Lauries GreaterCapital USAID Presentation March 28 2012

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CADIZ
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Impact Investing

Case study of the SRI Bond Fund

Laurie

Scholtz

GreaterCapital

Lead Consultant: Impact Investing

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Contents


What is Impact Investing?


Social Enterprises and Social Purpose
Businesses


SRI Bond Fund:
Background and Financial Performance


Social Impact Measurement


SRI Bond Fund:
Social Impact performance


How robust is the process?


Conclusion

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South Africa

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Underlying social issues


23.9% of our working age
population are unemployed;


33% of our population live in
slums;


5.7 million people in South
Africa have HIV/AIDS;


147 million of our children are
orphans;


And 17.9% of our population
has not had any form of
schooling with only 8.4% having
gone onto a tertiary institution.



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Solutions

Public

Department of
Social
Development/
Education/
Transport

Other
programmes

Legislation

Private

Corporate
Social
Investment

Social
Enterprises
and Social
Purpose
Businesses

Philanthropic
giving

Access to Capital

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How do we define Impact Investing?

SRI:

Minimize
negative impact

Impact Investing:

Investments
intended to create
positive impact

(Target Direct Investment)

SOCIAL
PURPOSE
ORGANISATIONS

COMMERCIAL PURPOSE
ORGANISATIONS

Charities

Revenue generating social enterprise

Social
Purpose
Business

Traditional Business

Grants
only:
No
trading

Includes
traditional
philanthropy

Trading
revenues and
grants

Potentially
sustainable
social
enterprise
(>75
% in
trading
revenues)

Breakeven:
all income
from
trading
revenues

Profitable
social
enterprise:
surplus
reinvested
(no
dividends
to
shareholders)

Profitable
social
entreprise:
surplus
profit
distribution

CSR/CSI/
CSV
Company

Company
allocation a
percentage of
profits to
charity

Mainstream
Market
Company

Primary driver
is to create
social value

Primary driver is
to create
financial value

Organisations can create “blended” social & financial value

Impact only

Impact first

Finance first

Venture Philanthropy

Adapted from John Kingston, CAF Venturesome, by Pieter Oostlander, Shaerpa (EVPA 2010)

Social Investment Continuum

© GreaterCapital | 2011

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Access to funding/capital

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Legal consideration:
New Companies Act


Non
-
profits are
not restricted
in the amount of
income they are allowed to generate


Non
-
profits
are restricted
in how this income can
be distributed.


Non
-
profit companies cannot distribute income to
incorporators, members, directors, officers or
related persons. Income has to be directed
back
into the organisation.


Even if registered under the Old Companies Act,
New Companies Act applies


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SRI Bond Fund: Background

Mission
:

To provide financial support to specific
projects which target social and economic
development in underdeveloped areas and
communities. This includes direct investment into
social enterprises that struggle to obtain financing
through formal channels.


Fund

Facts:


Inception

Date: 1 October 2008


Benchmark:

CPI +3%


Current size: R1.1 billion


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Risk Mitigation

R1.1 billion

70% (listed)


Invested into fixed interest
instruments
which target service
delivery in the following areas,
transport, telecommunications,
water, waste water and solid waste,
energy, social infrastructure such as
health, education, and correctional
services facilities and municipal
infrastructure and services

30% (unlisted)

Direct targeted investments
into
social purpose businesses that have
clear social and financial objectives.

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Myth:
Forego financial return to achieve
social return

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Financial Performance and Track Record

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Joint Venture





Financial Analysts responsible for
the financial
due diligence


Monitor and evaluate projects on
a monthly basis



Social analyst responsible for the
social
due diligence



Define social indicators


Monitor and evaluate projects on a
monthly basis


How do we
measure social
return?


?

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Complexities in measuring social
return:
Areas of development


Securing income for vulnerable families


Housing


Water and sanitation provision


Energy


Telecommunications,


Public transport


Education and training


Healthcare

2 Key Components:

1)
Per Investment impact
measurement

2)
Fund Impact measurement

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Kuyasa

Social purpose business that uses
microfinance as a tool for improving the
housing conditions of South Africa’s poor
communities
.


20 000 clients to date


Average Loan size of R 5 500


Relationship banking model


98% repayment rate

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Social Problem


67% of our population in not served by traditional banking
institutions


“Surveys suggest that in some African cities, the death rate of
children under age 5 who live in poverty is about twice as
high as that of children in other urban communities, due to an
unhealthy and unsafe environment”






-

UN Habitat report (2009)


One of the major barriers to accessing formal lines of credit is
lack of collateral. Wealth creation within families has the
ability to counteract this.

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Process of social change

Kuyasa
:

Objective:

Use microfinance as a tool for improving


housing conditions in SA

Activities:

Provide loans to individuals who cannot


easily access finance through formal


channels

Outcome:

Individual is able to build an additional


room onto their home

Impact:


Wealth creation, healthier environment

Objectives

Activities

Outcomes

Impact

INDICATORS

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Defining and measuring Indicators

Indicator

Information

Social Return

Access

to
formal
finance

Amount

of individuals that
have taken out a loan at a
formal bank at different
parts of the loan cycle?

65% of

clients have
access to formal finance of
which 47% had access
only after loan cycle 3.
(5% at beginning of loan
cycles)

Health

Number

of school days not
attended due to illness

Decrease of 35% in
homes that have extended

by >30m
2

Further complexities and

mitigation

strategies


Attribution
(control groups)


Sampling
(representative, utilise social
purpose business communication channels)

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Other Social Impact

Subsidy
Housing


R50 000
(23m2)




The
Kuyasa

Fund


Savings mobilisation
and access to
finance


(R2 800 savings +
R4 500 loan 1 + R 9
500 loan2 + R 13 000
loan 3)




Intergenerational Asset


R 150 000 (60m2)



Increase in number of rooms

leads to improved health of
occupants



Improved credit rating of
households


Potential for secondary
market

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Client stories

Zoliswa

Chosi

came from an
impoverished neighbourhood
and fought her way from
nothing to a successful
business owner


‘I could not have done without the
help of the
Kuyasa

Fund.’

-
Zoliswa



First loan was for R5000. After
3 loan cycles totalling R17 500,
she was able to build an
additional room onto her house
which she turned into a sewing
room in order to start a
small
sewing business.


The business has not only
enabled her to provide a
healthier environment for her
children but she has also sent
them for extra maths and
science classes.


Her next financial goal is to set
up an education fund for her
children through the proceeds
she makes in her business
(Knowledge gained through a
Kuyasa

education initiative)


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Fund Social Performance for 2011


Direct: 94 580


Black: 93 120 (98.3%)


Female: 87 775 (92.7%)


Indirect: 997 110

Beneficiaries


38 204 (affordable housing units)


62 (community facilities)


Housing Units Built



R 2 690 million

Value of loans
disbursed


82 455 (SME developed/ supported)


21 310 (Additional jobs created)

SME and job creation

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Process in summary


Look at each investment individually


Map out the process of social change


Define social return measurement indicators
(loan agreements)


Collect information on a monthly basis


Analyse information and total fund indicators


Ongoing monitoring and evaluation of the
investment


Produce reports

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How robust is this process?

1.
Speak the common language

LSM

Household Income

% of
population

10

>

R25 000

4

8
-
9

R8 334 to R24 999

11

6
-
7

R4 168 to

R8 335

10

1
-

5

R0 to

R 4167

75

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2.

Need to incorporate known
Social Impact
measurement tools

that help
communicate social impact to different
audiences.


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Conclusion

3 Key takeaways:

1)
Impact Investing has the potential to address social needs
and achieve results like never before

2)
The financial returns are competitive


need to unlock the
capital

3)
Social return can be measured using known
methodologies. It is important to ensure that this type of
investment is meeting both financial and
social targets

Questions?