"We will have achieved success when people at the ‘base of the pyramid’ have access to quality products at competitive prices," said Alvaro Rodriguez Arregui, managing partner at IGNIA, an impact-investing venture capital firm based in Monterrey, Mexico. "When so many entrepreneurs see thriving companies in emerging countries that they set up competing enterprises, thereby creating entire new industries, then we’ll have succeeded."
Rodriguez is referring to the work of the Aspen Network of Development Entrepreneurs (ANDE), a global nonprofit that will present its 2011 Impact Report this evening at a meeting hosted by Pamela P. Flaherty, president and CEO of Citi Foundation and director of corporate citizenship at Citi. ANDE is a group of more than 150 public and private investors, corporations, grant-making foundations, research and training institutions, and capacity development organizations that invest in and support the development of "small and growing businesses" (SGBs) in over 150 developing countries. Citi Foundation and IGNIA are both members.
The vision that Rodriguez describes is possible. As chairman of Compartamos Banco, a microfinance bank in Mexico, Rodriguez told me that his company's greatest achievement was having inspired so much competition that the number of microfinance institutions (MFIs) in Mexico grew from 200 in 2006 to 2,000 today.
Investors are choosing SGBs to alleviate poverty in emerging countries
SGBs are considered high-growth, high impact businesses with 5-250 employees; they are a subset of "small and medium sized businesses" (SMBs). Typically, they receive investments of $20,000 to $2 million—far greater than the average microfinance investment ($973), and far lower than most private equity investments. SGBs are described as "opportunity-based" enterprises that aspire to grow over the longer-term, rather than "necessity-based" businesses that are created to support a family and stay small.
According to ANDE, "fundraising targets for funds focused on SGBs increased by 71%, reaching $3.71 billion in 2011." Randall Kempner, executive director of ANDE, elaborated on the accelerating rate of fundraising and investment activity in SGBs. "Just among ANDE members, there were more than 1,000 deals totaling $750 million in SGB investments in 2011. That means that within the past year, investments were nearly half of the amount of the entire last decade," said Kempner.
SGB funds raised from 2009-2011 targeted sub-Saharan Africa (32%), Latin America (23%), and India (21%).
In an interview, Flaherty explained that Citi views SGBs as a dynamic and growing sector that is vital to building jobs. "It's important for Citi to invest in growth and prosperity in the U.S. and throughout the world." On the philanthropy side, "Citi Foundation's singular focus is economic empowerment and financial inclusion in low and moderate income communities," said Flaherty. "Yet, Citi also brings a number of additional values to the table including people, products, and expertise."
ANDE is measuring the financial, social, and environmental ROI
ANDE and its members recognize the imperative to measure and document the financial, social, and environmental return on investment. "Our 150+ members have launched this research initiative to provide evidence of results, including that SGBs will reduce poverty," said Kempner.
"We were early pioneers in this space," said Lisa Hall, president and CEO of Calvert Foundation. "We know that
as impact investing grows, we will need to distinguish our work from
that of ‘impact impostors'...to show that
we are in fact addressing economic and social justice issues." Calvert
Foundation’s mission is to maximize the flow of capital to disadvantaged
communities in order to create a more equitable and sustainable
Partnering with the Impact Reporting and Investment Standards (IRIS) and the Global Impact Investing Rating System (GIIRS), ANDE and its members are promoting standard measures and ratings for impact investors. The 2011 Impact Report that will be presented this evening includes preliminary data. Kempner and others indicate, however, that it might take five years to be able to make definitive claims about SGB investing.
Entrepreneurs with SGBs in emerging countries deal in high-risk business ecosystems
"A business entrepreneur in the U.S. faces certain demands, but functions for the most part in a fairly supportive ecosystem," explained Rodriguez. In contrast, Rodriguez described the "friction-ful" environment that challenges an entrepreneur in an emerging market. Imagine legal and administrative systems that we take for granted here, as well access to finance, the internet, a trained and educated workforce, transportation, materials, and so on.
My conversation with Rodriguez immediately brought to mind one of my favorite books: The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, by Hernando de Soto, the Peruvian economist and founder of the Institute for Liberty & Democracy. (The book is compelling and essential, and a quick read.) De Soto's book describes legal and systemic barriers to entry for businesses in emerging and formerly Communist countries.
Time is also a factor in a hostile ecosystem, notes Rodriguez; patience is required from investors who are eager to see SGBs mature.
Mitigating the business ecosystem risk for SGBs in emerging markets makes ANDE's role all the more important. ANDE provides knowledge sharing and creation, talent development and training, metrics and evaluation, research, a capacity development fund, and advocacy and education for its members. This evening, Citi Foundation will announce an additional new grant to help ANDE members expand their services to SGBs in the field.
Seven ways you can advance global prosperity by promoting SGBs in emerging countries
There is something on this list for everyone. For most items on this list, check out ANDE's member organizations for ideas; I've noted a few with which I'm familiar.
- Buy Fair Trade products domestically and internationally
- Volunteer. Note Bpeace and TechnoServe
- Contribute to and/or invest in an ANDE members. Note Root Capital and Acumen Fund (Acumen has an ecard gift option)
- Align your investments with your values. Note Calvert Foundation
- Consider employment opportunities among the ANDE members
- Join ANDE, if you're a company, foundation, etc.
- Tweet about ANDE and any of its members
As consumers, volunteers, donors, and investors, each of us can do something to help advance small and growing businesses and make the world better for all.
[Image: Courtesy ANDE]