Category Archives: Investment

The Indian Impact Investor Council – A Regulatory Body to Set Norms for Impact Investment

impact investment india

Nine entities involved in the Indian impact investment landscape (i.e. picking up equity stakes in businesses that aim at both financial and social returns) have recently come together to form the Indian Impact Investor Council (IIIC).

Why Regulate Impact Investment?

The IIIC justifies the need of a central regulatory body by giving the example of the derailing of the microfinance industry in India three years ago. Between 2006 and 2010, various funds from venture capital and private equity poured into the Indian microfinance industry. This resulted in tremendous pressure to grow and caused companies to commit excesses and indiscretions while dealing with their underprivileged and impoverished borrowers. Vineet Rai, Managing Director of Aavishkaar Fund, one of the body’s founding members, states that “Microfinance did not have a self-regulatory body. We’ve seen the problems. Being accountable is a good thing, especially being accountable to ourselves.” and “The need for a self-regulatory organisation came from the experience of microfinance”.

Objectives

The group’s objective is to define what impact investors can and cannot do in their investment practices. They are looking to organise impact investing in India in terms of both philosophy and structure and hope to increase the number of their members from the initial 9 to 30 by the end of the year.

In the current stage, IIIC members are still debating the standards and expect to take another year to finalise them. Several questions have not fully been answered yet such as: how to measure social impact, is it possible to have only one definition, which sectors qualify for impact investments, what should the minimum holding period be, etc. According to Sandeep Farias, Managing Director of Elevar Equity, which manages $94 million under two impact investing funds, states “We will be looking who really qualifies to be in this space as there are so many players today”. Rai further elaborates “We are looking at the economics of impact”. Their definition of an impact fund states that 100% of the portfolio needs to deal with low income.

Members

IIIC will initially consist of nine members, including Aavishkaar, Elevar Equity and Unilazer Ventures, Omidyar and the family office of Ronnie Screwvala. The list of potential members contains large developmental financial institutions such as DFID, IFC and USAID and initial feedback is very positive. Anil Sinha, regional head, advisory services, South Asia, IFC sais “We will come in. No harm in supporting the council. It’s a good idea.”

However, the members need to be aware of potential problems. Harold Rosen, CEO of US-based Grassroots Business Fund, an impact-investing fund, warns that running a self-regulatory body like the IIIC can be highly complicated. The biggest concern he articulates is that it may be very difficult to prescribe general practices that all players are willing to accept.

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ADB invests in Simpa Networks to Provide Rural India with Energy

light

By 2015, Simpa Networks’ pay-as-you-go solar energy solution is bound to provide more than 60,000 household in rural India with better access to electricity. Supported by a $2 million equity investment by the Asian Development Bank (ADB), the company will offer an affordable clean energy solution to the underserved and underprivileged consumers in India.

Simpa Networks

The company’s mission is “to make modern energy simple, affordable, and accessible for everyone.” In order to achieve this goal, the company introduced a business model that will make sustainable energy choices affordable to the poor.

How it Works

Simpa’s pricing model is highly innovative and called Progressive Purchase. Customers make a small initial down payment for the solar system and then pre-pay for their future energy service. They can conveniently top up their systems in small user-defined increments via a m obile phone. Each of these payments also adds towards their final purchase price. Once the purchase price has fully been paid, the system unlocks permanently and continues to produce electricity without the need of any further payments.

The Importance of Energy Access

Today, there are approximately 1.6 billion people with no access to electricity and another 1 billion with only very unreliable access. Without this access, the poor depend on battery powered flashlights or kerosene lanterns for light and are unable to break the cycle of poverty as they are unable to take advantage of the numerous productive uses of energy. In addition, kerosene light comes with high operating costs, poor light quality and dangers to health and home.

Access to energy is therefore essential for every family’s economic livelihood, safety, health, educational achievement, and overall quality of life.

ADB’s Motivation to Invest

ADB hopes that the success of Simpa Networks could lead to increased venture capital funding for sustainable business models that deliver goods and services to those at the bottom of the economic pyramid.

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Oxfam Launches Fund to Support Impact Investment in the Developing World

The so called Small Enterprise Impact Investing Fund, a joint initiative of Oxfam, the City of London Corporation and Symbiotics, a Swiss micro-finance specialist, announced its first investment last week; a $1m loan to Xac Leasing, a Mongolia based machinery leasing company. According to Oxfam, lending to Xac Leasing fits the fund’s mandate of investing in financial intermediaries supporting small and medium-sized businesses in Asia and Africa. Xac Leasing LLC currently lends to approximately 260 small-medium enterprises. The venture’s business model is also in line with the Social Enterprise Investment Fund’s requirements, as it includes both social and environmental considerations in its lease appraisal process.

The fund’s managers hope that the fund, which was able to attract capital from both private and institutional investors, will be worth $100m within three years. They want to use the money to invest in initiatives that can offer both a financial and social return for small and medium-sized ventures in the developing world. Oxfam’s role within this fund will be to measure the impact of the fund’s investments.

“We are determined to prove to the investment industry that its scale and influence means it could play a significant role in eradicating poverty,” said Dame Barbara Stocking, chief executive of Oxfam. The charity hopes that this effort can successfully make impact investment a mainstream investment product and will be recognised by the sector as a serious tool that allows financial and social impact. The partnering corporations saw the need of the so called ‘missing middle’, consisting of the countless small businesses in developing markets that have great potential to thrive but are stifled by limited access to credit. To summarise the funds value to investors, Mark Boleat, policy chairman of the City of London Corporation said ”This fund is an innovative model that enables private sector investors to make a measurable social impact at a comparatively low risk to their financial returns.”

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Acumen Fund Expands its Education Porfolio and Invests in Edubridge Learning

Photo: Acumen Fund

The Acumen Fund, a pioneering non-profit global venture fund addressing poverty across South Asia and Africa, recently announced a new investment. In July, it invested INR 1.5 Crore ($300,000) in Edubridge Learning Private Limited.

Acumen Fund – Expanding its Education Portfolio

This equity investment is another initiative of the Acumen Fund’s recently launched Education Portfolio, which aims to support private sector innovations that have the potential to increase access to low-cost, high-quality learning and employability services for the poor. This latest investment seeks to support the development of early stage companies that focus on meeting the need of low-income market segments.

With India’s education system struggling to meet the needs of a growing population, Acumen Fund mad it one of its goals to fight unemployment and increase employability. It recently invested in Hippocampus Learning Centres, which provide pre-school and primary education coaching in rural India. Acumen’s latest investment in the Education Portfolio brings it one step closer to its goal of impacting the lives of 150 million people by 2015. Ankur Shah, Interim Director of Acumen Fund India explains the focus on education as follows “It is clear that education offers one of the most viable pathways out of poverty, but there is room for much more innovation in how we ensure learning remains effective and relevant to employment”.

Edubridge – Company Profile

Based in Mumbai, Edubridge is still an early stage company and provides vocational skills training for low income youth across Maharashtra, Tamil Nadu, Karnataka, and Chhattisgarh. It is considered to possess great potential to significantly alter the landscape of opportunities for rural youth in India. The company seeks to address the lack of opportunity and simultaneous need for skilled labour in India by training rural youth and placing them in entry-level positions in different corporate sectors. So far, Edubridge has trained over 1,500 students and plans to further scale its services from currently 12 to 30 centres over the next 2 years.

Edubridge Founder Girish Singhania sais about the company “Edubridge’s goal is to fundamentally address the employability gap within India…By training these rural youth we are enabling them and their families to have a better future, while simultaneously improving the labour pool within India.”

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New microfinance scheme launched in Hong Kong

On June 29, the Hong Kong Monetary Authority (HKMA) introduced a new microfinance scheme. It will be run by the Hong Kong Mortgage Corporation (HKMC) in collaboration with various non-government organisations and six banks and is aimed at extending both loans and ancillary support facilities to borrowers in Hong Kong. The pilot period is three years and the maximum total loan amount will initially be capped at HK$100 million.

Borrowers will be able to choose from loans in three categories: for business start-ups, for self-employed people and for people looking for finance training or other professional certification schemes. Interest rates of the loans are capped at 9% a year for the general borrower and at 8% a year for those that provide a third-party guarantee.

The scheme was introduced based on findings by a joint HKMA and HKMC study group. They showed that while initial funding requirements for start-ups in Hong Kong is not necessarily substantial, start-ups often struggle in borrowing enough from traditional financing channels to realise their full development potential. The study also found that three microfinance schemes already exist in Hong Kong. However, their impact is considered limited, mainly due to limitations on funding and the consequential need to be very selective in picking borrowers.

Based on these findings the study suggested to introduce a self-sustaining new scheme, that requires borrowers to come up with credible business plans in order to avoid operating as a ‘social welfare hand-out’.

Three of the currently six banks involved in the scheme are already accepting applications, while the remaining three will begin taking applications later this year once the necessary systems and operational arrangements are in place.

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The struggle to finance social enterprises

Social entrepreneurs often face fundamental difficulties in raising finance to bring their ventures to life. Should they be a charity and seek donations or a business and look for commercial funding? The problem they are facing is that donors prefer to give money to charities, not profit-making businesses. At the same time, commercial funders often don’t offer financing terms that social enterprises can meet.

Social enterprises, driven by a social mission, often don’t have a stable, long term source of finance and commercial investors neither understand nor trust them. They often believe that ‘social’ equals ‘soft’ and is nothing but a polite word for ‘loss-making’. This results in a situation in which social entrepreneurs find themselves falling between charitable and commercial funding, not appealing to either. The current financial system simply doesn’t seem to be designed to meet the needs of such hybrid organisations that are businesses serving a social mission.

In response to this dilemma, social entrepreneurs learned to help themselves and invented their own solutions. One example is Faisel Rahman, the Co-Founder and CEO of Fair Finance, a social enterprise offering affordable personal loans and debt advice to individuals who would otherwise be wholly excluded from the mainstream banking system. The problem Fair Finance was facing was that the organisation wasn’t set up to raise equity and couldn’t offer the kind of financial returns most venture capitalists would be looking for. With the support of organisations such as Ashoka, Fair Finance was eventually able to find socially-minded investors to invest in their business model, raising over £1m.

Financial instruments like Fair Finance are just the start. New funders and institutions are increasingly addressing this emerging market for socially mission driven businesses. Many come from a philanthropic background, others include businesses such as CAF Venturesome and SharedImpact. In addition, new forms of fundraising, such as crowdsourcing, where social enterprises can aggregate donations and micro-investments from large numbers of supporters via online platforms (such as Kickstarter and Buzzbnk), are almost springing up on a daily basis.

However, this is just the start – more is needed. Corporate organisations with deep pools of financial and business expertise can play an invaluable role, utilising their skills to help social entrepreneurs develop new sustainable business models and find the funding to support them. Some of the most forward thinking organisations so far include Deloitte which has launched Social Innovation Pioneers, under which its consultants provide pro bono strategic advice to 50 social ventures. Another example is Accenture which runs Accenture Development Partners, which works with socially engaged organisations to come up with sustainable business solutions.

With more and more organistions following the trend, it will be extremely interesting to see how this sector will develop from here!

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Singapore about to launch a social enterprise stock exchange

The ultimate dream for impact investors and social enterprises is to have a stock exchange aimed solely at mission-driven companies. However, this is very difficult to pull off as it requires a critical mass of investors and stock-exchange ready companies. Furthermore, there are several regulatory and technology-related hurdles to overcome.

Former social entrepreneur Dureen Shahnaz, who launched Impact Partners, a private marketplace that connects accredited investors with social enterprises, faced the challenge and is about to launch a social enterprise stock exchange in Singapore. It will be a public stock exchange for social enterprises called Impact Investment Exchange Asia (IIXA) and is scheduled to launch at the forum Igniting Capital Markets for Social Good on 25-26 June in Singapore.

As Singapore regulators insist that the exchange will not be open to retail, it will initially only be for accredited investors. Companies have to meet social, financial and general listing criteria, such as having a social and/or environmental goal as their main focus. All trading will take place online through an established partnership with PhillipCapital Group, the largest brokerage firm in Southeast Asia.

IIX will not be the only marketplace aimed at social enterprises. There is also Social Venture Exchange in Ontario, which links investors with social enterprises and Mission Markets in New York, which aims to build a hub linking stock exchanges globally.

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