Impact investment is receiving increasing attention. It is seen as the financial sector’s answer to inclusive business to benefit the poor in developing countries. More and more capital is flowing into this sector due to popular demand. However, as for any incubator, the step from blueprint to scale is big and for social entrepreneurs, the step is even bigger as they are embarking on a journey that in most cases is truly innovative and hasn’t been done before. The solution, according to Acumen Fund and the Monitor Group lies with philanthropy, to use grants and donor aids as catalyst to get these social enterprises to the stage where they can start scaling up, the stage where impact investors come in.
At the SOCAP conference, Shell Foundation, presented one of their projects that they’ve supported through philanthropy funds – ‘Husk Power Systems’ (HPS), an Indian initiative aiming to provide affordable and reliable electricity to rural households. Shell foundation entered early already in 2008, before the Indian social entrepreneurs were finished with their market reviews, distribution strategy, recruitment etc.. “We can see that there is a market failure since no one is filling this gap on providing energy to the rural population in India. Energy access is a prerequisite for socio-economic development.” says Simon Desjardins representing Shell Foundation, to why this project is so important. Together with a financial grant, Shell Foundation also helped the HPS – team alter the business model in order to make them ready for the market and for other investors. Acumen Fund invested in HPS in 2010 and since then the company has been able to scale up and reach even more households with their services.
This example highlights the point Monitor and Acumen want to make. Philanthropy is still needed in order to bridge what they refer to as the pioneer gap. The markets in developing countries are not prepared, and the business models are not tested. It took Muhammad Yunus 17 years to build up the Grameen Bank, and that strategy was based on trial and error. A project like that would not be able to be pursued on commercial, or even semi-commercial, capital. As Harvey Koh said it, “Imagine google had to build the internet first – that is the reality for social