Gandhar Desai

Category: Development

  • Introduction to Social Investing

    Introduction to Social Investing

    COVID-19 has brought the issue of sustainability into sharp focus across the world. Whether it’s the disproportionate impact of strict lockdowns on underserved groups or decrease in pollution levels because of the slowdown in economic activity, the pandemic has spurred a global dialogue on the socio-economic and environmental costs of continuing with ‘business as usual’.

    Finance is essential to propel the transition towards sustainability. UNCTAD has estimated an annual funding gap of USD 2.5 trillion in developing countries while OECD has estimated an equal deficit for developed economies. However, public resources are insufficient to fill this gap, and various sources of private capital need to be leveraged and channelised for the SDGs.

    Social investing, broadly defined, is a form of investing which takes into account the impact of investments on the society and environment. There exists a spectrum along which financial resources can be deployed to achieve social impact. On one end of the spectrum lies philanthropy, which hopes to achieve social good without an expectation of financial return. On the other end lie for-profit corporations that try to limit the negative effects of their activities on the society and environment. This spectrum, termed as the ‘continuum of capital’ by AVPN, represents an inherent tradeoff between social and financial returns, and the lines between the different forms of investing are becoming increasingly blurred.

    Philanthropy

    Philanthropy is a formalised and systematic process of doing good. Philanthropy in the social investing context usually involves the giving of grants by foundations (also known as trusts) to social purpose organisations (can be for-profit or non-profit) without expectations of financial return. Philanthropic capital may come from the wealth generated by families or business corporations.

    Given that philanthropic resources are minuscule compared to government funding for development, philanthropists are increasingly seeking to maximise the per dollar impact of their investments by augmenting government efforts through systems change initiatives. These include capacity building of public institutions, strengthening public service delivery, and policy advocacy.

    Impact Investing

    Impact investing usually involves investing in social enterprises with the expectation of some financial return. Social enterprises are for-profit businesses that primarily serve a social purpose. For example, a microfinance company which provides small loans to micro-entrepreneurs lacking access to traditional bank loans, or a dairy cooperative that procures, processes, and markets milk from smallholder women farmers. The customers and intended beneficiaries of an SE can be the same (first example) or separate (second example). 

    Impact investing lies in the middle of the continuum of capital, where there is a tradeoff between social and financial return. Social enterprises may choose to become more profitable at the expense of social impact or vice versa. The impact investment ecosystem is similar to that of regular startups and involves investors (e.g., angel investors, venture capital firms, and banks) and intermediaries (e.g., incubators and accelerators).

    Socially Responsible Investing

    Socially responsible investing usually involves investing in established companies (through shares and bonds) that follow responsible environmental, social, and corporate governance (ESG) practices. Such investing is also referred to as ESG investing. Environmental criteria for a company include pollution, energy use, waste; social criteria may include the treatment of workers, relationships with suppliers and stakeholders; and governance criteria refer to issues such as transparency in accounting and declaring conflicts of interest.

    The primary aim of ESG investing is to seek financial returns. Unlike philanthropy which lies on the opposite end of the continuum of capital, ESG investing aims to minimise the negative impact on the society and environment, instead of actively seeking positive impact.

    However, given that more than 90% of the economy will still exist after five years, it is important as investors to also engage with brown companies. These comprise the majority of the economy and promoting improvement in their operations can maximise investor impact.

    Other Mechanisms

    The forms of social investment described above are well-established and popular. However, many innovations are coming up in this space.

    Green Bonds are a special category of social investment that are getting increasingly popular. They are similar to government or corporate bonds which deliver fixed financial returns. Green bonds typically invest in long-term environment-friendly projects in areas such as green infrastructure, clean energy, and sustainable agriculture. Social Impact Bonds (SIB) and Development Impact Bonds (DIB) are other variants of traditional bonds that mobilise resources from governments and aid agencies, respectively, for results-based financial returns. 

    Obligatory religious charity such as zakat in Islam and tithe in Christianity can be channelised for funding development initiatives. Peer-to-peer lending is another innovative mechanism for funding social enterprises.

    Future of Social Investing

    Public funding for development is expected to decrease sharply post-COVID-19. Governments across the world are seeing their resources being stretched to cope with the pandemic and finance economic recovery measures. While COVID-19 is a setback for the development sector, it is also a clarion call for private investors to engage closely with global efforts towards the SDGs.

    Yet, there are signs of hope. ESG stocks outperformed markets during COVID-19. There is increasing demand for businesses to be more responsible towards their stakeholders, including customers, employees, suppliers, communities they operate in, and investors. The growing awareness and interest in sustainability is catalysing innovations in the sustainable investing space, making available an increasing number of avenues of investing for even retail investors like you and me. With the mainstreaming of social investing, the possibilities are endless.

    This article was originally published on the Social Investment Group (SIG) Blog.

  • MAVIM: A Catalyst of Change

    MAVIM: A Catalyst of Change

    Mahila Arthik Vikas Mahamandal (MAVIM), a Government of Maharashtra organisation, has been relentlessly working for the socio-economic empowerment of women in the state through its widespread network of women’s self-help groups. The projects undertaken by the organisation have brought about a significant change in rural areas.

    25th October marked a special day for the Mahila Arthik Vikas Mahamandal (MAVIM) when various products made by women’s self-help groups (SHG) from Maharashtra were made available for purchasing on Amazon, India’s leading e-commerce marketplace. This was the result of a unique partnership between MAVIM and Amazon India’s Saheli platform which handholds women entrepreneurs to market their products online. The product launch took place during the Shakti: Corporate Summit, jointly organised by MAVIM and Sahabhag, the Social Responsibility Cell of Government of Maharashtra.

    The summit, held in Mumbai, was organised with an aim to leverage private sector support and expertise for women-led micro-enterprises in the state. Present dignitaries included Ms. Pankaja Munde, Minister of Women and Child Development and Mr. Yaakov Finkelstein, Consul General of Israel, as well as several representatives from the business community, Government, and civil society.

    MAVIM was founded in 1975 to bring about gender justice and equality for women, investing in human capital and the capacity building of women, thus making them economically and socially empowered and enable them to access sustainable livelihoods. It is a not-for-profit corporation of the state government under the aegis of Women and Child Development Department.

    MAVIM has done pioneering work in promoting microfinance and led the SHG movement in Maharashtra, leading to the formation of more than 1,14,000 SHGs till date. A vast majority of these SHGs is in rural areas. The unparalleled reach coupled with a strong grassroots connect has established MAVIM as a leading agent of social change.

    A typical SHG comprises 10 women from a village, including a leader, who is responsible for maintaining the group’s records. MAVIM handholds women in crucial stages of SHG formation, such as, organising members, formalising the group, and training members in regular procedures. Members contribute a fixed amount to the group as monthly savings.

    The corpus is held in a savings bank account of the collective. As need arises, members can borrow money from the corpus for domestic expenses, and repay it later at a small interest. Access to money can be tremendously helpful during emergencies, for example, a death in the family or for urgent medical treatment.

    Also, assurance of credit enables women to plan for significant foreseeable expenditures such as a wedding or education. In regions with limited access to institutional finance, these lending networks provide low-income individuals an alternative to extortive moneylenders, avert sale of assets in times of distress, and prevent households from slipping into poverty. This is the essence of microfinance.

    As groups gain experience and demonstrate savings discipline, MAVIM helps members undertake a wide variety of income generating activities suited for the pre-dominantly agricultural rural economy. Goatry, dairy, and poultry are the most popular vocations taken up by MAVIM women.

    MAVIM SHGs are also engaged in a number of other activities such as household food manufacturing, agricultural processing, garment manufacturing, jewellery making, and various service jobs. In addition to training and handholding, MAVIM supports SHGs with access to bank loans for livelihood activities as well as market linkages wherever possible. These activities not only supplement the primary source of income in the households (mostly farming), but also empower women, raising their status within the families and society.

    MAVIM’s interventions can be credited with bringing thousands of households out of poverty through women’s savings groups. A sign of success for microfinance in MAVIM is the changing nature of loans availed by its SHGs. It has been observed that as groups mature, the share of loans for livelihood-related activities goes up as against loans for consumption. The total amount in loans taken by MAVIM SHGs is ₹ 2,122 crore. MAVIM takes pride in the impressive repayment rate of 98% for loans availed by its SHGs. This affirms the notion that rural women are credible borrowers, and can be successful entrepreneurs.

    One of the key strengths of MAVIM is its vast network of grassroots organisations known as Community Managed Resource Centres (CMRC), which perform the role of local implementing agencies for MAVIM’s programmes. The CMRCs are the bridge between MAVIM and individual SHGs and cater to them with a wide range of services, including bank linkages and capacity building trainings. A CMRC is essentially a taluka-level federation of 200–250 SHGs.

    CMRCs were established as part of the Tejaswini programme (2007–2017), jointly funded by the International Fund for Agricultural Development (IFAD) and the Government of Maharashtra.

    Although MAVIM was instrumental in formation of the CMRCs, they are independent institutions registered under the Societies Act. This allows a CMRC to adapt to local conditions and generate additional sources of revenue to sustain its operations and possibly earn a profit for its members.

    Throughout the state, the CMRCs are engaged in small and medium-scale business activities which would be infeasible for individual SHGs, such as running dal mills, hatcheries, farm equipment lending centres, agriculture inputs stores, common facility centres, and trading and marketing of agricultural commodities.

    Despite their resilience, SHGs face persistent bottlenecks in scaling up their economic activities and transforming into sustainable businesses. These include lack of access to credit, relevant skills, and exposure to markets. In light of these challenges, the private sector can be a valuable partner for MAVIM and the thousands of women entrepreneurs associated with the organisation. Businesses can invest in women-led enterprises and make them a part of their supply chains. Businesses can play a vital role in strengthening these micro-enterprises by contributing expertise in technology, management, and marketing know-how, while benefitting from access to a network of thousands of hardworking women. Going beyond philanthropy, a business case can be made for organisations to get associated with MAVIM. In recent years, MAVIM has actively collaborated with for-profit organisations and created livelihood opportunities for rural women in various sectors including agri-business, banking and finance, retail, and clothing and apparel.

    MAVIM’s engagements with the private sector show the way forward for other development organisations working for women’s empowerment to thrive in the modern economy.

    This article was originally published in the December 2018 issue of Maharashtra Ahead.