The Business Of Investing In ‘Better’

The Global Steering Group for Impact Investment held its fourth annual Impact Summit this week. It convened pioneering figures from the worlds of development, social finance and philanthropy, with the likes of former US Vice-President Al Gore, Ratan Tata and Sir Ronnie Cohen discussing how impact investment could benefit people and planet. But the fact that this leading international conference took place in Delhi was no accident.

It is true that India has long been at the forefront of global development efforts. Yet it is no longer a mere recipient of foreign aid or philanthropic giving and goodwill. Indeed, as a country renowned globally for its entrepreneurialism and innovation, India’s economy is expanding at a fast pace, boosting living standards nationwide. But how can the country square its rapidly growing tech and services led economy with longstanding development problems such as lagging educational attainment standards and persistent pockets of poverty? Well thankfully, this same entrepreneurial spirit is extended to India’s NGO and development sector.

Having worked in the sector for over twenty years, I have seen just how much change can result from positive development work. But in my time, I have seen much less change come to the sector itself. It has remained quite static – sometimes being reluctant to change, often not even considering it. Yet I have also come to see just how vital it is for development organisations and charities – just like business - to change and adapt so as to remain relevant and be successful. If the sector is to maximise the impact we exist to make, it is absolutely crucial that we understand how society is changing and we recognise how we can change for the better.

Fortunately, change is afoot. My experience has allowed me to travel all over the world through my job, and there are two not-for-profit landscapes that I have become particularly familiar with: the UK and India. In one of these, the sector is really entrepreneurial and far more about social enterprise than about helping people in a condescending way. The organisations themselves are absolutely focused on changing things and making society better – but in a way that is faster-moving with much less bureaucracy. They are also embracing creative approaches to financing – seeking investment, openly expressing preferences for ‘payment by results’ – I was even recently told by one organisation that they would refuse grant funding because it doesn’t inspire the right focus and behaviours – and embracing enterprise and the role of the private sector.

Readers may have guessed that country is India – and the rest of the world could really take a leaf out of its approach to development.

Why India? And how, particularly given its history of foreign aid and philanthropy? Well, India’s appetite for entrepreneurialism and innovation – like that fuelling its economy - is spreading to the development sector. Added to this, the maturity of its NGO landscape and social investing ecosystem means that India is uniquely positioned to attract funding through innovative mechanisms.

As observed at the Global Steering Group for Impact Investment conference this week, those with the ability to make a difference are coming together to pioneer more effective approaches to improving lives. They are responding to changes in society and changes in how not-for-profit organisations themselves want to work. They are securing alternative sources of funding through transparent and innovative financing mechanisms.

These efforts involve the traditional players - the philanthropists, NGOs, state and national governments - but are also mixing in the expertise and efficiencies of the business and financial world. Bridging these worlds is vital for the sector. It has been estimated that if just one per cent of global capital market investment was dedicated to social finance outcome funding, we could achieve the UN’s ambitious Sustainable Development Goals.

One of the latest examples of this new approach to ‘doing development’ is the Quality Education India Development Impact Bond (DIB), launched in Delhi last month.

For those not already aware of these innovative tools, DIBs are results-based finance mechanisms in which funders only pay for successful results. Investors provide working capital to deliver development programmes and investors can earn a return if the programmes they fund are successful. Measurable outcomes are agreed at the outset and independently verified. If the agreed outcomes are met, the funders – often philanthropic organisations - will pay the initial investors a return on their invested capital.

This latest DIB, with an $11 million fund, is the world’s largest in the education space and aims to improve literacy and numeracy skills for more than 300,000 children. It is also intended to drive focus towards outcomes in the development sector and transform the way education is funded in India.

Behind the Quality Education India DIB is an innovative coalition of organisations - comprising HRH Prince Charles’s British Asian Trust, the Michael & Susan Dell Foundation, UBS Optimus Foundation and Tata Trusts, together with the Comic Relief, the UK Government’s Department for International Development (DFID), the Mittal Foundation, and BT (British Telecom). But what is worth remembering is that joint-working of this scale and complexity was not something often seen before such innovations came to market.

This DIB is only the latest in over a hundred that have been launched around the world to date. Over time, and with accumulated evidence from DIBs, instruments like these are likely to evolve. This will create opportunities for a more diverse range of investors and funders to get involved, increasing the overall pot of money in development, which DIBs will be well placed to secure. 

Increasing private sector investment in the development sector has the huge potential to shift us towards capital markets-led outcome-based funding – a burgeoning market potentially worth $2 trillion. Directed at the right projects and outcomes, this would not only be a great stride towards achieving development aims such as the UN’s Sustainable Development Goals but could also provide investors with new opportunities to make a return – both financial and social. And in my experience, that sounds like both a better way for developers to do business and a way for a business to do ‘better’.

Richard Hawkes

Guest Author Richard has been Chief Executive of the British Asian Trust since September 2015 after having held a range of senior roles in the UK and international not-for-profit sector for more than 20 years. Richard was formally Chief Executive of Scope (one of the largest not-for-profit organisations in the UK), International Director of VSO and Chief Executive of Sense International. He has worked for the United Nations and been Chair of a number of UK sector bodies, including the umbrella body for UK international NGOs and the UK voluntary sector body on social care. He is currently Chair of Motivation, an international disability NGO. Richard has a vast experience of innovative finance. As CEO of Scope he was responsible for launching the first social investment bond in the UK, a £20m bond that was listed on the Luxembourg Stock Market. Scope was the only UK charity involved in the G8 summit on social investment, as well as being listed on the Social Stock Exchange. The British Asian Trust is at the cutting edge of development finance, where traditional philanthropy meets innovative finance solutions and is currently developing a number of innovative products for South Asia, including an $11m Development Impact Bond for education in India.