- Problem: The US Impact Economy faces three major challenges that will need to be addressed before it can scale.
- Barrier to Progress: The three problems are: lack of investment capital looking for organizations looking to address social ills, lack of infrastructure, and lack of impact focus in many domestic programs.
- Solution: Government can look to other countries' for examples of how to solve some of these issues.
The last post in this series provided an overview of the actors in the Impact Economy. Before we look abroad, let’s discuss what’s happening at home.
The US Impact Economy faces three major challenges that will need to be addressed before it can scale. First, there is a lack of early stage capital for organizations looking to address social ills. Additionally, America currently lacks robust infrastructure to support the Impact Economy, which might include clarified and streamlined regulation and standardized impact measurements. The final challenge is that many existing programs often do not achieve their intended effect.
While the US is moving in the right direction with programs like the White House’s National Impact Initiative, the Social Innovation Fund, and the Small Business Administration’s Small Business Investment Company it is important to also look abroad for examples of how other countries are addressing some of the same challenges to accelerating the growth of the space. In this article we look at examples of how three other governments are addressing the major challenges to growth:
Incentivizing private sector investment for good in the United Kingdom (UK)
Big Society Capital (BSC), the world’s first social investment bank was launched in April 2012 by the British government and capitalized with ₤600 million ($950 million) from unclaimed bank assets and contributions from four large British retail banks. Its mission is to play a key role in ‘growing a sustainable social investment market in the UK…by investing in social investment finance intermediaries, developing their capacity to provide social sector organizations with access to new, appropriate and affordable sources of finance to increase their social impact’. BSC intends to catalyze social investing by increasing the amount of capital by ₤7 for every ₤1 the bank invests. Additionally, in its first nine months of existence, BSC invested ₤56 million (~$90 million) and plans to invest between ₤75 (~$121 million) and ₤100 (~$161million) million during 2013.
Building Impact Infrastructure in India
In India, there are 15 million households that earn between $160 and $400 per month, and rent rooms in small, cramped houses, with deplorable sanitary conditions. They do however, aspire to live in, and can afford to buy, small houses in the suburbs at market prices. These houses – while commercially feasible – were not being built, while individuals were left unable to access mortgages. In 2006, a group of colleagues sought to find a private sector solution to the problem. With the support of multinational institutions and foundations, they have been working with developers, financers, and government officials to develop and pilot new business models that could provide a private sector solution to the problem. Their business models and efforts have proven tremendously successful. To date these efforts have been successful, with more than 150 developers building over 80,000 apartments in the $5,000 to $16,000 in the last 5 years. Below are some ways the government played a role in supporting the private sector in their efforts to bring housing to low income Indians:
- Mandating developers to make housing for Low income people
- At a national level recommending that States zone land for low income housing
- Providing subsidies and creating an enabling environment so developers produce more housing for low income groups
- Offering lower cost refinancing and subsidies and reducing stamp duty and registration charges to low-income customers to improve affordability, and
- Setting standards to facilitate the market.
Developing new programs and repurposing old ones to maximize impact in Australia
In an effort to examine place-based impact investing, the Australian Government commissioned a series of reports. One of the key findings is that programs often developed to address a particular problem may often deploy resources without much attention to the needs of the targeted population.
The report points out that the government must focus more attention on achieving their proposed impact. To do so, they can engage with communities to define their specific needs with a focus on outcomes.
For example, Australia’s National Rental Affordability Scheme (NRAS) was created in 2008 to address the shortage of affordable rental units. A typical program might have only tracked the number of units developed, but the NRAS chose a different approach. By looking at the number of occupied housing units they were able to see whether low and moderate income individuals were actually getting placed. While this may seem like a subtle nuance, it allows the Australian Government to measure the true impacts of the program, and make adjustments if needed.
The examples outlined in this article demonstrate the benefits of incentivizing investment, building social business infrastructure, and developing new programs as well as repurposing existing ones to focus on impact. By looking abroad to what works, the U.S. Government can learn lessons that can help accelerate the growth of its domestic Impact Economy.