Social Finance - Proving There is Profit in Sustainable and Socially Responsible Businesses

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Covering the G-20’s major new economic initiative with a focus on social finance

Social finance – achieving positive social and financial returns together – is at the forefront of supporting the world’s small and medium sized enterprises (SMEs). Increasing the opportunities SMEs have to financing their own growth and success is by its very nature a socially beneficial pursuit: SMEs account for the majority of the world’s job creation and GDP, pull people out of poverty, strengthen communities and contribute significantly to economic stability. That is why the G-20, in partnership with Ashoka Changemakers, has sought out the world’s best ideas for unlocking financing for the world’s SMEs through the G-20 SME Finance Challenge.

The Challenge was an open call to the private sector to show how, despite the banking and finance sector’s reluctance to fund SMEs, investing in small and growing businesses can be both good business and good for society. Social finance organizations are already proving it. Entrants in the Challenge and innovators who are members of the Ashoka and Changemakers community demonstrate successful, pioneering solutions to increase SME access to financing all over the world. Some of them will be selected as winners of the SME Finance Challenge, will meet with the G-20 in Korea on November 11-12, and will have their solutions funded and scaled to achieve even greater impact.

See list of all interview leads organized by topic

Here are some potential angles and interviews for unique, interesting coverage of social finance, for the G-20 Summit and beyond:

Putting investment decision into the hands of entrepreneurs – Collective decision-making among groups of business owners has been a key success of micro-finance, but is not typically applied to SMEs. That is changing, and it’s empowering the entrepreneurs while also reducing seed money costs for investors.

Example: Inspired by the "village banking" lending methodology in microfinance, where groups of micro entrepreneurs decide which among them receive a loan, entrepreneurs in Village Capital programs learn investment techniques in a peer support program and select the most investment-ready in the group. Village Capital, an entrant in the G-20 SME Finance Challenge, recently used this method to invest in as a salt production company called SABRAS in Gujarat, India, majority-owned by the salt producers. SABRAS has set up a co-operative that now includes 39 salt workers, and has increased the income of the workers by 600% over the past three years.

Developing local capital markets – Identifying and supporting local fund managers is an important way to grow the investment sector in the developing world and advance the social impact goals of local entrepreneurs.

Example: Jacana Venture Partnership provides early-stage investment and expertise to help partners grow, reducing risk for public and private sector investors, and maximizing social impact through job creation. Jacana, an entrant in the G-20 SME Finance Challenge, has worked with their Kenyan partner fund manager to develop a detailed social impact plan with a local stone mining company -- including specific targets on pay and work conditions, health and safety, and environmental issues. The partner fund manager has agreed to lower the effective cost of the financing structure in the event that the company achieves specific social impact targets.

Local innovators tend to be good stewards of their environment and communities – For investors interested in social finance, SMEs are a natural magnet: often they are by their very nature eco-friendly, social justice-oriented businesses since their owners live, work, and employ workers there.

Example: Aavishkaar Venture Management Services in India works with private, and government entities to solicit investment proposals for ventures that benefit the rural people and economies of India and that are socially conscious, environmentally friendly and commercially viable. Founder Vineet Rai, an Ashoka Fellow, is proving that the vibrant innovative spirit at the “bottom of the pyramid” is profitable in more ways than one.

Finding and partnering with untapped investors – those with a clear stake – If the informality or lack of collateral of SMEs makes them generally ineligible for traditional banking, one option is to develop financing products at non-bank institutions with a stake in local SME growth.

Example: The East African Rural Enterprise Facility has partnered with a regional farm equipment company to create long-term loan products for a severely underserved segment of the SME space: rural enterprises unable to secure affordable equipment financing. This is just one of a number of creative approaches initiated by The East African Rural Enterprise Facility, an entrant in the G-20 SME Finance Challenge.

Combining long-term investment financing with business education for entrepreneurs – Running a business – especially one that is about to make the leap from start-up to SME – requires training and skills. Having those skills can help significantly when making a case to potential investors and creditors.

Example: Agora Partnerships has both a venture fund that invests in SMEs in the developing world and a not-for-profit arm that matches small business owners with MBA students who offer low-cost consulting services. Founder Ben Powell is an Ashoka Fellow who is currently investing in SMEs in Nicaragua and El Salvador, with plans to expand throughout Central America

Finding assets in SMEs that traditional banks have overlooked – Many farmers and producers do not have the collateral that banks typically require when considering lending, effectively shutting them out of any commercial loans. But they do have overlooked assets that can be used to leverage financing – especially for forward-thinking investors.

Example: Root Capital is a pioneering investment fund that uses the fixed-price forward contracts between small product suppliers and their purchasers as loan collateral. This distributes the risk and allows Root to make viable investments that are serving as a model of success that founder William Foote, an Ashoka Fellow, hopes commercial banks will emulate.

This is just a small fraction of the resources available through Ashoka and Changemakers. For further information and to access our global community of over 140,000 changemakers around the world, please contact:

Sarah Mintz

Community Manager

smintz@ashoka.org

703.600.8204

Josh Middleman

Community Mobilizer

jmiddleman@ashoka.org

202.450.5452

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