Let me start by addressing my friends from the global south—where it is not summer time—who so graciously sent us the sun after getting their fair share of it earlier this year. This article is for you, too, and especially for all those small and growing businesses which are tirelessly working for their ‘time in the sun’.
With roots in the sunny coast of Goa in India, summer brings to mind thoughts of the surf and the waves. Reflecting on this issue’s theme of finance, I want to discuss two aspects which are common to the beach and fundraising—froth and tides.
The Oracle of Omaha (Warren Buffet) once said, “… it is only when the tide goes out that you discover who’s been swimming naked”.
So here are a few reflections on how to set aside the froth and ride the tide.
First, we must understand that the tide is in full spate at the moment. What started as a trickle—"doing well while doing good”, “muted returns”, “investing for good”—has now become a flood. “Impact investing”, “SDG financing”, and “ESG investments” are in favour. While over $30 trillion is required for financing the SDGs, the ESG investing pot is a lot bigger.
Make no mistake, there is a real need for such funds and good work is being done to innovate new ways to leverage them; but the reality is, finance is fickle. It is designed to flow like liquid (that’s why it’s called liquidity) and in the global VUCA (volatility-uncertainty-complexity-ambiguity) world in which we live, the impact sector sounds stable and the returns are good. But, let us imagine a scenario where all is calm on the U.S. front with Lady Liberty opening her arms wide again, Brexit has been amicably resolved and the U.S.-China and other trade disputes are in the rear-view mirror. Where will all the trillions of dollars flow then? Will they continue to flow into “impact/SDG/ESG investing”? I believe there are ways to ensure continued funding. Granted, I’m a dreamer, but to achieve a world without poverty, we can’t wait for chance; we have to make our destiny.
How do we ensure small and growing inclusive businesses get their time in the sun? It’s E.A.S.Y.
Ecosystem: My first recommendation is for policy-makers, networks and sector-enablers. Creating an enabling ecosystem with proactive policymaking is critical. Let me put my microfinance hat on. As chair of Sa-Dhan—the Indian Microfinance Association whose members serve over 40 million women clients—it is easy to see the role enabling policies have played. Priority Sector Lending or Directed Credit by the Central Bank; New Banking regulations for microfinance, bold guidelines by the Security & Exchange Board of India—all these policies came together to create a robust microfinance sector. We must do the same for the Small and Medium Enterprise (SME) segment.
Access to Capital: How can inclusive businesses/SMEs be assured of the capital they need to run and grow their businesses? This is the million (or should I say “trillion”) dollar question. Mobilising investments from different pools of capital—the public and private sectors, capital markets, private wealth, philanthropy and CSR is critical. Innovative structures like “blended finance” (wonderfully addressed by the OECD in this issue and in general) and “pay-for-success” models are important steps in creating this as a new asset class.
Scale: Addressing now the inclusive business and SME entrepreneurs directly, in a world where close to a billion people live on less than $2 a day, scale is of the essence. The need to enlist “tech” as an ally is critical. Big data, artificial intelligence, machine learning, blockchain and various other tech disruptors will need to be adopted in order to leverage the mobile boom that we are seeing in global South and the poorest countries. Data is the new oil, only better; it is reusable.
You know your business best: You are who matters! Ask any investor, mainstream or impact. They all invest in the person, the entrepreneur… the one who eats, breathes and sleeps wanting to create something that will make this world better. So, be true to yourself. Do not become a chameleon who changes colours depending on the type of financier. Getting the highest valuation or the investor with “only money” might not be the right fit for you. Get a mentor or an advisor who can help you with capital raising (like knowing when and what type—debt or equity—to raise, how much to dilute, and what the cash flows justify). There is no shame in not knowing and asking for help. Know your purpose, and God-willing, you will achieve it!
As my father often reminded me, quoting the bard of Avon, William Shakespeare, “There is a tide… Which taken at the flood, leads on to fortune.”
It’s summertime, and the living is EASY. Enjoy your time in the sun.