We take philanthropic capital and deploy it as affordable loans & growth support for social businesses
Using social business as a mechanism to solve social problems, rather than traditional aid.
Supporting early-stage social businesses that focus on the very poor.
Working in emerging economies where there are few financial resources for the early-stage segment.
Providing patient, flexible financing and hands on growth support that builds up the market.
Employing a ‘global’ approach that mixes international resources with local problem solving.
The mechanism of social business
We believe that solving poverty in a sustainable way requires a transformational solution: the power of local social businesses. Pioneered by YSB Co-Founder and Chairman, Nobel Peace Prize Laureate Prof. Muhammad Yunus, a “social business” combines the business acumen of a for-profit company with the mission of a charity to solve social problems in an efficient and sustainable way.
We support the early stages
Early-stage social businesses hold massive potential for uplifting their communities, and focus on the needs of the very poor. Our Philanthropic Venture Funds provide hands-on growth support and affordable finance to early-stage social businesses in emerging markets seeking $100-300k on average.
There is a major gap in financing for social businesses.
YSB occupies a vital space in the continuum of support for social entrepreneurs, by supporting visionary, early-stage entrepreneurs who are not yet ready for larger, more commercial investment.
In this space there is a need for philanthropic capital to give early-stage social entrepreneurs in emerging markets the support they need. In doing so, our programs are building the market for impact investors and larger institutions in the later stages.
Addressing the challenges of entrepreneurs
These entrepreneurs face three simultaneous challenges:
they are early in their development and lack organizational stability;
they are based in economies with insufficient access to credit;
they cater their services to the poor (who are often seen as an unprofitable segment).
The ‘missing middle’?’
Social Businesses in emerging markets face a gap in funding known as ‘the missing middle’ where they are too large for microfinance, but too small for more commercial capital . Without sufficient capital and growth support through this period, most small Social Businesses will fail - creating a significant gap in the market for investors in the later stages. The most common definition of the missing middle in emerging markets are small and medium enterprises which need $100k - 2m USD to grow.
Early-stage entrepreneurs in developing markets need affordable credit in lower ticket sizes
Entrepreneurs in the early stages of the missing middle are often just phasing out of grants or friends & family rounds, and need risk capital to grow. In more developed markets, an institutional lender would often step in to fill the gap. However, in the markets where we work, access to credit is incredibly difficult, and impact investors are moving towards larger deal sizes. Yunus Social Business steps in to provide risk capital that would otherwise be unavailable.
Why do we need Philanthropic Capital?
The role of grant funding in making emerging markets work
By receiving donations, YSB’s Philanthropic Venture Funds fill an essential and otherwise unfulfilled role by providing patient and flexible financing at rates that are accessible to early-stage entrepreneurs. In addition to focusing on smaller ticket sizes, we know that investing in the early-stage segment requires a high tolerance for risk and flexibility in repayment - two qualities that are often difficult to find in traditional or returnable capital. The flexibility of working with grant funding allows us to focus on these smaller deal sizes and fund riskier investments that would be passed over by the banks and larger funds
Social Business Example: Tugende
Tugende creates opportunity for motorcycle taxi (or “boda boda”) drivers in Uganda by providing affordable lease-to-own options for the bikes. After they were unable to obtain loans from local banks, YSB provided a working capital loan to Tugende. This investment helped bridge the gap before the business brought on a larger investment. Today, the social business has leased thousands of bodas and has positively impacted more than 50,000 people.
The financing tools we use are specifically geared to match the needs of early-stage social businesses and to fill the gaps identified in the market. We provide long-term debt at rates that are just enough below market rate so as to be accessible to these entrepreneurs. Our loans are made on flexible repayment terms that can be rescheduled in cases of drought, political instability, etc. We also offer better options for collateral that are accessible to budding entrepreneurs who may not have extensive assets available.
Growth support and technical assistance (TA)
Our growth support provides social entrepreneurs with the extensive international business experience of our teams and extended networks. Before financing social businesses, we work intensively with pre-selected entrepreneurs to build a stronger investment case. Post-investment, we see our role as as active investors and provide long-term business development support. Our programs include both formal cohorts and informal one-on-one coaching and aim to improve business performance across financial planning, fundraising, HR & governance, operations, marketing and social impact management.
True social success needs local commitment, expertise and accountability
We hire strong local teams that come from high-level business backgrounds. They understand their countries and their business landscape inside out to identify business opportunities with the greatest social impact.
Our Local Partner Model
Our approach has also been honed through the development of our Local Partner model. We believe there is no better way to support social businesses than by teaming up with exceptional local business leaders, that have deep knowledge and networks in the countries we operate. True social success needs local commitment, expertise and accountability. Our partners do not only commit local philanthropic capital, which we match with international donations, but also serve as experienced advisors and door-openers for our future portfolio companies. Additionally, they provide their local infrastructure - such as office space and connections to pro bono professional services - which helps lower our local infrastructure costs.
Our funds in India, Brazil and Kenya are supported by a number of business leaders who serve as our local partners, and we are currently in the process of identifying local partners in Uganda and Colombia. To date, we have raised over $4m USD in local philanthropic capital through the local partner model, with even more value created through time, expertise, and connections.