Download - 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)