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Making a profit from making a difference –

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August 5, 2012 5:40 am

Making a profit from making a difference

By Sophia Grene

Sustainable logging carried out in Cameroon in the Congo Basin natural woodland©GettySustainable logging carried out in Cameroon in the Congo Basin natural woodland: preserving forests is just one project impact investing can help

To many, investment is purely about generating a return on their money, but a growing band of wealthy individuals and institutions are seeking to achieve a little more.

“There’s a growing hunger from the wealthy to go beyond how to spend it, understanding if they don’t engage with these [social and environmental] issues, social problems will arrive on their doorstep,” says Paul Szkiler, chief executive of Truestone Impact Investment.

Impact investing, most commonly defined as investments made with the intention of helping to solve a social or environmental problem as well as generating a financial return, has seen growing interest from investors, particularly since the financial crisis.

It covers a wide range of areas, from microfinance to private equity in developing markets and even “social bonds”, an innovative way for governments to fund services provided by non-state bodies on a payment-for-results basis.

The term impact investing was coined by the Rockefeller Foundation in 2007 and a year later the Global Impact Investors Network was launched. Since then, investment managers and intermediaries report a steady increase in interest in the sector, but it is hard to pin down a reliable figure, given the sector’s fragmented nature and the difficulty of defining it.

For one of the most developed and codified sectors of the impact investing world – microfinance – estimates as of 2010 vary from $7bn invested (from Swiss microfinance manager and adviser Symbiotics) to $24bn committed (from the Consultative Group to Assist the Poor), demonstrating the difficulty of getting a sense of the size of the sector.

The GIIN definition is frequently adopted: “Impact investments are investments made into companies, organisations, and funds with the intention to generate measurable social and environmental impact alongside a financial return”, but even that leaves a number of queries, such as whether that financial return is expected to match market returns or if it comes second in any conflict between it and the social impact.

In general, practitioners and investors are keen to make a distinction between “social impact first” investments, where the investor is prepared to sacrifice some financial return in exchange for the belief their money is doing good, and “social and financial” investments, where the investment product aims to produce returns comparable with the market.

“The second type appeals more to high net worth individuals,” says François Passant, executive director at Eurosif, the European social investment forum. “It’s got that entrepreneurial spin that resonates with them.” For people who got rich by building their own business, it feels more appropriate to help others by encouraging them to work for themselves than to give money, he explains.

Mr Szkiler remembers a presentation to JPMorgan about his business: “The global research guys were saying ‘hmm, that’s ambitious’, but the wealth management people said ‘that’s exactly what we’re looking for for our clients’.”

Truestone is about to start fundraising for its Global Impact Fund, which aims to return an annualised 8 to 10 per cent net over the medium-to-long term. With a six month lock-up period, the fund does require investors to be prepared to take a longer-term view, but Mr Szkiler is confident of reaching his target of £40m.

Institutional investors are not immune to the appeal of doing well by doing good, he adds. “We see institutional investors in that area, but so far really only the giants,” he says. Their motives may not be precisely the same as those of individuals: “There’s an element of looking for stable financial returns, even if modest, that are decorrelated with the rest of financial markets.

“There’s also a reputational benefit for the large institutional investor, and there is the concept of universal ownership,” he adds.

The theory of universal ownership states that beneficial owners in a fund not only have an interest in direct financial returns but also in making sure their investments work towards improving the world in which the investors live.

The categorisation of an investment vehicle as impact investment does not always come from the promoter. Nikko Asset Management has two World Bank Green Bond funds, invested in the triple-A issuer’s bonds – proceeds from which are used to fund climate change mitigation projects.

“We didn’t set it up as an impact bond, but it falls in that direction naturally,” says Stuart Kinnersley, Nikko’s European chief investment officer. “Investors are getting this positive externality in addition to the market returns you would expect.”

Nikko’s institutional vehicle has seen approaches from investors specifically interested because they have identified it as an impact opportunity. “Many people are questioning the current model of capitalism,” points out Mr Kinnersley. A version that makes explicit use of the structures of capitalism to improve the world seems attractive to many of those questioners.

Unsurprisingly, development financial institutions such as the German KfW bank or Triodos Bank are interested in impact investing, as are many charities that rely on income from an endowment and prefer to make investments related to their mission rather than arbitrary unrelated investments.

In the UK, there are plans afoot to raise the profile of impact investing and make it more accessible to retail investors. This is the aim of the Social Stock Exchange, likely to launch some time next year.

It is the brainchild of Pradeep Jethi, a former product developer at the London Stock Exchange, and is backed by the Rockefeller Foundation and the UK’s Big Society Capital.

“I want to use my capitalist skills to make the world a better place,” says Mr Jethi. “If we don’t do something, capitalism will eat itself.”

Copyright The Financial Times Limited 2012.

Eko Mobile-Enabled Savings via the Business Correspondent Model in India

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Posted: July 16th, 2012

By Grameen Foundation

Grameen Foundation

This is a guest post written by Debbie Dean (Project Director, Microsavings Initiative) and Camilla Nestor (Vice President, Financial Services) from Grameen Foundation.


When we launched our microsavings initiative – a three-year project funded by the Bill & Melinda Gates Foundation that aims to reach 1.45 million new savers across three institutions in Ethiopia, India and the Philippines – we set out to answer a range of questions, including:

  • Will the poorest save via a mobile-enabled channel?
  • Can you create a workable savings business model for all parties using a business correspondent approach?

In India, microfinance institutions aren’t permitted to intermediate deposits, and regulators are encouraging the business correspondent model to further financial inclusion.  The Reserve Bank of India (RBI) permitted banks to use the services of intermediaries who act as business correspondents (or agent) to provide banking services.

We saw an opportunity to test the potential of the business correspondent approach as a means of scaling mobile savings services for the poor, working with our long-time partner, Cashpor, an MFI operating in two of India’s poorest states – Bihar and Uttar Pradesh.

Grameen Foundation launched a partnership to test and scale this mobile-enabled business correspondent approach with the following institutions: ICICI (India’s largest private commercial bank, which holds the savings deposits), Cashpor  (the “business correspondent,” which uses its deep field network to originate and service the deposit accounts) and Eko Technologies (the technology partner, which enables a fully mobile-enabled approach as well as coordination among Cashpor’s and ICICI’s back-office systems).

A Mobile-Enabled Savings Product for the Poor

In our initial client-level research, we learned that 20% of Cashpor’s clients owned a mobile phone, 60% had access to a mobile phone and 20% had no access to a phone. With these statistics in mind, we launched the first savings product nine months ago – a no-frills account (NFA). In India, NFAs have limited functionality – they do not require ATM cards, have no opening/minimum deposit required and do not use check books – but they do allow the client to select whether they want a “pay per use” plan (in which they are charged per transaction) or an unlimited annual plan.

Cashpor customers can open their NFA account and make deposits and withdrawals during weekly center meetings using the mobile phone.  Microfinance clients attend weekly meetings ( which occur close to their homes) to repay their loans.  In this meeting, the center manager not only collects the loan repayments, but also collects deposits and makes withdrawals.  Also, they can check their balance at any time via the phone. Customers conduct their banking via SMS, using a unique set of numbers that informs Eko Technologies of the type of transaction (deposit, withdrawal, and balance inquiry) they are performing.  Eko’s solution works with multiple mobile network operators, making it an agnostic network that maximizes outreach to Cashpor’s client base.

Nine months into project launch, the results so far speak for themselves: More than 60,000 savers have opened accounts, with an average of 250 people opening a savings account each day. The average savings balance is 348 rupees (US$7.50), and the average balance has been increasing at a rate of 15% per month.

Key learnings

Though we are starting to see initial successes, there have also been a number of challenges on our path to provide mobile-enabled savings for the poor.  We have identified several key learnings for similar business correspondent model approaches targeting the poor and the poorest:

1)      For an MFI like Cashpor, originating and servicing savings – but not intermediating them, and thus not generating revenue from lending the mobilized funds – there are fundamental business model questions.  Cashpor makes the business correspondent model economically viable by providing a full suite of financial services, including pension schemes, money transfers, credit and savings. Cashpor also utilizes its existing credit infrastructure, meaning that savings are evaluated using marginal costs.

2)      Getting the business model right for all parties – including clients – is a challenge. And once the business model is in place, it can be difficult to make tweaks to the products and/or delivery channel given the tripartite agreements in place.

3)      Working together across three partners (ICICI Bank, Cashpor and Eko) requires strong communication flows, ensuring that all parties agree on the objective and that all believe they have an equal stake in the outcome of building a successful business correspondent model.

4)      Clients are hungry for a safe place to save. We are seeing the volume of transactions and the average savings balance increase month-over-month.   And, the very poor can and do save – 68% of Cashpor’s savings clients live below the $1.25/day poverty line, and the vast majority of Cashpor’s existing clients live below the $2.50/day line.

5)      Just because the poor own a mobile phone, it doesn’t mean they know how to use it. ”Mobile phone literacy” is just as important as financial literacy. Initial market research showed that some customers knew only how to press the “green” button to answer and the “red” button to hang up. We needed to place a strong emphasis on educating the customer beyond just why and how to save, but how to use the phone to perform transactions, what to look for in the English-based SMS confirmations and how to ensure that their money is safely in the bank (so if they lose their phone, they don’t lose their hard-earned savings).

6)      Training Cashpor’s field staff to be agents meant that they had to change their interactions with the customer.  It’s not just training on the savings product; other critical elements include training on the change in processes, how to interact and engage with their clients, and how to continue to provide good customer service in this new model.

Though there is still much to be learned from our work with Cashpor, there is promise in this business model.  We are looking forward to the challenges ahead of us, creating solutions to resolve them and ensuring that we have created a business model where all three partners can continue to provide savings services to the poor and poorest.