The SGII Center was created to facilitate participation in the impact investing field by training and allowing students to work directly with social enterprises, corporations, family offices, impact funds, and private family foundations.

What has the Center been working on lately?  Together with funding from the Sorenson Impact Foundation, they will invest approximately US $2 million in five Africa- and India-based early-stage social enterprises.  Students were involved in conducting due diligence for these impact investments.

“The opportunity to play an active role in combating these crucial societal issues is very rewarding,” said Brandon Koch, a student studying finance and computer science at the David Eccles School of Business who spent three months in India working for Kinara Capital.  “The hands-on experience I gained at the SGII Center has been invaluable, and I look forward to continuing to apply these skills in the real world to create sustainable change.”

“These investments will serve to close funding gaps, helping social enterprises to prove out their businesses, with the additional benefit of cultivating impact investing expertise in students,” said Sorenson.  “I hope that our efforts will accelerate the growth of the sector at-large and help lead to improved societal change on a global scale.”

The companies who have received investments from the Sorenson Impact Foundation are:

Copia – Kenya-based consumer catalog and rural distribution company
Kinara Capital – India-based financing company for micro and small enterprises
Liberty & Justice – Fair-trade apparel manufacturing company with offices in Liberia and Ghana
Simpa Networks – India-based pay-as-you-go solar financing company
World Haus – India-based affordable housing construction company

The announcement coming from Citi Microfinance and Citi Commercial Bank said that the Skoll Foundation will be providing support on this collaborative initiative.

KickStart International, a non-profit social enterprise which designs, manufactures, and sells high quality, low-cost irrigation pumps for use by smallholder farmers across sub-Saharan Africa, will use the loan as working capital to specifically support smallholder farmers in sub-Saharan Africa, where farm yields are among the world’s lowest.

The World Bank estimates that 65 percent of Africa’s labour force is employed by the agriculture industry, but farming accounts for only 32 percent of gross domestic product.  KickStart hopes to lift millions of people in Africa out of poverty by providing simple money-making tools to smallholder farmers so that they can build profitable family enterprises.

KickStart’s best selling items are their human-powered irrigation pumps.  It estimates that a farming family’s income increases $700 per year after owning a pump.  The Citi loan will expand production and distribution of the human-powered water pumps.

The Financial Times reports that the move will deliver a big blow to the economy of Tunisia, a nation who is recovering from a 2011 uprising and ensuing political volatility, but will bolster confidence in Ivory Coast, a sub-Saharan African nation who is emerging from years of war and political unrest.

Analysts view this step as a testament to the resurgence of sub-Saharan Africa as well as Abidjan as the economic centre of West Africa.  Only, what’s different from ten years ago is the emergence of another type of tool: impact investments.

Put simply, impact investments are a deployment of capital aimed at generating a positive social and/or environmental impact along with a financial return.  Today, impact investments are made in a combination of different forms of capital including debt, equity, grants, and loan guarantees.

Because their intention is to generate a positive societal impact and financial returns, they fall under two categories: impact-first investments or financial-first investments.

Impact-first investments are made by private foundations or development finance institutions such as AfDB, who place less emphasis on generating market-rate returns and are willing to provide longer-term capital, making them great investors for early-stage companies.  Whereas financial-first investments are made by investors who seek at minimum market-rate returns, such as venture capital funds.

According to the Arabella Advisors, the size of the impact investing market in Africa is between $300-400 million per year.  Sub-Saharan Africa, especially in Kenya and South Africa, represent large areas of interest and growth.

Shouldn’t the market size be bigger, you ask?  What’s unique about Africa is that some believe all investment in Africa, regardless of intention, fits the definition of impact investing.  The definitional debate hasn’t been settled yet, but there is growing consensus that impact investing can help Africa thrive for a wider number of its people.

Impact investing activity in Africa

It would be inaccurate to say that the growth of impact investing is seen throughout Africa for the simple fact that stability, which differs from nation to nation, contributes to the level of investment activity.  Nonetheless, in areas where there is greater stability, there are examples of participation in the impact investing movement.

South Africa, which has been the primary beneficiary of foreign direct investment in sub-Saharan Africa, and Nigeria, following closely behind, are two of these areas.

Organizations engaging in impact investing in South Africa include impact investment advisory firm Nexii, Cadiz Asset Management through its High Impact Fund designed to fund small- and medium-sized South African enterprises, and impact investing facilitator GreaterGood.  In Nigeria, the Tony Elumelu Foundation uses impact investing to support African businesses.

Other countries include Ghana, Kenya, and Senegal.  Ghana’s Venture Capital Trust Fund provides capital financing to small enterprises in order to reduce poverty through job creation.   The Kenya Social Investment eXchange is a platform that bridges social enterprises and social investors.  In Senegal, the Impact Investing Working Group was established to identify how to increase opportunities for impact investment and social entrepreneurship.

Improvements needed

Although challenges around transparency and uncertain political and business environment influence the level of impact investing activity, for regions with a relatively stable climate, a desire to develop the impact investing industry is apparent.  According to a report by the Dalberg Global Development Advisors on impact investing in West Africa, impact investors and policymakers are ready to address some of the challenges surrounding the industry in the short-term.

They include matching the demand and supply and responding to infrastructure challenges.

Matching demand and supply   

In the impact investing industry today, a concept that is often thrown around is “pipeline creation”.  This refers to the fact that there is a gap between investors’ appetite and the number of “investment-ready” firms.  So the need at the moment is to create a pipeline of opportunities for impact investment.

In order to match this demand and supply, social enterprises need to be nurtured.  One recommendation for Africa is to address the skills gap among entrepreneurs so that they have the knowledge and access to information required to turn their ideas into bankable projects.

Another is to reduce the risk and transaction costs associated with small enterprise financing.  It is difficult for businesses to obtain financing in the $1,000 to $10,000 range.  Developing products suited for the needs of smaller enterprises and increasing technical assistance can address this issue.

On the other hand, investors need to adapt their investment practices to the local climate.  Some are unwilling or unable to change their investment criteria while others have unrealistic social impact expectations.

Certain challenges are more stubborn than others.  For example, impact investors find it difficult to do business with an informal sector, which is how a majority of African businesses are set up.  However, there is a lack of incentives to convert to formal business structures due to the costs related to licenses, taxes, and other operating costs.

Infrastructure challenges

In West Africa, impact is measured using a wide range of tools and done on a case-by-case basis.  As a result, investors can’t compare the returns and without performance data, they may be inclined to have unrealistic expectations.  Even though there are a number of successful case studies about social impact and financial performance in Africa, experts believe evidence of performance against standardized metrics is critical.

In line with screening performance, finding and making impact investing deals is another challenge.  There are currently few financial intermediaries in the region to facilitate investments.

A final major infrastructure challenge is the limited information on successful “exits”, which would discourage new entrants in the market.  While impact investing deals are deliberately longer-term, investors too will eventually need to realize an exit strategy.  According to a J.P. Morgan report that analyzed over 2,200 transactions, few exits were realized to date.  Demonstrating successful exits would be a critical step forward for impact investing, as it shows social enterprises to be financially viable and that it is truly possible to do good and do well.

Under the theme ‘Feel, Think, Do’, youths will be given an opportunity to learn about social enterprise, debate and drive forward their business ideas, and receive support to develop a business.

“The Middle East is facing a number of issues concerning the environment, health and wellness and talent sustainability, so there is a real need for social enterprise,” said Huw Gilbert, Vice President of Corporate Affairs, PepsiCo Asia, Middle East and Africa.

“Whether these young entrepreneurs in the region want to help save water, reduce poverty by creating opportunities for the unemployed or help educate others, PepsiCo believes sharing expertise can empower them and help unlock their potential in creating a social enterprise,” Gilbert added.

Over the two days, attendees will take part in entrepreneur-led workshops where they will learn how to develop an idea, build skills, and advance a concept by delving into practices such as finance, marketing, and legal.

“Social entrepreneurship is needed for both economic and social development because it creates new job opportunities and sources of income, while at the same time, social entrepreneurship encourages innovation and provides the market with unconventional products and services that can contribute to solving some of the biggest societal problems such as illiteracy, health and poverty,” said Lina Hourani, Director of Al Ahli Holding Group’s CSR division.

While there is an age requirement, the conference is open to everyone regardless of any prior knowledge of social enterprise.  Applications are accepted beginning today.

Since the Arab Awakening, social entrepreneurship has played a critical role in the MENA society.  Dr. Iman Bibars, who is the Regional Director of Ashoka Arab World, finds social entrepreneurship as a remedy against implementation of power-craving sectarian policies.  Bibars believes that dedicated social entrepreneurs can aptly meet the Arab society’s demand for food, freedom, and justice through their value-based grassroots approach.

During this time of renaissance in MENA, the SEW in the UAE aims to amplify the impact of social entrepreneurs and better support them in restructuring the economy.  The four social enterprise elements that the SEW plans to promote, through events throughout the week, are education, networking, government involvement and success celebration.

The pre-launch SEW event will focus on technology application for social impact, and will take place on the evening of February 24th at the New York University Abu Dhabi.  Additionally, the opening night on February 25th will bring forth the discussion of community impact with panelists from organizations such as the Dubai Chamber of Commerce and Al Ahli Holding Group.

Other topics that will be covered at the SEW events include green enterprise and ethical food enterprise.  The SEW is expected to end on March 2nd with the award ceremony for the Hult Prize’s Dubai Regional Final.

This pioneering event series is being supported by prominent organizations such as Forbes Middle East, Booz & Co., and the Capital Club at the Dubai Financial Centre.  Several other organizations, such as HUB Dubai and Bokashi, are also associated to this event series through SEW’s SocEnt Fair.

Those who realize it are adopting a concept called Creating Shared Value (CSV).  A term first introduced on the Harvard Business Review, CSV is about moving past CSR principles which focus on doing good, as a result of societal pressures, typically for the sake of guarding reputation.  Instead, CSV is ensuring that there is value created for everybody through the chain.  This includes everyone from shareholders to farmers.  The rationale for CSV is a method for companies to continue in the market.  This means to make sure that coffee is made available on grocery shelves.

Sustainable cocoa farming is one of the challenges facing chocolate makers today.  A vital ingredient in Cadbury’s chocolate products is Ghanaian cocoa.  But in 2008, farmers in Ghana were only able to produce 40 percent of the country’s potential yield due to problems with pests, disease, and ageing cocoa trees.  Productivity continues to decline and income from cocoa decreases.  Consequently, there is no incentive for the next generation of cocoa farmers to enter the industry.

In response, Cadbury launched a Cadbury Cocoa Partnership in 2008 that would seek to build thriving cocoa communities in Africa, Southeast Asia, and the Caribbean.  They are committing £45 million ($73 million) over a ten-year period to promote sustainable livelihoods for one million farmers, increase crop yields for farmers in the program by 20 percent by 2012 and 100 percent by 2018, create new sources of income in 100 cocoa-farming communities, and address key issues affecting the cocoa sector such as child labour, health, gender diversity, and environmental sustainability.

From training and technical assistance for producing quality cocoa and higher yields, to expanding access to finance, and ensuring a guaranteed fair price for farmers’ beans, Cadbury estimates the program to bring in as much as $350 million in additional revenues per year.  There is value for everyone.

Since launching, the program has grown beyond expectation.  Currently, the program is operating in over 200 communities in Ghana and aims to support a target of 500 communities.

Milsted adds that in CSV, we must address down the chain to the farmer.  Change doesn’t happen overnight but it has already been past the point where the food industry as a whole needs to ensure viable production in the future.  Companies need to work with other organizations – these include donor organizations, trading organizations, and the farmers themselves – to bring best practices together.   The issues are different in every country but understanding what drives the people along the value chain will help us figure out how to secure the future.

At the same time, countries that face this problem have a high rate of mobile penetration.  Ghana, for example, had a penetration rate of over 70 percent in 2010 according to the World Bank.  Dr. Ashifi Gogo witnessed the prevailing counterfeit drug problem in his native Ghana and, seeing the high rate of mobile usage, founded Sproxil in 2009 to create a solution that would allow customers to easily check with their phones for fake drugs before they leave the pharmacy.

Using a simple mobile phone application, called Mobile Product Authentication, customers would scratch a label on the drug packaging to reveal a unique set of numbers that they would send via SMS to a toll-free number for verification.  Almost immediately, customers would get a message back on their mobile phone that says “Yes, genuine.” or “No, fake.”  If the product is fake, customers are given a hotline to call in and report the fake product.  Hotline operators then contact the appropriate authorities in the country.

The cost-effective and simple to use application can also be replicated around the world.  So far, the company operates in five countries: the U.S., India, Ghana, Kenya, and Nigeria.  Sproxil sells its application to pharmaceutical companies who have been scratching their heads for solutions to tackle counterfeit drugs.  To make the system work, Sproxil negotiates the cost of SMS services with mobile phone providers, which would be built into the final unit price of about a couple of cents U.S., and either Sproxil or the manufacturer makes labels for the boxes.

With a functioning business model and potential for significant impact, Sproxil is expanding rapidly, especially in India, Ghana, and Kenya, after raising money from impact investors such as Acumen Fund.  From antimalarial medication to drugs for diabetes, Sproxil is helping reach a Millennium Development Goal by combating disease through safe medication.

Japan’s consumer products giant Unicharm Corporation is learning.  The makers of female hygiene products and diapers pledge to bring affordable products to 36 million low-income women in the Middle East, North Africa, and Asia.  This is the type of big business change that Polak had imagined when revealing the false assumptions to alleviate poverty.  It is the notion that it is possible for business to create economic and social wealth responsibly and for all.

Unicharm’s expansion is part of the Business Call to Action (BCtA) global initiative to reduce poverty and promote sustainable development through inclusive business.  Under this expansion, the company’s annual production of diapers and feminine napkins is expected to more than triple from 10 billion and 12 billion by the year 2020.

Localization

Localization is key to the project.  Forty percent of Unicharm’s total hygiene products are expected to be manufactured and sold to low-income consumers in the region of expansion.  This means the company will employ an additional 8,000 underemployed women throughout Egypt, India, Indonesia, Saudi Arabia, Thailand, and Vietnam, which will nearly double its female workforce in these countries.  To put things into perspective, the company currently has over 10,000 employees.

“Through this initiative, we will expand our reach while alleviating poverty and supporting and empowering millions of women across the Middle East/North Africa and Asia,” Unicharm Corp. CEO Takahisa Takahara said in a statement.  “We are delighted to contribute in this way to sustainable and inclusive development, and to further demonstrate that good business practices and good global citizenship complement each other.”

Radical Affordability

Unicharm is able to offer feminine napkins and diapers to low-income consumers previously unable to afford them by localizing production, streamlining manufacturing, and simplifying packaging.  One of the other myths about eradicating poverty is that we can donate people out of poverty.  Well we can’t.  For starters, donations run the risk of drying up.  This approach also assumes that people at the bottom of the economic pyramid are too poor to invest in their own future when in reality, money exists.  Therefore, rather than relying on limited-time donations, solutions that combine stable income and radically affordable products and services are more effective in helping eliminate poverty.

“This is a great example of a company proactively contributing to the third Millennium Development Goal (MDG), promoting gender equality and empowering women,” BCtA Acting Program Manager Sahba Sobhani said.  “By creating hygiene products that are affordable to the poor and employing women in areas where full-time jobs are scarce, Unicharm is both expanding its business and enhancing quality of life for women in the Middle East/North Africa and Asia.”  In other words, they’re making money and doing good.  And proving that these words can exist in the same sentence.

First, little is known about the impact of fertilizer in cocoa farms in both countries.  How and to which extent does fertilizer affect cocoa farms?  How much does it cost, and which returns on investment can be expected?  Published by IDH, the study revealed through an experiment by CIRAD, the French agri­culture research organization, that fertilizer use on degraded farms with mature trees will have a positive impact on the productivity of cocoa.

Particularly, after one year of applying fertilizer, the degraded trees’ foliage increased and the gain in production was around 20%.  Although the increase is little, production jumped significantly in most regions after two years.  For example, in Duekué in West Côte d’Ivoire, average yields were 765 kg/ha without fertilizer, but more than doubled to 1890 kg/ha after two years of fertilizer application.  Considering relative decline in world prices of fertilizers and expected increase in competition between fertilizer companies, the costs of fertilizer should be $300/ha each year, or less.  Although it is costly, the output is impressive.  Fertilizer use also slows the rate of tree mortality, produces higher quality pods, and helps fight diseases such as black pod.

Evidently, the success rates of the use of fertilizer is affected by other variables such as level of pesticide application, type of cocoa, age of the tree, rainfall patterns, and types of soil.  But in Ghana, which has a relatively high cocoa price paid to smallholders and subsidized fertilizer ($125/ha), even the lowest responses to fertilizer look profitable.  On the other hand, Côte d’Ivoire has heavily taxed cocoa and no fertilizer subsidy, so the investment may seem too risky.  Cocoa farmers in Côte d’Ivoire purchased close to zero amounts of fertilizer in the mid to late 2000s, and resumed purchase in 2010 when the price of fertilizer dropped.

Most farmers are now aware of their need for fertilizer. The report calculates potential requirement of fertilizer in Ghana and Côte d’Ivoire to be over 1 million tons, and a potential market of over $500 million.  The key takeaway from this report is a business opportunity for the cocoa industry to explore the use of fertilizer to increase yield and quality of cocoa, and build an effective and sustainable industry.

To read the full study, visit http://www.idhsustainabletrade.com/cacao-fertilizer-use

Photo from “Cocoa and fertilizers in West-Africa” by Francois Ruf.

The organization began in Sweden in 2010 and has expanded to Ghana and Russia in 2011.  Now, they are looking for social entrepreneurs in Rwanda in a partnership with telecommunications provider, Millicom, also known as Tigo.

According to AllAfrica, they are looking for two people with an early-stage, innovative, and scalable idea that improves the lives of children to give each person $25,000 each year for the next three years.  Applications began yesterday and are accepted until September 21.

There is preference for ideas that can leverage Tigo’s competencies or technologies.  While addressing the press, corporate social responsibility officer at Tigo Nina Claudia Ndabanenze emphasized that this initiative is beneficial for both the company and the country as a whole.

Tigo, which operates in 13 emerging markets in South America and Africa, is said to be the first company in all of Africa to introduce this kind of corporate social responsibility activity.

Photo from Reach for Change.