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Building social investment markets in Turkey - what can YOU do?

If you are with a government agency: The Turkish Government can potentially play a critical role as enabler, convener or contracting agency (see more on the rationale for government intervention in this blog here, a proposed framework for government intervention here, and policy options here).

In this blog I would like to talk about the important role for philanthropy including foundations, high net worth individuals or angel investors to contribute to the nascent social impact market in Turkey. Furthermore, few of the corporations in Turkey have so far explored the market potential for inclusive businesses and strategic social venture investment.

Philanthropic support to existing initiatives
A ‘social investor in spe ’ could support the existing organizations and initiatives with a small amount of pilot funding and time in order to get to know players and market needs. This may include, for example, support of an existing accelerator program, a social venture competition, a social entrepreneurship fellowship program, a research project, public awareness or an education and training initiative. In the long term, the social investors could develop its own social entrepreneurship or social investment program in partnership with external organizations operating in this field (see for example the social entrepreneurship programme of Vodafone Foundation in Germany).

A social investment fund for Turkey
At the Euro-Asia Social Business Conference in Istanbul this month Professor Muhammad Yunus called for the establishment of a Turkey Social Business Investment Fund, since ‘social business not only needs good ideas but structure’. A social investment fund could indeed attract significant funding from organizations and individuals who would like to invest for social impact but who do not have the capacity and the means to develop their own investment vehicle. It allows for synergies and professional management (if the fund manager is well chosen) while ensuring strategic oversight by the board or investor committee. In my view the objective and design of such a ‘Social Investment Fund’ should be explored further in a kind of feasibility study. Questions to be discussed in such a study include:

  • Objectives and target: What are the market gap and the objectives of such a fund? Which kind of organizations do we want to target? For which phase in the entrepreneurial cycle (start-up, growth finance)? Should there be a focus on certain sectors? (Maybe to accommodate investors with a preference for environment, social justice, or technology sectors),
  • Products: What kind of financing should be provided (grant, debt, equity, or a combination of both, guarantees); should there be a technical assistance component?
  • Fund management: Who could be appointed as a fund manager and how should the fund manager be remunerated and incentivized?
  • Investors: What kind of investors do we want to attract? Should government or development financing institutions be involved? What is the minimum RoI expectation (if at all)? Do we want to provide for investors with different risk/return profiles?
  •  Legal: what are the legal barriers for such an investment fund under Turkish law? What are other possible structures and possible host countries outside Turkey?

Social business angel networks
A business angel could mobilize his or her colleagues to place capital in social enterprise start-ups and to establish a social angel network to screen opportunities and provide a platform for joint learning and exchange of experience (e.g. see examples of an impact investing angel network in Sweden or Clearly Social Angels in the UK).

Corporate social investing
In my view, corporate sector social entrepreneurship program should be strategically linked to the core mission of the business. For example, a CSR department of a financial institution may design a support program for social entrepreneurs with a view to developing a pilot loan program to social entrepreneurs as a learning investment for future product development.
With half of the population in Turkey unbanked or underserved with financial services there seems to be a significant demand for microfinance services, that the two microfinance institutions in Turkey are unable to satisfy. Why (despite DFI funded projects such as SELP II or MSME) do not more financial service providers offer microfinance services to less affluent customer segments in low income regions? A master student found in her 2013 master thesis that the reasons were “inertia”, “complacency”, “lack of awareness” and “internal capacity constraints” within major commercial Turkish banks. The social impact of such a product as well as the reputational gain would be significant if such products would be offered on a financial sustainable basis and became part of mainstream banking operations rather than a short term CSR project.
There is also role for the corporate sector other than the financial service sector. A communications company, for example, may engage in a strategic partnership, licensing agreement or joint venture with a social venture to develop and distribute communication products for an unreached market segment (e.g. women, eastern Turkey) or invest in a social venture that has aligned interests. For example, Intel Capital invested in Altobridge, a provider of affordable mobile voice and internet connectivity to unconnected communities. Furthermore, internationally there are many examples of large corporate businesses investing in social investment funds to promote their own corporate interests in addition to doing good (e.g. Starbucks in Root Capital, a social investment fund financing smallholder farmers or Cisco in Aavishkaar, an Indian Social Venture Fund).

Moving from ego-system to eco-system
None of these approaches are going to work if we do not move from a mind-set of ‘ego-system’, where individuals and organizations create their own (small) kingdoms to an enabling social impact market eco-system, where we share information and connect beyond our traditional institutional and personal boundaries. Figure 3 illustrates the necessary shift in mind-set and behavioral patterns.
 

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