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The Promise of Impact Investing


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Harry Hummels, Director - SNS Asset Management N.V. - The Netherlands

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The Promise of Impact Investing

  1. 1. Investing in Liquidity <br /> Financing Basic Needs <br /> for the Bottom of the Pyramid<br />
  2. 2. Content<br />Brief intro SNS REAAL and SNS Asset Management <br />Background & Context Investment in water: <br /> - Why? What’s going on with water?<br />What and how?<br /> - Investment approach SNS REAAL Water Fund<br />Discussion<br />
  3. 3. Company profile and corporate principles<br />SNS REAAL is an innovative retail bank-insurer <br /><ul><li>Total assets around € 103 billion
  4. 4. More than 6.000 full-time employees
  5. 5. 100% Dutch
  6. 6. Strong sustainable labels are ASN Bank and SNS Asset Management</li></ul>Department Asset Management organisation of SNS REAAL, focussed on: <br /><ul><li>institutional investors: pension funds, societal organisations etc.
  7. 7. SNS REAAL: insurance companies and investment funds
  8. 8. Research consultancy for various internal and external funds/clients </li></ul> Focus “sustainability”: sustainability analysis and Social Responsible (sustainable) Investment. <br /> Funds directed on development countries: SNS Institutional Microfinance Fund (one of the largest worldwide), SNS African Agricultural Fund, SNS REAAL Water Fund <br />
  9. 9. Increasing use of water<br />
  10. 10. Lack of liquidity: Thirst for Finance in Water <br />Alarming status: Lack of finance to solve global water problems<br /><ul><li>Large gap of required investments in water & sanitation
  11. 11. Human population growth and the expansion of economic activities:
  12. 12. Increasing use of water
  13. 13. Pollution of existing water resources
  14. 14. Climate Change
  15. 15. change in climate, higher sea level
  16. 16. increase in hydro-meteorological extremes and natural disasters</li></ul>Lack of action<br />Not a good idea!<br />5<br />
  17. 17. Impact: Water Footprint <br /><br />[Hoekstra & Chapagain, 2008]<br />[Hoekstra & Chapagain, 2008]<br />[Hoekstra & Chapagain, 2008]<br />
  18. 18. Water Footprint <br /><br />[Hoekstra & Chapagain, 2008]<br />[Hoekstra & Chapagain, 2008]<br />
  19. 19. Water Footprint <br /><br />[Hoekstra & Chapagain, 2008]<br />
  20. 20. Water Footprint <br /><br />[Hoekstra & Chapagain, 2008]<br />
  21. 21. Finance Landscape<br />Most Development Finance Institutions<br />Focus SNS REAAL Water Fund & SNS Microfinance Fund<br />Source: World Panel on Financing Water Infrastructure, “Camdessus Panel” <br />
  22. 22. Criteria for a sustainable investment structure:Upsacling sustainability towards bankability <br />Principles of bankability<br />Profit (Value creation)<br />Continuity of investments (Stability)<br />Risk management (Predictability)<br />Efficiency (Transaction costs)<br />Reliability & Compliance (Laws and regulation)<br />Trust / Fiduciary role (Safeguarding and prudently handle funds entrusted)<br />Reputation (risk mgmt., distinctive values, CSR)<br />
  23. 23. Our Mission: Using Microfinance for sustainable livelihoods<br />Investments in water and sanitation projects via Microfinance, in order <br />to contribute to poverty alleviation and support building-up a sustainable living<br />in developing and transition countries <br />Investment policy<br />1. Financial criteria: <br /><ul><li> “H2O”-earmarked investments via Micro Finance Institutions (MFIs)
  24. 24. Ø Return about 8%
  25. 25. +/- 7 years payback period</li></ul>2. Sustainability criteria: <br /><ul><li> Investments that lower the “water stress” situation and create up-scaling mechanisms for improved livelihood and basic needs</li></ul>3. Operational criteria<br /><ul><li> Investments via Microfinance Institutions;
  26. 26. Cooperation with reliable & capable partners; outsourcing</li></li></ul><li>Investment scope and themes related to water & sanitation<br />Water Supply (generate, tap and/or furnish (transport) sources of clean drinking water, either for household or business)<br />Water Treatment(collection, treatment, purification, filtration and/or re-use of water (including wastewater) <br />Water Management (collect and/or conserve existing water sources, either by reducing wastage or making its utilization more efficient and/or environmentally friendly and/or sustainable)<br />Water for Agriculture (Irrigation)<br />Sanitation Access (disposal systems that are public or private and hygienically separate human excreta from human contact)<br />Contamination Prevention (of water sources via facilities, systems and/or other infrastructure)<br />Maintenance and Repair (of facilities, infrastructure and/or systems used to provide clean water or access to adequate sanitation)<br />Hydro Power and Alternative Energy (small hydro & green energy of which a substantial portion of the power generated is used to provide access to water and/or sanitation <br />
  27. 27. Water supply/demand worldwide <br />Microfinance-water market matching <br /> Adopted from:;<br />
  28. 28. Water flows, where Money goesImpact of Micro Finance in Water<br />SOCIAL<br />ECONOMICAL<br />ENVIRONMENT<br />HEALTH<br />- Stability due to <br />sustainable / durable<br />water access & sanitation<br />- Time saving due to<br />improved access to water<br />- Affordability<br />- Reduction of conflits<br />- Status & Dignity<br />- Property values<br />- Pollution prevention<br />- Preservation of<br />health and hygiene<br />- Preservation of water<br />resources<br />- Production capacity<br />- Production security<br />- (Cost) Savings<br />- Employment<br />- Resource <br /> effectivenes<br />- Capacity autofinance <br />Integral Approach via Value Chain<br />
  29. 29. Where is the business case?-> Economical Value DriversBased on market reserach South Asia and Sub-Sahara Afrika<br />Finance gap for sanitation: available US$500 million versus gap US$8 billion per year<br />Investment US$1 has leverage effect of US$5-28 due to time savings, <br /> increased productivity, improved health situation,…<br />Additional income of US$200-400/annually per household due to improved water supply<br />Additional income of US$250-285/annually per household due to improved irrigation<br />
  30. 30. Market perspectives “Blue” MF-Credits<br />Annual general demand of Microfinance US$ 135 billion <br />for 70-80 million families; Ø credit &lt; US$ 160,-<br />Of which potential for “Blue Credits” for the poor, based on research (supported by Gates Foundation) in 38 countries in Asia and Sub-Sahara Africa :<br />for next decade: credit need US$12 billion for 125 million clients<br />Other client segments, less poor: US$ 20-50 billion<br />+ demand in other countries, like Central and Eastern Europe, Central Asia, Latin America.<br />
  31. 31. H2O-investment via Microfinance<br />Loan<br />MF Loan<br />Borrower,e.g.<br /><ul><li> Entrepreneur - Community - Individuals </li></ul>MFI<br />Local Bank<br />Repayment<br />Repayment<br />eventually<br />Blending with subsidies / seed money<br />
  32. 32. Example: NGO-MFI “BISWA”, India<br /><ul><li>5 year loan of USD 2 million to BISWA
  33. 33. BISWA on-lends funds to clients for sanitation construction
  34. 34. Cost sanitation circa US$ 100,-
  35. 35. 59,000 sanitation loans Oct.08-Apr.09
  36. 36. Finances 20,000 sanitation loans every 6 months
  37. 37. People below poverty line subsidised by Total Sanitation Campaign</li></li></ul><li>Beyond money only- Microfinance in water & sanitation <br />Stability<br />Safety<br />Dignity<br />Improved organisational and operational capacities<br />Community and kinship development <br />Skill and vocational development <br />Small enterprise management <br />Education and health<br />
  38. 38. Sustainability Criteria <br />Financial criteria <br /><ul><li>Profitability, operational costs, default/Portfolio at risk</li></ul>Legal framework, Governance, Capacity<br /><ul><li>Ensuring compliance, reporting & monitoring, </li></ul> Stakeholder engagement<br />Social criteria <br /><ul><li>Accountability, affordability, equity, gender</li></ul>Environmental criteria<br /><ul><li>Sustaining water- and ecosystems and livelihoods</li></ul>Technology, management & service <br /><ul><li>Appropriate solutions; Fits well into specific situation</li></li></ul><li>Investing in Entrepreneurs &Productsfor BoP market<br />Critical Success Factors<br />Goodentrepreneurship!<br />GoodProducts<br />• Accessible: affordable, spare parts available<br />• Functional: easy to operate, low maintenance costs<br />• Good quality: reliable, easy to distribute <br />• Sustainable: durable, repairable, eco-safe<br />• Manageable: straight forward, controlable<br />• Enabling environment: education, instruction<br />
  39. 39. Example: Investment in entrepreneurfor BoP Tech<br />The “Tulip” Ceramic Water Filter<br /><ul><li> Effective removal bacteria
  40. 40. Selling price: 7,- Euro
  41. 41. Easy to use: simple and robust
  42. 42. Spare parts available: EUR 3,-
  43. 43. Durable: 7000 litres / > 3 years</li></li></ul><li>THE critical factor: Stakeholder Cooperation<br />(Co-)Finance providers<br />Investment types<br /> Project suppliers<br />Loans<br />Renewable promoters<br />Development finance institutions<br />Int. en local banks<br /> Investment Funds<br />(Re)Insurance<br />Export-credit agencies & guarantee providers<br />Companies & associations<br />Equity<br />Construction, engineering and consultancy<br />Enabling environment!<br />Private equity (VC)<br />Equipment manufacturers and suppliers<br />Bonds<br />Guarantees<br />Local banks, MFIs<br />Mezzanine finance<br /> Innovative approaches via: mix soft&hard finance, guarantees, fiscal, control,…<br />Local government, communities<br />Innovative (micro, ecosystem service)<br />NGOs<br />Philantrophic<br />Public & quasi-public<br />
  44. 44. Smart Alliances: some examples<br />Quasi public<br />Private<br />Public<br />DGIS<br /> Micro Water Facility<br />(local) Gvmt.’s<br />Finance:<br />- subsidies<br /> - investments<br />TA, capacity building, control<br />Feasibility<br />
  45. 45. Thank you!<br />Butpleaseremember<br />your H2O Footprint!<br />
  46. 46. Join our partnership<br />The Sustainable Investor<br />Contact person: Kajetan Hetzer; E-mail:<br />
  47. 47. Sustainability Criteria<br />1. Financial Criteria <br />2. Sustainability Criteria on MFIs and projects<br />3. Specific Water Criteria<br />
  48. 48. Integrated approach and customised<br />Adjusted financial elements<br />Appropriate socio-economical finance schemes<br />Cost recovery and payback mechanisms<br />Implementation<br />Community empowerment and local participation <br />Integrated solutions / Integrated Resource Management<br />Appropriate solutions / technologies<br />Cost containment <br />Role local government<br />Decentralisation<br />(Financial) autonomy<br />Transparancy in Public Private Partnership processes<br />Continuity / consistency<br />Role governments and supranational organisations (UN, WB, etc.)<br />Facilitation enabling environment (seed money, “soft ware”, guarantees)<br />Risk reduction/mitigation<br />
  49. 49. “Hockey stick” towards sustainability<br />Maintenance <br />Performance<br />Internal reforms service oriented<br />Improved institutionalisation<br />Stabilisation<br />Decentralisation authorities and increasing accountability<br />Improved client service <br />Improvement management, financial and staff capacity<br />Time<br />Support necessary for upscaling<br />Kingdom 2004<br />
  50. 50. Bottlenecks for investments<br />Complex project profile: <br /><ul><li>High risk versus capital intensive projects, long payback periods, relative low profit vs. rel. high transaction costs and dependency on specific context (government, social, econom., physical,…), difficult control,… </li></ul>Insufficient experiences and capacity of project owner: <br /><ul><li>Insufficient knowledge about financial-economical sustainability
  51. 51. Shortage of competent and trustworthy local organisations </li></ul>Little supply of good business plans <br />Little demand and support by NGOs, other banks and (semi) public organisation; Why? <br />
  52. 52. What are our critical succes factors?Investing in a Bear market<br />Risk management<br />
  53. 53. What are our critical succes factors?Risk management<br />Social, cultural and political situation<br />Social economical and market situation <br />Regulations and policies<br />Financial design (u.m. valuta risks) <br />Payback capacity and grip on behaviours <br />Securities: Project activa and activities <br />Corruption / transparancy <br />Project / change management <br />Contract break <br />Capacity and commitment of stakeholders <br />Physical conditions as climate, environment<br />
  54. 54. Summary:Mutual interest Microfinance & Water<br />Creation and protection of stability, health and productivity.<br />Strengthening current MF investments, reducing risks, create<br />enabling environment for new client base<br />Improving outreach, and financial and social performance. <br />Improving viability by having larger loans portfolio without losing<br />focus on the poor and better meet social performances<br />
  55. 55. SNS REAAL & Microfinance<br />SNS REAAL has various successful products and partners with regard <br />to microfinance<br />SNS Institutional Microfinance Fund (EUR 310 mln; one of the largest microfinance funds worldwide) <br />ASN Novib Fund<br />Triple Jump, Developing World Markets, Water.Org, UNDP <br />Combination with water has potential for upscaling and synergy advantages with various organisations and local governments<br />
  56. 56. Carrying capacity: Water = basis of life<br />Ecological Dimension<br />Social Dimension<br />Economical Dimension<br />Carrying capacity<br />
  57. 57. Microfinance in water<br />Micro credits for water and sanitation facilities to individuals, communities or local small entrepreneurs in development countries<br />Examples improved water supply to increase productivity & sanitation to reduce health costs<br />Direct (example local farmers)<br />Indirect (example as result of improved hygiene)<br />