Leveraging Social Capital – “Its Time for Change”Arthur Wood – VP, Social Financial Services, Ashoka

awood@ashoka.org

COMMUNICATION

““The coming Social Finance Crunch – “The coming Social Finance Crunch – “Population aging is a Population aging is a

worldwide phenomenon that will affect all G-7 countriesworldwide phenomenon that will affect all G-7 countries””

There is simply not enough money in the current paradigm– There is simply not enough money in the current paradigm– ““Population aging will be a key challenge facing the G7 economies over the coming Population aging will be a key challenge facing the G7 economies over the coming decades”decades”

There is a double whammy comingThere is a double whammy coming “The projected decline in the “The projected decline in the employment-to-population ratio will gradually become a hindrance to employment-to-population ratio will gradually become a hindrance to growth in living standards beyond 2010” growth in living standards beyond 2010”

The Spectrum of Social Capital Investment - The Spectrum of Social Capital Investment - created in 1888 / 1944 – “essentially pre modern capitalism” – the Gap

no financial return below market return market return

High risk

Low risk

Grants

$400bn

50%

Programme-relatedinvestments

Venture philanthropy

Mainstream“For Profit” Investments

Investment plus

Social Responsible Investment circa $4trn

Corporate Engagement incl

CSR

”

NO INDIVIDUAL OR SYSTEM MECHANISMS – THE GAP

Case Study - Value Chain Financing – SanitationCase Study - Value Chain Financing – Sanitation

Grants Recoverable Grants

Investment Plus MainstreamInvestments

no financial return below market return market return

Scale (GAVI) & Synthetic Profit (Corporate incentive)

Increase the credit quality of social capital markets ie. Leveraging - Microfinance / DB Eye fund model

Incentivising Innovation / Collaboration at the bottom of the pyramid – Social Entrepreneurship

Enables a Range of Financing options; incentivising corporates, banks, civil society;integrating “ for profit” and “not for profit” players

Based on “Foundations and Social Investment” Margaret Bolton 2005 and Bates Wells & Braithwaite

Legal Process – ie

L3C / CIC

Financing Mechanisms incentivising Community and Corporates Carbon / Vouchers / Fertiliser / Power

Programme Related Investment

What are the critical Ingredients What are the critical Ingredients ?

•Political Will – The IYS 2008 - Call by Brown / Moon to end of Silo’s

•Metrics and Audit- Clear Cost Benefit Analysis – WHO,UNICEF, DFID,WSP – if not non enforceable Grant

•You can Identify the Community / Distribution chain

•Not enough Money – it is however a business opportunity – a size to attract ?

•Structurally the status quo is not going to be bailed out – - decline in funding

•Banks looking for markets in real scale – this is an under leveraged market

•The more efficient allocation of subsidy – move to scale will bring benefits to many - Quicker R&D for Society and MC=MR

Collaborative Financing Facility NOT Just Funds

Participation

WSSCC, UNICEF, WHO, WSP, OPIC, SuSanna, IFAD, Deutsche Bank x2, UBS, Legal Group – (Caplin Drysdale, Gibson Dumm, Latham’s, Linklaters, Bates, Morrison), Acumen, L3C Advisors, Environtrade, Ashoka 10/40 Fellows incl WTO, Keystone, SROI – we welcome partners

Open Supply Side Model – www.changemakers.net - 250 ideas

UN Foundation (GWC) Funding Competitive / Collaborative – Sanitation supported by CNN, Coke, Hilton Foundation and Morgan Stanley

Facility Not Fund

Many social issues requires Collaboration – ie Water >> Sanitation>>Climate

• Different banks / Organisations – with different proposals on the Value chain

• Inclusive, Leverages Different Financial Players / Concepts

• Via Banks - Links into other core funders – Governmental

• Audit Mechanism

• Wider range of Investment opportunities – ultimately integrated

• To many different constituencies including the corporate sector

• Identifying a Single Language and Single platform - Integrating Social and Financial Profiling

NEXT STEPS – SINGLE PLATFORM / SINGLE LANGUAGE

QUALATITIVE PLATFORM >> A MECHANISM DEFINING WHAT IS EFFECTIVE TO THE CORPORATE / BANKING WORLD

PHASE 1 – Completed in March - http://www.changemakers.net/en-us/competition/waterandsanitation

PHASE 2 – Open Model Update with involvement of key Players

QUANTATIVE PLATFORM >> A MECHANISM DEFINING WHAT THE SOCIAL SECTOR HAS TO DO TO GAIN ACCESS TO CAPITAL

Commenced this week with OPIC, UBS, Deutsche Bank, WSP, Keystone, SROI, Ashoka, Acumen, U of Geneva – combining the best of Top Down and Bottom up models – with Feedback Mechanisms and Audit Mechanism

MECHANISM TO ENGAGE ALL PLAYERS IN SCALE Looked at as a Business Problem

SIX GLOBAL BUSINESS LINES TO SOLVE THE SANITATION ISSUE (may be others)

• 1 - Municipal Financing ;2 - Public Toilets; 3 - Mortgage / Housing

• 4 - Small Entrepreneurs; 5 - Methane / Carbon / Energy; 6 – Fertilizer

>> SCALING - Three Tier Corporate Engagement – Primary (i.e. Toilet Manufactures, Secondary (Soap), Tertiary (Companies with an Opportunity Cost)

>> COLLABORATION Social Entrepreneurs, Corporate , Social Sector The New Legal Paradigms >> L3C and CIC and New Intermediaries

>> ENGAGEMENT of the Banks – The need for Banking Skills!!

>> Are we part of a broader solution >> Water, Climate and Sanitation

IF I AM A SOCIAL SECTOR ORGANISATION / CORPORATE - WHAT ARE THE NEXT PRACTICAL STEPS NOW

PHASE 1

• WORK ON PLATFORM – QUALATIVE & QUANTATIVE PLATFORM – UNIVERSITY OF GENEVA

• CREATION OF A GOOGLE WORKING GROUP – SHARE MODELS

• DESIGN BOTTOM UP FEEDBACK SYSTEM WITH KEYSTONE AND SROI – YOUR ENGAGEMENT NEEDED INDEED CRUCIAL

>> CONSUMERS ARE SEPARATE FROM FINANCIERS

• WORK WITH WSP TO VERIFY FINANCIAL MODELS AND PROCESS AND MARRY TO TOP DOWN

THE SYSTEM CAN BE CHANGED A NEW PARADIGM - “IT IS TIME FOR CHANGE”

PHASE TWO

• APPLY TO BUSINESS LINES ACROSS ALL POTENTIAL RETURNS > CAPACITY @ -100% to FOR PROFIT MODELS – DESIGN TEMPLATE

>> WHERE DOES YOUR EXPERTISE FIT?

>> NOT JUST SILVER BULLETS BUT THE MAGAZINE OF SOLUTIONS – NOV 2007 PM –GORDON BROWN AND UN SEC GEN - BAN KI MOON – “AN END TO SILOS”

PHASE THREE

>> INTEGRATED REINFORCING ASKS CREATING A COLLABORATIVE MARKET CAPABLE OF SCALING

>> NOT JUST AT “FOR PROFIT” AND “NOT FOR PROFIT” BUT ALL INVESTORS AND INVESTMENTS TO ADDRESS THE ISSUE

HOW DOES FINANCE CHANGE THE INCENTIVES FOR ALL THE PLAYERS

>> A SYSTEM THAT REINFORCES COLLABORATION BETWEEN ALL THE PLAYERS IN MOVING A MARKET TO SCALE NOT FRAGMENTATION

WHAT DO I DO IF I AM A BANK OR GOVERNMENT ? Paul Martin - Former PM of Canada “The question I would put to you is quite simple” – Nov 2007

“If we are prepared to use these kinds of (tax / legislative) incentives to enable business entrepreneurs to tap capital markets for the betterment of the economy, why would we not provide similar incentives to social entrepreneurs as they seek to tap capital markets for the betterment of society.

• Financial experts ought to be developing new cutting edge instruments to make funding available to social entrepreneurs

• Tax experts ought to be thinking about mechanisms that can support social enterprise in a meaningful way.

• Legislators should encourage an environment that allows foundations to become more imaginative in support of social enterprise”.

SUMMARY THE IMPORTANCE OF COLLABORATION AND SCALESUMMARY THE IMPORTANCE OF COLLABORATION AND SCALE

• To solve the problems of Sanitation on a systemic basis requires:

– Governments to change legislation – Tax treatment and Legal structures >> CIC, L3C

– Empower the bottom of the Pyramid / Community

– Collaboration from the Social sector / NGO’s

– Foundations / Donors – Leverage - HOW to draw in more Private capital - LEVERAGE THE 100% NOT ALLOCATE 5%

– Corporates to engage in “for profit” for social impact

– Banks bringing their skills to bear along the whole Value Chain

– Creation / Evolving of New Intermediaries to safeguard the interests of both players