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“An opportunity to earn a good return in sectors which have clear social impact and serve the needs of customers at the bottom of the pyramid

Impact Investment Opportunity

Business, when done responsibly, is one of the central drivers for the development of human civilization. Advances in technology and other innovations are creating more opportunities and business models directed to the vast market at the Bottom of Pyramid. When done responsibly, these businesses can be an important and profitable tool for development.  Microfinance, the mother ship of impact investing, started to bring business concepts to development at the grassroots level only about 30 years ago. Institutional investors only started to see the opportunity in impact investing about a decade ago.     

Within this relatively short period, microfinance has seen tremendous growth and innovation and has been the basis for development of impact investing, which has helped create hundreds if not thousands of businesses that meet social objectives in the housing, healthcare, agribusiness, sanitation, life and health insurance, energy – just about every aspect effecting the life of poor people.

The reason the social enterprise/impact investing sector is growing fast is they are fulfilling the customer’s basic needs and create employment which further fosters demand. Serving clients’ demand is the first principle in creating a good business.

While the demand is certainly there, affordability remains a challenge. 

Innovative social enterprises are using financing including digital payment as a way to make beneficial social products more affordable.

Off-Grid Solar and Financial Access Markets

Energy and financial access solutions offer the most immediate opportunity to invest with impact at the bottom of the pyramid.

The most immediate opportunity is in the off-grid solar energy access and financial access sectors, which are commercially attractive and provide clear social objectives.   

Demand for Energy Access

There are 1.4 billion people without access to electricity and off-grid solar is the lowest cost means of bringing hundreds of millions of these people access. Today, the solar off-grid lighting products market is currently estimated to be an annual $200-250M industry, growing to a $12 billion annual market by 2030. (Clean Energy Service for All (CES4ALL) report authored by Lawrence Berkeley National Laboratory). Affordable lighting brings immediate benefits of having more economic and educational opportunities, better health, and improved safety. Lighting is the first rung in the electrification ladder and consumers are easily persuaded as they can see the benefits with a push of a button. 

Estimated Future Total Demand For Debt Capital For The Off-Grid Energy Access Markets

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Why solar power is spreading so fast in Africa

In 2009 just 1% of sub-Saharan Africans used solar lighting. Now it is nearly 5% or 11m people. The International Energy Agency estimates that 500m more people will have solar electricity by 2030.

Demand for Financial Access

Microfinance has a 30-year history, reaches over 150 million people, and demonstrates that socially responsible institutions can produce financial and social returns. Even so, an estimated nearly 2.5 billion people, representing an enormous market, are without access to financial services. In 2013, CGAP estimated financial inclusion to be a $17.5B market poised for growth. The IFC’s SME Finance Forum estimates the credit gap for formal and informal micro- and SMEs worldwide to be upwards $3.2-3.9 trillion, of which $2.1-2.6 trillion is in emerging markets. SIMA targets responsible microfinance and financial inclusion institutions that are expanding their product range, including SME’s, and use financial technologies to increase scale, reduce costs, and improve social outcomes for customers.

How financial technology is enabling the off-grid solar market

Angaza Design’s platform enables manufacturers and distributors to make energy products affordable to the world’s 1 billion off-grid consumers

Lack Of Access To Finance: A Key Barrier For Social Enterprise Growth

“Young businesses serving customers at the bottom of the pyramid typically lack access to traditional debt financing.”

One of the key constraints for enterprises serving new customer segments is the availability of finance to grow and become more established. These businesses are constrained for working capital as they do not have sufficient access to bank loans in their local markets or to international funding sources. Funding from SIMA will help to fill these critical gaps in access to working capital and create demand driven impact investments. 

The impact investing sector holds great promise yet remains in the early stages of development and requires targeted intervention ranging from grants, technical assistance, policy development, etc.

SIMA Is Creating A Platform For The Social Enterprise Sector

SIMA seeks to create a platform for social enterprise by bringing differently motivated monies together to not only invest in the sector but to work on policy, learn by doing and share these learnings, and bring resources to grow young, promising businesses.

In particular, we aim to attract private sector, institutional investors at an earlier stage of development to bring needed finance to the sector and to bring greater transparency and standards required by the institutional sector.

You Can Participate By Investing At Various Risk/Return Profiles

Risk mitigation is especially relevant when we are targeting a new industry like off-grid solar that has high potential but lacks familiarity with existing social investors.

Various tranches offer investors attractive risk/return profiles depending on their preferences.
Various tranches offer investors attractive risk/return profiles depending on their preferences.

One of SIMA’s key objectives is to increase the access to capital by engaging private sector scaled capital; sources include institutional, high net-worth clients and corporate social responsibility (CSR). While institutional investors are increasingly attracted to impact investment, they are not as familiar with the off-grid solar sector and require risk mitigation through guarantee of subordination.

Risk mitigation is especially relevant when we are targeting a new industry like off-grid solar that has high potential but lacks familiarity with existing social investors.

We use our deep experience with structuring to offer investment opportunities through multiple tranche funds with attractive risk/return profiles. Socially motivated investors play a very critical role in attracting scaled private capital and leverage investment towards their favorite cause. Investors who are more knowledgeable about the solar sector, as well as philanthropic investors who are more willing to take risk in pursuit of their social mission, can invest in lower tranches with limited risk mitigation. Senior tranches can enjoy the deep risk protection of about a 40% loss buffer, which allows fiduciary institution investors like corporations and pension funds to invest.

SIMA's CEO, Member of the advisory committee on impact investing, World Economic Forum (2008)

 

“Customer care and ethics are intertwined and inextricably linked. Customer care is crucial to ethics and vice versa. However, every good business in the world recognizes that to be successful, it has to satisfy the customer. More and more, as social investors become interested in maximizing profit and helping the ultimate customer, customer service continues to gain importance. Genuine customer care limits the unintended harm that may occur as we chart new courses.”

SIMA’s CEO, Asad Mahmood, commenting on the microfinance debate in his article
Microfinance and Ethics: Three Pivotal Questions“.