This report is targeting financial intermediaries pursuing social impact that are interested in applying for funding under EFSI Equity. Under EFSI Equity, EIF provides financing for the benefit of more vulnerable entities within the EU ecosystem, encompassing micro, small and medium enterprises, social enterprises, social sector organisations and small mid-caps, in specific EU policy areas.

Handloom Sector in India

Handloom textiles today are a timeless testament to the diverse and rich cultural heritage of India and is the second largest source of livelihood to the rural and semi-urban population of India. However, the sector as it stands today is at a critical moment in time where it simultaneously faces stresses that threaten to obliterate it along with unprecedented opportunities for innovation and revitalization.

Highlighting the Issue

Three decades ago, the Balaghat district in Madhya Pradesh used to be a weaving hub of India. Mehendiwara, a small village in Balaghat is today home to a community of traditional weavers who have been marginalized over time due to a lack of market connectivity, design inputs, quality raw materials and financial support. Today hardly 50 odd people in the village weave, with the majority of residents have migrated in search of better livelihood opportunities.

How WomenWeave is saving Mehendiwara

The Balaghat Project, a WomenWeave initiative – is an attempt to showcase the skills of these weavers, revitalizing lost techniques in order to introduce ultra-fine Khadi fabric with exquisite motifs back into the market. Women weave is trying to empower women, one loom at a time firmly securing their future. They plan to achieve this by accomplishing the following determined objectives in Balaghat:

• To make 20 women skilled in spinning and 30 in weaving.
• To establish a strong demand and supply chain.
• To strengthen the supply chain of the hand- made Khadi yarn for traditional weavers.
• To strengthen the hand spinning activity to yield an annual income of Rs. 55000 per spinner and Rs. 70000 per weaver.
• To strengthen the availability of various kind and counts of yarn for the handloom weavers.

Support from the YES Global Institute Support

YES Global Institute, the practicing think-tank at YES BANK, is focused towards catalyzing private capital for development. The institute encourages public and private stakeholder engagement, focusing on key areas of national development including Economy & Public Policy, Smart Cities, Renewable Energy, Microfinance, MSMEs, Food & Agriculture, North-East Region, Natural Capital, Social Impact, Education and Culture. YES Bank/ YES Global Institute is supporting the campaign via Matching Donations, in which the Bank/Institute matches every donation to the cause by giving an equal amount themselves!

About WomenWeave

WomenWeave’s mission is to work towards overcoming the vulnerability of women who weave on handlooms by:

• Creating a community of weavers and connecting them with potential customers
• Providing craft skills training, and organizational and design assistance
• Valuing and integrating traditional design and cultural heritage to realize more marketable product
• Generating selling opportunities and market connections in India and abroad that would otherwise be inaccessible
• The end objective is that of transforming handloom weaving into a dignified income-earning, fulfilling, sustainable, and life-improving activity

Get involved on their Ketto.org fundraising page.

3rd April 2017, Hyderabad, India – Spandana Sphoorty Financial Limited (“Spandana”) has raised ~INR 650 crores (over USD 100 million) in equity capital from a Kedaara Capital led consortium including Ontario Teachers’ Pension Plan, and ~INR 1,100 crores (~USD 170 million) of debt capital from IndusInd Bank, Yes Bank and ICICI Bank on March 31, 2017. Spandana, one of the microfinance institutions (“MFIs”) that was severely impacted by the Andhra Pradesh (“AP”) microfinance crisis in late-2010, was referred to Corporate Debt Restructuring (“CDR”) by its lenders in 2011. However, under the strong leadership of its founder Ms. Padmaja Reddy, Spandana has turned around its operations, leading to Kedaara’s investment, and, uniquely amongst its peers, a successful exit from CDR. All 37 of the company’s lenders supported Spandana through the CDR process, and have now had their outstanding restructured loans repaid in full. Unitus Capital was the exclusive financial advisor to Spandana for the equity investment. Spandana was founded by Ms. Reddy in 1998, with the aim to provide unsecured income generation loans, micro-enterprise loans, agricultural family loans, and loans-against-gold to its underserved low-income clients in rural and semi-urban areas of India. Prior to the AP crisis, Spandana was the second largest microfinance institution in India, with a portfolio of INR 4,500 crores (USD 790 million) across 11 states, with AP contributing to a significant part of its portfolio. It was the most profitable MFI in India at the time, with industry-leading operating metrics, and on track for a successful IPO; but like other AP-based MFIs, got significantly impacted by the AP crisis. However, with support from lenders and investors, and through the commitment and leadership of Ms. Reddy, the company was able to continue to grow its operations outside AP, and steadily turn around the business. Driven by best-in-class operational practices, the company has been highly profitable for the last three years, and has built a high quality, well diversified loan portfolio outside of AP. Spandana now operates in 13 states across India, with ~540 branches in various rural and semi-urban areas, and has over 2 million borrowers with a portfolio outstanding of INR 1,325 crores (~USD 200 million), with a target to once again become one of the largest, and most profitable MFIs in the country. The company also leverages its vast distribution network in rural and semi-urban areas to improve its clients’ quality of living by offering other products such as solar lanterns, mobile handsets, consumer durables, etc. Nishith Desai Associates was the legal advisor to the company, AZB & Partners was the legal advisor to Kedaara Capital and Cyril Amarchand Mangaldas was the legal advisor to all 37 lenders. Commenting on the fund raise: Padmaja Reddy, Founder & Managing Director, Spandana Sphoorty Financial Limited said: “This is an amazing turn-around, and we are excited to have Kedaara Capital as our partner in our next phase of growth. This equity infusion from the Kedaara led consortium, along with new debt support from the banks, has helped us to clear all of our debt repayments, exit CDR, and position us to once again become one of the leading MFIs in India. This success is the consequence of the commitment and dedication shown by the entire Spandana team. We are very excited that Kedaara Capital had the vision to see the true capability of the organization, and had the belief in our ability to further build on it.” Sunish Sharma and Manish Kejriwal, Managing Partners of Kedaara Capital added: “This transaction is in line with Kedaara’s focus of investing behind, and taking very large stakes in, high quality businesses with potential to create market-leading positions driven by very talented management. Despite several obstacles post the AP Crisis, Spandana has been able to demonstrate strong recovery, good growth and great profitability over the last three years. We strongly believe in the passion, commitment, dedication and strong leadership of Padmaja and are confident that our partnership will go a long way in building the most credible, transparent, respected and highly profitable MFI in India. We believe this is an opportune time to invest in the MFI sector, with Spandana being especially well-positioned to benefit from the sector tail winds, due to its best-in-class leadership, a geographically well-diversified loan portfolio, and a strong reach across its target geographies.” Abhijit Ray, Co-Founder & Managing Director, Unitus Capital shared: “We, at Unitus Capital, are proud to have developed a strong relationship with a highly credible, immensely efficient and profitable institution like Spandana, led by a dynamic leader – Ms. Padmaja Reddy. With the infusion of capital from Kedaara and leading banks, Spandana can resume its journey of high growth and scale new heights.” This article appeared on Unituscapital.com.

Impact investment delivers a robust and lasting response to the problems facing the planet, and bridges the gap between philanthropy and investing for return. This training for French speakers brings together top experts in the field from the private and academic sectors and aims to help private or public sector individuals gain a greater understanding of impact investing and how they can participate.

The European Investment Fund invests EUR 10 million in an experiment aimed to find jobs for 2,500 immigrants in Finland within three years, while helping employers find the skilled labour they need. In the experiment, implemented by the Ministry of Economic Affairs and Employment, the employment of immigrants is promoted through private investment. The SIB (Social Impact Bond) model of impact investing is to be used in the experiment. – What is new in the SIB model is that the activity is financed by the investors who also bear the financial risk. The public sector pays for the proven outcomes only – that is, when an immigrant finds a job, says Jari Gustafsson, Permanent Secretary at the Ministry of Economic Affairs and Employment. – The Investment Plan for Europe and the European Fund for Strategic InvestmentS (EFSI) included in it are innovative tools to get investment moving in Europe. Today’s contract is indicative of the growing role of EFSI in promoting societal projects, in this case concerned with the integration and employment of immigrants. The project is the first of its kind in Europe, and we will follow its impact very closely as we hope it may serve as a model for others. I wish the best success to all who benefit from the education, training, apprenticeship and employment opportunities offered by the project, says Jyrki Katainen, European Commission Vice-President responsible for jobs, growth, investment and competitiveness.

Customised training for specific jobs

Immigrants’ unemployment has for years been 2 to 5 times higher than that of the native population, and it takes much more time for them to enter the labour market. In the experiment the employment of immigrants is facilitated by bringing training to workplaces and customising it according to what is needed to do the job. – Immigrants who find employment strengthen the viability of municipalities and Finland’s economic growth. With the growing numbers of immigrants, it is even more important than before to facilitate their entry to the labour market, Permanent Secretary Gustafsson says. The companies participating in the experiment represent sectors that have difficulties in finding workforce, such as the manufacturing industry, building, trade and services. The experiment is first carried out in Uusimaa and Southwest Finland, and it will be extended to regions where there is a shortage of labour as considered necessary. – Valmet Automotive is currently recruiting large numbers of employees. In this situation it is important to find people who are motivated and committed to their work. Immigrants are one of the groups of people where we have found such employees, and I believe we will find more of them in the future. The SIB project improves the basis employment skills of immigrants to facilitate their entry to working life. The way we see it, we also have an important role in supporting the integration of immigrants by employing them, says Tomi Salo, HR Director of Valmet Automotive.

Impact investing model used in the experiment

The Social Impact Bond model was brought to Finland by the Finnish Funding Agency for Innovation Sitra. In the SIB project the performance objectives are specified in great detail, both for the wellbeing set as the target and for the economic benefit. The achievement of the targets is measured on a regular basis. – The experiences gained from the Integration SIB project will also be used in the future Employment SIB project, specifically aimed to promote the employment of the young and long-term unemployed, Permanent Secretary Gustafsson says. The Government decided on the Employment SIB project in the mid-term policy review, and it is to start in the autumn.

The Finnish investment field appears to have adopted responsible investment as a part of the basic principles of investment activities, but impact investment still poses challenges for capital investors. This was the result of a recent study commissioned by the Finnish Innovation Fund Sitra and the Finnish Venture Capital Association (FVCA), and carried out by Deloitte Ltd. Currently, the impact – i.e. the effect of such investing – is primarily evident as a by-product of long-term investment activities and it is not necessarily used as a part of the marketing or investment strategies. This is largely due to the development stage of the impact investment ecosystem in Finland. According to the study, the transition to impact investing is gradually occurring through responsible investing. Responsible investing merely considers social, environmental and ethical issues in investment decisions, but impact investing has a goal of generating a beneficial impact on the world along with a financial return. Impact can be seen as an extension of responsibility, which is supported by both the interviews of institutional investors and the survey results conducted on capital investors. The survey indicated that the majority of capital investors are currently operating in the area of responsible investment, but are moving towards being impactful. Sitra regularly interacts with a wide variety of investors in order to ensure that the development of the investment market in Finland is as balanced as possible where increasing their knowledge and, in turn, making impact investing decisions are concerned. The main results of our collaborative impact investing study are presented in the slide set below.

Effective, impact-based investments in well-being are under way.

The Finnish government decided that it will use the performance-based SIB model (Social Impact Bond) for employment trials and for decreasing the exclusion of youths, among other things. This is great news, as the current scarce economic situation forces both the government and the municipalities to develop new tools for the improvement and funding of well-being. The SIB, which was introduced in Finland by Sitra, is one of these tools. It connects the public sector, investors and service providers so that everyone benefits. “The SIB agreement doesn’t just acquire goods and services; it acquires results and impact. In addition, it provides the government and municipalities with opportunities for risk-free funding external to the budget,” emphasises Sitra Impact Investment Project Director Mika Pyykkö.

Objective: decreasing youth exclusion

The Finnish government’s objectives are especially to reduce the number of young NEETS (Not in Employment, Education or Training) and to promote the employment of youths. One of the methods of achieving this goal is the SIB project to support youth employment and to decrease exclusion. The project will be prepared during the spring and summer of 2017 by the Ministry of Economic Affairs and Employment, Sitra and municipalities that are interested in the project. (See the government memorandum, Section 12, link in Finnish) The memorandum states that the current system to support the well-being, education and employment of children and youths is too complicated, and that the effectiveness of measures is decreased by lack of coordination and collaboration. However, the SIB model will enable support for youths and families which is more effectively timed and tailored specifically to their situation and needs.

Trials to promote employment

The government plans on, for example, procuring novel, diverse service concepts for youths in challenging labour market positions from private sector service providers. The projects will be privately funded through the SIB model and the service procurements will be realised using innovative procurement practices and performance-based agreements. (See the government memorandum, Section 14, link in Finnish)

Target-oriented investments in well-being

An SIB agreement defines the measurable objectives for increasing well-being. Institutional and private investors fund the services that promote well-being and assume the risks associated with the provision of these services, while the public sector only pays for the results that fulfil the objectives. In other words, the government or the municipality do not have to pay until the results have been verified. “Impact investment is a method to solve problems through carefully planned, consistent and front-loaded investments,” says Pyykkö. SIBs are already being trialled in Finland in two projects. The first of these enhances occupational well-being in the public sector and the other, a project headed by the Ministry of Economic Affairs and Employment, accelerates the employment of immigrants. There are approximately 30 municipal SIB projects planned in different parts of Finland, including Vantaa, Hämeenlinna, Lahti, Lappeenranta, Tampere and Oulu. The objectives of these projects range from the well-being of families, children and youths to promoting the independence and employment of senior citizens. The value of the public sector’s procurements reaches approximately 35 billion euros annually. Therefore, the purchase of impact also means the more productive use of billions of euros in tax revenue.

By doing modeling you are already answering the question about the Theory of Change: How a strong social welfare system can use the best of the private sector by articulating a successful Social Impact Bond (SIB) model.

I recently went to Finland to discover a very interesting case of when and how SIBs can be used to solve social problems. As a German Chancellor Fellow who is researching social impact investing initiatives in Germany and other parts of Europe, the first thing I learned was that SIB is not the solution to all social problems. Furthermore, the question of how to use SIBs can at times be very challenging.

The reason why Finland is developing SIBs so quickly is mainly because of Sitra´s role. Sitra is determined to accelerate SIBs in Finland, acting like a middle man in charge of the most difficult job, which is educating the public sector how to use SIB models to tackle specific issues.

The other differential for me is that Sitra knows exactly how to act in a new scenario of big government and municipality reforms and is pragmatically answering the questions of the Theory of Change in this new context. Here are some key considerations I would like to make of their model:

• Together with partners, Sitra defines specific targets and incentives. All sectors (public sector, start-ups, big for-profit corporations, non-profit organizations) learn how to work together in a new collaborative way and share common goals.Investors realize the key role they need to play and that is why they accept lower returns to keep the value of the impact purpose. There is a maximum cap return rate agreed with investors, and the surplus of the return goes to the government. 
• With the recent changes in Finland´s public administration, the customers will have more freedom of choice to choose services among more private enterprises. Consequently, the government will work diligently on measuring the impact of these service providers making sure the quality of services will be preserved. 
• Conflicts between long-term SIB investment and 12-month governmental budget cycles are addressed with long term contracts and commitments between service providers and government (municipalities), considering their tasks. 
• Finland is very data driven and has a recognized engineering culture. This is a competitive advantage because of the experience and knowledge to create complex mathematical models.

Finally, the fact that the government is leading this change is the most important guarantee that impact investing, and especially SIBs, is a priority for them. This makes me confident to say that Finland will have very good examples of impact models to show to the world in the future.

A blog post written by Darren Walker, president of the Ford Foundation, about how to bridge the gap between philanthropic impact and investments. The Ford Foundation’s Board of Trustees has authorised the allocation of up to $1 billion dollars of the Ford Foundations endowment, which will be phased in over ten years for mission-related investments. The blog also includes a video explaining how mission-related investments work, which you can watch below.

Impact Investing: un movimento globale in ascesa

Secondo il Rapporto GIIN 2017, l’ammontare dei capitali investiti per progetti a impatto sociale è in continua ascesa