chronically homeless, to improve their well-being, and
reduce Medicaid costs. The Labor Department is
committing $20 million for pay-for-success contracts for
state-level workforce development; the Justice
Department is backing contracts for prisoner re-entry
programs.
"We hope to show that you can securitize a new form of
cash ?ow out of government savings based on the spread
between prevention and cure," says Tracy Palandjian,
who heads Social Finance, the Boston-based nonpro?t
that is organizing a number of demonstration efforts.
If it sounds sketchy, consider that ?nancing methods we
now take for granted were once edgy as well. The 30-year
amortized mortgage was introduced by the Federal
Housing Administration in the 1930s to unlock bank
lending during the Depression. In the late 1970s, federal
regulators let pension fund ?duciaries invest in venture
capital, fueling the tech explosion.
CAN "MORAL" FINANCE REALLY MAKE MONEY?
Now there's a rush to "crack the code" for unlocking
private capital to meet the needs of the world's poor. For
example:
--
The government's Overseas Private Investment
Corp., or OPIC, agreed to put down $285 million last
year in a half-dozen "impact" funds that pledged to
raise another $590 million in private capital.
--
The Small Business Administration has committed $1
billion over ?ve years to ?nance job-creation in lowincome communities and clean energy projects,
matched by private capital.
–
turns out such ventures are not that easy to ?nd. An
increasing number of companies around the world are
seeking "the fortune at the bottom of the pyramid," as the
late C.K. Prahalad put it, but most are too young or too
risky to be "investable" by investors' criteria.
For example, the new $25 million African Agricultural
Capital Fund provides a hunting license for Pearl Capital
Partners in Kampala, Uganda, to ?nd 20 agribusiness
deals that can together raise the income and productivity
of at least 250,000 East African households. "Even putting
aside the impact thesis, there are some really interesting
opportunities in the market to address the needs of lowincome people," says Amy Bell, head of J.P. Morgan's
social ?nance unit, which brokered $17 million in equity
investments - not grants - from the Gates, Rockefeller and
Gatsby foundations, and itself made an $8 million
commercial loan. But J.P Morgan's assessment of the risk
was aided by a guarantee by the U.S. Agency for
International Development for half of its loan.
In Nairobi, M-Kopa LLC is creating a way for low-income
consumers to use their mobile phones to pay-as-they-go
for solar power systems, farm equipment, sewing
machines and other productivity-enhancing equipment,
was swarmed by impact investors eager to help it move
from testing to rollout. That was partly a function of its
pedigree: the venture was incubated by Signal Point
Partners, the mobile-services incubator started by Nick
Hughes, who as Vodafone's head of global payments in
2004 launched M-Pesa, a mobile payments system now
used by more than 10 million Kenyans to pay bills and
transfer money. The r ush was also spurred by riskinsurance from USAID, which mitigated some of the local
currency risk for international investors.
In the UK, the Big Society Fund launched recently with
600 million pounds (more than $950 million) to invest
in social enterprises. Two-thirds of the money comes
from dormant bank accounts reclaimed by the
government and the rest from four big banks.
"There are all these funds trying to prove that certain types
of investments are not as risky as traditional investors
perceive them and that commercial money can get into the
sector," says Christian Schattenmann, CFO of Bamboo
Finance, which has raised $250 million and is now focused
on solar power in the developing world. "In 10 to 15 years,
mainstream and impact investing will merge and become
one sector again and everybody will be looking at
environmental and social impact.”
A GOOD BET IS HARD TO FIND
Suddenly, everybody seems to be looking for "impact"
investments that promise measureable social and
environmental bene?ts along with ?nancial returns. But it
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CORPORATE SOCIAL REVIEW