Making csi matter csi and hbrid models for development - p zille of genesis analytics

Trialogue CSI Conference: 25 May 2011

From CSI to Inclusive Business

Incentivising innovation at the ‘Base of the Pyramid’ - the experience of Enterprise Challenge Funds

Context

• ‘CSI Stands Accused’ – corporate welfare, de-linked from core business, not sustainable, creating dependency, distortionary ….

• Historical development wisdom – the poor exist beyond markets; need to be insulated from market forces; different rules apply

• Growing recognition that sustainability & impact demands we move beyond welfare, supply-driven, top-down approaches to poverty challenges (governments, donors, CSI)

• But SA’s context of duality, dislocation and distortion imposes real barriers on the market’s ability to realise economic opportunities and deliver outcomes for poor communities

• Part of the answer: Inclusive Business and B4D - understand the barriers that inhibit pro-poor linkages and that limit private investment & innovation in weak markets and target CSI resources to overcome these

Challenge Funds offer a demand-side, market-based and competitive mechanism to incentivise pro-poor innovation

The rationale for ‘pro-poor’ incentives to the private sector

•Low-income markets have unique characteristics

•Serving these markets requires new approaches

•Successful innovation leads quickly to replication

Pro-poor growth requires innovation

•Inherently more risky than mainstream markets

•Information uncertainties contribute to high risk

•Inherent inertia within firms, esp if no competition

Firms are slow to respond to opportunities at the ‘base of

the pyramid’

•Can prioritise sectors & markets, not investments

•Ill-equipped to assess & manage risk

•Interventions likely to distort rather than facilitate

Can use public money to incentivise investment - but

not to pick winners

•Invest in linkages with emerging producers, BoP markets

•Incentivise pro-poor Innovation: products, models, partnerships, technology applications

•Run internal B4D competitions to reward the champions

Corporate CSI: resources could help transform existing

business models => B4D

Challenge Fund logic: trigger private investment & innovation by changing attitudes to risk…..

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Social impact

Minimum level of return required by firm (hurdle rate)

Minimum impact required by donor

High

Low High

Aim of the challenge fund:

to incentivise companies to move from the bottom right to the top right quadrant

Promote risk taking so that businesses extend their core activities in ways which

combine profit with a high social impact

Characteristics of Enterprise Challenge Funds

Key design characteristics

• A once-off, limited duration financial contribution

•Awarded through an open competitive process, independently adjudicated

•To a private firm or a consortium led by a private firm

•Against a matching contribution

•To be implemented by the firm – must have proven capacity

•For long-term commercial gain with a defined social impact

A temporary market development catalyst… stimulate innovation by private firms… improve market access for those historically excluded

from enterprise opportunities

Challenge Funds ‘start races rather than pick winners’

Development impact

• Limits scope for distortion or dependency

• Demand driven + competitive focus, innovation, quality, additionality

•Leverages existing activities, not new projects or organisations

•Leverages private funding and risk-sharing ownership & success

•Capacity to implement, driven by the logic of the transaction

•Development impact likely to be sustainable if it is profitable

• Strong partnerships forged

• Top management involved

• Innovation criterion flexibly applied

• Real competition for funds

• Genuine risk sharing by private partner

• Recipients not previously donor funded

What does a successful portfolio look like?

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1 2 3 4 5Likelihood of success on scale of 1 (likely to completely achieve success) to 5 (unlikely to be realised)

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20% of projects: highly likely to be successful

50% of projects: moderate chance of success

30% of projects: unlikely to achieve success

Projects likely to succeed when

Decisions

A venture capital approach to funding

83 Project Concept Notes received

69 PCN’s reviewed by internal assessment panel

28 selected to submit full application.

14 rejected on eligibility grounds

7 did not submit

21 Full applications received

10 Rejected

1 Pending

10 Funded

41 rejected irt criteria

Project Concept Note Stage Full Application Stage

Great Lakes Cotton (Malawi) - BLCF

Context OutcomesParticipation

• Partnership: Great Lakes Cotton, Syngenta, the Association of

Smallholder Farmers• Offering: improved quality & availability

of seed, and other technical inputs to pre-registered farmers

• 180,000 small holders;• 35,000 “ganyu” (casual labour) • 500 private extension workers

• 2 seed-treatment plants installed• 43,000 tonnes small holder cotton production in

2003/4 Vs 16,000 tonnes in 2002• +265% in productivity attributed to project

• spin-off activity (transport sector) already apparent• BLCF input UKP0.29m; private input UKP1.3m

What does private sector-led development impact look like?

Vodafone MPESA (Kenya) – FDCF

Context OutcomesParticipation

• Partnership: Vodafone Kenya & FDCF• Offering: co-funding of a pilot to test technology to use cell-phones for money transfer to remote areas using air-time

retailers as ATM network.

• Millions of rural Kenyans & Tanzanian h’holds and SMEs

• Banks & MFIs improving products at the BoP

• dramatically reduced transactions costs & improved security for poor users

• Improved productivity across economy• Barriers between banks & MFIs overcome

• FDCF input UKP1m; Vodafone: UKP15m after roll-out

Clyral – KwaZulu Natal

Context OutcomesParticipation

• Partnership: Mobile Human Intelligence Panel, World Changes Academy

• Offering: Development of technology platform allowing unskilled, remote fieldworkers, using low cost mobile phones, to process data used for a

variety of R&D and information processing applications

• Thousands of unemployed and low income earners with access

to mobile phones

• 1st phase pilot study will train and develop 100 individuals

• Subsequent roll out to thousands of individual participants

• Applying BPO success to mobile technology networks in South Africa

• SGCF input R1,050,000 Own capital input R293,750

What does success look like (SA)?

Madi a Thavha Lodge – Northern Limpopo

Context OutcomesParticipation

• Partnership: Madi a Thavha, Lesheba Community Trust, Village Tourism Trust

• Offering: Establishing a marketing and sales organisation for heritage based arts

and crafts in Limpopo

• 20 local craft units (average 8 crafters per unit=160 crafters)

• Area covering Northern Limpopo to Zimbabwean border

• Business and skills development of 20 production units and surrounding communities

• Market access for traditional crafters & product lines

• Demand-side support Vs supply-driven interventions = market relevance &

sustainability• SGCF input R582,500 Own capital input

R411,000

Relevance to CSI?

Beyond Challenge Funds…. Four principles to limit the risks inherent in grant financing

• Have an explicit view of sustainability from the start - a credible vision of how things will work unsupported by ongoing subsidy

• Focus on realistic, context-appropriate solutions - avoid importing solutions devised in better-resourced situations

• Will the intervention leverage local market activity? Apply a simple but critical test – will it develop or 'crowd in' the market or distort it?

• Is there scope for systemic change in the way the market system works? Are we addressing the underlying causes of poverty, or merely sponsoring individual relief projects?

To be effective funding must be Finite, Focused, Facilitative …….

Two sets of criteria were developed to screen applications

Eligibility

1. Projects must not be dependent on an outstanding government decision

2. Applications must be from existing, for-profit enterprises

3. Applicants must provide matched funding – in cash or kind

4. Projects outcomes must significantly benefit the poor

Assessment

1. Commercial viability (20%)

2. Potential pro-poor impact (20%)

3. Ability to measure impact (20%)

4. Potential for replication, sustainability and systemic change (20%)

5. Extent of matched funding (10%)

6. Innovation (10%)

Enabling criteria

A N Other Banking Group – Southern Africa

Context OutcomesParticipation

• Partnership: AN Other Banking Group throughout Southern Africa, Integra

Micro Systems (India)• Offering: Correspondence Banking

Transactional Platform; providing access to basic financial services for poor and

low income individuals

• 4.7 million South African low income clients

• Retail outlets able to contain point of sale devices (spaza owners,

restaurants, shops)

• Removal of cost barriers• Each pilot area (3 initial areas) seeing 20 000

clients per area transacting• Five year outcome 2.3 million clients engaged

directly with CBTP• Lower cost of interaction up to 3 times for bank and

5-8 times for client• SGCF input R1,998,750 Own capital input

R1,988,750+++

What does success look like?

WHL Consulting – WHL Africa

Context OutcomesParticipation

• Partnership: WHL Africa, Community based tourism providers (township B&Bs, indigenous cultural experiences, MSME

providers)• Offering: Elevating experiential tourism by empowering South African low income

tourism providers

• Medium Small Micro Enterprises and local Marketplace Operators

• Currently 70 destination sites live across Africa

• MSMEs and low income tourism owners cultivating their offering, working with multiple

intermediaries and communicating their offering to a global marketplace

• Connecting MSMEs directly with travelers via online market access.

• Generating market access• SGCF input R2,361,734 Own capital input

R2,091,433

What does success look like?

Raizcorp – Richards Bay, Gauteng

Context OutcomesParticipation

• Partnership: BHP Billiton, Samancor• Partner companies in small

underserviced towns• Offering: Operation of business

incubators for own account• Deliver high quality entrepreneurial

support services

• 28 smaller companies developed in equity and fee based models, serviced by Business Support

Centre.

• Breaking the economic barrier• Increasing profile of entrepreneurs with

surrounding communities• Proving a business model

• Transfer of skills• SGCF input R2,852,640 Own capital input

R2,425,000

Great Lakes Cotton (Malawi) - BLCF

Context OutcomesParticipation

• Partnership: Great Lakes Cotton, Syngenta, the Association of

Smallholder Farmers• Offering: improved quality & availability

of seed, and other technical inputs to pre-registered farmers

• 180,000 small holders;• 35,000 “ganyu” (casual labour) • 500 private extension workers

• 2 seed-treatment plants installed• 43,000 tonnes small holder cotton production in

2003/4 Vs 16,000 tonnes in 2002• +265% in productivity attributed to project

• spin-off activity (transport sector) already apparent• BLCF input UKP0.29m; private input UKP1.3m

What does private sector-led development impact look like?

Vodafone MPESA (Kenya) – FDCF

Context OutcomesParticipation

• Partnership: Vodafone Kenya & FDCF• Offering: co-funding of a pilot to test technology to use cell-phones for money transfer to remote areas using air-time

retailers as ATM network.

• Millions of rural Kenyans & Tanzanian h’holds and SMEs

• Banks & MFIs improving products at the BoP

• dramatically reduced transactions costs & improved security for poor users

• Improved productivity across economy• Barriers between banks & MFIs overcome

• FDCF input UKP1m; Vodafone: UKP15m after roll-out