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Bridging Gaps: Impact Investors and Social Energy Enterprises

Social enterprises cut across different sectors such as agriculture, energy, water/sanitation, health, education and so on. The nature of their missions leads to operations in extremely challenging environments. Despite varied sectoral differences, these organizations work in a nascent arena balancing socio-commercial objectives and therefore experience similar obstacles that are well documented such as high operating costs, scarcity of trained human resources, constrained access to capital, dearth of processes that transition grassroots R&D to practical adoption, end user financing, illdefined standards of impact assessment, conflicting expectations of scale, stifling domestic policies and a host of other issues related to an underdeveloped ecosystem.

This paper addresses one critical aspect of that ecosystemaccess to enterprise financing- and was borne out of a largely shared viewpoint by social enterprises that although there has been a widespread effort to capture the difficulties in accessing capital, there is limited insight into expectation gaps between the investment and practitioner community. While the impact investment market has enormous potential, there is a considerable amount of hype over the subject. The market is not ready to absorb commercial capital on the scale talked about and expected widespread profits and returns are probably some time away and in many cases will never be along the lines expected.

Therefore, the paper seeks to inform the reader with:

  • An insider’s perspective of on-the-ground challenges faced in balancing the right mix of investments impact on missions of social enterprises
  • Recommendations that could help guide the growing social investment arena on how to support the development of sustainable social enterprises 

The paper is shaped around the investment experience of a two decade old social enterprise in the energy sector and builds on this experience with a round-table discussion held in April 2014 between investors and energy enterprises. 

From SELCO’s experience it was apparent that a hybrid approach to investment was necessary i.e. layering investment instruments such as debt and equity with soft funds to strengthen conditions under which enterprises could thrive. SELCO incurred an added cost of raising and investing resources (in addition to its own) that not only built the ecosystem for itself but the sector itself. The transaction cost of building the eco-system had to be borne out of the softer funds – like training of local bank managers. Some may have seen this as a counter strategy but it was a necessary step that SELCO had to take else the sector would never have been built in the right way. Allocating or diverting expensive resources to building the eco-system contributed to SELCO’s early losses and in many years much lower profits as preferred by regular investors. 

 

SELCO is a social enterprise that delivers energy solutions to low-income communities in a financially and environmentally sustainable manner since 1995. 

 

Download full study here.