Triple Pundit recently teamed up with SoCap10 to explore the opportunity and challenge of impact investing. In partnership with Myoo Create, we put a call out to bloggers asking: What’s Next? How will social enterprise unlock the $120 billion market opportunity for impact investment?
Leading up to SoCap10 October 4th-6th, we’re featuring the best answers here. Enjoy!
By: Daniel Kreps
Identifying viable social investment opportunities for $120 billion, even over a period of 10 years, is a massive challenge with multiple constraints. It is also a massive opportunity too big to ignore. Even if only 1% of this amount were made available this would translate into tens of thousands high impact individual investments benefiting low income entrepreneurs around the world.
I believe the most fundamental constraint to unlocking the investment resources identified by the Hope Consulting report is an insufficient supply of the human capital required to identify and manage individual investment needs in low income communities. The core of my proposal is the creation of a cadre of well-trained community development bankers. This can be achieved by following the model developed by Teach for America that is energizing inner city school districts and attracting young college graduates into the teaching profession. We can do the same for community banking.
Seeking out viable small business opportunities and mentoring local entrepreneurs used to be the job of community commercial bankers. This was in a day when the primary business of commercial banks was taking deposits and lending them back into the community. Today’s banks don’t seem to do that any more. Why? Because training people in the skills needed to make local small business loans effectively is expensive.
Under the old model banks could make a sufficient return on the difference between deposit and lending rates. In the modern financial market environment this is no longer true. However, set in the environment of a “social business” as envisioned by Muhammad Yunus, the business of allocating social investors’ funds into high impact individual investments can be highly sustainable and scalable. Here are the three major components of my proposal:
1. Create certificate programs at academic institutions to train students for jobs as community bankers.
2. Place the “certificated” community bankers with non-profits and MFIs serving low income communities.
3. Work with financial institutions to provide loan processing and portfolio management services.
By eliminating the need for a high return on bank capital, investment dollars can be provided to low-income entrepreneurs at a reasonable cost (below 10%); investors may receive a modest return (say 3%) and many thousands of people can be trained and compensated to manage the process. (I will provide further details on this idea over the next few weeks on my blog Banking on the Poor.)
Building the human capital infrastructure for this social enterprise will not only unleash resources for the poor, it will also create great jobs for bright, idealistic young people coming out of college into a very bleak employment environment. It’s a real win-win. Let’s do it!