Social Business Focus: the arrival in a social business impact fund or boarding the roller coaster of investment funds
By Juliette Charrier
Intern at the Grameen Credit Agricole Foundation
When one enters a Social Impact Foundation, you do so with lots of misconceptions and idealism. At least that was my case. I would now finally discover the recipe of the qualitative and quantitative impact to find models that are meaningful, efficient to combat poverty, financially successful and that align the interests of all actors in the value chain. Cold water on my hopes! Nothing is ever all right or all wrong. It is difficult to have an impact and we have found no single recipe for success. However, gradually we realise it is possible to contribute to the economic development of emerging countries, support companies that create economic opportunities, that remunerate in an inclusive and equitable way their stakeholders.
First of all, disillusionment: have we been lied to for 10 years? Can social business companies really balance profitable growth with social impact? When we first look at our portfolio, we would be tempted to give up and ask ourselves whether we are creating a financial and social speculative bubble on the concept of social business by saying it works although the figures are not forthcoming. Despair and loss of confidence.
Then, by digging into the subjects and by understanding each social business company, we realise that there are strong and concrete improvements, sometimes operational, sometimes social, sometimes both. Except in extreme cases, there are tangible results. It is reassuring, exciting! Renewed hope towards Social Business companies.
There are certainly results, but still well below expectations. We think about the means to be employed, we realise that this is a long-term process and that we must be properly coached. We also conclude that there are as many situations in social business companies as variables to collect to ensure their success. But are we the only ones to face such situation?
Phase shift: some impact funds indicate they have real social impact and market yields: how is that possible? Two lessons emerge: 1) the concept of impact investing is very broad and ranges from "investments that do no harm, to investments that are seeking at any price to do good". 2) The Grameen Crédit Agricole Foundation funds more social start-ups than companies or social programmes. The Foundation thus belongs to the "impact investing" sector, in the "social business" section, and more specifically in the Social Impact Seed-Capital Risk subsection, due to its low average tickets and the entrepreneurial nature of the companies invested. When we realise that Venture Capital funds rely on a "unicorn" company to achieve the added value that will absorb the costs of a dozen less successful investments, while creating, when possible, returns to remunerate managers and shareholders, all this in flourishing and developed economies ... we measure the challenge faced by Seed Social Business Funds in emerging countries.
Is it a problem of financial means? Do investment funds invest too little to really enable social business companies to develop, be structured and create a business? According to the GIIN report, internal return rates (IRRs) do not vary according to the total size of the funds but may vary according to the size of the investments.
Is it a problem of extra financial means? The isolation of entrepreneurs and the lack of qualified support? How to draw lessons with investments as diverse in terms of leadership profile, market segment, socio-economic context, value added of the company, targeted beneficiaries etc?
And even if it all works, are the social business companies the best way to achieve impact? Would it not be better to try to change the methods and practices of large groups already resilient in emerging countries to have a real global impact? Integrating new stakeholders such as new customer and supplier segments could ultimately have a longer reach.
In the end, we grow up, by realising that the goal is not to have the most profitable social impact but to contribute to the economic development of emerging countries, by integrating into value chains previously excluded actors, by creating jobs and giving access to essential goods to as many people as possible. The key is that we find ourselves in a stimulating environment, where situations evolve rapidly, where we fumble in search of successful mechanisms, where we try to strengthen social business companies through fruitful partnerships, to achieve financial balance and maximize social utility, and where innovation is everywhere.
News from the front
- Social Business clients = 100% of beneficiaries? Not necessarily! In social business companies, it is often considered that the customers are the beneficiaries. That would be ideal to maximize the impact. But to allow the company to have an impact, it must, above all, be able to operate with a minimum of profitability to cover its costs. Thus, it becomes clear that in order to diversify risk and strengthen the business, it would be preferable that the company addresses different segments of the population, both beneficiaries and "traditional" customers. This is at least the opinion of OikoCredit that recommends starting a social business in the field of access to solar energy by first addressing customers who have the financial means, and subsequently include the Bottom of Pyramid (BOP) segment in the business model.
- Social impact challenges are not always where we expect them. When seeking to include a marginalised population in an agricultural value chain, to improve their incomes and living conditions, one thinks, first, it might be necessary to improve the livelihoods of small farmers. Admittedly, obtaining inputs, preparing and cultivating a field takes time and money, but these steps do not turn out to be the biggest hurdle marginalised small farmers face. According to the Managing Director of Selina Wamucii, a fruits and vegetables export company in Kenya, the real factor of exclusion for small producers is the difficult access to economic opportunities. Indeed, while NGOs, impact funds and governments are mobilising to finance upstream production, they should also ensure downstream, because if the market demand is strong, it will reassure small producers who will no longer be afraid to take credit without the backing of an economic income later.
- Do not be dazzled by solar energy. Access to solar energy has been booming in recent years. Indeed, it provides access, at a competitive price, to clean energy for marginalised or off-grid populations. It also enables the financial inclusion of unbanked segments via mobile payment and PAYG (pay as you go) mechanisms. It is indisputable that solar energy has many positive effects. However, it is important not to oversell the social impact of solar energy: selling solar panels to a farmer will allow him to have better lighting, but will not generate any income. A small farmer would first need energy to irrigate his/her fields, work his/her land and sell his/her products quickly and at a fair price. It is therefore important not to fall into the impact overbid; solar energy will improve the living conditions of the beneficiaries, but will not necessarily generate income.
The Grameen Crédit Agricole Foundation draws lessons from its investor experience: discover the White Paper on Social Business
After eight years of investing in social businesses, the Grameen Crédit Agricole Foundation wished to draw lessons from its experience and share them...! It thus sets out the challenges that these social business companies face. The Foundation puts forward proposals to strengthen this promising model.