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Financing for Inclusive Business
Innovations to meet the SDG investment gap and other financing considerations for entrepreneurs

SUMMERTIME AND THE LIVING IS EASY: IT IS HIGH TIDE FOR SDG FINANCING AT THE MOMENT, BUT WE MUST WORK TO ENSURE IT STAYS THAT WAY

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.

Royston Braganza
Royston joined Grameen Capital in 2007 to launch the organization as CEO. He currently oversees all aspects of operations in India. Grameen Capital, founded by Grameen Foundation USA, IFMR Trust and Citigroup, is a first of its kind social business enabling Microfinance Institutions and Social Enterprises develop wider access to the capital markets.

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Financing the SDGs: from the big picture funding gap to the little details that entrepreneurs want to know

Achieving the Sustainable Development Goals will require the mobilisation of a lot more resources than the sector currently has invested today. Learn what financial innovators and entrepreneurs are doing to bridge the investment gap and help inclusive business entrepreneurs survive and thrive.

Dana Gulley

Table of contents

graphic summary

GRAPHIC SUMMARY

A visual summary of the key challenges entrepreneurs need to consider when it comes to financing for inclusive business. Learn more about these aspects by reading this sixth edition of the newly developed online magazine on inclusive business! The…

editorial

SUMMERTIME AND THE LIVING IS EASY: IT IS HIGH TIDE FOR SDG FINANCING AT THE MOMENT, BUT WE MUST WORK TO ENSURE IT STAYS THAT WAY

As Braganza explains, finance is fickle. He offers four simple recommendations for how the inclusive business world can keep finance flowing its way—giving SMEs their time in the sun—in a volatility-uncertainty-complexity-ambiguity (VUCA) world.

Royston Braganza

featured story

Financing the SDGs: from the big picture funding gap to the little details that entrepreneurs want to know

Achieving the Sustainable Development Goals will require the mobilisation of a lot more resources than the sector currently has invested today. Learn what financial innovators and entrepreneurs are doing to bridge the investment gap and help inclusive business entrepreneurs survive and thrive.

Dana Gulley

What is blended finance and why should inclusive business entrepreneurs care?

Bartz-Zuccala gives us the download on blended finance and shares examples of how this innovative funding mechanism has unlocked private capital towards achieving the SDGs. Continued private and public sector collaboration is needed to scale blended finance, she says.

Opening the financing spigot on SDG3 — health and well-being

Hornberger and Imtiazuddin share details about the estimated gap in financing our SDG3 global health targets—$134 billion annualy and rising to $371 billion annually by 2030—as well as reasons for the gap and a suggested path forward.

Taking a critical look at the role of blended finance in agriculture — an emerging learning agenda

Prato shares the work that SAFIN has embarked on, in partnership with OECD, to understand what role blended finance can play in mobilising private finance for agri-SME investments.

Decentralised energy unlocks opportunity, the right financing unlocks decentralised energy

For SELCO, success means more people at the base of the pyramid have access to decentralised energy—an intervention that can move them several rungs up the social ladder. This requires hard-earned trust from the customer and partnerships with banks to unlock the right financing.

Finding the sweet spot in the combination of public and commercial capital

Berbers discusses AlphaMundi’s approach to impact investing and shares trends she has observed as the sector has evolved—from the growth in gender-lens investing to the gap in debt financing options for companies that are too big for microfinance but too small for banking loans.

Smart power solutions company benefits from aligned impact, donor and investor interests

Zola Electric is delivering smart power solutions to both commercial and residential customers across Africa. With business goals that are aligned to their impact goals, managing donor and investor interests is made easier.

Finance opportunity knocking: more inclusive investors and more impact-driven inclusive businesses means growth for the sector

Yogendran and Prakash share how impact investors have expanded their practices to better support inclusive businesses, while awareness is growing for businesses to better demonstrate their impact—leading to synergy and opportunity for growth in the sector.

Growing the SME ecosystem in Africa through training, seed funding, and strategic partnerships

Ugochukwu explains why grant funding is essential for start-up entrepreneurs—creating opportunity for them to turn their ideas into reality before their businesses are complex enough for equity investments and without burdening them with debt.

Getting investment-ready: considerations for early-stage entrepreneurs

Lobo reminds inclusive business entrepreneurs that they must work towards becoming sustainable—and to do so, he shares advice on getting investment-ready, considering the capital structure of the business, and navigating relationships with donors and investors.

Saving the lives of the rich and the urban poor through cross-subsidisation

Giwa-Tubosun shares her views on the importance of running a capital-efficient business that can stand on its own. She believes that through a mix of cross-subsidisation and donor money for specific purposes, like expanding services, one can build a sustainable business.

Nigerian social enterprise weighs in on benefits and drawbacks of grants and venture capital

Adebiyi has built his company without the help of loans because, in his words, his company doesn’t have the balance sheets needed to interact with banks. Instead, donor money, which serves as “patient capital,” has allowed the company to develop at the right pace.

In Your Words

Entrepreneurs and people representing the inclusive business ecosystem offer a snapshot into their personal thoughts on impact finance and other things that relate to inclusive business.