development returns - financial returns - issue 12 - april 2010

‘Financial institutions need to engage more with women’Bola OlabisiCEO Global Women Inventors & Innovators Network

UN-HABITAT’s Anna TibaijukaSolving the affordable housing equationSlum upgradingTreating land as inventory

- issue 12 - april 2010

housing special

02 |

36

14

04 UpfrontGlobal news

08 InterviewBola Olabisi, president of African Women of Essence International and vice president of the British Association of Women Entrepreneurs, talks about the economic potential of women

14 ColumnAmbassador Jesus P. Tambunting, chairman and CEO of Plantersbank Philippines, on the importance of the SME sector in developing countries

15 special housingMain feature with Anna Tibaijuka, case, photo feature, thesis

28 InfographicWhat drives Dutch financial firms to invest in emerging markets?

30 Round tableFour parties discuss the use of for-profit investment to create social and environmental impact around the world

35 VisionHelmy Abouleish, CEO of the SEKEM Group in Egypt, on how organic agriculture is the answer to the global challenges of the 21st century

36 CaseA new container terminal on the Cai Mep River in Vietnam will strengthen the country’s port sector

COLOPHONUpsides is a magazine about finance and sustainable develop­ment. It focuses on visions, perspectives and achievements but also dilemma’s which can be encountered. The stories are not just about invest­ments but also about the entrepreneurs who are inspired by building sustainable business. The stories show the impact that develop­

ment banking and these entrepreneurs have on creating sustainable growth and alleviating poverty in the world.Upsides is published three times a year and is sent to entrepreneurs and stakeholders in de­veloping and emerging markets. The initiative for Upsides was taken by FMO (Netherlands Development Finance Company) and is sup­ported by Triodos Bank,

Shorebank Interna­tional, Plantersbank.

DisclaimerNo part of this publica­tion may be reproduced in any form without permission of the pub­lisher.

ContactFor address changes and to subscribe please visit www.upsides.nl. For questions, com­ments or information

about partnership or advertising in Upsides please contactus at info@upsides.nl

Websitewww.upsides .nl

Chief editorRené de SévauxManaging editorAnnemiek van ’t HofEditorial BoardNanno Kleiterp, Marilou Golstein Brouwer, Laurie J. Spengler

Editorial CommitteeErik van Dijk, Henk Nij ­land, Paul Wolff, Yvonne Bakkum, Gera van Wijk, Nicholas MolodykoConcept & design Scripta Media (Peter Hofland, Jacqueline Konermann, Kasper Marinus, Peter van Vuuren)Art directionMarjolein Rams Contributing authorsKarolien Bais, Lucy Conger, Rob Hartgers,

Karen Jochems, Gary RudlandCover photoChris Gloag / De Beeld­redaktieContributing photographers and illustrators Chris Gloag (08, 11), Dominic Nahr / Getty Images (03, 16, 18, 24 below, 25), Shoot Media (28), Jake Verzosa (14), Hollandse Hoogte (22, 23, 24 top, 26)

foreword

Affordable housing will be one of the most impor-tant challenges for the future as there are still over 100 million homeless people, according to UN- HABITAT. It goes without saying that good housing has an enormous economic, financial and social impact. It is a basic need for people and therefore we have to focus on providing housing. This issue of Upsides draws special attention to the importance of housing for sustainable development and growth.

We are very pleased to have in this issue Anna Ti-baijuka from UN-HABITAT, who explains the need for 4,000 houses every hour for the next 20 years and the challenges we are facing in the attempt to make this possible. Research and experience shows that development banks can play an important role in creating affordable housing through low-income-housing financial products for the poor. George Meltzer, senior social specialist at FMO, reports on his extensive research into the social and economic impact of affordable housing. An important find-ing of this research is that having a home is key for people attempting to develop themselves or their families.

In this issue we also present a discussion on socially-responsible investing with amongst others James

Vaccaro from Triodos Bank and Antony Bugg-Levine from the Rockefeller Foundation and the Global Impact Investing Network. Should we focus on maximum financial returns only or do we include social returns? The Maastricht Graduate School of Governance, the Netherlands, recently conducted a survey for FMO: Be Social, Make Profit: sustainable development in investments in financial institu-tions. Its conclusions show the difficult considera-tions to be made when incorporating responsible investment into investment processes. Both stories show that we have to continue looking for ways to find the best possible balance between social and profit returns.

The previous issues have been very well received by our readers. This has resulted in a growing number of new subscriptions. I believe this is an indication of the growing awareness in the world of the impor-tance of the private sector in sustainable develop-ment in developing countries.

Enjoy reading this Upsides,

Nanno KleiterpCEO of FMO

Providing housing

THE NUMBER OF HOUSING UNITS NEEDED By 2030 IS 2.8 BILLION’page 16

‘

contents

15 08

‘Good housing is a basic need’

april 2010 | 03

04 |

global news

Supporting organic cotton

TriODOS SuSTAiNABLE TrADE FuND HAS PrOviDED BiO FArMErS PuBLiC uNiON WiTH A TrADE FiNANCE LOAN, CONTriBuTiNg TO A SuSTAiNABLE vALuE CHAiN.

Bio Farmers Public Union is an export organisation for certi­fied organic and fair trade cotton. It sources directly from around 840 small­scale farmers in the Jalabad region in the south­eastern part of Kyrgyzstan. The region is part of the Ferghana valley, the traditional agricultural zone in the coun­try, which was well­known for its intensive cotton cultivation in Soviet times. The project to promote organic cotton production in this area is an initiative of the Swiss development organisation Hel­vetas. Other supporting organisations include the Dutch de­velopment organisations ICCO and Hivos, and SECO from Swit­zerland. Senior investment officer at Triodos Bank, Nelleke Veenstra: ‘It is impressive to see what Helvetas has managed to achieve over the past years. They have organised farmers, found local management and trainers, and created access to the international market.’ Bio Farmers Public Union’s ambi­tion is to double the number of farmers and increase the total volume of organic cotton from a little over 270,000 kg now to 1.3 million kg by 2012. The trade finance loan provided by Triodos Sustainable Trade Fund enables Bio Farmers Union to pay its farmers when they deliver cotton at harvest time. It is also used to bridge the period of processing in the ginnery and storage until final shipment and payment.

1.1BiLLiON

number of people living in inadequate housing conditions in urban areas alone

8.5% percentage of women in Europe who have taken measures to protect their intellectual property

100 MiLLiON

number of slum dwellers in whose lives the UN wants to have achieved a significant improvement by 2020

upfront

FMO signed a US$10 million convertible debt facility in Nigerian Naira with Abbey Build-ing Society, the third largest primary mortgage institution in Nigeria. The facility will increase housing stock, enable homeownership and pro-mote small developer capacity building.

Nigeria, with a population of 140 million, currently has a housing deficit of 17 million units; only 6% of the total population has access to mortgage finance, and the estimated financ-ing requirement of the sector is US$282 bil-lion. FMO’s financing will be used to help Abbey build its housing portfolio by targeting the coop-erative market segment. FMO is the first devel-

opment finance institution to fund Abbey and it invests alongside private equity fund partner AfricInvest.

Abbey’s business model will make construc-tion loans available for small developers as well as provide mortgage finance for cooperative members. Cooperative societies will buy a com-plete apartment building for their members, providing a 20-50% down payment, with the remainder covered by an umbrella mortgage bond to the cooperative provided by Abbey. Construction financing will also be provided to small, but reliable developers to build the apartments.

Housing development in Nigeria

FMO SUPPORTS HOUSING DEVELOPMENTS IN NIGERIA, WITH CONSTRUCTION LOANS FOR SMALL DEVELOPERS AS WELL AS MORTGAGE FINANCE FOR COOPERATIVE MEMBERS.

april 2010 | 05

Planters Development Bank (Plantersbank), the leading small and medium enterprise (SME) bank in the Philippines, hosted a two-day roundtable meeting of development finance advocates and trade experts in Manila, to discuss plans for a regional SME Finance and Knowledge Center there.

The Center, to be spear­headed by Plantersbank in partnership with the As­sociation of Development Financing Institutions in Asia and the Pacific, the International Trade Center in Geneva and the International Institute for Trade and Development of Thailand, will be the first to set up in Asia. It will offer facilities to educate bank­ers on SME financing sys­tems and processes and provide entrepeneurs with information resources.Roundtable participants agreed that SME promo­tion ranks high in the eco­nomic agenda of countries across the Asia­Pacific region, noting the emer­gence of SME­oriented banks in South and South­east Asia. Participants also expressed interest in technological advances, the standardisation of business rules and new financial instruments that will enable development finance institutions to find common ground in provid­ing services to the SME sector.

SME promotion ranks high

06 |

global news

The San Jacinto­Tizate plant is located near the town of Leon and sells power to Nicaraguan util­ity subsidiaries of Union Fenosa under long­term power purchase agreements. The financing, primarily arranged by the Central American Bank for Economic Integration, FMO and EDC, funds

an expansion of the plant from 10MW to 46MW. The project is a very important contributor to shifting the energy balance towards more renew­able generation in Nicaragua. The International Finance Corporation is set to fund a future phase two expansion to 72MW.

A CrEDiT FACiLiTy OF uS$77 MiLLiON ENSurES THE COMPLETiON OF PHASE ONE OF SAN JACiNTO-TizATE’S gEOTHErMAL POWEr PrOJECT ExPANSiON iN NiCArAguA.

geothermal power project expansion

read

Building Prosperity: Housing and Economic Development by Anna Kajumulo Tibaijuka shows that investment in housing is potentially one of the most effective driv­ers of economic growth in developing countries.

African Women’s Move-ments: Changing Political Landscapes provides a fascinating analysis of the ways in which women activists and politicians have been transforming politics in Africa since the early 1990s.

Housing Finance Policy in Emerging Markets by Loic Chiquier highlights the prerequisites for an effective housing finance system; lays out sev­eral policies and models; and explores the role of governments in expand­ing access to housing finance for lower­income households.

Slum rehabilitation

ACL is a long-standing and reputable real es-tate developer active mainly in Mumbai and the surrounding region. The transaction will enable the construction of free housing and services for 30,000 households, improving the lives of approximately 135,000 slum dwellers.

The project falls under the Slum Rehabilita-tion Scheme (SRS). In return for constructing new residential buildings for slum dwellers, the developer is granted the right to develop a por-tion of former slum land for their own purposes

or transferable development rights. The lives of slum dwellers are thus greatly improved in a commercially viable manner. Mumbai alone has 2,805 million square feet of slum areas where over half of Mumbai’s population of 17 million inhabitants lives. Under the SRS, slum dwellers receive free, good-quality housing with basic amenities such as running water, sewage and sanitation. They also receive legal title to the home, which represents a valuable asset and provides security of tenure.

The Institutional Limited Partners Association (ILPA) is a non-profit association that represents the interests of institutional private equity investors. Its Private Equity Principles outline practices focused on enhancing gover-nance of private equity funds, strengthening the alignment of interests in such funds and improving investor reporting and transparency.

Over the past five years DFIs have strongly supported the emerging market fund management community by committing capital to private equity funds pursuing vari-ous investment strategies in developing countries. DFIs have also been instrumental in mobilising the commitment

of institutional and private capital to private equity funds alongside DFI capital. DFIs therefore have an interest in the long-term growth of the private equity industry in developing countries.

yvonne Bakkum, FMO’s

director Private Equity said: ‘The principles are in line with our ideas on how to best align the interests of fund managers and investors. In fact, most of these principles are already applicable to FMO’s current fund investments.’

FMO AND SEVERAL OTHER DEVELOPMENT FINANCE INSTITUTIONS HAVE JOINED A GROUP OF 50 INSTITUTIONAL INVESTORS ENDORSING THE ILPA PRIVATE EqUITy PRINCIPLES.

Creating a more sustainable industry

United States

Source Emerging Markets Private Equity Association

Western Europe Emerging Markets

50,000

100,000

150,000

200,000

250,000

300,000

20022001 2003 2004 2005 2006 2007 2008

Global Private Equity Fundraising (US$ millions)

FMO AND ACKRUTI CITy LIMITED (ACL) RECENTLy SIGNED A US$29.9 MILLION FULLy CONVERTIBLE DEBENTURE FACILITy DENOMINATED IN INDIAN RUPEES TO PROMOTE SLUM REHABILITATION IN INDIA.

upfront

april 2010 | 07

Quote

THE BENCHMARK OF A SUCCESSFUL HOUSING PROJECT IS WHETHER THE RESIDENTS STILL ENJOy LIVING THERE AFTER 10 yEARS’

‘

george Meltzer, senior social specialist at FMO

08 |

Bola Olabisi

THE ECONOMIC POTENTIAL OF WOMENBy Karen JochemsPhotography Chris Gloag / De Beeldredaktie

april 2010 | 09

‘If we made better use of the innovative and inventive skills that women have to offer, the world would be a different place.’ That’s the message that Bola Olabisi has been communicating for over ten years.

interview

10 |

two work together in a better way. There should be effective communications channels in place through which experiences can be exchanged and institutions can really tune into what women have to say.’

Earlier, you mentioned networking and knowledge transfer. in addition to gWiiN, you’ve also founded another organisation that focuses on building rela-tions between Africa and the rest of the world. Can you explain how African Women of Essence interna-tional (AWEi) helps? ‘When we set up AWEI, we start-ed with round-table discussions to take on board what African women had to say. As we expected from our experience with GWIIN, we learned that access to finance was an issue, but so was the lack of access to technology and, most importantly, to knowledge and to networking opportunities. That’s why we gave AWEI its focus: creating durable, mutually beneficial relationships between women in Africa and women in Europe, to share experience, learn from each other and generally help each other to develop their enter-prise and entrepreneurial skills.

The initial response to AWEI is promising. But we’re still looking for strategic partners to help us continue and expand our efforts. Hopefully our Forum in June will help open up new avenues.

What makes it difficult is that very few people really appreciate the importance to Europe of Af-rica as an emerging market. To-day, Africa is seen as a poor continent by many but it has so much to contribute to the world and the world economy. At one of GWIIN’s first events in Africa we had no less than 1,500 women attending, all hungry for knowledge and eager to make their business work on a local and a global level. If we could only tap into this potential, it would make such a difference!’

The world of finance is dominated by men. is that an extra disadvantage for women entrepreneurs? ‘I believe it is. The finance world in general has yet to buy into the idea that women are rapidly becom-

Bola Olabisi

AFRICA HAS SO MUCH TO OFFER THE WORLD. IT’S A PITy SO FEW PEOPLE SEE ITS TRUE POTENTIAL’

‘

FINANCIAL INSTITUTIONS REALLy NEED TO ENGAGE MORE WITH WOMEN’

‘

interview

hat is the greatest barrier that women face? ‘It’s difficult to highlight just one of the many

challenges, but in general, access to finance is an issue for African and European women alike. The majority of financial institutions remain oblivious to the fact that women often need a tailor-made solu-tion. So instead of seizing the opportunity to become a partner for the rapidly growing ranks of female entrepreneurs, they do nothing and pass the buck to the NGOs. This is unacceptable. Financial insti-tutions need training to help them look beyond the traditional solutions and options, they need to learn from best practices and see the potential. In short, they really need to engage more with women.’

you clearly have a passion for inventions and inno-vation. How did you become involved in this field? ‘I was frustrated to see the lack of acknowledgement for the incredible products that women were bringing to market. While talking to them about their products and how they had developed them, one issue was clearly a major problem: access to finance. I think it is important to focus the attention on these remarkable women inventors and innovators and to help organi-sations get a better understanding of the challenges that they and other women around the world face.’

How can financial institutions create better access to finance? ‘They should seek and implement an alternative investment allocation plan, based on a firm commitment to gender diversity; invest in out-reach programs directed at untapped opportunities in small, middle and high-growth enterprises owned by women; contribute to dedicated initiatives such as Trapezia, which targets high-growth women-focused

businesses; and invest more in mentoring, nurturing and monitoring exchange programs with a particular focus on women’s businesses.’

in which other areas do these women need assis-tance? ‘Intellectual property rights can be an issue at all stages, we have discovered. The majority of women simply do not realise that they need to take action to protect their idea or product. And it’s not just a problem in developing economies: across Eu-rope, a mere 8.5% of women have taken measures to protect their intellectual property. So women inven-tors and innovators are running a huge risk of being exploited and losing out on their own creation. And that’s not all: if their idea or product isn’t patented or protected, the majority of banks and other institutes will be very reluctant to provide the finance neces-sary to turn it into a business.’

Are the challenges women face in Europe different from those faced in Africa? ‘In Africa, there are vari-ous social and geographical issues that have an ad-ditional impact on the position of female entrepre-neurs. The traditional cultures discriminate against women, making it difficult for them to set up a busi-ness of their own. Many women who try to, are faced with a lack of relevant expertise. They have no role models they can copy, no fellow entrepreneurs they can call on for advice. And that’s a third problem: women have limited access to knowledge. If you live in a rural area and have no telephone or Internet connection, how are you going to learn more about business?

As a result, innovative, women-owned enterprises are considered a high risk by financial institutions. Add to this the fact that women usually do not have any collateral – it’s the men who call the shots, own-ing the home and other family assets – and you soon realise just how hard it is for these women to get the money they need to help their businesses grow! And the sad thing is that it’s not only the women who are missing out. Encouraging entrepreneurship can help the economy to grow too. We’re not tapping into the economic potential that these women have to offer and that is detrimental to the economy.

What we need is a link between the financial in-stitutions and the women themselves, to help the

W

12 | april 2010 | 13

global news

advertentie

interview

ing a force to contend with. In Africa especially so-ciety and organisations are male-orientated, so the finance business leans that way too. But even in Eu-rope, it can be harder to obtain finance, whether it’s a microcredit or venture capital, if you’re a woman. The barriers are still in place, but they’re subtle and harder to see.

In addition, the male orientation of the finance world leads to a bias towards high-tech products and innovations. These are perceived to be more valuable and investment-worthy than many of the products and innovations that women come up with. Products created by women are often extremely practical and down-to-earth.’

is sustainability an issue for gWiiN and its members? ‘Most certainly. I believe that the majority of women have social enterprise high on their agendas. Status is much less important to them. They’re conscious of the ecological footprint of their activities, and are keen to recycle and minimise waste. At the same time, they’re often looking for ways to make their business work, not just for them but for their com-munity too. So often they’ll involve local suppliers or employ mainly local people.

Not surprisingly, many of the products that GWI-IN has helped women to launch are home and fam-

ily orientated. They may not be as sexy as high-tech gadgets, but every single one of them is most certain-ly an invention or innovation!’

Can you share some examples of successful product launches with us? ‘Oh, there are so many… it’s diffi-cult to choose! One that immediately comes to mind is a case from Ghana, where a woman called Gloria Adu introduced bamboo flooring as a substitute for timber. It’s an environmentally-friendly product and Gloria is keen to recycle as much as possible – the waste bamboo, for instance, is used as charcoal. She also chooses to employ people from the poorest areas of the community, to enable them to profit from her business too.

In Europe, a very simple but extremely effective product we’ve helped to launch is the Slik Stik. It’s an invention by Denise Anstey, who is disabled her self and who was looking for ways to improve her own life and that of others. The Slik Stik is a multipurpose walking stick that includes a torch to light the way and a magnet to pick things up with. It’s easy to fold away and take along on journeys.

Looking at an ecological success, there’s Tanya Ewing’s energy-monitoring device. It has a traffic light display that shows you how much energy you’re actually using in your home and that warns you when your energy consumption exceeds the limits you de-fined in advance. A great device that will help every-one to keep electricity bills in check and contribute to the environment at the same time.’

you mentioned earlier that the role of women is changing and that women are much more aware of their economic potential. Does that mean that en-trepreneurship will be easier for the future genera-tions? ‘I’d like to think so but we mustn’t become complacent. We need to keep on taking a proactive approach. Women have come a long way but we’re not there yet – and that goes for Europe just as much as for Africa.

Creating centres of excellence is one of the steps we must take to ensure that we keep the momentum going. Cooperation with universities and other edu-cational institutions is essential to give knowledge transfer a boost and offer women better access to information. This in turn will put women in a better position to acquire finance.

Hopefully, at some point in the future we’ll be able to say that GWIIN has become obsolete because inventors and innovators of both sexes share a level playing field. But I believe we still have a long way to go before we reach that point!’ «

EVEN IN EUROPE, IT CAN BE HARDER TO OBTAIN FINANCE WHEN yOU’RE A WOMAN’

‘

BOLA OLABiSi is the founder and CEO of GWIIN, the Global Women Inven­tors & Innovators Network. GWIIN helps women with practical informa­tion, for instance, on how to register a design or a patent and with support from our network. The network has over 2,600 members

worldwide who have been through the same process and are more than happy to share their knowl­edge and experience with others. Olabisi is the president of African Women of Essence International (AWEI), an organisation for linking African wom­en and well­wishers in the diaspora with

Africa, and also the vice president of the British Association of Women Entrepre­neurs. Bola sits on the European Com­mission’s network for ‘Women in Decision Making and the Economy’ to assist with the promotion of women’s empower­ment and gender balance in decision­making positions.

14 |

16Main featureUN­HABITAT’s under­secretary­general and executive director Anna Tibaijuka explains how housing affects the economic development of emerging markets

19Casegeorge Meltzer, senior social specialist at FMO, researches the social and economic impact affordable housing projects can have in developing countries

22Photo featureSlum upgrading around the world. By 2020, a signifi­cant improvement has to be achieved in the lives of at least 100 million slum dwellers.

27ThesisAshish Karamchandani, head of Monitor Inclusive Markets, on a fundamentally different business model to make housing more affordable in India

14 |

ather than rely on foreign direct investments and eco-nomic aid, it is the SME sector that should be promoted and developed to play a key role in keeping domestic

economies together. It is estimated that SMEs contribute from one-quarter to as much as one-third of the gross domestic product of Southeast Asia economies.

In the Philippines alone, nine businesses in 10 are SMEs, employing about half the labour force. These numbers illus-trate the leading role of SMEs in providing economic stimulus through new employment, better incomes, export earnings and the integration of the countryside.

Notably, while the interest in and lending to SMEs has grown over the years, the lack of formal credit channels contin-ues to be the major constraint to the growth and development of SMEs. The problem does not lie in the lack of funds, but in the aversion of mainstream private banks to lend to SMEs.

In the Philippines, bridging the financing gap is done through state-mandated quotas for lending to SMEs. A more practical strategy would be to introduce incentives to attract

more private SME finance, such as lowering bank reserve re-quirements for funds lent to SMEs, streamlining the accredita-tion process of state-administered wholesale SME-orientated finance programmes; strengthening state-run credit guarantee mechanisms for SMEs; and increasing public-private partner-ship towards the establishment of SME resource centres for capacity-building and promotion of best business practices.

After the 1997 Asian financial crisis, Planters Development Bank realised that simply being a lender to SMEs was not enough. We had to find new ways to help SMEs realise their potential and to make greater contributions to improving the quality of life in the Philippines.

The greatest challenge for SME bankers is to stay aligned with the evolving needs of SMEs and to keep their strong double bottom line orientation of creating a positive social impact while earning good returns for shareholders. As social and environmental dislocation affect everyone, everywhere, bankers must take the lead and work with entrepreneurs to mitigate and hopefully find solutions to reverse the crisis.

column Ambassador Jesus P. Tambunting, chairman and CEO Plantersbank Philippines

Banking on SMEs

rFor developing countries, nothing less than the growth of a strong entrepreneurial class is the sustainable road forward.

contents

housingspecial

april 2010 | 15

ow large is the housing deficit worldwide? ‘UN-HABITAT’s re-search shows that about 100 mil-

lion people worldwide are homeless and roughly 1.1 billion people are living in inadequate housing con-ditions in urban areas alone. According to our figures of 2005, the number of housing units required by 2030 is estimated at 2.8 billion. This means that to keep up with the current rates of population growth and household formation, we would have to build 4,000 housing units an hour for the next 20 years. Exacerbating the problem is the cost of housing. In Latin America, households need 5.4 times their an-nual income to buy a house. In Africa, they need an average of 12.5 times their annual income.’

What impact does housing have on the economic de-velopment in emerging markets? ‘The housing con-struction sector is a major industry throughout the world and accounts for a sizeable proportion of the gross domestic product in most countries. If we look at the employment impacts of housing, we find that construction activities create jobs directly through on-site employment and indirectly through backward linkages with industries that produce building mate-rials and related products. Housing construction also contributes to the expansion of small construction enterprises which tend to rely on informal labour, es-pecially in developing countries. Large construction firms often subcontract smaller firms, thereby pro-

viding opportunities for the latter to grow, employ larger numbers of workers and develop their capac-ity to take on larger projects in the future.

In addition, housing enables an economy to function smoothly by providing adequate places for em-ployees to live, thus enabling them to work more productively. More-

over, the quality, price and convenience aspects of a city’s housing stock have a direct impact on the abil-ity of businesses to recruit and retain the most pro-ductive employees. In this way, the available housing supply in cities and towns has an impact on the loca-tion of economic activities, as well as on migratory flows of workers within and even between countries.

If we look at housing as a contributor to savings and domestic financial mobilisation, the role of hous-ing assumes an even greater economic significance, especially when savings are considered. Homeown-ership is one of the highest priorities in terms of ac-quiring assets for the majority of people in develop-ing countries, and many people are prepared to make sacrifices in other areas in order to purchase a home. If underutilised household funds can be more effec-tively mobilised and properly channelled, they could serve as a tool for developing both a housing finance system and the domestic economy as a whole.

Finally, let’s not forget about the welfare and health dimensions of housing. Human welfare is the product of a complex web of interacting resource flows, and housing is one critical item of such flows.’

What are the best ways to respond to the housing shortage at the bottom of the pyramid? ‘Access to land is fundamental for ensuring that the poor have access to housing. UN-HABITAT is therefore tak-ing an innovative approach to land rights to include customary rights and a Social Tenure Domain Model that allows for alternatives to titling and thus open-ing up access to land to the poor.

The second way to respond to the housing short-age at the bottom of the pyramid is to recognise the poor are capable of mobilising savings – although their savings are not sufficient – and support should be given so they can access finance through federa-tions of the poor, savings groups and microfinance. There are successful examples of such financing mechanisms in countries like Bangladesh, Ghana,

main feature

H

Anna Tibaijuka is currently serving her second term as under-secretary-general and executive director of UN-HABITAT, the United Nations agency for human settlements charged with providing adequate shelter worldwide. ‘We would have to build 4,000 housing units an hour for the next 20 years.’

special housing

HOUSING ENABLES AN ECONOMy TO FUNCTION SMOOTHLy’

‘

LET’S NOT FORGET THE WELFARE DIMENSIONS OF HOUSING’

‘

april 2010 | 1716 |

By Lucy Conger, photography Dominic Nahr/Getty Images

18 |

Dr. ANNA KAJAMuLO TiBAiJuKA is the first African woman elected by the UN General Assembly as under­secretary­general of a United Nations programme. In 2000, she was appointed assistant­secretary­general and execu­

tive director of the former United Nations Centre for Human Settlements. She developed a new strategic plan for the organisation and improved its management and performance, which led to its conversion into a UN Programme

on human settle­ments, UN­HABITAT. Dr. Tibaijuka holds a doctorate in agro­economics, and prior to joining the UN, she was an econom­ics professor at the University of Dar es Salaam in her native Tanzania. She found­ed the Tanzanian

National Women’s Council, BAWATA, an independent women’s advocacy organisation, and the Barbro Johannson Girls’ Education Trust which promotes quality education for girls in Tanzania and Africa.

Sri Lanka and Thailand. In Central American coun-tries, where NGOs facilitate access to microfinance, there are successes in Costa Rica, El Salvador and Nicaragua.

Cooperative housing provides a good approach to collective housing. This has been successful in Uru-guay, inspired by the Swedish model, and is being replicated in other countries in Latin America. Rent-al housing should be revisited globally as it provides an important alternative to owned housing. Lessons can be learned from the Netherlands, where the so-cial rented sector plays a vital role in providing hous-ing and in the economy.

In some cases, recognising informal develop-ments could lead to housing improvements with-out necessarily building new housing. For national programmes, high-level political commitment has proved effective in slum upgrading. For example in Thailand, the Baan Mankong programme presents an interesting model involving NGOs, governments and saving groups. At city level there is a wealth of experiences. Indian cities are implementing the slum networking model which involves private sector par-ticipation, for example, in Mumbai. In cities like Rio, Montevideo, and Medellin, city wide programmes, led by autonomous local governments, developed interesting local resource mobilisation tools through property taxes and contributions from the Inter-American Development Bank.’

What is the role of uN-HABiTAT in emergency situa-tions like post-earthquake Haiti? ‘The key challenge is to provide weather-proof and durable transitional

housing solutions as soon as pos-sible, tents are for very short-term relief. Experience shows it takes time to rebuild housing. The need is to build back better. The survi-vors have to be made secure in the best possible manner, at the low-

est cost, and at the earliest opportunity.UN-HABITAT focuses its early efforts assisting

survivors to acquire safe land plots, utilise and sal-vage as much building material as possible, rebuild transitional houses that over time can be incremen-tally improved, or recycled into permanent dwell-ings. We do this through a rubble recycling pro-gramme; the decentralisation of technical advice through reconstruction support centres in all affect-ed communities; community support programmes to provide technical reconstruction skills as well as le-gal support for land and property-related grievances; assistance to highly vulnerable elements of the popu-lation; and support the government in its efforts to coordinate the multi-sector aspects of an integrated urban recovery and development programme.’

How can governments get the private sector to play a role in meeting the housing needs of lower income and poor people? ‘Governments can use a number of incentives, including subsidies, tax incentives, land use planning incentives, risk sharing and govern-ment guarantees for low-income housing lending and borrowing. Officials can also introduce private-public partnerships and promote community-based initiatives. If these don’t work, stronger legal meth-ods can be applied, such as establishing inclusive housing policies and ensuring the enforcement of laws on property rights.’

What should be the role of development finance in-stitutions? ‘To help provide housing for the poor and low-income groups, development finance insti-tutions need to establish microfinance systems for housing and government mortgage guarantees, in-cluding the possibility of community mortgages. The development banks could also introduce dedicated low-income housing finance programmes or funds, housing bonds, or even establish dedicated housing banks such as the Thailand Housing Bank.’ «

special housing

THE NEED IS TO BUILD BACK BETTER’

‘

n my previous position at FMO – director of investment and mission review – I came across

several housing project proposals for de-veloping countries. While most of these proposals were already complex, includ-ing factors such as land purchase, con-struction and mortgage potential, most developers were not placing sufficient emphasis on social aspects. I got the feel-ing that they were making the same mis-takes as those previously made in devel-oped countries. In other words, too much emphasis was being placed on financial viability and too little on environmental, social and governance issues.

I believe the benchmark of a successful, sustainable, affordable housing project is whether the residents still enjoy living

there after 10 years. In my view, FMO needed to spend more time researching what people really wanted. The business case is clear: there is a tremendous need for housing for millions of people in de-veloping countries. But while our projects were helping to meet demand, some of them weren’t fully meeting people’s needs. As a result, we found that some projects weren’t appropriate for their par-ticular market, because the plot was too small or the design was not appealing. Consequently, demand for the finished product was much lower than expected.Over the past year, my research into this subject – which is unique among DFIs – has taken me to Dhaka, Mumbai, Johan-nesburg, Cape Town, Lusaka, Kampala, Nairobi and a mining estate in Zambia.

case

By George Meltzer

I

april 2010 | 19

George Meltzer is a senior social specialist at FMO. He has spent the past year researching the deeper and wider social and economic impact that affordable housing projects can have in developing countries. He explains what made him begin this research and where it has led him.

SOLVING THE AFFORDABLE HOUSING EqUATION

20 |

casespecial housing

I have also been involved in discussions with (potential) clients, such as a pan-Af-rican housing construction finance fund, and residential and commercial real es-tate property developers. The following sections summarise some of my most im-portant findings.

The value of a homeA house is much more than just four walls and a roof. It has many meaningful char-acteristics, such as location, building ma-terials, design, number of bedrooms, etc. Also, in the sense of what a house means to people, there are many determining factors: shelter, community, status, ac-cess to education and health, safety and security, and a way to save for the future.

What housing means to different peo-ple is open to almost infinite interpreta-tion. FMO is particularly interested in low-cost or affordable housing, however, for which the obvious common denomi-nators are: economic, financial and social.

From an economic perspective, hous-ing is important because it contributes to the GDP of a country: both directly, by using (unskilled) labour and including the production of building materials for the construction industry, and indirect-ly, by stimulating demand for furniture and other items. In addition, construc-tion provides an opportunity to develop building skills and gives a chance to small building contractors.

Financially, constructing houses cre-ates a demand for finance and the assets created can serve as a basis for capital markets. One could say that a house is a basic asset both for a household and the economy at large: a property can be lever-aged to obtain credit which, in turn, can be used to generate further investment. By recognising that slum dwellers are not just poor people without prospects, but customers, entrepreneurs (suppliers) and workers with ambitions to better them-selves, they can become a more active part of the formal economy.

Socially, the value of a home can per-haps be summarised by the concept of empowerment. Having a home, whether owned or rented, is key for a person to de-velop him or herself and his or her family. I use the terms ‘His and hers’ intention-ally, since the gender issue is omnipres-ent. It is not difficult to understand what it means to a single mother to have her own secure place, and housing is an im-portant part of the emancipation proc-

ess. Since affordable housing is always produced in larger quantities, the end result is not only a home but a (new) com-munity with the potential to develop new networks and structures for common de-velopment.

The bigger pictureThere are many other ways in which so-cially responsible, affordable housing projects can benefit whole communities. For example, a home can be a base for so-cial and economic mobility; a house with proper sanitation (drinking water, sew-erage, etc.) contributes to public health; proper living conditions support and facil-itate education, thus improving the qual-ity of the workforce; and by reducing the gap in living conditions between different income groups, housing can ease tensions within society.

Furthermore, housing provides a great opportunity to create a more sustainable and better world. Large-scale housing, for example, increases density, thereby mak-ing use of economic, social and cultural infrastructure more efficiently. In addi-tion, housing always involves the three groups of local government, business and consumers, thus reinforcing the social fabric and strength of an economy.

In sociofinancial terms, the size and long-term nature of a property invest-ment provides opportunities to improve financial literacy; people build a credit

history that can be used in many other financial transactions; and home owner-ship can serve as an investment for the long term and retirement.

Moving forwardAll the information and experience I have gathered to date demonstrates just how developmental affordable hous-ing projects can be, if they have a clearly defined set of goals, designed to meet the needs of the local population. Conse-quently, I have drawn up a list of recom-mendations (see sidebar) based on my research. My aim is to make these recom-mendations part of a larger ‘developers toolkit’, including checklists of important elements for successful projects, at differ-ent stages and in varying situations.

Before I can do this, however, I need feedback on my research and recommen-dations to date. I need to know whether the parties concerned agree on the most important elements, whether anything is missing and whether the recommenda-tions actually work in practice.

It is clear that developers in emerg-ing markets can benefit enormously from each other’s experience, but they do not easily come together. While FMO made the right choice to make affordable hous-ing one of its core activities, we still have to facilitate development and construc-tion in more ways than through finance alone. «

DO’s

­ Study your market, get to know your customer and his/her specific needs.

­ Check land titles, including rights of use, customary rights and previous owners.

­ Make a stakeholder analysis and start early consultation. Maintain relations with sup­portive NGOs throughout the project.

­ Design neighbourhoods with a mixed income composition.

­ Benefit from cross subsidisa-tion of infrastructure.

­ Provide pre-sales coaching to your clients (debt counselling, responsible lending, hom­eowner training). Many will own a house for the first time.

­ Promote after sales coaching (homeowners associations, estate management). Hire dedicated staff focused on community development.

­ Check for potential public-private partnership.

­ Have take out finance in place.­ Keep time to delivery/market

short.­ reduce the impact of inflation

and construction interest.­ Be transparent. Promote a

legal environment focused on the protection of owners.

DON’Ts

­ Take the housing deficit as an excuse to build just anything.

­ Assume that a clean title is enough.

­ ignore or underestimate envi-ronmental and social impacts.

­ Build for one income level only. It is financially unsus­tainable and socially unde­sirable to build low­income neighbourhoods.

­ ignore livelihood issues.­ Build without proper (urban)

planning.­ Build with low densities.­ Build with inflexible architec-

tural building plans.­ rely on cash payment.

april 2010 | 21

A HOUSE IS MORE THAN JUST FOUR WALLS AND A ROOF’

‘

Construction workers in LumwanaTypical government low­income housing at the borders of the city (SA) Interior of Soweto house (SA) New street in newly created mine village (Lumwana)

22 |

Even though Mumbai is the richest city in India, about two­thirds of its residents live in the zopadpattis or slums. In Dharavi, the city’s best­known slum, thousands of migrant labourers and long­time residents work day and night in single­room factories, businesses and sweat­shops, sewing clothes, tanning hides, running bakeries and recycling all manner of waste.

22 |

photo featurespecial housing

SETTINGHOUSING GOALSFor the first time in history, more people live in cities than in rural areas. A large part of these urban dwellers - more than 800 million people - live in slums. One of the UN Millennium Development Goals states that, by 2020, a significant improvement has to be achieved in the lives of at least 100 million slum dwellers. After all, adequate housing stimulates economic development.

Photography Dominic Nahr / Getty Images and Hollandse Hoogte (Jonas Bendiksen and Piet den Blanken)

april 2010 | 23

24 |

special housing

24 |

At the edge of the Khumbarwada, a slum rehabilitation building is coming up, rising out of the slum structures. There have been numerous schemes and plans to redevelop Dharavi, and a number of highrise structures are dotted around the slum.

A man is working on breaking down rocks for the construction of a main road through Soweto, one of Kibera’s villages. The first 500 metres were build by the government of Kenya. The rest of the road is being funded by UN­HABITAT. This would be the first main road to go through Soweto.

Kibera is East Africa’s largest slum and home to one­quarter of Nairobi’s population. There are seven centres that sell water, have bathrooms and showers. An eighth is being built which will be the main resource centre, with a clinic and internet. The centres hopefully will stop peop­le drinking from damaged fresh water pipings, as well as make people use proper toilets.

Rocks are placed on the unfin­ished road through Soweto, so residents do not walk or drive on it and damage the foundation.

april 2010 | 25

About 50% of the people of Cara­cas, Venezuela, live in the barrios on the steep hillsides. These poor neighbourhoods lack access to basic municipal services such as waste collection, regular mail delivery, sewage systems, and legal electricity connections. They also face a security issue: in the city, about 100 people are killed every week.

The San Agustín del Sur Metro­cable system in Caracas gives about 40,000 slum dwellers ac­cess to the city’s central public transportation system.

special housing

26 |

TREATING LAND AS INVENTORy

thesis

he housing market in India has traditionally focused on the top end of the market, with the lower

income segment virtually unserved. In 2006, Monitor Group conducted a study for the National Housing Bank of India with active support from the World Bank, highlighting the fact that this much larger and underserved market comprises over 21 million households with monthly in-comes of INR 7,000-INR 25,000. These families currently rent rooms in slums and low-income neighbourhoods char-acterised by poor construction, cramped spaces, deplorable sanitary conditions and a lack of basic neighbourhood ameni-ties. They aspire to live in and can afford to buy houses of 250-600 square feet in suburbs at current market prices, consti-tuting a potential market of INR 1,30,000 crore (US$290 billion) – almost as big as middle- and high-income housing com-bined.

The study identified a commercially vi-able opportunity to provide good-quality housing to the next 35% of India’s urban pyramid, but realised that the key chal-lenge was that such housing was distinct-ly lacking. Monitor has since spent three years trying to ‘make the market’ in low-income housing through raising aware-ness of the opportunity, creating the local ecosystem for developers and providing them with end-to-end facilitation sup-port.

During this time, a fundamentally dif-ferent business model was pioneered, which treated land as inventory and not as a capital asset. The traditional business model for real estate in India treats land as an asset, whereby the developer looks to generate returns primarily through the price appreciation on the land parcel. Construction is incidental to the process and the real value is derived by buying large parcels of land, holding on to them and selling off a limited number of apart-ments at rising price points. The new model, however, encourages developers to think of land as inventory – to buy rel-evant parcels as and when required, con-struct houses on them and sell them off as soon as possible. Here the value is derived from developing a quality product and delivering volumes. This model is aimed at managing the end price for lower-in-come customers.

Sticking pointToday, there is clearly widespread aware-ness of the opportunity. With successful entrepreneurs and large business houses increasingly interested in developing low-income housing, the next sticking point is likely to be access to mortgage finance. Existing financial institutions and new players are therefore being encouraged to set up housing-finance companies to provide mortgage financing especially for informal sector customers. In parallel,

the ecosystem is strengthened by facili-tating broader ‘market innovations’ such as creating customer education modules, addressing unintended consequences, incorporating sustainability elements in low-income housing and supporting gov-ernment efforts to scale up its low-income housing.

Far-reaching impactThe successful development of this mar-ket has the potential to transform the lives of a hundred million individuals fi-nancially, as well as to enhance the qual-ity of their lives and provide the emotion-al security of a home. It could also have a far-reaching impact on urban develop-ment by providing a potential benchmark for slum rehabilitation and options for housing that in the long term may help in slum

In the attempt to make housing more affordable in India, Monitor Group pioneered a fundamentally different business model with the potential to transform the lives of millions.

T

After seven years of lead­ing Monitor’s consulting business in India, Ashish Karamchandani now heads Monitor Inclusive Markets which uses market­based solutions as catalysts to create social change. For more information, visit www.mim.monitor.com.

april 2010 | 27

BE SOCIAL MAKE PROFIT

Every year Dutch financial firms invest billions of euros in emerging markets. But how do Dutch­incorporated financial firms incorporate social perspectives, objectives, and strategies into investment management techniques that honour the spirit of financial return? One thing is certain: management of environmental, social and governance (ESG) issues is an important aspect of business.

ESg criteriaBefore making investments in emerging markets, many investors consider if the investment adheres to international norms relating to fields such as human rights and labour re­lations. Many others conduct some form of social screening to determine if the potential portfolio company is involved in the manufacturing of undesirable products or if the com­pany supports regimes with poor human rights records.

Things to overcomeIncreasing transparancy will make investing in emerging markets easier. Financial firms should also try to invest in businesses with a corporate culture similar to their own.

Why address ESg concerns?The investor’s own ethical guidelines are the primary motive for addressing ESG concerns. ESG issues are often incorporated into the business’s investment strategies as a means of controlling and mitigating risk.

Why invest in emerging markets?The reasons behind investing in emerg­ing markets differ according to the type of investor. Asset managers and pension fund representatives are more likely to mention portfolio diversifica­tion, the higher risk­return potential of emerging market investments, and the growth potential of emerging market companies. Community finance respon­dents, on the other hand, more often explain the investment choice as an integral part of their business opera­tions.

From the report Be social, make profit by Graciela van der Poel and Michaella Vanore, Maastricht Graduate School of Governance, Maastricht University

infographic

38%

19%

15%

4%

28%

5%

10% 5%

23%9%

2%

19%

21% 11%

22%

25%

6%

13%

9%

Investment business merit

Organisation’s own ethical guidelines

Good risk/ return ratio

Portfolio diversification

Access to innovative industries and companies

Lack of company ESG disclosure

Differing language

Local market access

Corruption

Corporate culture

Lack of investment research

Countries are featured in benchmark

Countries feature companies with detailed sustainability information

Great growth potential

Access to poor, excluded or underserved communities

Broader market exposure

Customer demand

Media attention

Other

Other

Why address ESG

concerns?

Why invest in emerging

markets?

Things to overcome

23%

21%

17%

15%

1%

15%

8%

Adherence to international norms

Social screening for undesirable investments

Green energy/technology

Proactive environmental practices

Do not apply ESG/SRI criteria

Corporate governance

Other

ESG criteria

april 2010 | 2928 |

30 |

upfront vision

advertentie

A NEW PARADIGM

he Private Sector Declaration on Global Challenges is part of a

broader lobbying campaign aimed at uniting the organic sector and other envi-ronmental initiatives. Several private sec-tor companies support the declaration. For us, this is a clear sign that awareness of the interrelations of the global chal-lenges, as well as the great potential of organic agriculture, is rising. Recently, we also founded the Living Carbon Partner-ship, a network of companies, research-ers and non-governmental organisations. The partnership will jointly publish a paper outlining the key advantages of healthy ecosystems. Together, we want to influence international policy.

Our ultimate goal is to have poli-cymakers acknowledge the benefits of organic agriculture. These benefits in-clude the mitigation of climate change through lower greenhouse gas emissions, the potential to reverse CO2 concentra-tions through carbon soil sequestration, as well as better adaptation to more ex-treme weather events. Concrete meas-ures should be taken to support organic agriculture. Small-scale farmers must be encouraged and supported, while capac-ity building for organic farming has to be increased.

It is widely acknowledged that under-nourishment is not a problem of produc-tion, but of poverty. Most poor people live in rural areas. To foster small-scale agri-culture in the least developed countries is a much more sustainable way to achieve food sovereignty than the provision of cheap calories from mass production. Organic agriculture is less dependent on expensive chemicals and machinery and creates more jobs and higher local added value.

ChallengesOrganic agriculture still faces many chal-lenges – in particular, the non-compen-sation of its additional benefits and the subsidies for conventional competitors. International agricultural trade policies are a major growth impediment for agri-culture in developing countries. Markets in the developed world are either closed or almost inaccessible to farmers from developing countries and I thus argue for more liberalisation in agricultural trade policies. This should not be confused with the liberalisation that has taken place in the last decades. Liberalisation has to be accompanied by putting a stop to subsi-dies and other support schemes in the de-veloped world. Furthermore, developing

and least developed countries must not be forced to open their markets immedi-ately. If liberalisation takes place before the market is ready, imports can seriously harm the domestic agricultural sector and undermine its development.

The only wayI am convinced that the methods applied in organic agriculture can replace current industrial practices. I am also convinced that it is the only way to feed the world population in the long run. Industrial practices destroy soils, waste precious re-sources and harm the environment as well as the consumers. This is not sustainable.

Organic agriculture is currently a niche market, but I am convinced agro-ecolog-ical methods will become the new para-digm.

We believe that food sovereignty can only be achieved through an agro­ecological approach. We demand support from political leaders for the organic sector in order to induce a shift towards a new agricultural paradigm. Organic agriculture produces healthy food, restores ecosystems and creates higher local added value.

T

Helmy Abouleish is CEO of the SEKEM Group in Egypt. He is one of the initiators of the Private Sector Declaration on Global Challenges. He shares his vision on the importance of organic agriculture. The other initiators of the declaration are Alnatura Produktions­ und Handels GmbH, EOSTA B.V., Soil & More, Ambootia and Ulrich Walter GmbH/LEBENSBAUM.

april 2010 | 31

32 |

01 PERFORMANCE

James Vaccaro (JV): One of the difficul-ties our sector faces is unrealistic expec-tations. It is important that return ex-pectations are not exaggerated in order to attract investors who are not familiar with the space. Impact investments can produce very solid returns over the long-term and it is usually best to consider them over the long-term. I believe that returns are generally appropriate for the risk taken by the investor and there can be benefits to uncorrelated investments during times of stock market decline.

Varun Sahni (VS): In India, we are slow-ly moving from philanthropy towards quasi-commercial returns. I’m sceptical about people expecting high returns in the short-term. They need to be far more patient. On the other hand, the average rate of return for the US venture capi-tal industry over the past 20-30 years is around 7%. In my experience, returns of between 4 and 10% are normal for impact investments but to expect 15-20% is un-realistic.

Antony Bugg-Levine (AB-L): Impact in-vestors are much more concerned with the multiple returns they can generate with the capital available. We want to use our assets in the most effective way to achieve a wide range of social and finan-cial returns. The assumption that impact investment returns are automatically be-low market rate is no longer valid. It’s im-portant for us to become sophisticated in thinking about how to deploy capital and recognise that it can create multiple re-turns, rather than seeing it as a trade-off between financial or social returns.

Christine Eibs-Singer (CE-S): E+Co pro-vides loans to clients at the market rate

and in most of the countries in which we’re active, E+Co is their only source of access to finance. But as a financial inter-mediary, we also provide business devel-opment services that are covered through both concessional funds to E+Co and in-terest earned from the client.

AB-L: There is a growing interest in im-pact investing among high-net-worth in-dividuals, who are becoming increasingly frustrated with being told that the only thing they can do with their assets is ei-ther invest them for maximum profit or give them away to solve social problems. They are taking the lead in seeking out for-profit investments with a positive so-cial and/or environmental impact. After these pioneers have developed new in-vestment models, the institutional inves-tors tend to follow.

JV: There has also been a significant groundswell of retail impact investors; people with moderate wealth. They might not put all their money in impact invest-ments but many do invest a portion and integrate these into their overall portfolio. This retail market will grow as our invest-ment models become more recognised.

02 BENCHMARKING

AB-L: Up until recently, impact investors have been using widely varying methods of measuring results and performance. One of the benefits of GIIN is that we are setting up the infrastructure to support impact investing, such as common meas-uring standards, benchmarking and a joint agenda.

round table

CONSCIENTIOUS INVESTORSCHOOSE IMPACT INVESTING

With the formation of the Global Impact Investing Network (GIIN) last September, impact investing - for-profit investment to solve social or environmental problems - now has a recognised international platform. Four of the leading figures in the field debate where the sector currently stands and where it is headed.By Gary Rudland

Antony Bugg-Levine – Chairman of GIIN and managing director Rockefeller Foundation. GIIN is supported by a US$2.5 million commitment from the Rock­efeller Foundation to mobilise investors to help develop the sector and support the launch of impact­investing reporting and standards.

James vaccaro – Managing director, Triodos Investment Management (UK), whose funds allow individuals and institutions to invest directly in a number of sustainable sectors, including microfinance, sustainable real estate, renewable energy, organ­ic farming and cultural projects.

One of the difficulties our sector faces is unrealistic expectations’

‘

april 2010 | 33

34 |

We are currently introducing Impact Reporting and Investment Standards (IRIS), which we hope will become the impact investor’s equivalent of GAAP (Generally Accepted Accounting Princi-ples). Up until now, much of the feedback on impact investments has been anecdo-tal and unverifiable. We need a system of common standards in order to under-stand and compare the performance of impact investments worldwide.

A set of 200-plus accepted definitions is now online at the IRIS website and more than 100 organisations have come together to build, refine and pilot these standards. They cover numerous impact investment fields, such as healthcare, education and agriculture, and provide comparable figures on the numbers of pa-tients treated, students educated and jobs created, among many others. In addition, organisations that use IRIS standards will soon be able to feed their latest data into a data aggregator, enabling benchmarking of social impact for the first time.

JV: From the point of view of the invest-ment market, GIIN represents a real op-portunity to create a fundamental shift of perspective. IRIS demonstrates that it is possible to create a proper blend of im-pact and commercial returns. By collect-ing these examples and benchmarking impact investments in a commercial way, we can attract a far wider range of inves-tors.

CE-S: There are various performance indicators within the clean energy sec-tor: from the number of people who have gained access to (clean) energy to calcu-lating the carbon offsets produced. In addition, sub-indicators can include the amount of deforestation avoided and the reduction in diesel fuel, firewood and ker-osene used.

JV: Measuring on the environmental side tends to be more empirical. It’s easy for us to show that we’ve financed a gigawatt of renewable energy, for example. The diffi-culty is in measuring the social impact of any investment. It is critical that people

trust the measurements, which requires a high degree of consistency. On the other hand, it should never be the aim to reduce all social impact to empirical measures. Performance indicators are handy but they don’t tell the whole story. The qual-ity of employment, housing and educa-tion provided is just as important as the quantity. CE-S: Performance indicators provide a leverage factor. E+Co tends to deal with investors focused on climate change, so carbon offsets are the main measure-ment. For many other types of investor, job creation is the leading indicator. If this were the main driver for all impact investments, E+Co would not be as com-petitive. But if jobs are only one of many indicators, energy access can be given the importance it deserves. Indirect impact can be just as important as direct impact.

03 FINANCIAL INSTRUMENTS

JV: One of the problems with impact investing is transparency. There are so many different financial instruments in-volved but the market is not yet mature enough to define all the categories. Loans secured to businesses, like renewable en-ergy projects and organic farms, can be just like standard financial transactions. The innovation is not in the financial in-struments used but in understanding and communicating the risks and opportuni-ties; the impact and profitability involved in different types of investment.

AB-L: Especially in the post-financial-crisis environment, investors are looking

for products they can understand. Almost all impact investors would be able to de-scribe their investments in a simple sen-tence but this is not true of the complex and opaque financial instruments that led to the financial crisis. Impact inves-tors tend to invest in deals that create di-rect value. It is a fundamentally different mindset.

VS: Acumen takes a double-pronged approach towards raising capital, which is partly through non-profit donations and partly through a for-profit fund. In terms of deploying the capital raised, it depends on the needs of the business and can take different forms of equity and debt. Acumen has made ‘soft loans’ in specific cases in East Africa, Pakistan and even India, with government approval. These are loans for which the return ex-pectations are below the market rate. So for instance, if the market rate of inter-est on loans is 12-14%, we would expect a 6-8% return on a soft loan.

CE-S: E+Co makes use of soft loans as a financial intermediary. For example, we might receive a loan at an interest rate of between 2 and 6%, which we then lend to energy entrepreneurs at market rate. The spread contributes to the critical business development services we provide.

04 MOVING FORWARDAB-L: The most important point I would like to emphasise is that impact invest-ments do not necessitate below market-rate returns. Many provide market-rate returns and also work for the benefit of society. At the same time, impact inves-tors who are willing to take on greater

risk have more flexibility in investment opportunities. There are occasions when below market-rate returns are appropri-ate and necessary, such as soft loans and other subsidies alongside market capital.

JV: What impact investing boils down to is investing with responsibility and tak-ing a long-term view. Many mainstream investors use short-term trading strate-gies only. The success of impact investors will be to persuade the mainstream to embrace more responsibility and adopt a long-term system approach.

AB-L: The socially responsible invest-ment movement began by avoiding the negative aspects of investment, like arms sales, pollution and apartheid. Impact investors are taking this one step further by investing in businesses that create positive externalities. One of our biggest challenges is including these positive ex-ternalities in performance figures. When E+Co invests in a micro-hydro plant, for example, the investment provides a de-cent return but the plant benefits the local population in many other ways, which are not currently reflected in the figures.

Impact investing is a relatively new concept and we need to defend it against a sceptical society. Now that we have es-tablished the sector’s credibility, we have the opportunity to explore the nuances of different types of investment. «

Christine Eibs-Singer – CEO E+Co: with 15 years of experi­ence and offices in eight loca­tions, E+Co invests in clean energy enterprises in developing countries. The company’s inno­vative business model provides lasting solutions to climate change and poverty.

Indirect impact can be just as important as direct impact’

‘

april 2010 | 35

round table

I’m sceptical about people expecting high returns in the short-term’

‘

varun Sahni – Acumen Fund: a non­profit global venture fund that uses entrepreneurial ap­proaches to solve the problems of global poverty. Its investments focus on delivering affordable, critical goods and services – like healthcare, water, housing and energy – through innovative, market­orientated approaches.

36 |

case

JOINING FORCES FOR A VIETNAMESE GREENFIELDThe global financial crisis threatened a new infrastructure project in Vietnam. Commercial banks shied away, leaving in the lurch a planned container terminal capable of handling deep-water freight. A consortium of development banks took over, and from mid-2011 the first vessels will be able to unload at the SSIT terminal.

aigon Port SSA Marine In-ternational Terminal (SSIT) is run by a joint venture

between the American company Carrix and two Vietnamese state enterprises, Vinalines and Saigon Port. With a minor-ity share of 49%, Carrix is in charge of the management; the Vietnamese sharehold-ers have a stake of 51%.

intrinsic uncertaintiesFor FMO this is no ordinary project, but then the circumstances were not ordinary either, recalls Guus Werners, investment officer of FMO. ‘Initially, IFC, the private sector institution of the World Bank, was working on financing the SSIT terminal with commercial banks, but all of them

declined due to the economic crisis. Now the whole project is financed by develop-ment banks.’ The project is also out of the ordinary because it concerns a greenfield operation, and a high-risk one at that, as strong competition is to be expected from the other planned terminals at the new harbour (see textbox on page 37).

‘However,’ explains Guus Werners, ‘in-frastructure is vital for a rapidly develop-ing country like Vietnam, where the de-mand for container terminals keeps rising. The Vietnamese government is investing in infrastructure, and attracts new private parties with a strong track record to invest in this new harbour. So when IFC contact-ed us in 2008, we were inclined to support the project.’

SBy Karolien Bais

april 2010 | 37

THE OLD AND THE NEW POrT OF HO CHi MiNH CiTyHo Chi Minh City (HCMC), situ­ated in the South of Vietnam, has an extremely busy port. Not only is its capacity too low to meet demand, it is also situated in the city itself. A river port with a draught of 8.5 meters, it can only handle small vessels, which is not economical for transportation of

container goods. In 2005 the intoler­able congestion of ships and trucks and the growing de­mand for container capacity prompted the Vietnamese government to plan a completely new deep­sea harbour, some 85 kilometres southeast of the city, on the Cai Mep River in Ba Ria­Vung Tau province. Some eight new container terminals are be­ing built, including

Saigon Port SSA Marine International Terminal (SSIT). With a draught of 14 metres and the latest container handling equipment, the terminal will be able to serve today’s large containerships which cannot call at existing HCMC ports. The old port of Ho Chi Minh City will gradually be closed down and is desig­nated for housing projects.

38 |

advertentie

case

IFC also contacted the French de-velopment bank Proparco and the Ger-man development bank KfW. The banks’ specialists visited the field, spoke with Vietnamese officials and all of the share-holders in the company, and drew up a complicated loan package. Guus Wern-ers: ‘A greenfield operation has intrinsic uncertainties in terms of costs and time, as everything starts from scratch. There is always a risk of increasing costs, delays in time and lower volumes than expected. But without this financing the client would not have been able to build the terminal.’

Emerging economiesWhat persuaded FMO to participate in this high-risk project was the result-ing improvement of the Vietnamese in-frastructure. FMO’s confidence in the American shareholder Carrix also played a part. This Seattle-based marine and rail terminal operator has experience in both greenfield operations in emerging econo-mies and in financing by IFC. Bob Wat-ters, vice-president and director business development of Carrix: ‘With IFC finance we did a greenfield operation in Panama and two projects in Chile, and one expan-

sion project in Mexico. This is the first time we have worked with FMO.’

For Saigon Port, one of the Vietnam-ese shareholders, working with develop-ment banks is a new experience. Ho Kim Lan, advisor to the general director of Sai-gon Port on international relations: ‘The project and partnership will strengthen the hard and soft infrastructures for sus-tainable development of trade between Vietnam, the US and the European Union. The involvement of American businesses, contributing to the welfare of the Viet-namese people, is most encouraging, in terms of the development prospect as well as historical meaning.’

independent operatorSaigon Port’s Ho Kim Lan is aware of the possible competition of the other termi-nals at the new harbour, but he stresses two of SSIT’s strong points. ‘We have the

deepest water facilities nearest to the en-trance of the port with ample stacking area and versatile barge and truck opera-tion options. And besides we are run by an independent international port opera-tor.’

Carrix-officer Bob Watters praises the fact that the SSIT will be the only termi-nal with a berth dedicated for barges. Cur-rently 90% of containers are being moved up river by barges. Bob Watters: ‘We can apply 100% capacity for mainline ships at the terminal, as we have a separate berth for barges, whereas other terminals have to use nearly 50% percent of their main berth’s capacity for barges.’

The impact of the new harbour and its terminals for Vietnam will be consider-able, states Bob Watters. ‘It will lower the costs of imports and exports to Vietnam. The same thing will occur for neighbour-ing Cambodia, because large parts of Cambodian trade goods are barged over to Vietnamese ports. Foreign direct invest-ment in the manufacturing industry in Vi-etnam was US$20 billion in 2008. If ad-ditional terminals had not been planned, foreign direct investment would certainly have been curtailed.’ «

INFRASTRUCTURE IS VITAL FOR A DEVELOPING COUNTRy’

‘

S P - S SA I n t e r n a t i o n a l T e r m i n a l

PrOJECT COSTS AND FiNANCiNgThe project costs total US$240m. US$155m of loans is provided by a consor­tium of development banks, including IFC (the private sector institution of the World Bank), FMO (the Netherlands), KfW (Germany) and Proparco (France). It is a long­term loan of 13.5 years, as the project needs an extended warming­

up period to generate cash­flow.

FACT AND FigurES­ The new port can

handle vessels of 8,000 TEUs, whereas the old port is only fit for 1,500 TEU vessels (a TEU is a 20 foot equivalent con­tainer unit);

­ The capacity of SSIT will be 1.2 mil­lion TEUs annually;

­ SSIT will start with 700,000 TEUs,

building up as volume requires;

­ In 2008 the total capacity of the Ho Chi Minh port was 3.6 million TEUs, whereas the demand was 3.8 million TEUs;

­ Due to the global economic crisis the estimated demand for con­tainer handling in Ho Chi Minh City in 2009 was adjusted downwards to 3.2 million TEUs, but

the real decrease has yet to be es­tablished;

­ Worldwide sea transport decreased dra­matically in 2009, between 15 and 20%, but for the South of Vietnam it was only 5% down;

­ For Vietnam sea transport is ex­pected to grow by 10% in the coming years.

Artist impression of the new SSIT terminal

advertentie