN can help us understand the relative advantages of different assets for different phases of growth then this will enable us to deploy them far more effectively. As Eric Morecombe once said sitting at a piano – “I’m playing all the right notes, just not necessarily in the right order”. In time I think we’ll get that order right and demonstrate the true potential of this sector.
About Shell Foundation
Shell Foundation is an independent charity established by the Shell Group in 2000 to create and scale new solutions to global development challenges. It works by deploying a blend of grant funding, business support and market linkages to co-create social enterprise pioneers, support them to achieve scale and viability, and to accelerate the growth of new inclusive markets.
How wealth advisors can facilitate impact investments [Part 1/5 Perspectives in Impact Investing series]
Note from Global Partnerships: Starting today, we’ll be rolling out a 5-part series on impact investing that presents the variety of perspectives of different actors in the impact investing space. A wealth advisor (Arabella Advisors), philanthropic investor (Shell Foundation), institutional investor (OPIC), impact evaluator (FSG), and social enterprise (Luciérnaga LLC) will each provide insight into their role in the impact investing space, the challenges they face, and the optimism they hold for creating and measuring impact. This blog series will provide readers with a unique insider’s view from the vantage point of different players throughout the impact investing sector. The series will also inform readers about the opportunity to create lasting social change through these various actors. We look forward to hearing your thoughts and welcome your feedback.
Part 1: How wealth advisors can facilitate impact investments
by Cynthia Muller, Senior Director of Impact Investing, Arabella Advisors
As high-net-worth individuals and families increasingly seek to make positive social and environmental impact with their investments, wealth managers are facing the challenge of incorporating impact investing into their practice. While there is an active pipeline of nearly 450 public funds and over 450 private fund managers, impact investing still has some growing to do as a field. Wealth advisors who wish to meet the increasing demand for impact investing can better retain clients by partnering with other experts in the field to serve new needs.
Impact investing has grown as a philosophy and as a practice over the last two decades. We know that an estimated $41 trillion in wealth is expected to transfer from the baby boomers to the millennials over the next 30 to 40 years, that one out of every nine dollars under professional management in the United States is invested for positive social and/or environmental impact, and that there is rapidly growing interest in investing with purpose by the GenX/Y and millennial generations. Major institutional players (Merrill Lynch Bank of America, Goldman Sachs, Morgan Stanley, and others) have begun to offer a variety of impact-themed products and platforms to impact-hungry investors, and foundations large and small are employing new strategies to invest.
As Senior Director of Impact Investing at Arabella Advisors, I am regularly approached by wealth advisors who want to learn how better to help their clients, and my response is: the mountain is not as high as you think.
The two questions we most frequently get from wealth advisors are where to find deals and how to assess them. In a nascent field, there is no roadmap for identifying the right investment. But by learning the fundamentals, wealth advisors can facilitate the process. Here are key steps to take:
Understand your client’s desired impact and identify the corresponding approach. Deals are hard to find, even though many funds and fund managers are practicing impact investing. The first step for wealth managers is to help clients distinguish between different forms of social impact and corresponding investment approaches. People in the field tend to approach impact investing from the lens of their own professional perspective. For example, some define socially responsible investing (SRI) as forms of impact investments. While a range of investments may achieve some form of positive social or environmental impact, SRI is a passive approach; those making the investments aim to support companies or initiatives that a) do not have negative social or environmental impacts or b) have responsible practices but not necessarily social impact goals.
Conversely, one of the main tenets of impact investments is intentionality: creating positive social and environmental impact alongside producing financial returns. Those making impact investments have a particular impact goal in mind and ideas of ways to track it. And from what we are experiencing, investors—particularly the next generation of wealth holders and institutional foundation leadership—are increasingly recognizing the distinction between the two approaches. Thus prior to beginning the process, it is important to ascertain whether your client merely wants to screen out negative impacts of his or her investments or whether he or she has a social impact goal in mind. For clients who want to see the direct impact their investments have on the causes they care about, simply passing an SRI screen will not suffice. True impact investments require active engagement with funds, companies, and organizations.
Gauge your client’s expectations. The next step is ascertaining how much your client wants to be engaged. Impact investments require building a relationship with the investee. It’s important to know whether your client wants to interact with the investee and what kinds of reports they want back—impact updates, mid-term impact analyses, etc. Knowing the level of detail you will need to share also helps you plan for how much work the investment will take on your part.
- Understand your client’s risk tolerance. As in the process of establishing a traditional investment strategy, it is important to establish parameters with your client upfront when establishing an impact investing strategy. Understand their sector preference—i.e., which issues they want to target—and their financial risk tolerance. Based on this, you will be able to narrow the list of spaces and opportunities in which you’ll look for potential investments.
Partner with experts. Armed with these fundamentals, you are ready to begin looking for deals, and this is where other resources come in. Industry networks like the Global Impact Investing Network (GIIN), US SIF, and the Mission Investors Exchange provide detailed, user-friendly information on entering the field. And partnering with impact investing experts will help you find the right deals without having to devote enormous resources to it.
Field experts who know the space and players will have a sense of where to look for deals that meet your client’s basic parameters, as well as the relationships with fund managers necessary to structure deals. They can also help assess risk and reward, which is different for impact investments than for traditional investments: the ways in which you gauge the social impact of an opportunity is not standard, but customized for each investor. Moreover, experts can help you establish a monitoring system that ensures you can provide your client with regular updates on the investment’s performance.
Having partnered with wealth advisors on a range of activities—assessing specific deals, helping them integrate impact investments into current portfolios, guiding the process of getting started, and sometimes simply serving as an on-call partner to help with questions or issues that arise—we believe there is enormous potential for professionals to work together to meet growing client needs and build the field.
Contrary to popular belief, a wealth advisor who learns enough about impact investing to be able to ask the basic questions is well on his or her way. Partnering with others and outsourcing, so to speak, the nitty-gritty, will enable you to meet new client demands without having to overhaul your practice.
About Arabella Advisors
Arabella Advisors is an advisory firm that helps philanthropists and investors achieve greater good with their resources. They support clients in using all their assets – grants, investments, relationships, and time – to maximize for positive impact. Their comprehensive and personalized services help deliver results for families and individuals, institutional foundations, impact investors, and corporate clients worldwide.
Read more: http://www.arabellaadvisors.com/
3 emerging trends in impact evaluation
by Tara Murphy Forde, director of research & impact, Global Partnerships
It isn’t every day that you get to geek-out with a room full of people who spend their days trying to measure the often intangible impact of small and growing businesses in emerging markets. Each year members of the Aspen Network of Development Entrepreneurs (ANDE) gather in Washington, DC to discuss common challenges and solutions for metrics & evaluation. This year the attendees included a diverse group of investors, capacity development providers, researchers and entrepreneurs who all share Global Partnerships’ (GP’s) commitment to thoughtful and rigorous impact evaluation. As a new member and first-time attendee, I was struck by the diversity of our approaches yet the shared nature of the challenges we face in trying to understand and measure the impact of our work.
Emerging trends in impact measurement
This year the conference focused on “Measurement in Action,” highlighting the catalytic effect that collective action around measurement can have for the small and growing business sector. In conjunction with the conference ANDE published its annual “State of Measurement Practice in the SGB Sector” report, which uses data and interviews with 30 different organizations to identify and analyze key trends in measurement practice. The following emerged:
The need to balance and align social metrics with financial performance indicators
The need to place greater emphasis on transparency and attribution
The need to develop more efficient data collection and data management approaches
Based on these points, A New Vision for Shared Metrics was put forth for discussion and feedback. While there was lively debate about how, there was general agreement on the need to move beyond the focus on accountability (Metrics 1.0) and standardization (Metrics 2.0) to value creation (Metrics 3.0).
Creating value through impact measurement
In order to invoke action, ANDE asked each member to reflect on the following questions, which I will take a moment to share here:
What should your organization do to create more value through impact measurement?
What we at GP are currently working on:
What more can we do:
1. Developing a rigorous, consistent, and iterative evaluation practice that is grounded in the existing body of evidence, empirical knowledge, portfolio data, and targeted case studies/impact assessments
1.a. Document and share learnings with investees, investors, and industry peers
1.b. Encourage knowledge exchange among investees to facilitate the adoption of best practice
2. Selecting metrics that matter to our investees and where possible aligning them with IRIS Standards
2.a. Invest in the data collection and reporting capacity of our investees
2.b. Provide feedback to IRIS regarding our experiences with implementation
3. Tackling the difficult yet pressing question of how to quantify GP’s contribution to downstream impact
3.a. Engage in frequent dialogue with other ecosystem actors who are tacking this same question
3.b. Be more explicit about the logic and assumptions behind our measurement approach
What does Global Partnerships need from the sector to make this happen?
- Consolidation and sharing of the evidence base
- Collective investment in the measurement and evaluation capacity of small and growing businesses
- Development of information systems and technologies that facilitate accurate, easy, and efficient data collection in often remote locations
Walking away from the conference I was both energized and hopeful about what we as a sector can accomplish in our efforts to create more value through our impact measurement efforts. I look forward to ongoing exchanges and partnership opportunities that may emerge through our activity in the ANDE network. Stay tuned for updates!
Solidarity is the key to growth: Visiting a village bank in Nicaragua
by Norma Montenegro Pentzke, administrative coordinator, Global Partnerships
I’ve always believed that helping others is one of the best ways to grow as a person. On a recent field visit to a village bank affiliated with Pro Mujer in Nicaragua, a microfinance institution (MFI) and partner of Global Partnerships (GP), I saw the real power of solidarity in action.
The women at the village bank we visited in Masaya, Nicaragua did not hesitate, not even for a moment, to support one of their members, who was sick and needed surgery. During the meeting, they helped her with money from their own savings, as well as made payments on their own loans. It’s impressive to see how they shared from the little they had. This is the real meaning of solidarity.
I learned that, by supporting their colleagues in need, they actually help themselves too, by giving confidence to the MFI’s and investors, on the trust of their compliance in honoring their debts.
This spirit of solidarity is what makes group credit work. It is amazing to see how these women help themselves by helping others, perhaps without even realizing the true impact of their kindness. Solidarity is their warranty and it is the value of their word when they do not have many material assets, but too many needs.
With the village bank approach, it is not an individual’s capacity to pay that the MFI values, but the group’s payment capacity. This group credit approach allows more women to have access to credit products, and greater amounts that fulfill their needs and help them to develop, or improve their business, generating for them and their families a better quality of life.
It is just amazing to see the impact that solidarity causes in the life of people, far more than they could even imagine!
World Environment Day 2014: How climate change affects the poor and why it matters
In recognition of the United Nations’ World Environment Day (June 5), we take a look at how climate change affects the poor.
“Without the coffee, [the farmers] would have to sell their land,” Alvaro Gomez Ferreto told us during his recent visit to our Seattle office. “They need to sell coffee to generate revenue.”
Mr. Gomez is the general manager of Coocafe, a coffee cooperative in Costa Rica. Unfortunately, Costa Rica is one of the countries that has been hardest hit by Coffee Leaf Rust. It’s a disease that kills off coffee plants’ leaves, crippling their ability to produce coffee cherries and in many cases, killing the entire plant.
Coffee Leaf Rust has devastated smallholder coffee farmers throughout Central America and parts of South America; it’s estimated that 500,000 coffee-related jobs and $1 billion in revenue have been lost. But as terrible as this disease is, many believe that its effects were exacerbated by an even larger threat: climate change.
Climate change's impact on smallholder farmers
In recent months, there have been many reports detailing the effects of climate change, including changing weather patterns. For coffee farmers, that has meant higher-than-average rainfall, which is believed to have spread the Coffee Leaf Rust’s spores and caused them to multiply. This is just one example of how the poor will pay heavy consequences for damage to the climate.
Another example is how poor countries are less equipped to deal with extreme weather events, such as super storms and droughts. “The world’s poorest regions […] have the least economic, institutional, scientific and technical capacity to cope and adapt,” says a World Bank Report.
Why it matters
“Poverty reduction and climate change are linked,” said World Bank President Jim Yong Kim last year. “We could witness the rolling back of decades of development gains and force tens of millions more to live in poverty.” We echo his sentiments. It’s for these reasons that Global Partnerships is keeping an eye on the climate change landscape, in addition to political and economic developments.
In the case of Coffee Leaf Rust, we’re currently exploring longer-term loans to partners. Longer-term loans to our partners would facilitate longer-term credit for farmers affected by Coffee Leaf Rust. Farmers would then be able to use that credit to replant their crops with rust-resistant strains of coffee.
To better understand its impact, Global Partnerships joins international network ANDE
What do we mean by impact? We have served over two million people through our partners since our founding in 1994. What does that mean? Are those two million+ individuals no longer poor? Are they better educated? Using solar lights? Have lower rates of diabetes? Earning a stable income? Or all of the above? And if so, how do we get data to prove that impact?
The truth is that we struggle to answer questions about our impact. And we’re not alone in our struggle. Many other organizations face the same challenges. Impact measurement and evaluation are very difficult to accomplish. They have also been popular topics of discussion within the social sector (see here, here and here) as well as at GP (see here, here and here). To learn how to measure and evaluate our impact better, last month we joined the Aspen Network of Development Entrepreneurs (ANDE).
ANDE provides opportunities for its 200+ members (social organizations including Acumen, Skoll Foundation and Root Capital) to discuss strategic challenges and opportunities associated with impact measurement and evaluation*. For example: When is it appropriate for nonprofits to measure their impact? What metrics should we capture? What can we infer from the metrics? These questions and more will undoubtedly come up this week at ANDE’s Metrics from the Ground Up conference. Our Director of Research and Impact Tara Murphy Forde is attending the conference and will share her insights on our blog later this month.
ANDE also provides guidance to its member organizations, helping them develop their strategy for impact measurement and evaluation. Furthermore, ANDE is a partner of the IRIS initiative, a catalog of social performance metrics intended to provide a common framework for impact measurement.
Developing a framework to measure and evaluate GP's impact will be a long and iterative process. But it’s very important that we do it because it will help us understand whether or not we’re making progress toward our mission of expanding opportunity for people living in poverty. Tapping into ANDE’s robust network, resources and knowledge-sharing opportunities will help us get there and do it right. We look forward to keeping you informed of our efforts along the way.
*Improving impact measurement and evaluation is one aspect of ANDE’s programmatic work. ANDE’s broader mission is to propel entrepreneurship in emerging markets as a method of eradicating poverty. “ANDE members provide critical financial, education, and business support services to small and growing business (SGB’s) based on the conviction that SGB’s will create jobs, stimulate long-term economic growth, and produce environmental and social benefits.” Learn more at aspeninstitute.org/ande.
4 things learned at Mission Investors Exchange
by Jason Henning, VP, Investor & Donor Relations, Global Partnerships
I recently attended the Mission Investors Exchange 2014 National Conference, a gathering of foundations and others in the philanthropic community focused on sharing insights and experiences around investing for social impact.
This is the third MIE I’ve attended, and one particularly encouraging trend I’ve observed is this: foundations are moving off the sidelines. They are going beyond educating themselves on program and mission-related investments, to exploring opportunities that can enable them to acquire firsthand experience. Over three days of smart, substantive conversations, here are four of the most compelling insights I heard:
1. “The capital markets are great at scaling things, but not at pioneering.”
- Kat Taylor, CEO, One PacificCoast Bank
While microfinance has been heralded around the world as a successful example of a market-sustained approach to alleviating poverty, most people forget the sector was originally nurtured with billions in philanthropic support. Foundations, with a range of capital at their disposal, can play a vital role in testing and proving early stage opportunities that have enormous potential.
Similar to point #1, most of the capital stacking up in the impact investing sector is seeking risk-adjusted market rate returns. The problem is there aren’t enough impact-generating opportunities to match this type of capital. What’s truly needed in the field are investors willing to take bets on emerging, disruptive business models that have the potential to scale and reach millions of people living in poverty. Or more appetite for opportunities that focus on underserved, last-mile communities, understanding that the economics of serving these communities don’t lend themselves to high financial returns.
The inference here is that “intermediaries” does not fully describe the value these actors bring to the impact investing space. Fund managers and other intermediaries provide sector expertise, lower risk for investors, manage strong networks along specific value chains, hold the capacity for impact measurement, and provide investors broad exposure to market innovation. A recent Alliance magazine article reinforces this concept, pointing out the need for intermediaries (e.g. nonprofit impact investors like GP) because of the added value they offer by way of “human capital” (e.g. staff time/expertise to provide social organizations with technical assistance in addition to financial capital).
4. “Foundations can provide much more than an investment.”
Foundations can deliver much more beyond investment capital. Foundations provide accountability to their investees, can serve as partners in the development of social metrics, offer legitimacy for new intermediaries, provide trust-based introductions to other investors, and can collaborate in fund structure development.
Foundations are playing an instrumental role in growing the impact investment sector, from capacity-building grants to deploying a broad range of capital directly, and through funds. And the Mission Investor Exchange is at the forefront of helping those foundations develop the financial and educational tools they need to align more capital with mission.
Why does this matter?
Foundations, investors and intermediaries each have unique opportunities to help grow the impact investing sector and generate more social impact.
Foundations can fund risky early-stage opportunities as well as grow the networks and institutions needed to advance the sector. Investors can seek opportunities that prioritize impact over returns. Intermediaries can continue proving that they can provide value beyond financial capital.
Each opportunity and each actor’s potential to meet the need complements one another; through continued collaboration, we have a tremendous opportunity to achieve collective impact.