Longer returns. Opacity in impact. Higher risk. Challenges around R&D. But there are tradeoffs in not engaging in this space as well, and the more pressure consumers and employers (and policy makers) apply, the more we could see this grow. To mitigate, environmental returns, like carbon credits and water conservation, are quantifiable metrics to help with this, but I’m of the camp that this needs more exploration and innovation.
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Agreed Adam. However it is expensive to be poor. Reduce risk and improve solution, and you still can charge a price that would be high, but a tremendous saving opportunity for your targets. The issue then is how can we justify to make poorer people pay more for a similar service, which often comes as a hurdle in organisations.
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Interesting question Kris! There are indeed a full range of tools but they have all some limitations… I truly think this is an area where Finance still needs to be creative. I am having discussions with some organizations that are trying to setup fair system that would reward the positive externalities… that’s an interesting frontier to explore now.
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The main trade offs I see are:
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do we make strategic ‘big bets’ to acquire lots of BOP customers with 10 - 15 year long term investments … or do we just limit ourselves to things that are reasonably profitable in <5 years… the former can be much more ambitious but it’s a trade off and is only possible if you have a profitable core business and the right mindset to sustain longer term plays like this
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do we gather lots of people’s data and monetise it? there’s a big trade off between trust and privacy and protecting digital rights vs actually generating commercially useful insights and being profitable… not just for inclusive business but it’s particularly important when there is little regulation
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do we use a pay a you go model that (as Adam said) puts the customer at risk of not meeting repayments and potentially high interest rates, or do we limit our growth by insisting on upfront payment, or do we partner with public sector or impact investors to somehow subsidize growth and monetise the social impact… but it brings lots complexity and potentially slows us down
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do we go for truly BOP customers and do more social good… or do we go for mostly middle class customers in developing countries, which is probably more popular but less impactful - can we innovate to somehow profitably serve lower down the BOP and push ourselves to do that, or partner smartly across sectors to do it
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Impact remuneration is still in infancy however : no common framework, time lag issues, split responsibilities. We still are to see a significant success at scale.
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yes, bearing in mind reaching the poor often requires more costs in terms of logistics, maybe more middle men etc, compared to those in urban areas unfortunately, hence making it hard to really reach the bottom of the pyramid without some form of cross-subsidies from the middle or top of the pyramid
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Donors have tended to want to fund experimentation through pilots but I am increasingly thinking that companies should fund their own pilots and donors should provided other forms of finance that reward scaling. Any thoughts?
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I would love to see more outcomes based financing as a mechanism to increase opportunity and move past pilots. But I’m afraid that approach could also scare MNCs off. The chatter I hear is that these opportunities are high risk and w/o donors, couldn’t get internal funding for them. How could you address the other side here?
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Still think Philanthropist are great angel investor, plus they (sometimes) can provide specific advice. On the development agencies side, we are starting to see a bit of that, most notably with DFID (and no I’m not British :-))
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Adam where do you think donor funding should be applied to best unlock successful new business models?
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This is a great idea, if only we could find a commonly accepted outcome standard in a given area. Ad hoc targets create a failure risk that is too unpredictable for MNCs to bet on, plus there is the issue of sustainability. I’m convinced that will come however, once the impact industry has had enough experiments to converge.
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I agree that there is a diverse landscape of Donor/Philanthropy money that is needed to fund these innovation from pilots to scale. However, when it comes to scaling a successful pilot, there is no real appetite from Donors in general and it also raises some questions about market fairness, etc… We might want to adapt some of the market shaping techniques from Global Health who has been driving that for products like medicines or health services (such as Advanced Market Committments, delinking R&D from production, etc…). It could be a source of inspiration for other markets.
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As a donor I think they can have most flexibility, value for money and additionality by allowing themselves to fund some innovation where there are fantastic new ideas that wouldn’t happen without them, and they are harnessing the power of socially responsible investment with retail and impact investors to make the scaling happen… if i was a donor with limited money i would keep flexibility to invest some grants early, and bring in some equity and debt at growth stage, but i would focus by ‘picking key models’ where the potential for unintended negative consequences are very high without any public sector involvement, and the potential for postive social impact is very high… so for example remote healthcare and diagnostics, or genetic editing or energy access and connectivity, or even gig economy platforms and linking these to education platforms… there are issues linked to data protection and digital rights and high social benefits that maybe make a case for particular public sector donor focus
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a good question! certainly in how we’ve worked with BIF is one example, where we are not sure of the business case or the right business model, so are unwilling to invest in something, until donor funding came in to work those two issues out, which would then enable us to decide to move forward in that sapce.
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Our third and final question today:
Q3. What new technologies are enabling this shift? Where is the hype larger than the impact, and where is the impact greater than the hype? How do intended and unintended, positive and negative consequences play into this?
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I think we’re seeing it, slowly, in the environmental sustainability side - this is what’s allowing municipalities to get into the green bond game in the US. But 100%, this is nascent, and should/will be developed furthers. Maybe need to create incentives or platforms for pushing the thinking further faster?
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another option would be actual subsidies of products for the very bottom of the pyramid.
certainly help with financing could be useful, but even market research and market data would be useful. actually most donor funded projects collected lots of data that gets summarised in a pdf that is not useful and the actual data gets locked up!
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All these have in common the difficulty in last mile access. Distribution remains the big risk factor that needs a nudge to reach beyond the middle class. Both in terms of ethical handling and in terms of financial consequences of failure.
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we were looking at the dairy market with some ICT solutions, but wanted some detailed understanding of who had how many cows, where etc. some donors had this information but wouldn’t/couldn’t give it to us (or give it to anyone else for that matter)
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Ouch! too true Adam, what can we do about that though?
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