So where does one start with this Faith Driven Impact Investing (FDII)? Well, just like when we sit down to a dinner table, we get oriented.
First of all, business innovation is the key to creating jobs and ending poverty. We know this (you can listen to more about this at the podcast featuring Efosa Ojomo linked here). That’s the truth we start from and also the goal we’re trying to reach. Once we’ve agreed to that truth, it’s a matter of “What approach do I use?” Short answer, it depends on the industry opportunity.
Efosa Ojomo, author of The Prosperity Paradox.
And this was where I got stuck. I would hear of opportunities but then as soon as someone threw around “convertible debt” or “equity financing” jargon I wanted to run. I thought it would not be a good use of my time to try and thoroughly understand the nuances of all these financing pathways and I had a charitable foundation to run.
What I did understand was this…small businesses need money to grow so that they can make more money and hire more people. So after accessing microenterprise loans, what’s next for entrepreneurs in tough places who can’t qualify for loans from banks? Who is offering the capital for the produce stand to become a store front or expand to 2-3 locations? Who will provide the investment dollars BEFORE the fancy investors feel comfortable and before the company is profitable? Well, if you’re in the charity business or have “philanthropy” anywhere on your profile, take a look at that person in the mirror. It’s you.
But again, if you feel discouraged or overwhelmed by this, you’re not alone. Pull up a chair, and know that what you’re doing matters.
To be honest, I came at the subject of finance and impact investing backwards, but it’s been a lot of fun this way and it helped me learn a lot. As grant makers, this may be true for you as well. First, I was familiar with a non profit in Haiti that was developing a business to create jobs and fund their non profit. They had no investors at this point but needed them (read the whole story here).
Once I found this opportunity for investment, I looked for the proper expert to help me. I quickly realized that these little companies are so early and since they may be birthed out of a non profit, often the entrepreneur doesn't know how to navigate these investment waters either. So just know, it could fall on YOU to find the right help. Because…well remember you had that “philanthropy” tag on your profile? You've got more resources and likely more connections. This is where the charity part of “impact investing” is an essential piece. Whatever method you use to infuse money into a fledgling business, you will be the one paying for legal advice or making grants to upgrade the wifi connection so these meetings can happen.
Suzanne and her daughter-in-law in Haiti.
That is why grant makers are perfect in this space. We’re used to thinking about how we can donate to improve the infrastructure of a charitable enterprise. Until these small companies in hard places can get some traction, they should be treated as charities. Oh, and I failed to mention that I’m entirely focused on Least Developed Countries (that means countries where poverty is high and opportunity is low) and Frontier Markets. Those things translate to it being REALLY hard to grow a business, and means more charity is needed and for a longer time. A lot of what we know about building business in the US doesn't apply in places like LDCs. Understanding the culture, the social issues and what industries will be successful is a more important body of knowledge and one we often gain through years of grant making - think back to the article I shared above. So, if you've been grantmaking in a particular region for some time and are familiar with the economic and social particulars of that region, it’s highly likely that there are some NGOs trying to start sustainable businesses for their beneficiaries and they need your investment. Look there first!
In conclusion, investment in these fledgling businesses in hard places that have the potential to employ and raise the standard of living will feel like charity for quite a while. That’s why it’s such a good fit for seasoned grant makers. But to grow into profitable businesses that can scale, which is the ultimate goal, unless we have business acumen to share, we are going to need a deep bench of like minded professionals and entrepreneurs who will walk with us and advise us along the way. Those are the folks I’m excited for you to meet!