The Social Success Note aims to leverage commercial capital for social good.
Crowding in commercial capital to finance social businesses
Across the world, small and medium enterprises (SMEs) lack access to finance. They experience a missing middle estimated to range between $2.1 trillion and $2.5 trillion in developing countries alone. This financing gap is even more acute for impact-oriented SMEs as these enterprises look to achieve both a social and financial return which may, in certain circumstances, come into conflict. Money, however, is not the problem. There is an estimated $210 trillion invested commercially by institutional and retail investors around the world. Over recent years, a variety of innovative financing tools, including impact investing and results-based financing, have emerged to help channel some of this capital to achieve greater social outcomes. The most prominent example of this movement is the emergence of Social and Development Impact Bonds that seek to mobilize commercial capital to fund proven social programs, with a promise to be paid back by government if these programs achieve desired social outcomes. The Social Success Note extends this approach to social businesses.
Partnering with The Rockefeller Foundation The Rockefeller Foundation has played a decisive role in activating a dynamic around impact investing. The Foundation is supporting the use of innovative financing mechanisms to mobilize private sector capital through its “Zero Gap” portfolio. Zero Gap is focused on solutions that can ultimately catalyze large-scale capital from institutional investors, as well as households and retail investors. Within this portfolio, Yunus Social Business and The Rockefeller Foundation are developing the Social Success Note (SSN), an innovative pay-for-success financing mechanism that addresses the investment gap for impact-oriented SMEs and social businesses. Through a new alignment of incentives and interests among entrepreneurs, investors, and philanthropic outcome payers, the SSN holds the promise of addressing the missing-middle financing gap for impact SMEs by mobilizing commercial capital into these businesses while overcoming the long-entrenched trade-off between social impact and financial return.
Piloting the Social Success Note The Social Success Note is a new and unique financial innovation that allows capital to flow into underfunded sectors (e.g., low income geographies and “push” product sectors) deemed traditionally too risky or unprofitable for mainstream capital. It also allows existing social businesses to delve deeper into their area of social impact, like targeting a poorer customer segment than traditional IRR investment hurdle rates would allow. Yunus Social Business (YSB) and The Rockefeller Foundation are working together to launch the pilot in 2018 with one of YSB’s investment-ready social businesses.
Over recent years, a variety of innovative financing tools, including results-based financing, have emerged to help channel some of this capital to achieve greater social outcomes. The most prominent example of this movement is the emergence of Social and Development Impact Bonds (SIBs and DIBs) that seek to mobilize commercial capital to fund proven social programs, with a promise to be paid back by government if these programs successfully achieve desired social outcomes.
On 20 March this year, Luis Miguel Botero discovered that his social business, Pomario, faced an existential threat. It was the day that a nation-wide quarantine in Colombia was announced, which was ultimately extended until the end of August. For Botero, as for many business owners, this presented the threat that his social businesses’ revenues would disappear overnight.
These have been difficult times for our portfolio companies. They are working hard to protect those they employ and serve. In India, Waste Ventures recycle plastic and improve the lives of waste pickers. As they are dependent on revenues from previous months to meet their expenses, the abrupt pause to their activities has made their ability to pay their workforce much more difficult.
Social-business entrepreneur Roshan Miranda saw an opportunity to address the environmental challenges of waste recycling while also improving the livelihoods of waste pickers. He co-founded Waste Ventures India, a social business that works with waste pickers to boost their income and India’s recycling efforts.
The MAN Impact Accelerator #2 isn’t quite over yet and now is your chance to celebrate the journey and the closing of another successful batch.
The ancient Greek philosopher Diogenes once famously noted that: “we have two ears and one tongue so that we would listen more and talk less“. The act of listening as a means of truly understanding an entrepreneur is an important skill when it comes to tackling the challenges they face.
As part of the first digital Skoll World Forum, Yunus Social Business hosted the ‘Business As Unusual’ webinar all about the power of social INTRApreneurship, with our partners the Schwab Foundation, HEC, INSEAD and Porticus.