Dr Susan de Witt is the programme coordinator for innovative finance at the Bertha Centre for Social Innovation and Entrepreneurship, the first academic centre in Africa dedicated to advancing social innovation and entrepreneurship. She discusses some of the innovative models that her organisation investigates and the potential impact that this could have on corporate philanthropy.
Other than traditional grants, what are some innovative funding models that could be considered for development?
The way that I think about grant funding, coming from the philanthropic space, is that in the big scheme of things it’s a relatively small amount, even with the BBBEE component, compared to how much money government puts into environmental and social projects. For this reason, I believe it’s important for grantmakers to use their money as catalytically as possible. By this I mean that they should use part of their grant funding to attract more money into development or to increase the effectiveness and impact of existing programmes or approaches to problems.
For instance, one of the key areas we focus on at the Bertha Centre is impact investment. This is investment finance with clearly identifiable social or environmental impact. One could use grant capital to attract money not usually spent on traditional investment funding. This could be done by de-risking investments; taking a subordinate position in a loan and providing a first- loss guarantee. Or companies could provide technical business development assistance to small- and medium-sized enterprises (SME), to make it work.
What we want is to crowd in traditional investors – banks, pension funds, retail investors – to fund projects with social or environmental outcomes. The overarching theme is of catalytic capital.
Should corporates or non-profit organisations be responsible for driving blended finance models?
Different people understand the term ‘blended finance’ differently. Some consider it to be a mixture of public and private capital. Others use the term to describe a mix of different types of risk capital, be it grant, loan or equity.
Either way, both the supply and demand side can be responsible for advocating for these models. The reality is that non- profits are seldom equipped to drive the creation of such instruments and thus the impetus should be coming from capital providers. It is certainly clear that the way that non-profits currently raise funding through the public and private sector is extremely inefficient, with contracts running from year to year and multiple income streams required to keep organisations afloat. Combining aligned public and private finances makes sense for the sector using something like a challenge fund or impact bond.
There are 60 impact bonds that have been launched around the world, raising a total of $216 million social investment capital and reaching almost 90 000 people. These align public and private sector capital against a set of outcomes.
Corporate finances are governed by the BBBEE Codes. As such, they have a mix of risk capital to invest into enterprises preferably in their own supply chains. An example of an enterprise development fund that has been designed to draw on different types of capital is the Vumela ESD Fund. This R186-million Social Venture Capital Fund has attracted predominantly corporate investors with The Jobs Fund contributing a significant amount to drive job creation. Some SMEs require grant funding for incubation or acceleration, while others require patient loans at early growth stage, for example.
Social enterprise and social impact bonds are buzz terms at the moment. How are these likely to shake up the non-profit sector?
Social enterprise, although a relatively new concept in South Africa, is a sector that is starting to see growth in other parts of the world. A social enterprise is an organisation that has a particular social or environmental impact focus and applies market principles to sustain that work. Some countries have created a bespoke corporate form for social enterprise, although locally you will find traditionally incorporated companies and NGOs working in this space. For example, if NGOs want to start income-generating activity, they will often set up a for-profit company with a mission-related lock, next to their non-profit structure.
In this time of fiscal austerity, it is becoming more and more necessary for NGOs to think about generating income in order to survive. They are being forced to adapt out of necessity. Because social enterprises are inherently sustainable, they may prove to be more resilient than traditional grant-reliant NGOs.
