Many in the impact investing field are aware of the Sankalp Forum, a platform launched in 2009 by Indian investment firm and market builder Intellecap. Its annual event, the Sankalp Unconvention Summit which will take place again between 9-11 April in Mumbai has become the largest social enterprise event globally and the Forum’s year-round initiatives engage more than 11,000 players globally.
In 2013 Sankalp Forum started to expand to East Africa to create a Indian – East African corridor. The first Sankalp Africa Summit 2014 held in Nairobi in February this year brought together more than 400 SMEs, investors, DFIs, donors and academia. True to the Sankalp principles it emphasized the ecosystem perspective to promote impact entrepreneurship effectively and achieve inclusive development.
I was delighted to co-host a session on the role of government and development organisations in promoting social innovation at this event. It was interesting to note that while many of the major development finance institutions (DFIs) and donor agencies such as IFC, KfW, CDC, USAID, DFID or GIZ took part in the meeting nobody from the Kenyan or any other African government attended the session - it seems we need to do more to engage them. It was still an interesting and vivid debate:
Is the public sector risk averse?
Some participants argued that DFIs did not engage sufficiently in higher risk ventures as could be expected of them as puplic sector organisations but were instead chasing low hanging fruits. True? During the session we did hear from two government initiatives that aim at channeling capital to riskier new markets:
- Gurmeet Kaur, Head of Impact Investing at CDC, the UK’s government development financing institution introduced the principles of the new DFID impact fund, a £ 75 million fund of fund directing capital to intermediaries in low income countries in India and SubSahara Africa that invest in sectors or pro-poor businesses that are otherwise unable to attract commercial investment and hence require the early-stage patient capital and technical support. It is also noteworthy that the program targets first time fund managers.
- Haje Schuette, Kenya Country Director for German Development Bank KfW, shared the experience of REGMIFA, a regional fund for micro, small and midium sized enterprises in Africa. The unique capital structure, a public-private partnership between donors, DFIs, foundations and private investors, allows for the leverage of public funds as a risk cushion to attract significant private sector capital to MSMEs in Sub-Saharan Africa.
Is the public sector doing enough to build social impact markets and create much needed market infrastructure?
We agreed that much attention focused on individual tools, in particularly financing and investing funds. We therefore discussed the importance of developing a vision for market building and creating market infrastructure. Stefanie Bauer, of the German Development Agency GIZ in India reported on a new impact measurement tool “Prahbav” (“impact” in Hindi) developed for impact investor Aavishkar with support by GIZ and IFC (more details is available in the recent case study on the Aavishkaar India Micro Venture Capital Fund (AIMVCF), p 15).
It was also pointed out that as part of the DFID Impact program, DFID engaged GIIN to help develop and grow the impact investing market in sub-Saharan Africa and Asia. In fact, the day before Sankalp started, I was able to attend parts of the new GIIN training for fund managers from Africa and India on fundraising, a program delivered under that DFID-GIIN partnership.
However, activities that build markets and particular focus on supporting governments with promoting social innovation are still the exception rather than the rule.
How do public sector organisations deal with “the new kids on the block”, i.e. foundations, impact investors or social business angels?
There is no doubt that DFIs are among the earliest impact investors. Development agencies have worked extensively in emerging countries promoting SMEs, inclusive finance or access to basic services. Many of the first SME or MFI funds were set up by DFIs and planning and managing impact is in the DNA of most development organisation. Moreover, many donors and DFIs have established close working relationships with government agencies and have a strong credibility amongst key local stakeholders in the respective field. However, working with early stage ventures or investing in social entrepreneurs is a new area for many DFIs and donors.
In the contrary, many foundations, impact investors and social business angel networks that recently became active in emerging countries such as Kenya and India have a long history of engagement with social organisations in their home countries, mainly the US. These investors benefit from their experience in a developed eco-system with an enabling legal system, a huge variety of players, advanced product and financing technologies and sophisticated services. Furthermore, these players often have greater flexibility to invest where and how they please.
It seems about time to ask questions about the future division of roles and explore opportunities for stronger collaboration between development organistions and new players in the social investment landscape in emerging countries. Unfortunately, we ran out of time to explore this interesting question further at the Sankalp Africa Summit….
This blog was originally published on the website of the Impact Investing Policy Collaborative which closed down in 2015.