Social Capital Markets: Charlene Chen on “Innovative Ways to Invest”
Guest blogger Charlene Chen is a 2nd-year MBA at the Haas School of Business at UC Berkeley, with a focus on international development through ICT and social entrepreneurship. She spent this past summer working in SME development at an internet services provider in Ghana. Prior to Haas, she worked at Deloitte Consulting and earned a B.S. in Computer Science and Psychology from Duke University.
By Charlene ChenThese?may seem like?depressing times, judging by the current economic crisis. Yet there were nothing but smiles at the Social Capital Markets conference, brought together dozens of organizations and hundreds of individuals reaffirming their commitment to investing in or sustaining social enterprises. I was particularly inspired by the variety of creative approaches to address capital market failures in developing countries.
On Tuesday afternoon, I attended the panel session entitled “Innovative Ways to Invest from Brazil to Kenya”, moderated by John Duffy of Goodwell Investments, a social entrepreneur with experience ranging from the Peace Corps to Wall Street. The three panelists discussed different challenges?in bringing?innovative investment vehicles?for social?ventures?in emerging markets.
The “Missing Middle”: Small and medium-sized enterprises in west Africa
Linda Jenkinson is Managing Director and Founder of WOW Investments, which is a nonprofit social investment fund focused on women-based SME development in West Africa. WOW, recognizing that SMEs are beyond microcredit but not quite within reach of traditional forms of capital, is innovative in many ways. Not only does it provide SMEs with loans ranging from $10,000 to $250,000 at an average interest rate of 10%, but it also runs a business center in Dakar, equips entrepreneurs with business training, and facilitates business development through international networks such as OxFam.
Having spent this past summer providing SME training in Ghana, I fully share Linda’s belief in the importance of capacity building through technical assistance and helping Africans start and build up their own enterprises.
When?an audience member suggested that entrepreneurs might inflate the estimated value of their businesses, Linda responded that WOW has a pre-enrollment period whereby entrepreneurs start out with a small loan and then will graduate to larger loans upon approval.
Closer to commercialization, farther from capital
Marsha Wulff is the?CEO of Africeuticals, which strengthens Africa’s economic, human and veterinary health through supply and distribution of certified health products and services, highlighted the issue that a lot of money is directed towards early stage/seed funding, but as businesses move towards commercialization, the funding dries up. Her corporation hones in on this gap by providing “indigenous businesses” and international industry partners with business development consulting and market entry assistance.
Although there is much to be gained from public-private partnerships, Marsha acknowledged some of the challenges. For example, private corporations may have restricted access to intellectual property and also take on increased liability. One creative multi-tier capital structure that Marsha proposed included grants for clinical trials and health education, low interest loans for infrastructure such as computer hardware/software for medical clinics, and equity investments for the cost of goods and services.
Expanding the social capital landscape?in Brazil
The third panelist was Leonardo Letelier, Founder and?CEO of sitawi, which provides “supported social loans” (i.e. loans supplemented with managerial advice) to?”mission-driven organizations”?that address social and environmental issues in Brazil. Sitawi is currently fundraising a $1 million portfolio of 6-7 enterprises, and hopes to grow the fund to $15 million. The company seeks to mitigate risk by financing existing companies managed by ethical leaders. One challenge that Leonardo faces is navigating the legal landscape of Brazil, which really has no established regulations for funds like sitawi.
Personally, the main takeaway from this panel is that businesses are more likely to become more sustainable if they are built around?robust funding models – which is exactly why we need to make sure that innovative organizations like WOW, Africeuticals, and sitawi (which are primarily funded by high net worth individuals) are sustainable in and of themselves!