Social finance

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I'm excited about the prospects of using private financial capital to fund impactful initiatives in areas that would in most cases be to risky. This can be done by seeing the high-risk areas a place for R & D, CSR, or a way to mitigate reputational risk. The problem is its complex.
There are a couple examples here about trying to make this vision a bit simpler to understand without lying through simplistic propositions.

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  • Social finance

    1. 1. Impact Investing? Venture Philanthropy? Social Finance? Patrick Keenan me@patrickkeenan.me Slides from: Acumen Fund Arthur Wood Hope Consulting
    2. 2. The Spectrum of Social Capital Investment - created in 1888 / 1944 – “essentially pre modern capitalism” – the Gap no financial return below market return market return High risk Low risk Grants $400bn 50% Programme-related investments Venture philanthropy Mainstream “For Profit” Investments Investment plus Social Responsible Investment circa $4trn Corporate Engagement incl CSR ” NO INDIVIDUAL OR SYSTEM MECHANISMS – THE GAP
    3. 3. Value Chain Financing – Sanitation Grants Recoverable Grants Investment Plus Mainstream Investments no financial return below market return market return Scale (GAVI) & Synthetic Profit (Corporate incentive) Increase the credit quality of social capital markets ie. Leveraging - Microfinance / DB Eye fund model Incentivising Innovation / Collaboration at the bottom of the pyramid – Social Entrepreneurship Enables a Range of Financing options; incentivising corporates, banks, civil society; integrating “ for profit” and “not for profit” players Based on “Foundations and Social Investment” Margaret Bolton 2005 and Bates Wells & Braithwaite Legal Process – ie L3C / CIC Financing Mechanisms incentivising Community and Corporates Carbon / Vouchers / Fertiliser / Power Programme Related Investment
    4. 4. WHAT DO I DO IF I AM A BANK OR GOVERNMENT ? Paul Martin - Former PM of Canada “The question I would put to you is quite simple” – Nov 2007 “If we are prepared to use these kinds of (tax / legislative) incentives to enable business entrepreneurs to tap capital markets for the betterment of the economy, why would we not provide similar incentives to social entrepreneurs as they seek to tap capital markets for the betterment of society. • Financial experts ought to be developing new cutting edge instruments to make funding available to social entrepreneurs • Tax experts ought to be thinking about mechanisms that can support social enterprise in a meaningful way. • Legislators should encourage an environment that allows foundations to become more imaginative in support of social enterprise”.
    5. 5. 55 Patient Capital for long term social impact Financial return expectation No return Traditional venture capital Maximize financial return Maximize Social impact expectation No explicit concern Maximize Capital only Traditional philanthropy Maximize social impact Patient Capital Blending social and financial returns for long-term social impact
    6. 6. 66 Early stage Scale up Exit at Scale Recycle returns We invest money and time to grow real businesses that alleviate poverty, and then recycle our returns 8-10 years Invest grant funds in start up equity or debt Grow businesses focused on social impact and sustainability Recycle returns into more businesses 1 2 3
    7. 7. 77 An investment in water delivery… • PROBLEM Government policy of free water has failed • SOLUTION WHI sells affordable clean water – Innovative technology works with unreliable power – Costs covered by user fees + local govt subsidies – Started with 1 plant in Andhra Pradesh, India in ‘05 • INVESTMENT Acumen Fund investment in 2004: – $675k equity + $2M in subsequent loan guarantees – Hands on management support to launch business • IMPACT By end-2009, WHI had: – 286 plants serving ~300k customers – 220 more plants on order by State government – Raised $22M in follow-on equity and $24M in commercial debt facilities
    8. 8. 88 …is catalyzing an entire industry to serve the poor 0 100 200 300 400 500 600 700 800 900 1,000 2004 2005 2006 2007 2008 2009 Others BV Naandi WHI Number of private rural water plants in India WHI and Naandi start JV • Over 700 plants inspired by the WHI model • ~900 plants serving ~ 1M people across India • State governments now passing legislation to enable large scale replication Private sector replacing the public
    9. 9. The process FIND Amazing Entrepreneurs SCREEN Breakthrough Idea, Sustainability & Impact INVEST $, Expertise & Patience ∞IMPACT LIVES CHANGED Unleashing a person’s full potential = infinite growth SUSTAINABILITY Businesses that keep on going and going; Returns are recycled SCALE Shifting mindsets, catalyzing a sector, public sector partnerships, inspiring others to do the impossible DONOR
    10. 10. Value Chain Financing – Sanitation Grants Recoverable Grants Investment Plus Mainstream Investments no financial return below market return market return Scale (GAVI) & Synthetic Profit (Corporate incentive) Increase the credit quality of social capital markets ie. Leveraging - Microfinance / DB Eye fund model Incentivising Innovation / Collaboration at the bottom of the pyramid – Social Entrepreneurship Enables a Range of Financing options; incentivising corporates, banks, civil society; integrating “ for profit” and “not for profit” players Based on “Foundations and Social Investment” Margaret Bolton 2005 and Bates Wells & Braithwaite Legal Process – ie L3C / CIC Financing Mechanisms incentivising Community and Corporates Carbon / Vouchers / Fertiliser / Power Programme Related Investment
    11. 11. Thanks! Patrick Keenan me@patrickkeenan.me Slides from: Acumen Fund Arthur Wood Hope Consulting

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