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With funding tight amid the financial crisis, investors want more than a quick fix for poverty
Anyone setting out to help improve the lives of poor people will at some point face the question of what impact their initiative is making – not just for moral reasons but, crucially, when funding is at stake.
The financial crisis is forcing delegates at this week's Skoll World Forum, the largest global gathering of social entrepreneurs, to take an extra close look at how to raise money.
Unlike their business peers, who can get money from well-established capital markets through debt or share issues, social entrepreneurs running non-profit organisations are largely financed by foundations, philanthropists or governments – and these sources have become harder to tap.
"I don't think there is any question that the funding landscape is changing," Ned Breslin, chief executive of Water for People, told TrustLaw at the forum. Corporations that were very engaged in water and sanitation programmes have pulled out or reduced funding as they have grappled with tough economic conditions, he added.
One way of grabbing attention – and securing funds – is to create strategies for providing longer-term solutions, beyond the typical one-year timeframe, Breslin said.
"We're doing this by saying, 'We don't want your investment just to be a one-off...it's an investment where we're going to make sure it lasts and truly transforms lives, and we're going to stick around to make sure your initial investment keeps going.' I think people like that, they realise it's not just a quick fix."
IMPACT INVESTING
There's quite a buzz around the term "impact investing" at the forum here in Oxford. It encapsulates a growing sector of private and public funds that finance companies focused on services and products for the poor.
Well-publicised success stories are Muhammad Yunus' Grameen Bank in Bangladesh, winner of the Nobel Peace Prize in 2006. In Mexico, another micro-finance institution, Banco Compartamos, raised funds through an initial public offering on the stock market, creating returns for investors.
But for every success story, many other social entrepreneurs remain marginal for lack of funding, in particular once they get beyond the start-up phase, forum participants say.
GOOD OLD GRANTS?
The grant system looks old-style in comparison, and remains somewhat of a paradox among social entrepreneurs. Many concede that "everyone wants one", even though few believe grants are an effective way of building scalable, sustainable solutions to the world's problems.
Critics slam grants for their short-termism – the average grant is for one year – and their focus on one-off projects. Observers in recipient countries argue grants undermine entrepreneurial spirit and distort markets.
Chris West, director of the Shell Foundation, told a panel session on "Grants Powering Growth" that there are "too many drip-feed grants to non-profits" and foundations need to take more risks in investing.
"Smart grants target financial viability from the start to see a horizon for sustainability," he said.
Meanwhile, new financial products are being developed to channel larger-scale capital towards meeting the needs of social entrepreneurs.
The world's first Social Impact Bond, which aligns investor returns with positive social outcomes, was launched at last year's forum, and is now spreading from Britain to other global markets.
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