What’s the Challenge in Getting Solar Technology to Poor Families?
by Danny Stokley, Green Technology Fund Program Officer, Global Partnerships
“I’m sorry,” offers Alicia, the co-founder and president of Buen Power, a social enterprise that sells solar products in off-grid communities surrounding Cusco, Peru, “We don’t have any more of that model in stock.” Francisco, a farmer from Acchauata, has hiked for two hours, and then taken a two hour bus to reach the Buen Power office in Cusco, essentially dedicating a full day just to buy two d.light products. Unfortunately, due to the challenges of a global supply chain, Buen Power has just sold out of the model Francisco is requesting. This is not just bad for business; it’s heartbreaking for Francisco and the families who would benefit from this technology.
Francisco is part of a network of entrepreneurs who buy small solar lights from Buen Power and resell them in their home communities. Buen Power is a small, entrepreneurial, mission-oriented social enterprise. They spend a great deal of time working in off-grid communities and finding creative ways to reach the most remote villages with solar energy. Buen Power is connected with many of the industry leading manufacturers of affordable off-grid solar products, and have developed an innovative last-mile distribution network (i.e. distribution to those who live in the most remote, rural regions). Still, they struggle to find the working capital to keep up with demand.
THE CHALLENGE: LACK OF WORKING CAPITAL
One of the main challenges for social enterprises, like Buen Power, who are trying to reach the most remote populations with solar lamps, is the lack of working capital available to purchase products. It’s really that simple. The smaller, more affordable solar products are usually manufactured in China, and importers often have to pay in full before they ship. In addition, the largest manufacturers prefer to work with importers that can place orders for a full container (typically $100k and up). This means distributors have to invest large amounts of capital 3-4 months before they even have a product to sell which presents a major challenge for startup social enterprises, particularly those who work with more remote populations.
DEMAND IS THERE; THE INVENTORY IS NOT
The most troubling part of this is that the demand, typically the biggest obstacle when selling products to poor customers, is strong. Replacing kerosene with solar light is an obvious improvement that most off-grid families immediately recognize. At the end of the day these products are practical for families – helping them lift themselves out of poverty by extending their work day and study time while also saving them money. One thing is for sure – if someone is willing to travel for an entire day to buy a product with such enormous social impact, we must find a way to keep up with inventory.
CAPITAL CONSTRAINTS ACROSS THE VALUE CHAIN
Our research has shown that capital constraints hinder all levels of the solar light value chain, and I got a chance to witness this first hand in Peru last month. From manufacturers that are reluctant to offer credit to importers to last-mile resellers like Francisco who could sell many more lights with access to a small loan, lack of working capital sector-wide is a recurring theme. To address this challenge, we are currently in discussions with manufacturers, distributors, and microfinance institutions involved in the supply chain, and are committed to leveraging GP funds to increase access to solar lighting products that have the potential to change lives.
Could Social Impact Bonds Be Used to Capitalize Preventive Health Care Solutions in Latin America?
by Lara Diaconu, vice president, Health Services Fund, Global Partnerships
Social impact bonds (SIBs) are an emerging impact investment vehicle that enables governments to innovate in the prevention of costly social ills. The way it works is that impact investors (i.e. foundations and high net worth individuals) receive a return linked to clearly defined program results. Social impact bonds have to date been devised to finance interventions that reduce recidivism rates, teenage pregnancy rates, juvenile delinquency, and to increase employability of students.
In early October, the US Department of Labor announced $24 million in grant awards to pilot SIBs to increase employment and reduce recidivism among formerly incarcerated individuals in Massachusetts and New York. And at the IDB’s annual FOROMIC conference last week in Guadalajara, Mexico, experiences were shared from the UK and Colombia. Despite relatively recent reports that remain skeptical about their efficacy noting that it’s too early to see results, SIBs seem to be gradually gaining in popularity as a means for the public sector to encourage funding innovation for social impact – using more risk-tolerant sources of capital.
On the surface, it would seem that there could be lot of potential for SIBs to work in the health sector as well. We know that investing in prevention (like PAP exams to detect cervical cancer) and behavior change (replacing sugary drinks with water, eating healthier, getting more exercise) can reduce the incidence of cancer and diabetes. We know that the overall costs of care decreases, and quality of life increases, when those living with chronic conditions receive maintenance care from a primary level health care provider instead of waiting until their condition deteriorates so much that they require hospitalization.
Could SIBs be used to capitalize preventive health care solutions in Latin America?
A couple of initial thoughts:
- In many countries, the public sector does not currently absorb the long term cost of health care, so the economic incentive to invest in prevention might not yet be clear. Across Latin America governments are struggling to finance the most basic health infrastructure, and budgets may not be bearing the burden of preventable conditions such as cervical cancer or diabetes. The costs of not getting an annual PAP exam, or of consuming foods high in fat and sugar, is currently being borne directly by individuals, who incur exorbitant costs treating chronic conditions diagnosed in a later stage. At least this is the case for the large majority of people working in the informal sector with no insurance coverage.
- Many health prevention interventions are largely proven, but lack the resources and distribution channel to reach the last mile. SIBs might be an option if the public sector in fact has the mandate and resources allocated to address a given preventable condition (for example cervical cancer), but decide to take a risk on a lower cost distribution channel (like a microfinance institution, or a non-profit organization).
In reflecting on my time at the FOROMIC conference, I see many possibilities and I look forward to learning more as the sector grows. Social impact bonds appear to have some supporters, but the jury is still out on whether or not they’ll have an impact.
Beyond Strategy and Vision: Let’s Create Opportunity
By Gregg S. Johnson, board member, Global Partnerships
As we approach our 20th anniversary in 2014, we’re beginning to craft our vision for the future as a nonprofit impact investor. Recently, I’ve been fortunate enough to participate in several strategic planning sessions at Global Partnerships (GP). It’s a delight to work with my fellow board members and the GP team as we consider all facets of our work, think about bold ideas and wrestle with the strategic choices before us. We’re using a three-pronged approach to inform where we’re headed and where we want to go. Simply stated, we:
1. LOOK: Our vision must be informed by looking at the broader landscape and context of the world around us. Global development is constantly being shaped by forces and trends that influence the solutions we pursue and goals that we set. From climate change to the role of information communications technologies (ICT), to the maturation of microfinance as a viable and readily capitalized channel we must understand the effects these forces and trends have on the direction we’re headed and the role we wish to play as leaders.
2. LISTEN: We listen to industry thought leaders, but most importantly we listen to the people that have the closest relationships with the people we serve: our partners. Our teams in Managua and Seattle gather information, insights and knowledge about the needs, challenges and conditions that impact our partners and the borrowers they serve. Listening to what our partners tell us, we’re able to understand and co-create solutions that we can then invest in for testing, sustaining or scaling up. We also talk to our peers and other leaders in the space; drawing wisdom from their years of experience. We don’t want to reinvent anything. We just want to reflect and refine in order to achieve our collective goal of creating opportunity for people living in poverty.
3. LEARN: We’ve learned a lot over the past 20 years. We’ve learned that integrated services coupled with access to capital and delivered through existing channels like microfinance organizations and cooperatives can have a deeper, longer-lasting impact. We’ve learned that grant capital is needed to catalyze innovative, market-sustained solutions. And that taking risks is easier said than done. Some will join us on the journey and others will not. We’re learning about that, too.
I can’t help but get excited at the amazing work we’ve done, but I’m even more excited about the new opportunities before us. Looking, listening and learning is embedded in our work and helps us improve and continually strive to become a better organization. It’s not easy work and it takes time. But at the end of the day, our goal is to create opportunity no matter how hard it is or how long it takes. As the authors of a recent Stanford Social Innovation Review article say:
In the coming few months, we’ll be finalizing our strategic plan and vision for the future. We look forward to sharing it with you so, be sure to watch this space and if you haven’t already, please subscribe to our blog. Sharing and staying informed of our work is a great way to help make a difference.
Light Up Hope on October 8
We hope you'll join us for this year's Business of Hope Luncheon (BOH) on October 8, which will highlight our early-stage Green Technology (GreenTech) work. Your attendance will help support our GreenTech work, which aims to connect families that live in rural, un-electrified areas, with access to affordable, renewable energy solutions, such as solar technologies.
Currently, our GreenTech initiative includes new investments in social enterprise partners in Honduras and Nicaragua; our partners have developed business models that allow rural families to purchase affordable solar solutions. Solar technologies have the potential to help increase family incomes, boost educational achievement, improve health, and reduce negative impacts on the environment.
Our BOH guest speaker, Florinda Salinas, is an example of the benefits that solar technologies can offer (her story is below). Please click here to learn more about or register for BOH. Jane Stonecipher, a GP board member and BOH event co-chair, would also like to share with you 3 reasons to attend BOH (click to watch).
Meet Florinda Salinas, this year's featured BOH guest speaker
A pile of utility poles lay on the ground one block from Florinda Salinas’ house in rural Santo Domingo, Honduras. They have been there for months, maybe even years. Florinda explains that the poles are intended for an electrical expansion project that will connect her town to the nearest energy grid. She then laughs and says, “I will believe it when I actually see light bulbs glowing in town.” Electricity will not be coming to Santo Domingo any time soon.
Roughly 1.4 million people, or 40 percent, of Hondurans living in rural areas do not have access to a reliable and affordable source of electricity. This means not having enough light to work or study at night, spending limited and often unstable income on expensive and unhealthy sources of energy such as kerosene, and difficulty charging electronics like cell phones to conduct business or keep in touch with loved ones. Through hard work, Florinda qualified to receive a loan to buy a solar home system through Global Partnerships’ (GP) partner, COMIXMUL, a cooperative that provides women with savings and credit products and access to health services/education and green technologies.
With the solar home system, Florinda and her husband Oscar save money on kerosene costs and can continue weaving hammocks after dusk; the Salinas’ hammock business is their main source of income, so maximizing work hours is critical. They can also charge their cell phone, which they use to communicate with their wholesale hammock buyer and keep in touch with their eldest son, who is studying on scholarship in Tegucigalpa, a city over 100 miles away.
Additionally, their younger sons, Edras (8), Edson (10), Lester (15) and Eric (17) can now study under bright solar powered lights. Florinda, who only attended school until the sixth grade, is certain that education is the key to her sons’ success. “I want my kids to become professionals. I don’t want them making hammocks. I want a better life for them,” and having the solar home system helps light the way forward.
3 Developments Point to Next Era of Impact Investing
Some of the latest developments in the impact investing field point to a trend that is increasingly gaining steam: impact investing 1.0 is coming to a close and version 2.0 is here. The evolution includes a shift in conversation from defining “who” impact investors are and “what” we do, to how we do it to create impact, and how we will define and measure that impact. This evolution to the next stage requires: a framework by which investors can more easily decide where to invest their money; strategies for exits; and cooperation from government and corporations. Here are 3 articles we read recently that expand on this trend in greater detail:
1. A newly-formed Social Impact Investment Taskforce (announced at SOCAP13) will provide recommendations on a policy framework that will “help foster a social investment market” by standardizing (1) how social impact is measured and (2) the methods by which foundations, institutions, and private investors can invest. The taskforce’s members come from high levels of government and foundations in France, Germany, Italy, the U.K. and the U.S, and they aim to present their policy framework within the next 12 months.
2. Sasha Dichter (Acumen) responded to a Stanford Social Innovation Review article about creating impact. Sasha argues that it’s time to shift the conversation to focus on defining and measuring impact, because ultimately "what we care about is whether, how, and why impact investments improve peoples' lives." He says, “Nearly all of the discussion in impact investing currently is focused on the capital-formation end of the value chain: Who is an impact investor? What are returns? And yet the things that matter the most happen at the other end of the value chain, at the level of customers and the enterprises that serve them [...] The [Global Impact Investing Network’s] IRIS taxonomy and its GIIRS ratings system serve as strong foundations for these efforts, but they are just a starting point.”
3. Three insights into the future of impact investing emerged from SOCAP13 that you should know about: (1) the discourse in the impact investing landscape is shifting from “who” constitutes an impact investor and “what” impact investors do, to “how” impact investing can be done in order to achieve both social impact and financial return. (2) Impact investors must address the need for successful exits and provide entrepreneurs with “the appropriate mix of capital—solutions such as royalties, demand dividends, etc.” (3) Capital is not enough; corporations and governments need to also participate.
Impact First? Return First? Hint: It’s Neither
by Jason Henning, director of investor relations, Global Partnerships
It happens more times than I care to admit. I am holding a promising conversation with a potential investor who signals alignment on impact objectives and geography. Timing works, the approval process is shared, and then it happens: we have the rate conversation. It quickly becomes very clear that our fund’s pricing does not match the investor’s fiduciary priority of maximizing returns.
For years now, an “impact first” vs. “return first” debate has played out within the industry. The former argument holds that below-market rates are required to truly achieve high social impact in poor, underserved markets. Those who subscribe to the latter believe that market rates of return are necessary to attract large pools of capital into the field.
To me, the problem with this debate is that it holds the investor as the central actor in the story, and suggests that we in the industry are structuring funds based on the return expectations of investors. As a nonprofit impact investor, Global Partnerships builds its programs – and by extension, its pricing and capital type – around the needs of clients.
Since its inception, Global Partnerships has made approximately $100 million in impact investments in over 65 partners, and among our key insights is that most high-performing institutions demonstrate a strong commitment to client satisfaction. We identify a problem to solve – lack of access to health services, poor market access for smallholder farmers – and we tailor our approach, including matching the capital intervention to the needs of those we’re serving. This may mean providing a startup grant to a credit and savings cooperative to launch a market-sustained health program. Or it could mean a low-cost working capital loan to a solar light distributor in an effort to address a bottleneck within the value chain. In each example our approach is driven by the desired outcome, not price expectations on the part of our investors.
A key to our approach is working with mission-aligned partners throughout the process. To ensure exceptional, results-driven social impact, we have created a portfolio of social enterprises with strong commitments to the needs of people living in poverty. And since the inception of our first fund, we have sourced capital from over 100 impact investors who value our funds’ stable, fixed income return as well as the thoughtfulness of our impact areas.
Impact first? Return first? Let’s identify the challenge, put the client first, and build our solutions from there.
Blog Tags: social impact
3 Things Learned at SOCAP13
by Jason Henning, director of investor relations, Global Partnerships
Last week I had the good fortune to attend SOCAP13, an event touted as the “intersection of money and meaning.” Over 1,800 people attended countless plenary sessions, panels, meetings, and receptions that facilitated idea exchanges on impact investing and social enterprise. Below are three of the major themes I took away from this year’s conference:
1. “This is not a sector, it’s a point of view.” – Tim Freundlich, President of ImpactAssets
As impact investing moves mainstream, most within the industry don’t see the approach as an asset class, but rather, a lens through which one views all asset allocation. There are a growing number of individuals, foundations and family offices that are all aligning 100% of their balance sheets on mission, and they were well represented at this year’s event.
2. Impact investing 2.0
Jed Emerson, Cathy Clark and Ben Thornley previewed their upcoming case studies focused on 13 high-performing investors. In what they coin “Impact Investing 2.0,” they see a maturing landscape of different stripes of capital with various motivations being managed by dynamic, cross-disciplinary fund managers. The trio also put a rest to the “impact first vs. finance first” debate by declaring “It’s mission first. And last.”
3. Deals are getting done
In a recent JP Morgan/GIIN impact investor survey, a “shortage of high quality investment opportunities” was cited as the second largest barrier to growth within the impact investment industry. But at SOCAP, there was no shortage of strong teams representing high-impact funds meeting difficult social challenges, from fresh food finance to aquaculture to investing in women. And the investors – from individuals to foundations to development banks – were in attendance and listening.
GP was represented among the conference's panelists by my colleague Lara Diaconu, vice president, Health Services Fund. She participated on a panel entitled, “Doing Well by Doing Good.” Lara spoke about how different types of capital (such as knowledge, philanthropic and debt capital) are required to meet different health challenges. Please feel free to watch the video recording of the panel.
Lastly, SOCAP has historically served as a welcoming venue to make new announcements. Continuing this tradition, B Lab announced its launch of B Analytics, a platform for measuring, benchmarking and reporting on impact. ImpactAssets followed by trumpeting the creation of Seed Ventures Platform, an online community that seeks to address the market gap in seed stage risk capital by connecting investors with impact entrepreneurs.
Interested in some of the top sessions from SOCAP13? Many of them were recorded and are available here.
Why is Measuring Impact so Complex? Learn More in our Fall Newsletter
There have been many discussions among our peer organizations and leaders in the impact investing community around measuring impact. And you, our supporters, have expressed interest in how we define and measure impact. We listened. So, in this newsletter, we devote all our content around the theme of impact:
Our feature article simplifies our very complex process for defining and measuring success. Read more >
We spoke with our partner, Espoir, to get their perspective on what makes for a successful partnership that delivers impact. Watch the video >
THE ROUND UP
Our Round Up highlights the latest thinking around measurement. Read more >
IMPACT IN ACTION
Inspiring us all, Florinda shares her story on the impact a solar home system has made in the life of her and her family. Read more >
FROM THE FIELD
Read about Jonathan’s work in our Nicaragua office and how we monitor for social impact. Read more >
Lastly, we’d like to invite you to come join us at our Business of Hope Luncheon on Oct. 8, where you’ll hear more about how your support helps create an impact. You can register online by visiting: http://www.globalpartnerships.org/boh
Thanks again for your generous support. As always, we welcome your questions, feedback and ideas. We hope you'll also consider keeping up with our latest news and insights by subscribing to our blog.