The Colours Of Money: Social Financiers Collaborating For Impact «

The Colours Of Money: Social Financiers Collaborating For Impact

Investors are looking beyond the single bottom line, but still seek commercial returns on their investment. Philanthropists want to maximise impact with constrained resources. Governments recognise the limitations of development programmes to solve the world’s most pressing problems. This session explores ways that investment, philanthropic and government resources are working together to create positive impact in innovative ways — through investment approaches that combine different ‘colours of money,’ working to help innovations escape the world of the small but beautiful.

imagine a world in which the innovations of social entrepreneurs get the critical support where they can actually scale to global impact imagine a world in which community based organization and enterprises are able to provide critical services of high quality an sustainable to truly meet the the needs of the poor.

For the first time, and imagine a world in which the truly large sources of capital in the world, and the ones that I'm aware of come from private markets and investors, and government. So those sources are able to work with philanthropy and with each other to catalyze the kind of change that we care about and so with today's panel, we have three speakers who are engaged in bringing those different colors of money together for impact.

We'll hear about what they're doing and some of the challenges and opportunities that they're facing. First we have, to my left Lori Spengler who is president and CEO of Shorebank International. She's built a strong record of success, and I will leave you to read her bio in the program for more detail, but ShoreBank has, is one of the leading organizations advising, structuring,investing in transactions that bring together government, multilateral organizations, private investors and philanthropy in funds and intermediaries that expand access to capital for small businesses entrepreneurs and households around the world.

Next to her we have Oliver Carrias who is a partner with LGT Venture Philanthropy, founded in 2007 by the Princely House of Liechtenstein, and I've been practicing to say that. I love to say, "Princely House of Liechtenstein." They're offering services to the clients of LGT Group. They bring a distinctive approach in working to scale social purpose organizations in the developing world.

And finally we have Toby Eccles, who is a founder and director at Social Finance where he has the modest ambition of creating a social investment bank. And just three weeks ago, Social Finance launched a ground-breaking Social Impact bond in partnership with the U.K. government.

And so, I'll ask each of the speakers to give some opening remarks and after each we will pause briefly. If you have any initial burning comments--brief comments--or question that you'd like to interject, we'd like you to do that very quickly after each speaker, but we do ask you to be brief. Laurie?

[sp?]

Thank you very much, Dan.

well thank you (xx) for including us in the forum. we are really delighted to be here and particularly for the session the colors of money because for us in our work we are really grounded in the goal of how do we unleash financial resources to support the extraordinary efforts and energies of entrepreneurs around the world.

We certainly identify with that mission because we see ourselves as entrepreneurial
entity i want to say just a word about shore bank tell you a bit about the principals that underpin our work and then give you an example of a transaction where some of the principals did come together as we start our conversation today.

ShoreBank International is the international arm of ShoreBank, which is the oldest and largest community development bank in the United States. It is a bank that's very much a kin to Treater's[sp?] Bank here in Europe, Brakh[sp?] Bank in Bangladesh infact, those three banks together have recently formed something called The Global Alliance for Bank banking on values to really show hopefully the world that about it is possible to be values left in banking activities.

Our mission is really extending access to capital-underserved communities and were triple-bottomline[sp?] in our approach. Our particular sector focuses are small business finance and I emphasize small business not SME,it is the S of SME, Micro-finance and affordable housing finance. We have as instruments investments capital directly,funds under management, advisory services, and transaction intervention.

And it's the last part that I'm probably going to highlight a little bit because we see a tremendous and growing demand for transaction interventions capital raising activities for entrepreneurial ventures around the world. So what are some of the principles that got work there are really three main principles.

The first is a capital plus approach. We really believe it's not just about the money the capital but other forms of interventions and support the plus whether that is governance whether that's advisory services whether that is access to market linkages but there is the plus component of that's really for us, integral to success.

And we prioritize our activities where there is a capital plus opportunity. The second principal's really and it's come up the number of the sessions what we call unpacking and matching and we do that in three primary areas one is the business model and we have talked a lot about that over the last two days what is the business model there is no right or wrong here but understanding with clarity what is the business model of the entrepreneur including sometimes the legal form of that business model is it profit optimizing is it profit maximizing and really being clear and unpacking of the business model the second area of we focus is on the state of evolution of the business and again this has come up a lot.

Start up versus early stage versus growth and expansion versus mature [xx] really need to be very very focused on where a business is in its evolution and stage of growth. And the third area that we would apply this unpacking focus is On return expectations, and that's probably the most important for this conversation.

There are lots of nuances here, we use four main buckets when we think of investors. We have philanthropic . Investors who really are putting their capital to work and not expecting a financial return, but obviously very significant development in social returns. We use a bucket, what we call sub.

commercial investors and for those investors we think about people who want the principal back and, perhaps, a little bit of money to cover the administrative expenses. Often Times in the United States we talk about a PRI type of investor but it's really principal plus a bit. The third bucket is quasi commercial.

And this is the one that we actually try. To focus on and if anything we're trying to drive more investors to sit in this chair, and the quasi commercial we associate a financial return of five to eight. Percent, with very robust focus on development returns. So, really people who, if anything, i would say are primarily focused on can we [xx].

[xx] that development objective and from a financial point of view, [xx] some where in that range of 5 to 8 and then above that, we have really put them in more of a commercial bucket and some of commercial investors as we all know the are looking for double digit returns and very high returns we are trying to work with commercial investors and bring them into Closer to the class i commercial chair or these two chair where they very strongly encourage the development return adjective investments.

The third principle is investment readiness and i won't dwell on that, it's just, we had a very good discussion in the prior session about investment readiness, and it's both on the investee and investor side, which i thought was a very important comment coming out. That group, and we do spend a lot of time in our principles on investment readiness.

So the power of combining colors of money, one transaction i'll talk about it was helping [xx]. the NGO, not the bank, as they wanted to expand into East Africa, and to Tanzania, Uganda, and Southern Sudan, and so [xx] the lonstanding partner of Shore Bank, and Dr. Abed the founder of Brac, asked me about two and a half years ago, said "we started some very small operations in Tanzania on to southern sudan.

And purposely more stable environments and post-conflict, because that is Brac's approach and their model. Brac would never describe themselves as an MFI, they're a development organization. Microfinance is their lead instrument to build a village organization and really understand what a community needs.

But they're ultimately using microfinance to deliver education, health, agricultural support and the like. So they asked us if we could help them raise funding, they had started not surprisingly with a little bit of grant money. in these 3 countries and some of their own resources. But in Bangladesh there are very strong foreign exchange restrictions and Brath although very successful in Bangladesh and did have some surplus funding they could not remove, and they still cannot remove that funding from Bangladesh to support their activities out side of Bangladesh.

Secondly. Doctor [xx] felt that they were at a stage, post startup where maybe quasi commerical or more commercial funding, debt funding, could be appropriate and helpful for them to grow. and they really wanted to take away management's time from knocking on doors and asking for $100000 at a time because Barrack, as many of you will know, has a real ambitious scale approach and so they wanted to scale to 700,000 borrowers in those three countries with about 250 branches in a pretty short period of time need of money to do that so we thought about it i would say Norseman of time doing detail business planing so we ends it up coming up with a fund type vehicle which i will explain.

It was different from a fund in that we all knew precisely where the money was going to go from the beginning and that came from the very detailed planning for each of the three countries. And then we went around and tried to really think about what would be an appropriate combination of investors to support Brach, and our motivation was to introduce some new partners to Brach for the long term because Brach is also now operational in Sierra Leone, and Liberia, and other parts of Africa.

They do expect to be in many countries globally, so how could we expand the support base for Brack, introduce them more to investor types, not only donor types because Brack is very well known in the donor world, but not so well known in the investor world. So we started putting this pool together and we ultimately concluded with 13 investors in this transaction of 63 million dollars, that, I am pleased to say, was a successful conclusion and it closed right at the time of the global financial crisis and beginning to shake people's confidence.

We closed in October of '08, which was, I think, one of the last transactions of this kind done for quite some time, it just felt like we just snuck in before the land scape changed, and the thirteen investors are just a tremendous range. individuals and institutions, small foundations, larger foundations.

Some of the IFI's absolutely, banks and private funds and what was interesting about the experience; some people that we went to said, "Oh yeah we know Blackberry well. We have a direct relationship with them." So there were a couple of private equity funds saying we are already investor in directly with them.

We're not interested in something that's an aggragating vehicle. But as we pitched them they recognized that there was tremendous efficiency, for them, having access to three countries [xx] three currencies, and also there was a servicing mechanism that they could avail themselves of so they could get more information about Brack [sp] in and.

way, not having to send their own people out of three countries, regularly. So, we found that there was a surprising efficiency appeal. The other surprise i think was that got stuck into the conversation. We did a layering mechanism, and I'm happy to talk in more detail about the layers because it's a local currency facility in the end, we felt strongly we had to protect the MFI's against foreign exchange risks.

And you can't possibly swap out Southern Sudanese pounds for seven years without it being cost prohibative to Brack's business model. Which is focused on women there serving so we had to be we had to owned that and really worked very hard disstructure to ensure that they are not dislocations to their own business model.

But we really found that when we got stuck into it we had identified, given the contume of investors I shared, different chairs. Different chairs you could in pieces of the deal you could take. And, what we really worked to achieve and that we did is that many investors took multiple pieces of the deal.

So,if you go back to my continuum of the quasi commercial and commercial, we had people who we thought initially might only be in a commercial chair, the higher coupon rate chair they actually took both pieces of the deal and similarly people who approach the transaction more from a development angle saying, "i am happy to take a lower return because i really believe." in the development impact in this transaction [xx] said "well, you know what?

It might be interesting for me also, to have a piece of that part of the transaction as well." And i think that was a real it was a bit of a surprise, as i say. Once we cottoned on to it, then we made it a part of our selling proposition. And it was very satisfying. And when i look back now on the results, i would say the anti agree progress of no questions we agreegated pull of capital that rack over that taken them US for that kind of money togther to support irractivities in these three countries very challenging countries particularly southern Sudan and so we achieve that the inverters felt they got a chance to support these activities in an efficient manner with some as i say, of country risk, and of currency risk.

But intangible benefits for me are far more relevant today. Southern Sudan, if you've been following the news, is there are the elections. But even leading up to the elections, there's been a very difficult operating environment. It's had an effect on Brax operations [xx] as spiked for reasons that are very understandable.

And yet this pool of thirteen investors, coming from very different perspectives initially, have really with brack [sp?] and as we have these group calls and group conversations i think it's in large part that they have really listened to each other and the more commercially or (xx) industries or hearing the argumentation and appeal from the strong developmental industries and the developmental leading industries (xx) also learning about some more of the discipline and the expectations of the commercial investor.

So there really has been a support and benefit for Brack and some of these investors are already talking about supporting West Africa fund for Brag[sp?] and working together again. So the cross linkages have been very tangible and have had strong benefits for Brag[sp? ultimately, which is the goal.

Glory thanks for showing for that that that story and show back we many and admired so far but be great to hear more about how this actually came about. And I'm wondering, are there any very quick questions, comments from the audience that you would like to share this I'm sorry, the question was. Could you please speak into the microphone.

Yes .

Could you tell us what the proportion was of the sixty three million between the different tranches?

The sixty five percent of the deal was sold on I would say the more commercial coupon basses and thirty five percent on the second tribe the more development bases but in fact it i say the investors really split down the middle fifty-fifty, because they ended up taking multiple pieces of the transaction.

I should say, I know there people here yesterday from OPEC [xx] private investment corporation and what was extraordinary is that OPEc started, as you can imagine, in the 65% pool and we said to OPEC as the lead investor we need you to take and demonstrate your connectivity of taking the pieces both.

Other than that, and they did and they it was the first time they did so. And they have been an extraordinary partner. i would say and it really i hope it demonstrates for OPEC [sp?] a kind of a new path and I think if if you look at some of the deals they've done subsequently it has, with Elizabeth Little field at the helm of OPEC [sp?] it will solidify that we really pleased ok one more question over hear could you please speak in the micro phone.

what was the return on the deal i mean just an average sure. The coupon, it's a debt deal. So the coupon notes the traunch [sp?] A, the more senior traunch [sp?], the more commercial traunch [sp?] carried an eight percent coupon and the quasi commercial carried a five percent coupon. It does have the possibility of a kicker at the end of the fund, which is a seven and a half year facility.

its really a facility, not a fund. i mean we used fund vernacular because people understood it, but its really an aggregating debt facility.

Wonderful. Thanks Laurie. Next to Oliver.

Thank you very much for [xx] foundation to present to you today. My name is Oliver Carius[sp?] and i'm a partner with venture philanthropy. i would like just perhaps [xx] to give a bigger back ground about our approach. We take venture capital approaches and apply them to philanthropy. We are 3 years old, have done 14 investments so far.

The main aim of our foundation is to improve the sustainable quality of life underprivilaged people.so in assence we are (xx) social (xx) is the primary driver of what we do and we get i think the time that we see today is very very exiting because there are lot of new innovative business models that are coming up that do need support and particularly support in the kind of growth face.

So we focus primarily on providing missing middle funding between 200,000 up to a million, for organizations in emerging markets in Latin America and Africa, in South East Asia and India, and to really help and scale those organizations. And we found our approach consists of providing the right kind of capital, really sitting down, understanding what the underlying business model is.

But then not only structuring the capital in the right way, but also providing, building a relationship of trust with the management, which would go multi year. To really understand what kind of management quality and management support they need or the organization needs, to strengthen the organization.

A lot of times you find the founder, the entrepreneur, and the manager to be one role and one person. And as they really want to scale out and articulate, the millions of people they would like to reach. They then struggle because there's not enough funding out there to really provide them with the capacity to build the organisation then ultimately deliver that kind of social impact.

So it's financial capital it's intellectual capital and social capital. We find it's absolutely import to provide those entrepreneurs and organizations with access to other funders, experts, TA facilities, what ever it might be. So we really our selves in a po[xx] with the organization. With regard to the topic today, the colors of money, i just want to put out a thesis here and we've all heard of term public private partnership.

And i would like to extend it by another p called philanthropy. Because ultimately public, private, and philanthropists have different return expectations, have different expertise, have different motivations for coming in. And in a deal that i will describe briefly to you just to high light those kind of different approaches.

So let's go to Brazil, let's imagine children advantage communities in Brazil. And there are a lot of them, there are 3.4 million which constitute around 40 percent of the unemployment actually in Brazil. So you have a rapidly growing population, a lot of youths and these youths are unemployed. That's the situation.The government has recognized that and said, look, why don't we launch a law for apprentice ship requiring corporations to take young people in as apprentice.

Now the corporations are in a bit of a tricky situation because they don't know how to find these children, how to train them, how to bring them into the work force, provide them on a social, just kind of social training. So, an organization called [xx] has come them up and is actually bridging that, that, huge gap in the market where government has proposed the law, it's clearly not working, the corporations are stuck, would like to take is used on.

So [xx] has developed a very effective model of taking those youths, training them up and then placing them into corporations that actually pay for it. Now, with [xx] the interesting thing was when we started engaging with them, they wanted to replicate their model with forty other partner organisations in Brazil, so this is a scalable replicable business model, these are the models that we look to support, but we clearly found that the capital in that phase of growth [xx] wasn't actually the issue.

So, we put in a CFO and Business Development Manager to work on the expansion strategy, to work on strengthening a lot of the internal, the capacity. And often the [xx] is in a position where they are much more nimble and able to replicate and really take it to the next level. And that is an example for us where we said, well we could have put in capital, but clearly that's not the fundamental need.

And working with them for the last one and a half years, they're now at a position where we can come in with the right kind of funding and we can now also sit down and say, structure the funding for the actual need for [xx] and so that's, that's an example where we would provide intellectual capital first and then the financing.

And just quickly a second example that we worked on is in,let's go through East Africa to Kenya. We sitting in community slum and clearly there no school available in those slums.Now there is organisation called bridge international academy's which has identified that need to actually set up schools to take those children in we have taken a very noval approach, we are not going to set up a school, we are actually going to charge for it.

Costs $4 per child. it is set up as a pure equicheval [sp?] and because they Jay's argument was, look we want to have full accountability of the clients actually paying for the service that we deliver. Now if we provide a school and we don't provide high nobody's going to pay for us. Nobody's going to pay us and we and he loves that kind of accountability.

Now, in negotiating that deal, it was fantastic for us to work with partners such as the DOB foundation or Hilty [sp?] foundation in the negotiation of series a round. To sit around a table, to say "Look, what are the kinds of issues that you see?" Can we pool our capital? What are the issues around governance that we all see and that when we negotiated with BIE would like to bring up?

And for us a really effective way of reducing Loreal transaction costs and speeding up the deal and now we've all done our investment and on the post investment monitoring evaluation, we know we've agreed on the kind of criteria and we want to provide this, the entrepreneur with access to European as well.

Which was very attractive for him in that deal. So those were just 2 examples of how we work. Our return expectations perhaps just to put that, make that clear we do provide debt and equity funding, but we don't have a threshold of returns where we can recycle that money to slow back into our fund The grants are only used for those models where there's no revenue put generating potential.

We really try to stick, provide grant-funding for that type, and equity or debt funding for other types, where we clearly see an opportunity to generate revenues. I think that's us in a nutshell. We are always looking for interesting co-investment opportunities out there and particularly for organization that I'm - that vital scale up in growth phase where we can hand them on to other investors when they come in with a larger crunch.

Oliver, thanks for that. And I think we've seen 2 different examples. One is a structure in which the different colors of money come together in a particular transaction, with Laurie's Brack East Africa example and Oliver's example where they are combining different colors of money in a particular stage, but they're also preparing for the hand-off to the next stage and to the next color of money, which I think are two interesting and important distinctions.

I'll take a few comments. We won't answer each one directly, but we will take note of them and allow Oliver to respond if anybody has a quick interaction. Yes, sir.

David Haskell of Dreams Indeed. Oliver, I have two questions. One is, what size of investments do you make, and typically, what are the actual rates of return you're looking at on the investment end of the spectrum?

With the question on rates of return, was there a second question? I was just wondering if you could clarify why you consider it philanthropy if you have got rates of return. What differentiates that from what other social investors are doing? Do we have a third question?

Briefly, on size we really identify those organizations entering the growth phase, and having access to the range of a hundred thousand, up to a million, seemed to be a very essential growth size. Of course, that depends entirely on the region in which you work. So if you work in south east Asia, the smaller size takes you much further than you would, for instance, in Africa.

The rate of returns, we're looking at below market rate returns. But we've also done an equity invest in northern India which is fully for profit, and there the potential of significant rate, double digit IRRs, is possible as well. So we're not excluding that, but it's not our key driver. Quickly to philanthropy.

Why do we call it philanthropy? We found that it gives us a fairly broad spectrum of actually engaging with the organizations and a bit of freedom, because we also can provide grants and so, I don't see, it's more the kind of approach that we've chosen of taking venture capital aspects into philanthropy and for us, the target of offering a broad perspective and a broad diversified portfolio to the clients ofthe bank has been very important.

So, we would like to have a spectrum of deals in health and education and resource management, but also grants and debts and equities to be able to show that there are wonderful investment opportunities out there that generate a high social return.

Thanks, Oliver. And Toby, finally! You've waited long and patiently, and so we'd love to hear from you.

Hi. I'm Toby Eccles from Social Finance. Just briefly on us: We were founded on the basis that--a theory of change if you like--that the way the social sector and the social activity is financed is hindering its ability to be effective, and that this is a significant inhibitor. Unpacking that a little bit, the inhibition is at least in part the way the different types of funders and funders interact to different bits of money; everyone's dragging different kinds of money into their organizations, each with completely different expectations, wanting to get different things out of it.

And the end result is that organizations are trying to persuade funders to give their strategy back. They're trying to get money for their core as well as their programs and all of the other issues that many of us relate to very commonly.

Social finances has done basically much of its activities around trying to bring in new forms of capital. When we combine a certain of peculiar mix of about a dozen of us who are a mix of reformed investment bankers and people from a social background, between us we try to think through solutions which are sophisticatedly or effectively structured which actually fit the social issues that we're trying to solve.

In terms of giving a specific example, the work that we've been doing on the social impact bond I guess is the most obvious.

What we've done, and I'll go a little bit into the problem we're trying to solve.

For, there's two ways into it. One is, if you like, the fact that all these colors of money are aiming to try and do the same thing all together, but not really blended as beautifully as Laurie[sp?] or Oliver have described, means that you actually get a sort of sludgy brown color. And if we're trying to do better than that and we want to make some sort of pretty rainbow, then we need to make a more effective partnership so that different parts of that can work together more effectively.

Government is one key source, or primary source of funding for such a large proportion of all of our activities. Their difficulty is very often that it's easier in tough times to cut the preventative, soft, nice "stuff" we're all interested in and much harder to cut the hard, gritty acute hospital, prison, similar type of expenditure.

That means that through the spending cycle, the preventative stuff gets cut. There's a greater need for the acute. The acute project grows, when the budget comes around again, lo and behold, there's less money for preventative, more need for acute, around you go again. So, there is a structural difficulty for government, that money tends to get focused on the acute .

What we did is, we went to talk to, we structured something, saying, government ideally would actually buy outcomes. There's a lot of talk about buying outcomes, the difficulty for government buying outcomes is that, that means organizations who've had their outcomes bought, need to wait three or four years or five years or six years before they get paid, and also very often those outcomes are dependent on multiple factors, not just their own activity.

So they're not only taking on a huge range of risks that they can't manageThey 're also taking on a huge working capital requirement. So we've structured the social impact bond as a negotiation with government which simply says, "What are the values...what is the value to you of an approved outcome in this area?" And the outcome we're working on is on reducing offending behavior amongst short-sentenced male offenders coming out of one prison in the UK.

That group of offenders is compared against a cohort taken from the police national computers. So it's a comparison group. And the number of offenses committed by each group is compared for the following year after they leave prison. And we've agreed an amount of money with government to be paid the difference basically, providing we achieve a certain hurdle rate which is statistical significance and that stuff so that they don't pay us for random effects.

We get paid or social finances fund gets paid if the group that we've been working with has each number of offenses. Now, what do we do with that? What we would do with that is that we'd put that contract into a fund, and we'd then raise money on the back of that fund from social investors, foundations and others that also want to demonstrate better models of working, that also want to show that wasting enormous amounts of money on prisons is the wrong solution, and that providing more preventative and supportive work, to reduce re-offending is a better solution.

And they're being paid, the reason government can pay up is that they're reducing their acute spend overtime because the reductions are working, okay? So, that's the basic model. We agreed this with the ministry of justice just in time before the elections. It was tight, and I think to be honest, if there hadn't been an election there, we might have spent another year talking about it.

At least, also partly because ministers were really focused on this. I think frankly for legacy issues people wanted us to do something before they left office, and he saw this as something that was important. Again, otherwise we'd still be talking about it, not actually there.

Toby, this is a recorded session. Just to remind you.

Thank you very much for that. Well, we'll change your name to protect you.

At this point the face pumping. Before I go into further detail, that's the basic structure. It does allow, we believe, the demonstration in the model of working. For those interested in the models of working, this is a round producing a mentoring relationship with offenders from ex-offenders going into the prison, combined with group work, combined with work with families, so that families know what to expect when people come back.

That includes connection to public services, housing, mental health and similar that typically in connection to the report at the moment.

Lessons learned? doing a [xx] with government is entertaining. And you need a very wide level of support. You need it is brought in the ministerial level. You need fantastic champions within the civil service who believe in what you are trying to do.preferably believe it quiet discretely so their colleagues suspicious.

You need patience and a very, very pragmatic outlook in terms of really understanding and working long side. Those in government rather than getting ones placard out, and shaking it up and down, and complaining at them. As a precedent i do think that this is real potential in a whole variety of areas.

That if this is unobjective raise this 5 million bond to develop an investment track record for this type of vehicle would allow this to be done in the tens or hundreds or even more millions of pounds in a variety of different social areas, and provide a mechanism for proving the models are working and providing rational revenue streams for social activity.

Tremendous, to by. I think we've all been. A number of us has been watching you. work progress, and i think it's very rewarding to see this tangible result, that has so much potential for [xx] skill Just two quick follow up questions. What's the size or the amount of in relation that you are serving for this particular thing and what happens if you do not produce statistically significant results.

OK. and we have another question over here. We haven't talked a little bit yet about maybe some of the barriers that we've heard, some of the conversations around sourcing deals and pipeline. I keep hearing that's becoming more and more difficult for funders to find those opportunities. So, you know, maybe that's something that venture plans have been working with?

And the idea of providing intellectual and social capital, maybe even structuring the timing on that, but maybe if we could talk a little about the sourcing and the pipeline and the deals, that would be helpful.

Great. I think we'll save that question for the general conversation. Anything specific to Toby's talk?

Yeah, just for Toby. I'm curious what your model for scaling is. Are you working with other folks who are trying to replicate this in the States or other countries in Europe, etc.?

Okay.

Okay? And sir?

And Toby, how many social impact bonds do you think you need to have underway in the United Kingdom before you've established it as a game changer?

I think...Okay . So We have one more over here.

Toby, it would just be interesting to know who's think the investors will actually be in this bond, and also the returns that you're looking to provide those investors. You've answered the social return, but not the financial return.

Got it. Okay.

One more question for Toby.

OK, yes one more question. I hear a voice.

Right, a voice.

Oh, Dorothy.

I 'm just curious about how you get the control group and how's that defined.

Yep. Okay. Okay. I'll lose my ability to. Okay. Size of population. We're looking at about 500 a year coming through. We have a cohort size of a thousand to enable statistical significance. So it's a two year cohort. What happens if it is not statistically significant? No one gets paid. This is why we need a track record.

We think we can hit the ball out of the park, but no one's tried it like this before. We believe the organizations we're working with can achieve 15%-20% change. We believe actually might secretly be more than that. Fortunately civil servants in this area have tried and struggled to implement programs so they have much lower expectations of what is possible.

We will see whose,we will see what happens. In terms of the number of these things before it's game changer. I have, I went to the scenario planning thing here because we've got two possibilities. One, the government minister without talking to anyone will announce. There will be some hundred social impacts on to next week.

That's I think almost our biggest fear because there isn't an available market place to find finance for it and it's still very difficult to do the underlying outcomes analysis and economic development to develop one. I would like to see a dozen over the next year; I'd like to see twelve over the next year to eighteen months.

And that doesn't protrude other countries from starting and having a go. In terms of partnerships I think we are trying to developed the sausage machine of social impact balance at the moment. The first bit of the sausage machine is research and development of what semi model of working what the economics what the cost government of economic of the failure the present building at before you get into contracting capitalising [sp?] phase.

The first phase we are looking for partners and working out how to work with other organisations. Then the third phase is clearly implementation and clearly another arranging models there again. In terms of investors and return, the first people investing in this are those that can assess whether reducing refunding by 10% and the more is possible that tends to be foundations that also have an interest in criminal justice and clearly there is those who can cope with a lack of track record.

and lot of interesting other chances investors and but many saying on the [xx] second or third of the fourth month will be more interesting and for the particular record issue. In terms of control group that's a [xx] an entertaining thing and took quite a while to get right in this instance, we're very lucky.

When someone offends and they get convicted for an offense, it's pretty measured and it's measured by government, it's not measured by [xx] [xx] and therefore we have to all of the data is taken off one source, the police national computer, and it's then looked at by an independent adviser or independent institut that will determine what the [x] red level were for both of the group that we working with and the control group the government is nervous contracting on it's on data and that is one of those bits where you could see how nervous people where but you can also see that rational they knew that one day they had to do this.

That helped us a lot.

Did you address the returns [xx]?

Oh. Returns. Fantastic. Apologies, your. Ten percent reduction in offending behaviour we felt, we think will generate a seven and a half percent IRA to investers, so annualized return on investment; and the returns are capped because it's a small pilot, so they won't generate all the cashable savings at this scale.

And the caps would kick in at around 13% return on investment, so its not bad. And given that actually the organizations we're working with have a pretty good track record for the work that they do, we're reasonably confident. Great, and so I think we all understand the differences between government and private investment in philanthropy.

But what are some of them - I would ask the panel. What are some of the particular differences, motivations, objectives, criteria that make it particularly difficult to bring them together would be your particular take on that, to anyone? [xx] the difficulty is that no one wants to fund long-term [xx] somebody outs of fund at some point.

So last option is similarity every one want to be taken out somebody else. So foundations wont to fund for tree years for so government can tacked on government wont's to fund for the innovation [x] [x] they can more browny points for the innovation x [xx] for mainstreaming service, or even if mainstreaming is where they would like to go.

And if something does go into mainstreaming then they tend to take it and do it themselves with all of the hap-hazard implications that has. So that's the first issue, the next one is It's that the governments are generally speaking [x] granting but of and now providing service contracts and those service contracts don't known how to do without [x] Do with outputs and inputs, and those sort of contracts typically also define what the process is you want to do, because someone has worked out the evidence base for the best possible process and they want to make sure that you've done A, B, C, D, E, F, G, H, I, and that you do it at lowest cost, and funnily enough, it then doesn't produce the outcome that was wanted for in the first place.

So, that's the sort of structural issue, and it's quite hard to get around that way of thinking and working generally.

Let me just add a little bit on that, I agree with both of those points from Toby. I think that we do encounter a rigidity of expectations, so that even when there's' an articulated desire to come together in the examples that, the alternative I was giving, the rigidity of expectations you come and square up against them and some of the reasons that Toby's alluded to.

But also one of the things we've discovered, is there's a gap, often, between the articulation of what an institution really wants to achieve from a return point of view, and what they're really willing to put their money in for there is a gap. So a lot of times, and I'm not going to identify specific institutions, we've all had this experience, that you get very excited about the development articulation of what this institution really wants to see happen, but then when you really come down to the numbers, there seems to be a gap.

And so that leads us and our work to the third area which is that the process is very hard. It's just hard and it requires persistence, and I would say that where we started in the transaction, I gave the example, but it's true of every transaction we've done, where we started and where we ended up, very different places.

And it was real persistence and I mean, Anthony, you talk about this in your work, the role of an intermediary that is able to play that consistent, persistent role and really bringing people together. Sometimes you have to understand where the rigidity of expectation is coming from. We had one foundation, I was astonished to discover what their actual cost of funds was because they borrowed money, they borrowed money to invest in deals like the ones we were bringing to them.

Once I learned that, I had my a-ha moment. It made no sense for me to try to push them harder than their own cost of capital. I ended up giving them ideas about how to source their money differently, but that was helpful. The persistence, the real that I come back to the unpacking and pushing, getting down to what's really driving an institution, as well as the push if somebody has a strong rhetoric of development while really pushing them then to sit in both chairs, or multiple chairs, of a transaction.

And it's hard work to get there, but you can.

That resonates with Lakto Rahimi's statement about working for 800 days for one day of actualized results and it sounds like there's a I've experienced that. Yeah.

Just perhaps I had a thought on scale particularly when working with government. If we look at the space it comes to the question of pipe line. You look at organizations as they go. They might be very successful and have a very focused mission. We can take an example of Mothers to Mothers, for instance, as providing these services to African governments.

The African governments that have expressed a wish for them to come and provide those kind of services. It's an add on to the existing, non-existent, or broken healthcare provision, specifically for HIV positive mothers.

Now the challenge is, if Mothers to Mothers reaches a certain level, for them, is that government says if you are so good at that why don't you - could you please also take of that? Why don't you at TB and by the way, why you're at it, we are not going to pay for you. Please use grant funding.

I think, particularly for this sector, we have to think really what we can bring as investors to help those organizations also become more independent and more flexible so they don't have that kind of mission creep. Particularly, we could then also think about what a successful exit might be, in terms of saying when are you really successful.

For Mothers to Mothers, if they reach every HIV positive pregnant mother out there. It's just a point on the scale, and second to one on perception and expectations and being very, very clear what party - who brings what to the table, and to articulate that very clearly out from the outset. Otherwise, along the line it become very blurry and end up with like a brown soup rather than rainbow.

Can I ask a little more about the pipeline question, or do you want to wait?

I was going to take a round of questions, and we can address the pipeline as part of that. What includes weigh-in?

That pipeline is something we struggle with. Where we sit we hear it a lot from the funding sources as the questioner as you raised. Where we sit is on the origination side, so we are trying to bring the deals to market. That's primarily where we sit. We do that from being in the field. Of the hundred and twenty people in our operation, a hundred of them are sitting in the field, and working with institutions and identifying needs and trying then to figure out how do we bring those needs to market?

Of course, we still try to talk investors, understand they looking for. We're trying to map that landscape, but that's where we sit and I think that the size of transaction is an impediment for many. Maybe not for Oliver, how he's structured, but for a lot investors you do hear that. They want a larger size and then their rub is that the business model isn't appropriate.

You can't digest that amount of capital, debt or equity, in a reasonable period of time.

So I do think these aggregating vehicles--and there was some talk about this in an earlier session--being clever and thinking about sectoral linkages where multiple social entrepreneurs can come together and do a brack-like model. Because it's not a fund, it's not a fund manager then deciding where to allocate the money.

The allocation decisions are done up front, so your business is bare. It has been assessed and the allocation of that funding has been determined. Creating some aggregating mechanism by geography, I mean, I know Harold and others are doing that, by sector. I think it's a really interesting way to approach the efficiency needs of investors and also the efficiency needs of social entrepreneurs, and I think we could push a little bit more creatively on those mechanisms and structures.

Great. So we'll open it up to another round of questions. Sir?

Morning . I'm particularly interested in some of the comments that you made about, a couple of you have talked about, organizations kind of in the growth phase. I'm interested in the kinds of challenges that you see these organizations have. Specifically, for example, I'm coming from more of a nonprofit approach and we are thinking about more, sort of, for profit approaches and I'm interesting in some of the challenges you see in these BRAC type organizations or other Traditionally nonprofit approaches.

What do you see when you go and meet with the CEO and the COO and the CFO, as bankers and former VC types.,what are the sort of challenges you see?

OK, second question.

Can I? I've got my microphone here. Yeah, thank you. Related in a sense but, I am thinking--thank you very much to the panel actually for your presentations--but thinking about the success and then failure, thinking about some ethical moral issues and so you mention double digits, and that's anything from 10 to 99 actually, so there is whole business paradigm in here.

I wonder if you could comment about failure and how you will cope with that when happens, because if it hasn't happened yet. And the second aspect of this is the ethical moral one, for example Brack, of which I'm familiar, has a cost of doing business which is much smaller than any market or any global competitor.

In a sense there's an issue there about competition and I think a moral, a model that has a Bangladesh Foundation, and it's working in Sub-Saharan African economies and things. What about the transference of if I am taking my shareholders and my business and people that support you? I take my percentage reduction here; five to eight percent, nine percent, three percent, no percent, and I put it somewhere else, right, is there any mechanism by which we look at those ethical, moral issues?

Okay. Question back here. Bridget.

Yes. Hi. Thanks. I'm really interested, Oliver, in your model, because I really very much believe in this idea of combining the capital and the sort of advice, you're calling it the intellectual capital is very much in the DNA of their organization that I work for which is Unite Us. But I'm wondering how far down the scale are you willing to go towards Angel?

I mean, some of the amounts you were talking about were pretty small, but you characterize it as growth. And I think some of the newer areas that we need to go into, for instance, in the area of financial inclusion, there's a lot of really new ideas out there that are in desperate need of Angel and Seed investors.

And I'm just wondering--nobody's talked about that yet so I'd be interested to hear more about that.

Mm-hm. And I believe there's one question down here.

Yes .

Hi. Alicia Miranda with Standard Chartered Bank. I'm wondering if the panel could comment on where you see the role of large multinational financial institutions in this, sometimes very conservative institutions. And if you have any experience in working with them in some of these deals and how you have.

Great. I think that's a good round to start with.

Any takers?

Or should we go to lunch?

I'll go quickly, on a couple. There's one specifically for Oliver. But quickly, on the organizations going through growth phase, in my experience, systems and procedures and operations, the unsexy part of business. It's not about the product, the segmentation marketing strategy; it really comes down to, at that moment, that inflection point, the nuts and bolts of the business.

And that's true for big organizations like BRAC, and it's true for smaller organizations. It's been consistent in our experience. So really prioritizing the need to get that part of the business right and solid. On failures, in our experience we're worried about deals not, entities not performing in accordance with the transaction expectations and therefore souring the investors' willingness to go forward.

So we're very, very attentive to that and I think the answer is openness; you talk about it.

I think that we have really been, we've tried hard to be, as transparent as possible all the way along. Whether we've taken a deal to market and it hasn't worked, or deals that have closed successfully but we enter into a hiccup. I gave the example of Southern Sudan. It is not performing in the way that we expected, but we are openly talking about that and we're trying to work collaboratively with the investors.

And I think that because we have been openly sharing information there's a greater willingness to say, okay, so what do we about this, as opposed to, why did you wait six months to share this bad news with us, and then there's more of a knee-jerk negative reaction. So, openness and communication.

And on the ethical moral, I don't think there's a mechanism. I'm not aware of a systematic mechanism. I think they need to be addressed and you have to look at those issues that are embedded in the work that you're doing and the transactions. So we had market dislocation questions that were brought to bear about BRAC's model relative to others because they are typically the lowest interest rate provider of microfinance in the communities that they work.

So if funders are funding that, is that having a market dislocation? We wanted a fixed interest rate in this fund and local currency. We pushed the investors to absorb those risks. So are you putting BRAC in a more advantaged situation? We had to unpack all those and really think about them, and have a conversation about them.

So I don't think there's a model, except just digging in.

And on the multinational banks, we pitched Standard Charter for the BRAC transaction and you turned us down, so, for the record. For the record. No. I'm teasing.

Be nice.

I'm teasing. I'm teasing. And actually, it was a good example because Standard Charter has a banking relationship with BRAC; BRAC Banks. They have their local operating accounts with Standard Charter and you service BRAC extraordinarily well. And so, it was an natural partner for us to go to, but simply the financial return for the bank was not sufficient.

And I, what I appreciated people were, didn't waste our time, we were clear about that. We tried. At least twice we tried. We went back again, but it was just the financial return expectation issue. I think there's a role for larger banks. Absolutely. We'd like them to invest directly in some of these aggregating vehicles.

We'd like to move them a little bit away from the chair that they occupy now into that quasi-commercial, embracing stronger development returns.

There are other things they can do, in providing some of the support in the country as standard charter does very well.

Just to build on that. I think for us, what we see as the number one criteria is always management quality. Really spending time with the management, understanding their skills and background, the resource. Because they, ultimately will be driving the model. I mean, the model can only be as good as the management qualities actually implementing.

To get to that point to really understand management is to spend time with them, and to really sort of sit down and listen and have a - not come across. We've had that a number of times. I think they hear foundation and they think "Ah, grant maker, thanks very much. Can we just sign a check?" We said no.

Let's forget that. I want to understand your model. I want to understand the problems that you're having, how are you going about it? Can you articulate where you'd like to be in three to five years time? Not just pure project funding base but really saying, I'm at point x,these are my growth projections.

I need these types of resources to get there. And then I think one can have a much more meaningful discussion around not just financing but also all the other support that one can bring or can't bring and be really open and say, look, but we can try and bring somebody else it to match that. And that ties into the whole notion of I mean we are all operating in a fairly resource constrained environment.

We heard about the problems that we are all trying to solve. That's why we've come here. There's a question. There's only so much capital to go around. I think we have to be as a sector. And we ask ourselves on a lot of occasions what's the most efficient allocation of capital to get this organization from A to B. Or to C to D. And a lot of times I think we have to be much more critical about how we go about our business and how, what deals we can do and what we can't do and To be also very transparent and very demanding....

not demanding, but accountable. Accountability is key with the local CEO and the organization to find out the best ways of providing that kind of support because blunt [xx] won't work. Just a quick question on the seed funding and the angel funding, it would be wonderful to have huge seed fund, which is fairly agnostic, with which you can just go in and support new business models and really... from the outset, [xx] perhaps that might be an idea for large foundations to actually come together and each commit ten million or something into such a fund.

And then one could go around and actually work with these promising new business models and to get them out and I think there is a need for the other type of funding, the kind of follow up funding in terms of exit. Sometimes in the markets that you work, its very difficult to find the right kind of fund that will then take on that deal.

Sometimes it works with the local investor, if you're lucky. If you find someone like Grofen, or someone like business partners in South Africa, or an Avis, or those kind of parties where when you build up a relationship over time then they also know the kind of due diligence that one has done on the deal and build up that trust and then it's much easier to hand them over.

So it's just a couple of thoughts on those questions.

I'm just picking questions I've got thoughts on. On the pipeline side, our state on this is that, you know, if you look at the overall range of social organizations, there is a relatively small, if you think of it as a triangle, there's a small bit at the top that's sort of presently investable. And then there's a few next to that and people always talk about capacity building and they'll become investable.

But, actually, there's a very significant majority who are uninvestable, and the reason they are uninvestable, well there's a range of reasons, but one of them is that actually, the revenue streams into their marketplace are not sufficiently rational. Actually, only by making revenue streams national in a broader range of the social activity can one make more investable propositions.

That's part of the reasoning behind our work. In terms of investors potentially losing lots of money, the way of building this marketplace is to have really well-structured, clearly thought through, and compelling investment propositions. And at the moment there haven't been enough of those available, because there hasn't been the expertise into the innovation space.

Building those up and presenting them in the language and the expectations of the investment community. In terms of the ethical issues, I can get quite passionate about this one. I think there are ethical issues at the moment all over the place. There's ethical issues because we are misplacing so much capital.

And we're giving money away which could actually be generating a return, being recycled in an intelligent way, being used time and time again. It's being given to organizations, that could be raising it off the public or other sources, but they are very good at raising it off foundations. they continue to get away with it.

So, I think there are a lot of ethical issues there. Personally, I feel that we need to be expanding the market and providing.

Investment opportunities right the way up the return spectrum, because you have to look at what people are getting in aggregate. If you make 20 seed investments and 8.
of them fail. Twelve of them fail. You need to make a fairly healthy return in order just to get your money back in . So one has to have an understanding of risk as well as original.

In terms of multinational financial institutions, the one bit that I think we can see, clearly we would like them to be using very modern This pulls of capital to be entering and that market place and I think that there is really compelling business case for doing that in terms of demonstrating.

Relevance and then actually lot of this time instead of be pretty good and instead of doing sitting be as far as little bits around the edges, actually putting in funds - don't have to be very big - but which actually demonstrate this stuff and help to build this marketplace . That's one thought. The second thought is retail distribution.

As this marketplace develops, actually, in many ways the institutions are the places that are most conservative. On an individual basis, people are really excited about this stuff. And so as more compelling opportunities are developed, and as more retail investor product is developed, supporting in terms of distributing that through the distribution networks I think is vital.

Just to comment, over the two years that we've had a finance track at the forum, we have seen a growing number of international financial institutions attending. In this year we have had J.P. Morgan, UBS, Morgan Stanley - so the list is growing. As we've heard in other sessions, they're creating specialized investment groups to focus on this investment class, so i think there are a lot of good signs.

Another thought from other sessions is that discussion of this conveyor belt that takes innovations from the seed stage through the growth stage venture to the following leading to eventually large scale success such as Bragg [sp?] has reached, and i'm wondering if there are any questions or comments about that as they be a focus for our next set of questions.

Yes. Oh, there's a mic needed up there. the types of transactions they've been used to doing in the past and, you know, what that process is from an educational standpoint. Because the individuals that we all interface with are not usually the ultimate decision makers. There are boards, adviser committees, investor committees and so this educational process goes much beyond individual that we each deal with in these transactions.

And particularly as we try to do the conveyor belt financing that moves from one stage to another it's going to be more and more critical to understand what those educational needs are within these institutions as people get out of their comfort zones. And it occurred to me that there are, you know there's sort of a factor that it's played here if it's different from what we have done the tools we have used before then obviously that we have got to be of foursquare with in some kind.

Of the box to feel that we are not being taking advantage of if we are siting on the investor side and there is the legal issues that come to play because the lawyers are very very powerful in this whole process and sometimes their conservatism trumps the conservatism throughout the rest of the organization.

So, I think any thoughts, any ideas.
Is about how this educational process is.. you know in a conservatism in institutions that are being asked us to take steps to new level. I mean that it's food for a lot of discussion and thought because it clearly is a huge barrier to getting the people who are committed to getting something done and getting to that finish line.

So whatever we can do to improve efficiency to improve education is I think really important.Thanks, MiLdret Sir?Thank you. My name is Jason Hensley . I'm from Jamaica income and Jamaica is one of the most indebted countries in the world, by GDP and also has one of the highest murder rates in the world.

So, one question was to you, Toby, would you be willing to share this information with us in Jamaica? And Lorie, you know, your fund, would it be interested in, I've been involved in trying to interest Grameen in coming to Jamaica, and they recently came and we need like approximately two million dollars of angel money finally.

And we have approximately twenty-five percent coming to the ready. Is that, is Jamaica somewhere that you would be willing to look at? With Grameen verses Barack, and looking at which one is better.

Audrey.

Thank you. Audrey Sillian from The venture Capital. Just an observation, as working on a social investment portfolio focused on a particular geographical region, we, you know, probably a year ago, we would have conversations amongst groups of investors, and the word 'mapping' would come up, and now it's coming up probably about ten times a week, and there's still a lot of, there's a lack of, we're all professing to fill a gap of some sort, an equity gap.

But there seems to be gaps between the gaps. And it seems to be very difficult to find out who and what network and what organisations actually going to eventually create a list that just simply lists out who is in what part the value chain. I'm just wondering if there's any particular guidance on the point?

Thank you.

And Willy.

Willy Ford with Capital. So, question to Oliver, in picking up on the conveyor belt idea. So does it, if you're providing both grant investments and investment capital to the same enterprise. You may or may not be doing it, but if you are, does that undermine your position as an investor, to be able to kind of play across the waterfront like that?

And, does it confuse the dynamics when if and if up if push comes to shove. And secondly, if you're pricing well below market in a development context, yes. But are you not potentially distorting the marking and actually crowding out the folks who got the real capital, which is the local private commercial banks or other investors.

So, kind of question around specialization along the conveyor belt in terms of capital out, totally understanding that you need the rainbow of colors on the capital in.

That's great. I think we'll address those questions. And Willy, what are you saying? That we shouldn't give you both grants and invest in you, in debt? We'll have to reconsider that.

Okay.

We heard you Willy. Perhaps, just start with Willie's questions and we've taken a conscious decision not to mix, particularly for that reason. So there were a couple of deals were we cold have done both but we found that, particularly when we start negotiating, the kind of mind sets flipping from a And we use some grant funding.

And then we're actually going to also equity funding. That has made the negotiations more difficult. And we just stuck to look if they is a opportunity to generate, the business model is profit optimizing or its revenue generating and there's potential to then service the debt founding then we all structure the debt founding so it's appealing to the local organization the x rates x payment at the end what ever it might be trying to play more with that aspect.

So, we've taken just a decision not to mix the two. On the crowding out, I think that's absolutely a critical point and we've had those discussions all the time. The board is saying, "Okay. Essentially philanthropy funding could be disguised as a free funding, just coming in undercover think everybody else and do we in our negotiations and dealing with the folks we really want to make sure what are the local parameters what are the lending way local banks investors, so that we don't use philanthropic dollars to undercut what should be potentially funded through the local market, and that comes to your question we had then, I would be ideal to have a local investor to come and provide that as well.

Whether there's sort of more innovative structures perhaps, such as Jordown facilities. We're doing one fund to prevent a form of drought insurance.

And clearly so the commercial product doesn't exist in the market yet, and that the product that you do have for agricultural organizations, they are too expensive, not affordable for the subsistence farmers. So in one specific case we then said "Okay, we are not going to transact any money, but we are just going to provide to the draw down facility in case there would be a drought.

And that's then priced with a normal surface fee.

That's to bridge that phase of development until then you do have commercial available products. So, that's an area we're going and trying to capture the risk might just explain what a "drive-down facility" is.

I'm sorry. It's basically, you give someone the rights to access money, in the case that a drought should occur. It's very simple. You just say, look here's a pot of money available if, for whatever reason, a drought should occur, and your yields for farmers falls below a certain point. That's a huge risk for that organization because they don't have the farmers repaying their loan in that case.

And, so, to capture that value and to say, well, just as a quasi insurance that sits in the background, you can access that, if that effect should occur. And then just perhaps a thought on education. Sorry. Just on education, I think it's all about transparency and it's about really siting down and understanding what the different processes are, what the expectation we've initiated when we started 2 years ago a monthly, we call it kitchen meeting call, with European venture philanthropists and family offices investors just to share a pipeline, just to say, "Look.

What are you looking at which is currently hot? What is interesting to you?" And then through that process really understanding, okay, at what time [xx] investment size can you come in. What regions do you focus on. What are the specifics that you need to have. So you then have a better understanding.

So it's a very slow process but it is at least is an attempt to get a bit more transparency into the different players, their expectations and then to have many American partner fairly quickly. If that's [xx]

To Mildred's
question on the comfort zone and conservatism and by the way, the conservatism that we see not just in our discussion about the larger financial institution but also in a lot of the foundations. There's a bifurcated world when you talk, the moment you use the word investment you add new landscape, as a opposed to grant and there's a very different profile when we think about investment and one of the quasi commercial investments is not something resonating deeply yet with foundations.

So, a couple of things. Trying to get foundations involved, or other players involved in the investment readiness process, so they become more familiar with the enterprise, as it's getting market ready, we all know the need for that, but trying to use some, in fact grant money, to support investment readiness, which I think is completely appropriate, and very helpful for both sides of that value equation.

On the legal process, there is an interesting clinic at the University of Michigan in the United States, run by Deb Brandt, where they're really taking on, on a pro-bono basis, transactional assistance, legal assistance, because it is a cumbersome process, as of tapping some innovative opportunities like that and then coming up with, as we can, standardized transaction documentation, and sharing that.

But you're exactly right, you got to talk to the lawyers, and early on the in process. Not waiting until the negotiations to a certain point and then bringing the lawyers in. Showcasing deals that have done - we got turned down by a lot of people on our road shows. We still get turned down by a lot of people when we do road shows, but going back to the same people and showcasing transactions that have concluded successfully as well as failures, as well as those have it.

So keeping that dialogue and going to the top of the house, not only to the folks who are the execution professionals completely agree with that, and then piggybacking approach. Calvert is fantastic at this, of opening up their due diligence and their process to smaller foundations, who may just want to get a begin it dabble, just a taste of this type of investment activities, so trying to look for piggy-back opportunities.

I think those are four suggestions of how we can advance that cause. On the gaps between the gaps, I completely can agree with that. I know the Global Impact Investing Network is trying to step into some of that role on mapping and sub-mapping. I'm not aware of a singular place we can all go and find that differentiation.

I wish it did exist. Forms like this help, but I don't think there is a yet a single place we can go easily and access the more nuanced information. Also because it's changing. People's profiles change, people's approaches, the sectors that they're pursuing, their investment trajectories. A lot of things are changing.

So the is dynamism in there. And as for Jamaica, my husband's from the Cayman Islands. I would love to work in Jamaica, so we can talk about this afterwards.

In terms of the institutional change point. I just made two comments. One is that, one can spend a lot of time thinking that we're educating when actually we're alienating, because there aren't institutional structures and boundaries and expectations and cultures that you live with, and you understand what they are, and then you work out what people are able to do within those institutional structures and boundaries.

And that means that requires patience and then focus on pragmatism and then trying to structure deals in such a way that each object within that deal fits those institutional boundaries. And the trouble is. But then, with Laura's, there's actually a significant difference between the stated institutional boundaries and the actual institutional boundaries and that I'm afraid is trial and error.

And that's.
Coming to Audrey's point about mapping. The map that we'd love is the real map. Rather than the articulated map, because the articulated map.
Covers the space I think reasonably well, and the real map has huge holes in it. And that's unfortunately the present job of inter mediation is to discover what that looks and we're still discovering it.

In terms of Jamaica at the moment, we are not outside the UK, so.
That want a change quick, that is good it is looking like a changing rapidly but so we are looking for are in the promise in different places take on this more of the part of the world that's great. Another round of questions. Yes?

Another comment on the conveyePerhaps one way to get the large institutional investors involved is to have guarantees from some of the philanthropies. Gates Foundation put a small portion of their portfolio, happened to be four hundred million dollars, toward guarantees and they were able to guarantee somewhere over a billion dollars of bank loans, and then, so conveyer belt could be a gradual reduction of the guarantee with the bank already in at that point, and comfortable with the proposition that they're invested in.

Ok, we have a question.

Thank you very much. Thank you very much Daniel, for a very interesting panel. I just wanted to throw out there a question to do with fragile zones and countries emerging from conflict My name is Bella. I'm from Zimbabwe, and unfortunately my country has a reputation of being a very dangerous and high risk zone.

We've been able to attract significant humanitarian assistance which has been invaluable and very much on the point. But now we're at a point of trying to rebuild and reconstruct our society and what we're missing are resources for entrepreneurial work and for also rebuilding the economy, which is a real important asset in preventing new conflicts and new forms of threats for our society.

To what degree would you all be interested in looking at Zimbabwe as a case study, and where can you point us for investors who are prepared to take the risk? Just by way of history, for the last six years I've worked with the Soros foundation and they were quite active in Zimbabwe with civil society and human rights, and now I'm leading a trust, called the Zimbabwe Trust, which has the support of the Virgin Unite group for example.

So they're some people who are testing the waters, but we're finding that the rigidity is a bit there in terms of reputation. I'd like some direction on that. Thank you.

Yes it was on attracting investment banks. I'm Sylvia from CDN France. We also have also tried to attract investment banks, and we have succeeded only twice. We come up with the hurdle that they're really following their risk return efficiency boundary, and in financing Esamese [sp?] the more you increase the risk premium to adapt the actual risk, and the more you're actually putting at risk your investment.

So I don't know if you have ways of trying to argue A different model for, for rural micro finance and S M E financing with investment bankers that follow this type of.
But of logic, and in the case, we have succeeded. I think it was in identifying already the internal bank decision making.

Process, and identify the person within the bank that wants to talk through, within the bank, and take the responsibility.
Pushing through this investment. And on the pro bone, we have done one deal asking a legal firm From a leading French legal firm to do the contracts on a pro-bone basis and it has been quite interesting to see how much the.

We have had to argue this with the multilateral because their first reaction was really a bit skeptical, although it was a leading French legal firm. I don't know if you've had experiences with trying to put forward to multilaterals or investment banks that we can do transactions with legal probono.

Thank you one last for you and getting this single getting you reading on you on so one last quick intervention. Harold?

Yes, thank you. I'm Dan. On your point on the conveyer belt, sometimes we think of that as if their is sort of discrete investors who all the way on the continuum. In practice a lot of times and for a lot of us that means blending different mixes of grants and commercial capital along the way. This raises two questions, if you could address very briefly.

One is Laurie, especially in your case, how do you address this with the debate raging in the micro finance field about but the equivalent in other areas now. The grant money provider's seeing some of the non-grant funders getting rich and making big returns did you not hear that for instance in the back row chip.

The other is the point Oliver raised, which was an intriguing one. We have this, from the Grassroots Business Fund I'm Harold Rosen. We have the same problem that Oliver does, putting grants and patient capital into the same transaction. It's very hard to have the investors or the investees take you seriously and think they have to pay you back.

What do you say to the model that micro finance used, and still uses, to use grants and patient capital, often from the same investor vehicle and managing them well, and those who are still left standing are the ones that have spent it well. Does that say not that it is possible to do? Just that you have to do it well or, you've just taken a decision in your case that you don't want, you don't think it's appropriate.

Okay, who wants to take it next.

I 'll be real quick. The first two are quite linked. Your point about the Gates example, using guarantees and other risk mitigation To drive the more traditional larger pockets of capital into it.I fully agree with that part of is demystifying. Its Tobys example of come back to when you have three of these bonds done and a positive track record.

Right, I'm not gonna be first out of the box but once you have a track record, I might look at it. A guarantee is a similar type of tool to just demystify Mitigate a bit of the risk, so yes they can creatively absolutely because we do want to bring that capital into our transactions. Which leads a little bit thematically to the post conflict.

because i mention in southern Sudan in siberia talking with the shows in my opinion Afghanistan. The lead capital play will be more of fill and profit capital play. They are more equipped to understand the challenges of the market environment, they're willing to take that risk. But as a leader It shouldn't stop there but go really lead.

So we go in as operating professionals and work in those environments but I think it A hundred percent of our work in the immediate moment of entry has been funded by a range of philanthropic supporters and then trying to work cleverly beyond that.

I mean the decision was a very strategic one. We said it's the kind of types of deals we were looking to support. We felt there might be some successful examples where that is possible, but we've took a decision not to mix those two. Where it's just possible to fund with either a grant or equity funding or debt funding and the case we're, I mean there was one example we were woking on a deal and Anthony and I discuss this at length.

It's, think what this sector, the big question in this sector is like, what's the equivalent the equity equivalent growth capital in the non profit sector. It really doesn't exist. And the question is then do you use Grands for that? Well you can but the problem with grands is that you don't participate in the downside and you don't get the outside.

The outside effects. So the question then is, if you provide these kinds of grants, how should one structure them? Should they be linked to performance, to performance targets? "I wish we as a success could come up with a clever way to come up with this kind of growth funding, which is equity-like."it's non profit sector.

Because the prone success sometimes can gets really soon. i just get blowing touching interesting and complex area thinking followed and revenue process touching in this area "as being one that- when you've got a suitable model in where there is a margin available, revenue participation can be a way just of sharing in the gain." And potentially therefore recycling more capital and also a certain degree of, not commercialization but a focus on results.

In terms of this the issue of drum providers getting a bit upset when other people make a bunch of money afterwards, I mean, I think in a certain sense it's just fantastic problem to have. Because, you know, the range of the ethical issues that people are bringing up about micro finance as a demonstration of success not failure, but in that instance, if there's another potential micro-finance coming through, then I would certainly be happy to structure a convertible grand type instrument which simply converts into the earliest equity type in, or needs to get paid out by the earliest equity providers coming in.

Though I think again, that's quite soluble, it's just no one thought of it. In terms of Zimbabwe, as I mentioned, we're UK based. We have no operation basically outside of the UK. So I think that might be a struggle for us, although I am impressed by what you're trying to do.

And loan guarantees and similar?

I think overall, the instructors have really got grant at the bottom, and more commercial money on top. Grant-makers need to work out what they want out of these things. I think they're brilliant. I think you can do far more as a grant maker by implementing those sorts of structures but you do have to get over the idea that there are others whose capital constraints require them to make a return on capital and I would love to see more precedent in that and it becomes a traditional structure, but yeah.

In the UK, we talked to grant makers about that and the go: So I am going to make some money?

Well thanks. I realize that we are standing between you and lunch which is a dangerous place to be. I will ask each speaker to give just brief sound bites of maybe some take-aways, but first reflect on Jeff Skoll's comment at the opening plenary that changing the world is a team sport. And I must say, I leave this session with more optimism that we do have team at least.

I'm not sure that we're ready for the World Cup in South Africa, but maybe we should be thinking about Brazil and the World Cups down the road. So, with that, Toby, do you have any last, pithy thoughts?

I think, I hope what people have seen is that we're starting to have a few emerging pieces of where many are working together rather than counter productively. We hope that continues, becomes a trend rather than a maintenance of isolated incidents. Not meaning as an advertising, but I don't want to carry them home because they're heavy.

I've got a bunch of these sitting here if anyone's more interested in social impact bond. Just to build on that, I think the notion of expanding public private partnerships with Other people, philanthropy might be a way to get more clarity of the different types of capital, different types of approaches, expectations, mechanisms that one can use.

And so we said I think it's really exciting that we've started to experiment with more different ways of structuring deals, different ways of getting involved and trying to break down some of these mental barriers that we have an our head between nets a non-profit world and nets a for profit world and really looking at more the opportunities out there of wonderful business new business models that need support and that we need to throw weight behind to achieve achieve the positive infact we want to do.

Yesterday the end of the finance session with the donor agencies, the sound bite from Difid was small is beautiful, big as necessary and at Shorebank we think about structuring deals, we use a phrase "handcrafted at scale." And it sounds like a paradox, but we believe you can navigate your way, you can have both, and I think some of the examples from today's conversation.

Some of the comments from audience demonstrate that.

Great. Thank you all very much.

The Colours Of Money: Social Financiers Collaborating For Impact

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