The Promise of Impact Investing

Investing in Liquidity

Financing Basic Needs for the Bottom of the Pyramid

Content

Brief intro SNS REAAL and SNS Asset Management Background & Context Investment in water:

- Why? What’s going on with water?What and how?

- Investment approach SNS REAAL Water FundDiscussion

Company profile and corporate principles

SNS REAAL is an innovative retail bank-insurer

• Total assets around € 103 billion• More than 6.000 full-time employees• 100% Dutch• Strong sustainable labels are ASN Bank and SNS Asset Management

Department Asset Management organisation of SNS REAAL, focussed on:

institutional investors: pension funds, societal organisations etc.

SNS REAAL: insurance companies and investment funds

Research consultancy for various internal and external funds/clients

Focus “sustainability”: sustainability analysis and Social Responsible (sustainable)

Investment. Funds directed on development countries: SNS Institutional Microfinance Fund (one of the largest worldwide), SNS African Agricultural Fund, SNS REAAL Water Fund

Increasing use of water

5

Alarming status: Lack of finance to solve global water problems

Large gap of required investments in water & sanitation Human population growth and the expansion of economic activities:

– Increasing use of water

– Pollution of existing water resources Climate Change

o change in climate, higher sea level

o increase in hydro-meteorological extremes and

natural disasters

Lack of liquidity: Thirst for Finance in Water

Not a good idea!

Lack of action

Impact: Water Footprint

[Hoekstra & Chapagain, 2008][Hoekstra & Chapagain, 2008]www.waterfootprint.org

[Hoekstra & Chapagain, 2008]

Water Footprint

[Hoekstra & Chapagain, 2008]

www.waterfootprint.org[Hoekstra & Chapagain, 2008]

Water Footprint

www.waterfootprint.org[Hoekstra & Chapagain, 2008]

Water Footprint

www.waterfootprint.org[Hoekstra & Chapagain, 2008]

Finance Landscape

Focus SNS REAAL Water Fund & SNS Microfinance Fund

Most Development Finance Institutions

Source: World Panel on Financing Water Infrastructure, “Camdessus Panel”

Criteria for a sustainable investment structure:Upsacling sustainability towards bankability

Principles of bankability

Profit (Value creation)

Continuity of investments (Stability)

Risk management (Predictability)

Efficiency (Transaction costs)

Reliability & Compliance (Laws and regulation)

Trust / Fiduciary role (Safeguarding and prudently handle funds

entrusted)

Reputation (risk mgmt., distinctive values, CSR)

Investments in water and sanitation projects via Microfinance, in order to contribute to poverty alleviation and support building-up a sustainable living

in developing and transition countries

Investment policy1. Financial criteria:

• “H2O”-earmarked investments via Micro Finance Institutions (MFIs)• Ø Return about 8%• +/- 7 years payback period

2. Sustainability criteria: • Investments that lower the “water stress” situation and create up-

scaling mechanisms for improved livelihood and basic needs

3. Operational criteria• Investments via Microfinance Institutions; • Cooperation with reliable & capable partners; outsourcing

Our Mission: Using Microfinance for sustainable livelihoods

Investment scope and themes related to water & sanitation

Water Supply (generate, tap and/or furnish (transport) sources of clean drinking water,

either for household or business)

Water Treatment (collection, treatment, purification, filtration and/or re-use of water

(including wastewater)

Water Management (collect and/or conserve existing water sources, either by reducing

wastage or making its utilization more efficient and/or environmentally friendly and/or

sustainable)

Water for Agriculture (Irrigation)

Sanitation Access (disposal systems that are public or private and hygienically separate

human excreta from human contact)

Contamination Prevention (of water sources via facilities, systems and/or other

infrastructure)

Maintenance and Repair (of facilities, infrastructure and/or systems used to provide

clean water or access to adequate sanitation)

Hydro Power and Alternative Energy (small hydro & green energy of which a

substantial portion of the power generated is used to provide access to water and/or

sanitation

Microfinance-water market matching

Water supply/demand worldwide

Adopted from: www.who.org; www.unicef.org

Water flows, where Money goes

Impact of Micro Finance in Water

- Stability due to

sustainable / durable

water access & sanitation

- Time saving due to

improved access to water

- Affordability

- Reduction of conflits

- Status & Dignity

- Property values

- Pollution prevention- Preservation ofhealth and hygiene- Preservation of

waterresources

- Production capacity- Production security- (Cost) Savings- Employment- Resource effectivenes- Capacity autofinance

SOCIAL ECONOMICALENVIRONMENTHEALTH

Integral Approach via Value Chain

Where is the business case?

→ Economical Value Drivers

Based on market reserach South Asia and Sub-Sahara Afrika

Finance gap for sanitation: available US$500 million versus gap

US$8 billion per year

Investment US$1 has leverage effect of US$5-28 due to time savings,

increased productivity, improved health situation,…

Additional income of US$200-400/annually per household due to

improved water supply

Additional income of US$250-285/annually per household due to

improved irrigation

Market perspectives “Blue” MF-Credits

Annual general demand of Microfinance US$ 135 billion

for 70-80 million families; Ø credit < US$ 160,-

Of which potential for “Blue Credits” for the poor, based on research (supported by Gates Foundation) in 38 countries in Asia and Sub-Sahara Africa :

for next decade: credit need US$12 billion for 125 million clients Other client segments, less poor: US$ 20-50 billion + demand in other countries, like Central and Eastern Europe, Central

Asia, Latin America.

H2O-investment via Microfinance

MFI

Local Bank

Borrower,e.g.- Entrepreneur

- Community - Individuals

Loan MF Loan

Repayment Repayment

Blending with subsidies / seed money

eventually

Example: NGO-MFI “BISWA”, India

• 5 year loan of USD 2 million to BISWA

• BISWA on-lends funds to clients for

sanitation construction

• Cost sanitation circa US$ 100,-

• 59,000 sanitation loans Oct.08-Apr.09

• Finances 20,000 sanitation loans every

6 months

• People below poverty line subsidised by

Total Sanitation Campaign

Beyond money only- Microfinance in water & sanitation Stability

Safety

Dignity

Improved organisational and operational capacities

Community and kinship development

Skill and vocational development

Small enterprise management

Education and health

Sustainability Criteria

1. Financial criteria → Profitability, operational costs, default/Portfolio at risk

2. Legal framework, Governance, Capacity → Ensuring compliance, reporting & monitoring,

Stakeholder engagement

3. Social criteria → Accountability, affordability, equity, gender

4. Environmental criteria→ Sustaining water- and ecosystems and livelihoods

5. Technology, management & service → Appropriate solutions; Fits well into specific situation

Investing in Entrepreneurs &Productsfor BoP market

Critical Success Factors1. Good entrepreneurship!

2. Good Products• Accessible: affordable, spare parts available

• Functional: easy to operate, low maintenance costs

• Good quality: reliable, easy to distribute

• Sustainable: durable, repairable, eco-safe

• Manageable: straight forward, controlable

• Enabling environment: education, instruction

Example: Investment in entrepreneurfor BoP Tech

The “Tulip” Ceramic Water Filter

• Effective removal bacteria• Selling price: 7,- Euro• Easy to use: simple and robust• Spare parts available: EUR 3,-• Durable: 7000 litres / > 3 years

THE critical factor: Stakeholder CooperationInvestment types Project suppliers

Loans Renewable promoters

Construction, engineering and

consultancy

Local government, communities

NGOs

Local banks, MFIs

Equipment manufacturers and

suppliers

Equity

Private equity (VC)

Bonds

Guarantees

Mezzanine finance

Philantrophic

Innovative (micro, ecosystem service)

(Co-)Finance providers

Development finance institutions

Int. en local banks

Investment Funds

(Re)Insurance

Export-credit agencies &

guarantee providers

Companies & associations

Innovative approaches via: mix soft&hard finance, guarantees, fiscal, control,…

Public & quasi-public

Enabling environment!

TA, capacity building, control

Smart Alliances: some examples

Quasi public

Private

FeasibilityFinance: - subsidies

- investments

Public

(local) Gvmt.’s

DGIS Micro Water Facility

Thank you!But please remember

your H2O Footprint!

Join our partnership

The Sustainable Investor

Contact person: Kajetan Hetzer; E-mail: [email protected]

1. Financial Criteria

2. Sustainability Criteria on MFIs and projects

3. Specific Water Criteria

Sustainability Criteria

Integrated approach and customised

Adjusted financial elements– Appropriate socio-economical finance schemes

– Cost recovery and payback mechanisms

Implementation– Community empowerment and local participation

– Integrated solutions / Integrated Resource Management

– Appropriate solutions / technologies

– Cost containment

Role local government– Decentralisation

– (Financial) autonomy

– Transparancy in Public Private Partnership processes

– Continuity / consistency

Role governments and supranational organisations (UN, WB, etc.)– Facilitation enabling environment (seed money, “soft ware”, guarantees)

– Risk reduction/mitigation

“Hockey stick” towards sustainability

Maintenance

Improved institutionalisation

Decentralisation authorities and increasing accountability

Improved client service

Improvement management, financial and staff capacity

Time

Stabilisation

Internal reforms service oriented

Performance

Kingdom 2004

Support necessary for upscaling

Bottlenecks for investments

1. Complex project profile:

High risk versus capital intensive projects, long payback periods,

relative low profit vs. rel. high transaction costs and dependency on

specific context (government, social, econom., physical,…), difficult

control,…

2. Insufficient experiences and capacity of project owner:

Insufficient knowledge about financial-economical sustainability

Shortage of competent and trustworthy local organisations

3. Little supply of good business plans

4. Little demand and support by NGOs, other banks and

(semi) public organisation; Why?

What are our critical succes factors? Investing in a Bear market

What are our critical succes factors? Risk management

Social, cultural and political situation

Social economical and market situation

Regulations and policies

Financial design (u.m. valuta risks)

Payback capacity and grip on behaviours

Securities: Project activa and activities

Corruption / transparancy

Project / change management

Contract break

Capacity and commitment of stakeholders

Physical conditions as climate, environment

Summary:Mutual interest Microfinance & Water

Creation and protection of stability, health and productivity.

Strengthening current MF investments, reducing risks, create

enabling environment for new client base

Improving outreach, and financial and social performance.

Improving viability by having larger loans portfolio without losing

focus on the poor and better meet social performances

SNS REAAL & Microfinance

SNS REAAL has various successful products and partners with regard

to microfinance

– SNS Institutional Microfinance Fund (EUR 310 mln; one of the largest

microfinance funds worldwide)

– ASN Novib Fund

– Triple Jump, Developing World Markets, Water.Org, UNDP

– Combination with water has potential for upscaling and synergy

advantages with various organisations and local governments

Carrying capacity: Water = basis of life

Economical Dimension

Ecological Dimension

Social Dimension

Carrying capacity

Microfinance in water

Micro credits for water and sanitation facilities to individuals,

communities or local small entrepreneurs in development

countries

Examples improved water supply to increase productivity &

sanitation to reduce health costs

– Direct (example local farmers)

– Indirect (example as result of improved hygiene)