How do we finance social innovation? 5 insights from Impact!Africa
Jan 14, 2020
How do we finance social innovation? 5 insights from Impact! Africa
In December 2019, The Impact! Africa Summit, hosted by Ashoka and the British Council, convened at the Kenya School of Monetary Studies around the topic “Collaborative Finance for Social Innovation.”
The two-day conference brought together entrepreneurs, institutions, NGOs, academia and international agencies from across Africa and beyond to share experiences, challenges and possible solutions for building a vibrant social economy. Here are a few of our take-aways.
1. The promise of impact investment.
On the rise globally, impact investment aims to generate measurable social and environmental impact, plus financial returns. Today, Sub-Saharan Africa receives the second-largest share of impact investment, just behind North America.
As development assistance decreases in Africa, private-sector impact investment can help to strategically fund sustainable development, said Walid Badawi, the Resident Representative of UNDP Kenya. The money exists in private sector markets — social entrepreneurs just need to creatively tap into it. First, they must identify several factors: markets, commercial returns, desired level of risk and desired social impact. It’s also essential to understand the trade-off between commercial returns and social impact.
Africa’s impact investment sector remains in early stages, Badawi said. Areas like impact measurement and technical assistance need more attention. Nevertheless, some believe impact investment can change the game.
2. There’s a gap between impact investors and social entrepreneurs.
Social enterprises may be the top job creators in Africa’s economies, but their financing is limited, explained Pape Samb, Executive Director for Ashoka Africa. Ashoka’s research shows that social entrepreneurs often seek small-ticket financing, which investors perceive as having less return. This gap calls for a collaborative solution.
We need a new generation of impact investors, said Ashoka Fellow Moka Lantum. The mindset of early-stage companies should include the triple bottom-line: environmental, financial, and social return on investment.
At the same time, social entrepreneurs must understand how social issues — such as poverty reduction and the environment — are linked to investment and job creation, said Clem Ugorji, the Public Affairs & Communications Director for the West Africa Business Unit. For example, investors can help catalyze action around the plastic waste problem to create an entrepreneurship ecosystem that generates more jobs and wealth. Social entrepreneurs should think from the investor’s perspective and frame their ventures according to the return on investment.
3. Pay attention to the “missing middle.”
While small and medium-sized enterprises serve as the economic backbone of practically every economy, they remain significantly underserved by financial institutions. Arif Neky, Senior Advisor for UN Strategic Partnerships Coordination, posed the question: How can we bring financing to this “missing middle” sector?
Investment Director Yvonne Ofosu presented her work at Wangara Green Ventures in Ghana, an impact fund that focuses on the “missing middle” — businesses that are deemed too small for private equity and venture capital funders and “too risky” for traditional bank financing. They’re preparing to launch a climate-focused fund to support early-stage businesses creating positive environmental impact.
4. Government plays a role, too.
Besides stepping in when the market fails, the government has an important role to play in sparking social innovation, entrepreneur and philanthropist Irungu Nyakera said. In Kenya, for example, the government created a program for social housing and incentives to encourage private sector to step up and address social issues.
Policies and regulations also protect investors against fraud. When companies operate under clear structures and frameworks, investors feel more comfortable and confident.
5. Follow youth and women.
Youth and women pioneered the digital solutions to some of Africa’s most pressing development challenges, Badawi said. They’re creative, tech-savvy, and informed about specific community needs. Yet they encounter many challenges as entrepreneurs, including access to funding and infringement on intellectual property rights.
The world’s youngest continent, Africa has an average population age of 19 years, compared to Europe’s average of 42 years. This, according to Neky, will be a demographic dividend or a ticking time-bomb, depending on the ability to engage youth as changemakers.
Empowering others to join in building a better world, changemakers are the greatest return on investment.
These insights were compiled from a report by Lorna Seneiya Sempele and Lucile Dossou-Yovo.