Leverage for Good An Introduction to the New Frontiers of Philanthropy and Social Investment

Leverage for Good


Leverage for Good An Introduction to the New Frontiers of Philanthropy and Social Investment

Lester M. Salamon


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Library of Congress Cataloging-in-Publication Data

Salamon, Lester M. Leverage for good : an introduction to the new frontiers of philanthropy and social investment / Lester M. Salamon. pages cm Includes bibliographical references. ISBN 978–0–19–937652–0 (hardback : alk. paper)—ISBN 978–0–19–937653–7 (pbk. : alk. paper) 1. Endowments. 2. Charities. 3. Social service. I. Title. HV16.S26 2014 361.7—dc23 2013040023

9 8 7 6 5 4 3 2 1 Printed in the United States of America on acid-free paper

“There are moments in history when the needs of an age prompt lasting, promising innovation.”

—Monitor Institute, 2009



List of Figures ix List of Tables xi List of Boxes xiii Foreword by Rip Rapson xv Acknowledgments xxi


1 Introduction: The Revolution on the Frontiers of Philanthropy and Social Investment 1

2 Scouting Philanthropy’s New Frontier I: New Actors 25

3 Scouting Philanthropy’s New Frontier II: New Tools 55

4 Why Now? 78

5 Remaining Obstacles 93

6 Prescription: The Way Forward 106


A New Frontiers of Philanthropy Project Advisory Panel 117

B Companion Volume New Frontiers of Philanthropy: A Guide

to the New Actors and Tools Reshaping Global Philanthropy and Social Investing: Lester M. Salamon, Editor 119

Notes 123 Glossary 139 Bibliography 143 About the Author 153 Index 155


List of Figures

1.1 Philanthropy’s “Big Bang” 3

1.2 The New Frontiers of Philanthropy Ecosystem 7

1.3 US Nonprofit Capital Needs and Success in Securing Capital, 2006 23

1.4 US Nonprofit Difficulty Accessing Investment Capital from Various Sources 24

2.1 Actors and Tools on the New Frontiers of Philanthropy 26

2.2 The Relative Domains of Impact-First and Finance-First Social-Impact Investors 30


List of Tables

1.1 The New Frontiers of Philanthropy paradigm 6

1.2 Acumen Fund investments, by portfolio type 10

3.1 Asset classes of social-impact investments 57


List of Boxes

1.1 Calvert Foundation: A multi-tasking social-impact investment firm 13

1.2 Investment capital versus operating revenue 22

2.1 Acumen Fund mission statement: Changing the way the world tackles poverty 32

2.2 Edna McConnell Clark Foundation: How We Work 43

2.3 7 key characteristics of European venture philanthropy 45

3.1 Aavishkaar International 66

3.2 Quasi-equity 69

6.1 Key gaps in knowledge on the part of potential social investees 113


Foreword Rip Rapson

American philanthropy is in the midst of one of its most turbulent and interest- ing transformations in nearly a century. The changing terrain of charitable giving is evinced by an at-times baffling proliferation of new actors, new tools, and new organizations, challenging everything from philanthropy’s traditional ways of doing business to how we think about defining our social objectives. Navigating that terrain is difficult enough for someone whose organization is in the thick of it, let alone for newcomers to the field.

That reality makes the present monograph, and the companion volume for which it serves as an introduction, indispensable reference points for new and experienced practitioners alike. They provide what the sector has long been missing:  a coherent, comprehensive, and compelling road map that brings together an array of disparate pieces into a coherent whole. They will provide a resource and shortcut that will not only help my organization—the Kresge Foundation—but also, I believe, the sector as a whole emerge from these trans- formations more organizationally effective, vibrant, and vital. That is why we at Kresge so enthusiastically supported the creation of these volumes, and why we are so pleased with the results.

Indeed, I wish this material had existed five years ago when Kresge began its own transformation—a transformation that is emblematic of, and aligns with so many of, the trends and themes outlined in the pages that follow. So allow me to start by describing the particulars of Kresge’s experience, in the hope that they will help illustrate the importance of this project for the sector as a whole.

The Kresge Foundation’s Path The Kresge Foundation I joined in 2006 was defined by one tool—the capital challenge grant, which sought to build the capacity of nonprofits by helping them complete capital campaigns for building projects. Kresge’s brand was crys- tal clear: we were synonymous with bricks and mortar.

xvi Foreword

It was a remarkable legacy, one we are proud of to this day. Not only had we assisted thousands of organizations in getting important projects to the finish line, we had also defined an admirable set of competencies that distinguished us within the philanthropic cosmos:

• We got good at something and stuck to our knitting—as such, we were able to separate the good project from the great project and readily identify the strengths and weaknesses of proposals.

• Grant seekers were very clear about what we funded—organizations had to go through rigorous analysis, but didn’t have to bend themselves into pretzels trying to guess at our expectations.

• And we provided critical leverage—our funding served as a catalyst to bring others to the table.

But it was clear to me—and to the Kresge board—that the time had come for a refresh. From our perspective, what was needed was not necessarily more new buildings, but a more expansive way of thinking about society’s most intractable problems. And yet we wanted to carry forward those qualities that had served us well: sophisticated insight into good ideas, clarity of purpose, and high leverage.

We began reconstructing the foundation topically, assessing field by field how we might expand opportunities in America’s cities. We would do that by investing in the revitalization of Detroit, attacking health disparities, mitigat- ing and adapting to climate change, increasing the resilience of human service organizations, improving postsecondary access and success among low-income and nontraditional students, and elevating the importance of arts and culture in community identity and revitalization.

Because this new constellation of challenges didn’t respond to just one “tool,” we also had to recalibrate how we worked.

This has all taken a while to settle out. We now have sharply etched subject matter strategies. We’ve built program teams that convene and invest in research, networks, advocacy, and communications strategies. We’ve stretched our capi- tal support spectrum to include a variety of philanthropic instruments. We’ve created a social investments practice that over the next five years will deploy $150 million in loans, guarantees, linked deposits, and direct investments. And we’ve tested the edges of risk and the complexities of working across sectors.

A Recalibrated Orientation to Capital What we haven’t yet fully done, however, is to leave the safe and familiar moor- ings of approaching most funding opportunities with a grant-centric perspective.

Foreword xvii

Like many foundations, Kresge has deeply coded in its DNA a two-step anal- ysis that defines how we spend our money:

• First, does a proposal from a nonprofit fit our strategy?

• And second, should we make a grant to support that organization?

At a first level of analysis, there is absolutely nothing wrong with this formula- tion. It calls for a strategic intentionality that is entirely appropriate. Indeed, the first part of the question is essential—we start by asking what problem we’re trying to solve.

The nuance comes with the second part of the question. Given the diversity of problems we’re seeking to crack, it seems odd to assume that the right tool for the job will always be a grant to an organization. In fact, it is virtually never the case that a stand-alone grant solves the entirety of a problem or allows us to scale impact. And in fairness to grantees, they rarely claim otherwise.

We’ve accordingly sought to ask a different question: what is the set of tools or approaches that are most likely to move the needle on the problem we seek to address?

There may be a grant somewhere in that mix, but there may also be a program-related investment, a prize, or even a social-impact bond. And if there is a grant, it might be for any number of purposes—to support operations, projects, research, public information campaigns, advocacy, policy reform, and many other activities. At the risk of being ridiculously simplistic, we’re testing what it means to be problem-solvers first and foremost. That means starting with the problem and then, and only then, selecting the form of capital—whether financial, intellectual, or reputational—most suited to fixing it.

The financial crisis of 2008 launched that approach. Our social investment practice’s very first investments were driven by the problem at hand. Human ser- vice organizations providing food, shelter, and other emergency services needed a bridge—to an improved climate for donations, to the receipt of government payables, to an easing of personal economic crisis among their clients. We made 14 zero-interest, three-year loans to those organizations. They were a stopgap and they weren’t innovative, but they were what the organizations needed. And they started us on a new way of doing business. We have since navigated from that starting point to a far more sophisticated and complex portfolio that has vastly expanded our capacity and effectiveness as a philanthropic organization. It has made us more rigorous about starting with a problem, rather than with a tool.

The Woodward Corridor Real Estate Initiative in our hometown of Detroit is an example. In mid-2012, a senior program officer on our Detroit team sent

xviii Foreword

out an e-mail pointing to the incredible diversity of some two-dozen emerging real estate projects along the Woodward Avenue corridor. These projects needed to come to fruition, he argued, if we were to achieve our goals of introducing density, diversity, vibrancy, and walkability to Detroit’s core. He suggested that we needed a “capital war chest” that would provide the critical missing pieces of financing. We responded by creating a “hybrid fund structure” that will allow us to use the capacity of a strong intermediary (for lending purposes) while main- taining control of our most flexible capital tools (grants and guarantees) for stra- tegic deployment alongside and/or in support of our externally managed debt capital.

Three Challenges But these approaches are still the exception at Kresge. Three obstacles have made the pivot toward a more creative use of capital difficult, obstacles that face many philanthropic institutions.

First is the capacity to work across sectors, with a particular eye toward finance.

Investing in social change implicates a larger context occupied by public and private partners. That requires that we understand how philanthropic capital fits: how it will combine with the actions of others to help lever changes in mar- kets, behaviors, and policy. Each sector will ask different things of the founda- tion, but each will almost certainly contribute in some measure to the problems we seek to influence. That, in turn, necessitates that we become conversant in the language and needs of private and public finance, policy, decision-making, and accountability systems—and accordingly rethink our professional development strategies to find a balance between topical expertise and financial dexterity—in short, it necessitates that we become what Lester Salamon in this volume calls a “philanthropic bank.”

Second is the ability to break down internal barriers among different program areas within a foundation and work as an integrated whole.

It is the norm rather than the exception that a strategy centered in one topi- cal area will be linked with strategies in other disciplines. In New Orleans, for example, our Environment Team’s investments in organizations working for the restoration of the Gulf Coast play off of our Community Development Team’s investments in community engagement strategies in the Ninth Ward.

For that reason, social investment practices in foundations will fall short if they are seen simply as a service desk for program teams. Just as program teams need to be more deeply conversant in finance, the social investments function has to more deeply understand programs—they can’t be finance

Foreword xix

jockeys for whom the imperative becomes making a compelling deal, rather than reinforcing program strategy by tackling the biggest social problems in the most effective ways.

Third is bridging the normal divide between the program staff and the invest- ments office.

Our initial gesture at Kresge has been to create a more sustained feedback loop between our investment teams and program teams, under the theory that even having both sides of our house know what the other is up to will make a difference. We’ve also taken some baby steps toward mission-related invest- ing—trying to identify among all our resources and knowledge those assets that can contribute most readily and directly to our mission. What we do with that information remains an open debate within our staff and among our trustees. But having that information allows us to ground our future path in data, and make some informed choices accordingly.

Concluding Thoughts Kresge’s efforts in pushing ourselves into the social investing arena and organiz- ing around a new way of working are not models—they have simply been our reality. And that reality has at times been a slow, tough, and exasperating slog. That, at core, is what makes the present monograph, and the companion volume it so effectively introduces, so valuable and worth supporting: it won’t solve all of these challenges, but it outlines them exhaustively and provides an invaluable overview of the enormous opportunities opening up to bring new resources and new talents to the solution of some of our most intractable problems.

It has been an honor for us at Kresge to support this project, but in truth it wasn’t purely a selfless gesture. It will help us, as we believe it will help our partners, our peers, and the sector as a whole, make a more profound and last- ing impact on the issues about which we are most passionate. I look forward to returning to it time and again.



It has been said that “it takes a village to raise a child.” But, as any author knows, the same applies to raising a book. And that is certainly the case here. My debts in bringing this book, and the larger companion volume on which it heavily leans, to fruition have been enormous, and I gratefully acknowledge them here. They are owed to Rip Rapson, President of the Kresge Foundation, who early on recognized the niche that this book and its companion would fill and helped provide the support and encouragement that made them possible; to William Burckart, who assisted me in organizing the project, recruiting authors, main- taining contact, and managing the substantial paper flow that any project of this scope entails; to Luther Ragin, now at the Global Impact Investing Network (GIIN), who encouraged the effort and gave selflessly of his time to review most of the chapters in the companion volume and offer comments and advice; to the members of the Project Advisory Committee (listed in Appendix A) for their enormously helpful comments and assistance at numerous points in the pro- cess; to David Erickson and his colleagues at the Federal Reserve Bank of San Francisco for providing meeting space at the Fed and other support and encour- agement to our work; to Bill Dietel and Mario Morino, who agreed to write a Preface and Foreword, respectively, for the companion volume, to introduce the work to the broader audiences it seeks to address and who provided inspiration along the way; to the authors of the companion volume (listed in Appendix B), incredibly thoughtful and dedicated professionals all, who spent what I am sure is far more hours than they ever imagined responding to my detailed comments and suggestions to get their chapters into a consistent form and make this com- plicated topic accessible to the broadest possible audience; to David McBride, the social sciences acquisition editor at Oxford, who skillfully moved this book and its companion through the complex Oxford review process; to Chelsea Newhouse at the Johns Hopkins Center for Civil Studies, who patiently and pro- fessionally handled the process of bringing the manuscript into conformance with the protocols and formats that Oxford procedures stipulate; and last, but by no means least, to my lovely wife, Lynda, who put up over an unforgivably long period with the unavoidable distractedness and preoccupation that writing inevitably entails, and did so with enormous understanding and support.

xxii Acknowledgments

Without taking away anything from the enormous assistance I received from all of these friends and colleagues, at the end of the day I recognize that responsi- bility for this final product, with whatever faults it might still have, belongs with me, and I accept it fully.

Lester M. Salamon Annapolis, Maryland

September 21, 2013


Chapter 1

Introduction: The Revolution on the Frontiers of Philanthropy and Social Investment

On September 28, 2011, Microfinance Africa, a newsletter serving the micro- finance industry on the African continent, reported news of an important, if unusual, development designed to help East Africa cope with the region’s food shortage and resulting skyrocketing food prices. An unexpected consortium had come together to channel US$25 million to a series of small and medium-sized East African agricultural enterprises whose businesses could help link the region’s small-holder farmers to improved production and marketing opportunities.* Although the US Agency for International Development was a party to this con- sortium, this was not your normal top-down, government-funded development project. Rather, USAID had teamed up with three foundations (the UK-based Gatsby Charitable Foundation, and the US-based Rockefeller and Gates foun- dations), a major US investment firm ( J.P. Morgan Social Finance), and Pearl Capital Partners, a private, Kampala-based investment company dedicated to channeling private equity to small-holder agricultural enterprises in Africa.1

What may be most unusual about this deal in the current climate of develop- ment assistance, philanthropy, and finance, however, is that it is no longer unusual at all. Rather, it is an example of what students of the field have begun referring to as “yin-yang” deals, deals that bring together, as in Chinese thought, seemingly contrary forces that turn out to be uniquely capable of producing new life forms when taking advantage of their interdependencies.2 In the present arrangement, USAID managed to stimulate the investment of $25 million into building a robust agribusiness sector in East Africa with only $1.5 million of its own money, and all of that in the form of technical assistance to small and medium-sized businesses funded out of President Obama’s flagship Feed the Future initiative. The invest- ment fund itself was assembled by combining a USAID guarantee of an $8 mil- lion loan from J.P. Morgan’s Social Finance Unit that was further leveraged by

* Unless otherwise noted, dollar amounts reported are in US dollars.

2 Introduction

$17 million in equity investments made by the three founda- tions, which functioned in this deal as “philanthropic banks” rather than traditional grant-making charities.3

Sizable yin-yang deals of this sort are slowly becoming the new normal in efforts to combat the enormous social, eco- nomic, and environmental problems that confront our world at the present time. And none too soon. With the resources of both governments and traditional philanthropy barely grow- ing or in decline, yet the problems of poverty, ill-health, and environmental degradation ballooning daily, it is increasingly clear that new models for financing and promoting social and environmental objectives have become urgently needed.

Fortunately, a significant revolution appears to be underway on the frontiers of philanthropy that is providing at least a partial, though still embryonic, response to this dilemma. The heart of this revolution is a massive explosion in the tools of philanthropy and social investment, in the instruments and institutions being deployed to mobilize private resources in support of social and environmental objectives. Where ear- lier such support was limited to charitable grants and gifts made available directly by individuals or through charitable foundations and corporate giving programs, now a bewilder- ing array of new instruments and institutions has surfaced— loans, loan guarantees, private equity, barter arrangements, social stock exchanges, bonds, secondary markets, invest- ment funds, and many more. Indeed, the world of philan- thropy seems to be experiencing a Big Bang similar in kind, if not in exact form, to the one thought to have produced the planets and stars of our solar system.

A significant revolution appears to be underway on the frontiers of philanthropy and social investment.

A bewildering array of new instruments and institutions has surfaced [to finance social-purpose activities].

Introduction 3

Even a quick glance at the emerging landscape on the fron- tiers of contemporary philanthropy around the world yields a rich harvest of unfamiliar names and terms:  Bovespa in Brazil; Social Capital Partners in Canada; Impact Investment Exchange in Singapore; Acumen Fund, Root Capital, and New Profit in the US; Bridges Ventures, Big Society Capital and NESTA in the UK; Blue Orchard in Switzerland; Aavishkaar International in India; Willow Tree Impact Investors in Dubai; Calvert Foundation; the Schwab Charitable Fund; the Community Reinvestment Fund; community development finance institutions; TechSoup Global; conversion foundations; and many more (see Figure 1.1).

At the core of this enormous proliferation of entities lie four important processes of change. In particular, contempo- rary philanthropy is moving:

• Beyond grants: deploying a variety of new financial tools for promoting social purposes—loans, loan guarantees, equity-type investments, securitization, fixed-income instruments, and, most recently, social-impact bonds.

Figure 1.1 Philanthropy’s “Big Bang”

4 Introduction

• Beyond foundations: creating a host of new actors as the institutional structures through which social-purpose finance is proceeding—capital aggregators, secondary markets, social stock exchanges, social enterprise brokers, internet portals, to name just a few.

• Beyond bequests: forming charitable or social-purpose capital pools not simply through the gifts of wealthy individuals, but also from the privatization of formerly public or quasi-public assets or the establishment of specialized social-purpose investment funds.

• Beyond cash: utilizing new barter arrangements and internet capabilities to facilitate the giving not just of money, but of a variety of in-kind forms of assistance, whether it be volunteer time or computer hardware and software.

Behind these movements is a common imperative, use- fully summarized in a single word:  leverage. Leverage is the mechanism that allows limited energy to be translated into greater power. It is what allowed Archimedes to claim that, given a lever and a place to stand, he could “move the whole world.”4 In the philanthropic context it means finding a way to go beyond the limited flow of charitable resources gen- erated by the earnings on foundation assets or the annual contributions of individuals to catalyze for social and envi- ronmental purposes some portion of the far more enormous investment assets resident in banks, pension funds, insurance companies, mutual funds, and the accounts of high net worth individuals.5

The upshot is the emergence of a “new frontier” of philan- thropy and social investing that differs from twentieth-century philanthropy in at least four ways. It is:

• More diverse, involving a wider variety of institutions, instruments, and sources of support.

Leverage is the mechanism that allows limited energy to be translated into greater power.

Introduction 5

• More entrepreneurial, moving beyond “grant‐making,” the giving of resources, to capture the possibilities for greater leverage that comes from adopting an investment orientation, focusing more heavily on measurable results, and generating a blend of economic, as well as social, returns.

• More global, engaging problems on an international scale and applying models developed in cross‐national settings.

• More collaborative, interacting explicitly not only with the broader civil society sector, but also with new social ventures serving the “bottom of the pyramid,” as well as with a broad array of private financial institutions and government agencies.

The result, as outlined in Table 1.1, is a new paradigm emerg- ing on the frontiers of philanthropy and social investing. Where traditional philanthropy relied chiefly on individu- als, foundations, and corporate philanthropy programs, the new frontiers of philanthropy engage a broad assortment of private financial institutions, including banks, pension funds, insurance companies, investment advisors, specialized invest- ment funds, and foundations that function as philanthropic banks. Whereas traditional philanthropy concentrated mostly on operating revenue, the new frontiers concen- trate far more heavily on investment capital, which funds long-term development. Whereas traditional philanthropy channels its assistance almost exclusively to nonprofit organi- zations, the new frontiers support as well a wide assortment of social enterprises, cooperatives, and other hybrid organiza- tions. Whereas traditional philanthropy brings a charity per- spective to its work, focusing exclusively, or at least chiefly, on social return, actors on the new frontiers of philanthropy

A new paradigm is emerging on the frontiers of philanthropy and social investment.

6 Introduction

bring an investment orientation, focusing on social and financial return and seeking to build self-sustaining systems that bring permanent solutions. Whereas traditional philan- thropy mobilizes a relatively small share of its own resources, the new frontiers of philanthropy leverage the deeper reser- voirs of resources resident in the private capital markets. And whereas traditional philanthropy has historically tended to be satisfied with output measures, the new frontiers put greater emphasis on reliable outcome metrics.

To be sure, these differences are hardly universal. What is more, the changes are far from fully developed. But neither are they trivial. Indeed, as reflected in Figure  1.2, a com- plex social-purpose finance ecosystem is emerging to chan- nel funds from banks, pension funds, insurance companies, foundations, high net worth individuals, and others through a variety of social-impact investment organizations, support institutions, and new types of grantmakers, to an increasingly diverse set of nonprofits, social ventures, social cooperatives, and related organizations to achieve poverty alleviation, envi- ronmental improvement, improved health and environment, strengthened civil society organizations, and improved life chances.

Microfinance, perhaps the earliest manifestation of this phenomenon of mobilizing private investment capital for social purposes, is now a mature $65 billion industry with its

Table 1.1 The New Frontiers of Philanthropy paradigm

Philanthropy = “The provision of private resources for social or environmental purposes.”

TradiTional PhilanThroPy new FronTiers oF PhilanThroPy Foundations, individuals Individual and institutional investors

Operating income Investment capital

Grants Diverse financial instruments / capital tranches

Nonprofits Nonprofits + Social ventures

Social return Social + financial return

Limited leverage Expanded leverage

Output focus Outcome focus / metrics

Introduction 7

Figure 1.2 The New Frontiers of Philanthropy Ecosystem

Social impact investment

organizationsAC TO






Social impact investment

support organizations

New types of


Nonpro�ts Social enterprises L3Cs

Social cooperatives Bene�t cooperatives

Social impact investment


Other �nancial and non-�nancial


Bank Pension funds

Insurance companies Quasi-public investment funds

Investment �rms Foundations



Poverty alleviation Environmental improvement

Strengthened civil society Improved life chances


own trade association, research arm, network of “retail” out- lets, secondary markets, and access to global capital markets through rated bond issues. And it is just getting started: recent estimates place its potential market north of $250 billion.6

But microfinance is just one component of the burgeon- ing financial ecosystem emerging on the new frontiers of phi- lanthropy, broadly conceived. Hundreds of investment funds like the one featured in the African Agricultural Capital Fund

8 Introduction

vignette outlined above have surfaced around the world and found investors willing to take a chance on them.

• Aavishkaar International, for example, incorporated in Singapore but operating in India, raised an initial $18 million for an Indian microfinance investment fund in 2008. It then proceeded to assemble an additional $14 million more by January 2009 to support promising Indian micro, small, or medium-sized companies operating in the agriculture, dairy, healthcare, education, and renewable energy fields in rural or semiurban areas of the country.7

• The Grassroots Business Fund, an offshoot of the World Bank’s International Finance Corporation, has similarly built a robust portfolio of $8.5 million in investments and technical assistance engagements supporting small and medium-sized businesses serving low-income populations in India, Africa, and Latin America.8

• Bamboo Finance, a commercial investment firm based in Switzerland, manages another US$250 (unless otherwise noted, dollar amounts reported are in US dollars) million of investments in a range of small companies providing access to affordable housing, healthcare, education, energy, livelihood opportunities, water, and sanitation on three continents.9

• The Small Business Investment Funds, initially an affiliate of CARE, the international development agency, has invested $378 million in 338 small and midsized companies across 22 emerging markets.10 Indeed, according to author Lisa Richter in Chapter 2 of the companion volume, such social and environmental oriented investment funds may already number 3,000 around the world and may already have US$300 billion in assets under management.

A commercial revolution appears to be underway around the world at . . . the “bottom of the pyramid.”

Introduction 9

For these investment funds to do their work, of course, they must find not only investors, but also investees—promising enterprises, whether for-profit or nonprofit, serving social and environmental purposes in a way that yields revenue as well as social good. And finding them they are. Indeed, a commercial revolution appears to be underway around the world at what University of Michigan professor C.  K. Prahalad brilliantly termed the “bottom of the pyramid,” the base of the world’s income scale where the vast majority of the world’s popula- tion lives.11 Inventive entrepreneurs are finding ways to trans- form this population into avid consumers of solar panels, cell phones, eyeglasses, reusable sanitary napkins, and dozens of other basic commodities while also creating opportunities for them to become proprietors and wage earners in artisan shops, small-scale agricultural businesses, and marketing ventures of various sorts. The result is evident in the appearance of firms such as Peru’s Agrícola Viñasol (AVSA), an agricultural com- pany created in 2001 as the commercial arm of a Peruvian NGO to help small farmers improve and market their fruit and vegetable products; or Jaipur Rugs, which works with 10,000 low-income weavers and spinners in India to upgrade their production methods, secure healthcare, and market their prod- ucts; or Zara Solar, which has enabled thousands of low-income Tanzanian families to switch from polluting kerosene stoves to cheaper and cleaner solar-powered ones.12 (For an illustration of the range of fields in which such social entrepreneurs have surfaced see Table 1.2.)

While the changes under way are inspiring and by no means trivial, however, they remain scattered and largely uncharted in any systematic fashion. Individual practitioners typically have a handle on one or another of the relevant innovations, but the full scope of the changes has yet to be visualized, let alone pulled together and examined in a systematic way. Even the terminology used to depict these developments is in flux. Established terms such as “program-related investments”

It is now necessary for these concepts to make the jump to broader strata of participants and observers.

10 Introduction

Table 1.2 Acumen Fund investments, by portfolio type

Agriculture (Health Con’t)

BASIX Krishi Samruddhi Limited (India) Drishtee (India)

GADCO Coöperatief (Ghana) First Micro Insurance Agency Pakistan

Global Easy Water Products (India) Insta Products (Kenya)

Gulu Agricultural Development Company (Uganda)

LifeSpring (India)

Jassar Farms (Pakistan) Pagatech (Nigeria)

Juhudi Kilimo (Kenya) PVRI (India)

Micro Drip (Pakistan) Sproxil (Nigeria)

National Rural Support Program (Pakistan) UHEAL (Kenya)

Microfinance Bank (Pakistan) VisionSpring (India)

Virtual City (Kenya) Voxiva (India)

Western Seed (Kenya) Ziqitza Health Care Limited (India)

Education Housing

Edubridge (India) Kashf Foundation (Pakistan)

Hippocampus Learning Centres (India) Jamii Bora (Kenya)

Energy Kashf Foundation (Pakistan)

d.light design (India) Kashf Holdings Private Limited (Pakistan)

Husk Power Systems (India) Medeem (Ghana)

Orb Energy (India) Saiban (Pakistan)

Health a Water

A to Z Textile Mills (Tanzania) Ecotact (Kenya)

Botanical Extracts EPZ Limited (Kenya) GUARDIAN (India)

Books of Hope (Kenya) Pharmagen Healthcare Ltd (Pakistan)

BroadReach (Kenya) Spring Health (India)

Circ MedTech (Rwanda) WaterHealth International (India)

DART (Kenya)

a See Carmody et al. 2011, 66, for descriptions of these businesses. Source: Acumen Fund homepage, accessed August 18, 2012, http://acumenfund.org.

Introduction 11

(PRIs), “mission investing,” “market-rate investments,” all of which tended to apply narrowly to foundations, have recently been superseded by the term “impact investing,” which itself covers only a portion of the emerging field and involves its own significant ambiguities.13

What is more, much of the extant literature on these devel- opments takes the form of quasi “gray material,” available only in limited editions to a restricted audience. Largely lacking have been materials that can take the changes underway out to a broader audience and that can penetrate the sizable academic universe training nonprofit managers, social entrepreneurs, business leaders, bankers, investment managers, corporate social responsibility officers, and public policy experts. For the new approaches to philanthropy and social investing to achieve the impact of which they are capable, it will be necessary for these concepts to make the jump to broader strata of partici- pants and observers. Even early innovators have come to recog- nize this point, arguing, as two of them recently put it, that the “challenge now is to bring this [impact investment] perspective from the fringe to the mainstream,” which will require “a new generation of . . . communicators” who can “absorb the lessons from visionary practice and communicate them effectively to much wider audiences.”14

The Objective and Game Plan of this Volume The purpose of this monograph, and of the companion volume for which it serves as the introduction, is to address this chal- lenge, to provide a clear and accessible road map to the full range of important new developments taking place on the frontiers of philanthropy and social investment, and thereby broaden aware- ness of them, increase their credence and traction, and make it possible to maximize the benefits they can generate while acknowledging the limitations and challenges they also face.

The result, in this volume, is the first comprehensive over- view of the new actors and tools transforming philanthropy and social investment, the factors giving rise to them, and the steps needed to promote their further development. Readers who find this overview of interest can then turn to the com- panion volume, entitled New Frontiers of Philanthropy, to dig more deeply into the functions of the new actors and the operational dynamics of the various new tools.15

12 Introduction

It must be emphasized, however, that in exploring the “new frontiers” of philanthropy we are not in any way mini- mizing the critical role that traditional philanthropy con- tinues to play, or the enormous contributions that existing philanthropic institutions continue to make. Indeed, as will become clear, the creation of the new frontiers has itself not only resulted in important part from groundwork laid by tra- ditional philanthropic actors, but also opened an important new role for these traditional institutions to perform, a role that a number of them have come to recognize and seize.

To make sense of these developments, we have made three analytical distinctions that shape the structure of this book and of the companion volume it introduces. First, the book draws a basic distinction between the actors that are surfacing in what I am calling the new frontiers of philanthropy, and the tools that these actors are utilizing. This distinction is dictated by the extraordinary explosion of activity in this new “phil- anthropic space” and the confusion that has consequently resulted in sorting out who is doing what. Since any particular actor can utilize a variety of tools, this distinction is crucial to clarifying what is going on.

Second, within each of these groupings I have attempted to differentiate a manageable set of distinctive categories into which to sort the enormous variety of both actors and tools that has surfaced, drawing, where possible, on existing capital-market typologies. Generally speaking, the actors are differentiated according to the functions they are performing. Thus, some are assembling or aggregating capital for deploy- ment into social-purpose activities, others are providing sec- ondary markets or exchanges to allow investors to enter or exit the space, and still others are prospecting for promising ventures or offering specialized technical assistance to such entities. To be sure, because this field is still in its infancy, the degree of specialization that has been attained remains lim- ited, which means that a single actor may be performing a

Three analytical distinctions . . . shape the structure of this book.

Introduction 13

variety of roles or utilizing a multitude of tools (see Box 1.1). Even so, it is impossible to make sense of this field without drawing some meaningful distinctions among the basic func- tions being performed (the actors) and the types of instru- ments being used (the tools).

Finally, the emergence of these new actors and tools has encountered a number of obstacles and raised a number of cross-cutting issues that also need to be addressed. A descrip- tion of these new actors and tools would be incomplete with- out addressing these important obstacles and issues and the dilemmas they pose for the field.

More specifically, this volume pursues four principal tasks:

• First, descriptive—to introduce readers to the major types of actors and tools that have taken shape on the

Box 1.1 Calvert Foundation: A Multi-tasking Social-Impact Investment Firm

The Calvert Foundation, launched in 1995, performs a variety of functions in the social impact investing arena. In particular, it

• Manages close to $200 million in social-impact investments;

• Markets a Community Investment Note product to social investors:

• Operates a registered investment advisory service; and

• Created its own donor advised fund, since spun off as a separate entity.

Source: Personal interview, Shari Berenbach, April 29, 2013.

A description of these new actors and tools would be incomplete without addressing [the] important cross-cutting issues [they face] . . . or without acknowledging the critical role that traditional philanthropy continues to play.

14 Introduction

new frontiers of philanthropy and identify some of their distinctive and novel features. As will become clear, I identify 11 more or less distinct types of such actors and eight major types of “new” tools, though I recognize that others may sort the chaos differently and the dynamism at work will likely yield additional types of both actors and tools as the frontiers expand.

• Second, analytical—to explain why this extraordinary proliferation of actors and tools is surfacing at this point in time and hence what the prospects are for its continued development.

• Third, normative—to acknowledge some of the challenges and risks that these developments also bring with them and the steps that have so far been taken to address them.

• Fourth, prescriptive—to identify the steps that are still needed to capture the substantial benefits these developments promise while avoiding the risks that they also pose.

To accomplish these tasks, the discussion here falls naturally into five chapters in addition to this introduction. Chapter 2 examines the extraordinary array of new actors that have come to populate “philanthropic space” broadly conceived. Included here are capital aggregators, secondary markets, social stock exchanges, foundations as philanthropic banks, enterprise brokers, and several more. Chapter 3 then exam- ines the various tools being deployed by these actors. Many of these are tools that have functioned in the worlds of business and government for decades but are just gaining acceptance in the worlds of philanthropy and social investment—tools like loans, loan guarantees, other credit enhancements, equity investments, bonds, responsible investing and purchasing,

[This] volume pursues four principal tasks: descriptive, analytical, normative, and prescriptive.

Introduction 15

and securitization. Others are truly novelties, such as “social-impact bonds,” prizes, and crowd sourcing.

In Chapter 4 attention turns to the question of why these new frontiers of philanthropy are emerging, and emerging now. To do so, the chapter identifies a set of both “demand factors” and “supply factors” that seem to be propelling these developments. Chapter 5 then zeroes in on a number of obsta- cles and challenges that confront this field. Included here are limitations in the availability of investment-ready deals, chal- lenges in making good on the field’s commitment to measur- ing social and environmental impact, and concerns over the potential normative and distributional consequences of the shift of control over support for social and environmental pur- poses from governments and charitable institutions to private investment sources. Finally, Chapter 6 takes up the question of steps that are still needed to advance this field, and address the various risks it faces. Taken together, the result is the first comprehensive account of the new actors and tools operating on the frontiers of philanthropy—deepening the knowledge base from which to inform, educate, train, and responsibly promote this new mode of social-purpose activity.

A Word about Terminology Before turning to the first of these tasks, however, it is neces- sary to say a word about terminology. As already noted, the field of action covered by this volume is already a terminolog- ical wasteland, strewn with a substantial number of defeated or discarded terms. As one early adventurer on this frontier put it recently, “[When] I  started working in this space in 2002 I was a PRI maker; then I became a social investor; mis- sion investor was in there; and now I’m an impact investor; but [my work] has pretty much stayed the same.”16 Under the circumstances it is incumbent on us to be clear about how we are using certain crucial terms and why.

New Frontiers of Philanthropy We begin, naturally enough, with the headline term we have used for the title of this book:  “new frontiers of phi- lanthropy.” No doubt this term will encounter its own push- back from some quarters, and on two different grounds. In

16 Introduction

the first place, there are those who draw a sharp distinction between “philanthropy” and social-purpose “investing,” viewing philanthropy as an old-fashioned term conjuring up Lady Bountiful images of paternalistic charity dispensed to homeless orphans—not quite the image sought by the new breed of investment-oriented, metrics-driven “philanthro- capitalists” and “impact investors.”17 What is more, there will be those who question whether the “new frontiers” are all that new. After all, as we note in Chapter 2’s discussion of the foundations now functioning as “philanthropic banks,” the use of nongrant forms of assistance to promote social pur- poses—the key feature of this type of actor—was pioneered more than 200 years ago by Benjamin Franklin, who estab- lished a charity that provided loans to indigent artisans.

Nevertheless, I am convinced that “new frontiers of philan- thropy” is an apt description of the topic of this monograph, and of the fuller volume that accompanies it, certainly com- pared to any of the likely alternatives. For one thing, the phenomena that we include within the ambit of this volume embrace more than the new forms of social investing that have come to be known as “impact investing.” Also included are such developments as responsible investing and purchas- ing, prizes, crowd sourcing, and various types of giving and investing collaboratives. Perhaps more centrally, we use the term “philanthropy” in its most basic and broadest mean- ing: that is, as fundamentally the provision of private resources for social or environmental purposes.18 The form in which these resources are delivered is thus not as crucial in this definition of philanthropy as the auspices under which they flow (i.e., they are private) and the purposes towards which they are directed (i.e., they are significantly social or environmental). In this sense, the social-purpose finance that is a principal focus of this book fits well within the field of philanthropy so conceived.

We use the term “philanthropy” in its most basic . . . meaning: that is, as the provision of private resources for social or environmental purposes.

Introduction 17

At the same time, while many of the phenomena cov- ered here may not be new to the world, most are new to social and environmental purposes or are operating at a scale in this field that has not been seen before. Thus, for example, some forms of insurance, such as burial insur- ance, have been available to the poor for a long time. What is new is the marketing of microinsurance products by pri- vate, for-profit insurance companies to meet the health, crop, or disaster insurance needs of the poor at prices they can afford. Similarly, capacity-building has been available to nonprofit organizations for several decades. But instead of focusing on the traditional topics of board development, fundraising, and accounting systems, the new frontier of social-purpose capacity-building is focusing on scaling up promising ventures, establishing earned-income streams, and tapping into various forms of investment capital. Finally, even donor-advised funds, a relatively new form of charitable instrument, have been around for several decades in the US. What is new is the emergence and rapid expansion of corporate-originated charitable funds offer- ing donors the opportunity to operate their donor-advised funds through offshoots of the for-profit investment firms that manage their core investments.

All of these are developments that have attained meaning- ful scale in the past two decades, some in the past five years. But all of them involve the mobilization and distribution of private resources for social or environmental purposes, which is the essence of philanthropy.

Using the term “philanthropy” to depict these developments is not only technically correct, however. It also has the vir- tue of reminding us that, though these activities are engaging private businesses and often utilizing forms of assistance that are expected to generate a financial return, the fundamental objective remains “social” in the full dictionary meaning of

Using the term “philanthropy”. . . also has the virtue of reminding us that, though these activities are . . . expected to generate a [profit], the fundamental objective remains “social” in the full dictionary meaning of that term.

18 Introduction

that term as “of or having to do with human beings living together as a group in a situation in which their dealings with one another affect their common welfare.”19 Only in this way will we avoid the peril that two early champions of these developments had in mind when they warned that the activi- ties on the frontiers of philanthropy could be made “too easy” if the definition of social and environmental impact becomes “so loose and diluted,” or, I would add, so muted “as to be vir- tually meaningless.”20

Social-Impact Investing For this reason also, we have chosen to introduce a slight adjustment to the term of art that has been advanced in much of the available literature to depict what in many respects is the central beachhead on the new frontiers of philanthropy— namely, the mobilization of private investment capital for social and environmental purposes. That term is “impact investing.” This term grew out of a series of meetings con- vened by the Rockefeller Foundation in the mid-2000s as part of its effort to rally private investment houses, and the private investment capital they help direct, into support for the burgeoning social enterprises emerging in both developed and developing countries around the world. Existing terms, such as “social investing,” or “program-related investing,” or “mission-related investing,” or “socially responsible invest- ing,” were perceived as being too soft, too closely associated with foundations and philanthropy, too broad, or too passive to appeal to the hardheaded managers of private investment capital. What is more, they were perceived to be incapable of passing muster as a distinct “asset class” around which a new line of investment business could be organized.

To their credit, the inventors of the “impact investing” ter- minology came up with a brilliant solution that served this purpose well. The problem is that the solution may have

The [impact investing] term itself provides little clue about what the content of such “positive impact” is supposed to be.

Introduction 19

served this purpose too well, opening the door to precisely the danger that the 2009 Monitor Institute Report warned against: that is, leaving the underlying concept “so loose and diluted” as to make it “virtually meaningless.” Although advo- cates of impact investing regularly emphasize that impact investments are “investments intended to create positive impact beyond financial return,”21 the term itself provides little clue about what the content of such “positive impact” is supposed to be or what the standard for recognizing its pres- ence is. It thus implicitly puts the emphasis on the idea of investment return rather than on the idea of social and envi- ronmental benefit.

Nor does a recent book on impact investing by two leaders in the field do much to clarify the matter. There we learn that “all organizations, for-profit and nonprofit alike, create value that consists of economic, social, and environmental compo- nents. All investors, whether market rate, charitable, or some mix of the two, generate all three forms of value.”22 Indeed, one recent publication on the topic goes so far as to define the term “impact” in “impact investment” as “a meaningful change in economic, social, cultural, environmental and/or political conditions due to specific actions and behavioral changes by individuals, communities, and/or society as a whole.”23

But if all organizations and all investors create “positive impact,” and if the term “impact” in “impact investment” consists of any “meaningful change,” regardless of its direc- tion or content, how are we to differentiate “impact investors” from plain vanilla investors? The answer, it appears, hinges on “intention,” particularly the intention of investees, and on the attention that investors pay to “the blended value returns” reflected in serious impact reporting.24 But “intention” is noto- riously difficult to assess and, as the 2009 Monitor report on impact investing acknowledges, there is “reason to be skepti- cal” about social and environmental impact measurement systems because “the existing financial markets and incen- tives create major pull toward ‘greenwashing’ and dilution of standards . . . as asset managers seek to respond to growing client interest in impact investing without wanting to take on the long and difficult work of ensuring investment impact.”25

20 Introduction

Already the field has developed a set of impact measures that are so numerous that they begin to resemble those prizes in grade-school contests designed to ensure that every child comes home a winner. No wonder some skeptics have begun to worry that the definition of “impact investing” is coming to resemble “a dog’s breakfast,”26 while others have insisted on adding an adjective like “community” in front of the term to clarify the impacts that the investments are expected to make.27

To avoid a similar charge of vagueness, our approach in this volume follows this latter course. Taking our cue from the observation of Bugg-Levine and Emerson that “impact investing for blended value unites the power of business with the purpose of philanthropy,”28 we suggest that the term for depicting this phenomenon should give equal weight to both sides of this equation. Hence we use the term “social and envi- ronmental impact investing,” or just “social-impact investing” for short, to refer to it in order to place equal emphasis on the financial and the social or environmental effects these invest- ments are supposed to produce.29

Social Purpose If we propose to attach the term “social” to the term being used more generally to depict a significant component of the activ- ity on the new frontiers of philanthropy, it is obviously nec- essary to clarify what we have in mind by it. Fundamentally, therefore, this book takes social-impact investments to be investments that significantly seek to generate “social value,” that is, to promote the health, well-being, and quality of life of a population, particularly disadvantaged segments of that popula- tion; encourage the free expression of ideas; or foster tolerance. Even so, opinions can differ about what truly counts as a “social-impact investment.” For example, some observers consider an investment to serve a social purpose if it is made in a disadvantaged area, regardless of who the beneficiaries are, whereas others argue that “[t] he fact that an investment

Whether an investment can be judged to serve a social purpose can be determined by how it affects any of three crucial factors.

Introduction 21

is made in a poor country is not sufficient to qualify as an impact investment.”30

For our purposes here, whether an investment can be judged to serve a social purpose can be determined by how it affects any of three crucial factors: first, the population assisted by it, particularly whether it is a disadvantaged population in some significant sense; second, the production process it sup- ports, particularly whether it explicitly involves the employ- ment and training of a disadvantaged or excluded population or reduces the environmental impact of the production; and third, the goods or services produced, for example, whether they have inherent environmental advantages.

Investment Capital versus Operating Income One other terminological distinction about which it will be important to be clear is that differentiating capital from operat- ing revenue in any enterprise, whether for-profit or nonprofit. Much of the discussion of the financing of social-purpose organizations, particularly that centered on nonprofit organi- zations, has focused on operating revenue, which is the income that organizations use to run their ongoing annual opera- tions. This money typically comes in part from individual and foundation gifts, from government grants and contracts, and from fees for service.31

The resources flowing to social-purpose organizations from most, though not all, of the actors on the new frontiers of philanthropy, however, are of a different sort. They take the form of investment capital, which is revenue that may contrib- ute to operating income in the future, but fundamentally goes to build long-term organizational capacity and capabilities through the purchase of such things as equipment, facilities, skills, and strategic planning that are expected to serve the organization over the longer haul (see Box 1.2).

Investment capital, too, can come from many different sources and take many different forms. Some can even come

Investment capital is in many senses the life-blood of an organization.

22 Introduction

from gifts, as when a wealthy patron gives a work of art to a museum or donates the resources to construct a building at a university. More commonly, however, investment capital comes in one or both of two other forms:  (a)  debt—that is, loans, or the proceeds of a bond sale, which is a type of loan; or (b) equity, the purchase of an ownership, or equity, stake in an organization. In both cases, the providers of investment capital typically require something in return for their investment— payment of principal plus interest in the case of debt; and an ownership stake and payment of a share of whatever profits or surplus the investee might earn in the case of equities.

Investment capital is in many senses the lifeblood of an organization because it is what allows the organization to grow. However, investment capital has historically been hard for social-purpose organizations to secure. For one thing, if they are nonprofits, they cannot accept equity investments, per- haps the most attractive form of investment capital because it is essentially free. This is so because equity investors do not have to be paid back unless a firm earns a profit and pays dividends or its shares rise in price. But nonprofits are pro- hibited from paying dividends to their investors or owners and cannot sell shares of their ownership to outside investors. This makes them unable to tap equity investments without special arrangements, increasingly known as quasi-equity.

Box 1.2 Investment Capital versus Operating Revenue

“Operating revenue allows an organisation to deliver defined outputs or outcomes. It covers day-to-day activities, regular service provision and ongoing proj- ects. It often takes the form of payments for contracted services, grants and donations.”

“Investment capital provides finance to build an organisation’s long-term capacity to achieve its social mission.”

Source: Adapted from UK Big Society Capital, http://www.bigsociety capital.com/what-social-investment.

Introduction 23

Bond revenue is also typically off the table for social-purpose organizations because, as will become clear below, and more fully in the companion volume, New Frontiers of Philanthropy, it is hardly economical to issue bonds for denominations much below $50 million, a threshold that leaves all but the largest social-purpose organizations, such as universities and hospitals, waiting at the altar. This leaves loans, but due to the perceived riskiness of social-purpose revenue streams, social-purpose organizations often have to pay premium rates for the debt they take on. Reflecting this, a survey of US nonprofit human service, community development, and arts organizations conducted by the Johns Hopkins Nonprofit Listening Post Project found that 80–90 percent of surveyed organizations in these fields reported a need for investment capital to acquire technology, purchase or renovate facilities, or develop new programs, but fewer than 40 percent reported success in securing the needed capital (see Figure 1.3).32

When asked what experiences they have recently had securing investment capital from various sources, moreover, over 90  percent of these organizations reported finding it

Figure 1.3 US Nonprofit Capital Needs and Success in Securing Capital, 2006

Tehnology 91% 37%

80% 25%

77% 39%

67% 26%

53% 31%

52% 42%

Program development


Sta� development

Strategic planning



Organizations needing capital Organizations securing needed capital

Source: Lester M. Salamon and Stephanie Geller, “Investment Capital: The New Challenge for American Nonprofits,” Communiqué No. 5 (Baltimore: Johns Hopkins Nonprofit Listening Post Project, 2006). http://ccss.jhu.edu. Reprinted with permission.

24 Introduction

Figure 1.4 US Nonprofit Difficulty Accessing Investment Capital from Various Sources, 2006

Pension funds

Insurance companies

Credit unions/S&Ls

Venture philanthropists


Commercial banks


Individual donors

46% 53% 99%

55% 39% 94%

55% 36% 91%

55% 32% 87%

58% 5% 63%

53% 9% 62%



4% 45%


Fairly or extremely di�cult to access Not known


Source: Salamon and Geller, “Investment Capital,” 2006. Reprinted with permission.

either fairly or extremely difficult to access the major sources of investment capital in the US economy—pension funds, insurance companies, credit unions, and venture capital- ists—or they simply had no experience or knowledge of how to approach these sources, leaving them dependent on com- mercial banks and foundations (see Figure 1.4).33

A  principal objective of the developments that are the focus of this book and its companion volume is to remedy this dilemma by opening new streams of investment capital for a broad range of social- and environmental-purpose orga- nizations. Against this background, it is therefore possible to turn now to look at what these developments are.


Chapter 2

Scouting Philanthropy’s New Frontier I: New Actors

To travel successfully through any new frontier, it is helpful to have at least a basic map of the terrain and some way to identify the types of wildlife that might be encountered along the way. Unfortunately, the new frontier of philanthropy has so far been a largely uncharted territory covered with underbrush and popu- lated by a variety of unfamiliar life-forms. A central objective of this monograph, and of the fuller volume that is a companion to it, is to provide a more coher- ent guide for those who are contemplating entry into this territory but need a bit more clarity about what they are likely to encounter before venturing forth. Accordingly, as noted previously, and as reflected in Figure 2.1, we have found it helpful to divide the philanthropic frontier into two major regions: the region of the actors and the region of the tools. The region of the actors contains the many new institutions that have come to occupy what we have termed philanthropic space. Although there is enormous diversity among these actors, it is possible to discern some clustering into nearly a dozen more or less identifiable “tribes.” Similarly, the region of the tools houses the instruments available to these actors to do their work. Eight types of such instruments are identified, ranging from loans and credit enhancements to new types of grants.

The purpose of this chapter and the one that follows is to provide a basic intro- duction to these various actors and tools. Because most visitors to this new fron- tier are likely to encounter the new actors in all their variety first, we begin with them. Interestingly, what even the most cursory visit to this frontier makes clear is that while this territory is hardly fully settled, neither is it totally uninhabited.

Unfortunately, the new frontier of philanthropy has so far been a largely uncharted territory.

26 Leverage for Good

To the contrary, it is already home to some remarkable life-forms.

As suggested in Figure 2.1, these life forms can be grouped into three types. The first are essentially new types of finan- cial investment institutions that have emerged to move capital within the newly emerging social-impact investment market. Included here are five types of entities with names quite different from those of traditional philanthropic institu- tions: they are “capital aggregators,” secondary markets, social stock exchanges, quasi-public investment funds, and a spe- cial set of foundations functioning as “philanthropic banks.” The second group consists of actors that supply various forms of support to these new social-impact financial insti- tutions. Included here are “enterprise brokers,” new types of “capacity builders,” and a variety of supportive infrastructure

Figure 2.1 Actors and Tools on the New Frontiers of Philanthropy

















































� N










The new frontier of philanthropy . . . is already home to some remarkable life-forms.

New Actors 27

Easily one of the most crucial of the new actors on the frontiers of philanthropy are . . . capital aggregators.

organizations. Finally, there are a variety of other actors that remain focused on the more traditional philanthropic tool of grants but are doing so in novel ways. Included here are cor- porate-originated charitable funds, conversion foundations, online portals and exchanges, and funding collaboratives. Let us examine each of these groupings in more detail.

Social-Impact Investment Institutions Given the emphasis that the new frontiers of philanthropy are putting on leveraging new sources of investment capital for social and environmental purposes, the natural starting point for a Cook’s tour of this frontier region is with the new financial entities that have surfaced to tap and channel these sources. As noted previously, five broad types of new actors in particular deserve attention here.

Capital Aggregators Easily one of the most crucial sets of these actors are social-impact capital aggregators. These are the organizations that assemble capital for ultimate investment in social-purpose organizations. This function is necessary because only high net worth individuals (HNWIs) are in a position efficiently to invest their resources directly, and even they do not often do so exclusively. Most people with money to invest therefore do so indirectly, through some kind of institution or fund, which aggregates the funds from different investors and finds suitable outlets for them, or provides a market through which capital market actors can conduct trades.

While such institutions are widespread in the standard capital markets in the form of investment firms, mutual funds, and bond and equity funds, they have long been scarce or nonexistent in the social-purpose investment arena, leav- ing the capital needs of social-purpose organizations to be funded, if at all, by governments, foundations, wealthy indi- viduals, and commercial banks. But this has changed signifi- cantly over the past 40 years, and even more dramatically over the past 10 years, much of it with government encouragement.

28 Leverage for Good

The US was an early innovator in this arena, beginning with the creation of a network of federally financed com- munity development corporations in the 1960s, a series of state-government-stimulated equity funds to promote job creation in distressed regions beginning in the late 1960s and into the 1970s and 1980s,1 and a number of supportive federal tax and other policies designed to encourage the flow of private investment capital into low-income hous- ing and community redevelopment.2 With the invention and spread of microcredit through the work of individu- als like Mohammed Yunnus, and the growing recogni- tion, helped along by C. K. Prahalad, of the “profits at the bottom of the pyramid,” moreover, the number of capital aggregators focusing on social-purpose investments has accelerated.

As befits their varied origins, social-purpose capital aggre- gators come in many shapes and sizes and draw on a variety of sources of capital, including high net worth individuals, foun- dations, and increasingly in recent years, mainline financial institutions such as pension funds, insurance companies, and global financial service firms like J.P. Morgan Chase, Bank of America, Citibank, and UBS, all of which have been attracted by the opportunity to “do good while doing well” and begun to see in so-called impact investing a promising new “asset class.”3

Not only do the sources of capital aggregated by these enti- ties vary, but so do the forms in which they make it available to investees. Thus, some funds concentrate on loans or other forms of debt, while others specialize in providing equity in various forms to particular classes of ventures at various stages in their development, from early start-up to financing the leap to sustainability.

Most aggregators focus on a particular market niche or region. Thus, for example, ACCION International focuses on microfinance lending institutions in Third World countries. Reflecting the growth of this field, just one of ACCION’s affiliates, Banco Compartamos in Mexico, raised $467  mil- lion in an initial public offering of stock in 2007, helping to boost the overall global microfinance industry to over $65 billion under management as of 2010.4

New Actors 29

Social-impact capital aggregators function as middlemen in the social capital market.

Then there are the more than 900 Community Develop- ment Finance Institutions in the US focusing on distressed urban and rural communities, including more than 600 com- munity development loan funds, 80 venture capital funds, 290 community development credit unions, and 350 community development banks. These institutions had $50 billion under management as of the end of 2013, generated through a wide assortment of investment instruments, including common or preferred stock in the CDFIs themselves, linked deposits, guarantees of CDFI loans to particular classes of borrowers, or subordinated loans to the CDFIs to strengthen the CDFIs’ bal- ance sheets and thus permit them to access other resources.5

Whatever their focus or range of investors, however, all social-impact capital aggregators function as middlemen in the social capital market, reaching out to investors willing to invest their capital in social-purpose activities and in turn locating promising social-purpose ventures in which to place it. Given the different risk and return appetites of investors, however, different capital aggregators can operate at different points in the social capital marketplace. Alternatively, they can assemble capital “stacks,” or “structured investment prod- ucts,” like the one mentioned in the vignette that led off this volume, with different layers, or “tranches,” each with its own risk-return characteristics, and therefore each with its own potential class of investors.

Observers of the field have therefore begun drawing a dis- tinction between “impact-first” investors, who seek to maxi- mize the social or environmental impact of their investments while maintaining a floor for financial return; and “finance- first” investors, who seek to achieve a higher, risk-adjusted market rate of return while still meeting a threshold of social or environmental impact.6 Where the respective financial and social-impact “floors” lie for these respective investors can therefore differ considerably. Thus, for impact-first inves- tors, the impact threshold may be higher and the financial

30 Leverage for Good

threshold lower than the respective thresholds for financial- first investors, and vice versa. This yields slightly different “sweet spots” for the different investors in the social-impact investment space, as shown in Figure 2.2.7 Thus, quadrants B and C in Figure 2.2 may work for impact-first investors, while quadrants and A and C are the available locations for finance- first investors.

Not surprisingly, different types of social-impact capital aggregators will operate in these different zones. As a general rule, nonprofit social-impact capital aggregators tend to ap- peal to investors with an impact-first orientation, frequently

Figure 2.2 The Relative Domains of Impact-First and Finance-First Social-Impact Investors








A = Domain of �nance-�rst investors B = Domain of impact-�rst investors C = Domain of both �nance-�rst and impact-�rst investors




C E-








C T-







ta rg

et �

na nc

ia l r

et ur


target social and/or environmental impact

Source: Adapted from Jessica Freireich and Katherine Fulton, Investing for Social and Environmental Impact, Monitor Institute, 2009. http://www.monitorinstitute.com/impactinvesting/documents/ InvestingforSocialandEnvImpact_FullReport_004.pdf. Reprinted with permission.

New Actors 31

individuals or foundations. For their investors, the financial return threshold can be set below where for-profit investors might put it, and they might be willing to accept a higher ratio of risk to return. These investors are therefore highly prized for the kind of structured investment products described above because they will more willingly accept the first-loss grant or guarantee tranches on the bottom of such structured investments, thus absorbing much of the risk and making it possible for profit-oriented private investors to enter deals that would otherwise have little appeal to them.

Typical of this type of nonprofit social-purpose capital aggregator is Acumen Fund, a nonprofit capital aggregator founded in 2001 that has built a robust portfolio of invest- ments supporting “entrepreneurs able to provide critical services [water, health, housing, and energy] at affordable prices to people earning less than four dollars a day” in eight countries of South Asia and East and West Africa—clearly an impact-first objective.8 The organization goes after “philan- thropic capital,” which tends to be satisfied with lower return rates or merely return of principal, but still strives to make “disciplined investments intended to yield both financial and social returns” (see Box 2.1).

For-profit capital aggregators are more likely to set the financial return bar higher while still seeking meaningful social returns. Thus, for example, UK-based Bridges Ventures and Dubai-based Willow Impact Investors are both for-profit, social-impact capital aggregators that utilize a private-equity model, attracting funds from investors with more of a risk-adjusted market return expectation.9

Whatever their strategy, form, focus, or market niche,

however, it seems clear that social-impact capital aggre- gators have mushroomed in number, size, and diversity over the past decade or more. One indicator of this is the 190 funds already listed on the ImpactBase website cre- ated by the Global Impact Investment Network (GIIN),

Social-impact capital aggregators have mushroomed in number, size, and diversity over the past decade or more.

32 Leverage for Good

Box 2.1 Acumen Fund Mission Statement: Changing the Way the World Tackles Poverty

Our mission is to create a world beyond poverty by investing in social enterprises, emerging leaders, and breakthrough ideas.

Our vision is that one day every human being will have access to the critical goods and services they need—including affordable health, water, housing, energy, agricultural inputs and services—so that they can make decisions and choices for themselves and unleash their full human potential. This is where dignity starts—not just for the poor but for everyone on earth.

The Challenge. Tremendous wealth is being created in the world today thanks to globalization and the power of technology and markets. Yet there is a growing gap between rich and poor. Something must be done to extend the benefits of the global economy to the majority of the world’s population that lives on less than four dollars a day.

Why Charity Alone isn’t the Answer. Poor people seek dignity, not depen- dence. Traditional charity often meets immediate needs but too often fails to enable people to solve their own problems over the long term. Market-based approaches have the potential to grow when charitable dollars run out, and they must be a part of the solution to the big problem of poverty.

Why the Marketplace Alone isn’t the Answer. Very low-income people are too often invisible to businesses and society. Businesses see no significant market oppor- tunity and governments view low-income areas as having insufficient tax revenues to pay for basic services like clean water, healthcare, housing and energy. Building new models that provide these critical services at affordable price—in the face of high costs, poor distribution systems, dispersed customers, limited financing options and, at times, corruption—requires imaginative business solutions and partnerships supported by investors willing to take on a risk/return profile that is unacceptable to traditional financiers.

Changing the Development Paradigm. We believe that pioneering entre- preneurs will ultimately find the solutions to poverty. The entrepreneurs Acumen Fund supports are focused on offering critical services—water, health, housing, and energy—at affordable prices to people earning less than four dollars a day. The key is patient capital. We use philanthropic capital to make disciplined investments— loans or equity, not grants—that yield both financial and social returns. Any financial returns we receive are recycled into new investments. Over time, we have refined the Acumen Fund investment model, built a world-class global team with offices in four countries, and learned what does and does not work in growing businesses that serve low-income people.

Source: Acumen Fund, “About Us,” accessed August 12, 2012, http://www.acumenfund.org.

New Actors 33

a network of social-impact investors organized by the Rockefeller Foundation and several partners. In addition to the 190 funds listed, this site has attracted 730 accredited investor-subscribers.10

More generally, as already noted, Lisa Richter estimates in Chapter  2 of the companion volume to this monograph that the number of capital aggregators may have reached 3,000 internationally, with $300 billion under management.11 Growth rates of funds under management have been dra- matic, moreover. Global investments in clean energy thus grew from US$36 billion in 2004 to $155 billion in 2008 and, despite the financial crisis, still stood at $145 billion at the end of 2009.12 Between 2004 and 2008, according to Richter, US CDFI investments grew at an annual compound rate of 10 percent a year, global microfinance investments by 20 per- cent a year, and global clean technology investments by 30 to 40 percent a year.

Nor does it appear that this trend is weakening. One influential report prepared in 2009 by J.P. Morgan Social Finance estimated a global demand for social-impact invest- ments over the ensuing decade ranging from $400.6 billion to nearly $1 trillion in just five fields (housing, rural water supply, maternal health, primary education, and financial services).13

What performance data are available on existing

social-impact investments suggest, moreover, that investors may have incentives to meet this demand. Thus, for example, drawing on data generated by the CDFI Data Project and the Microfinance Information Exchange, Richter reports that net loss rates were under 1  percent for US CDFIs for the period 2000–2008, that they rose temporarily to 1.78  percent by the end of 2009, but even then remained below the 2.49 percent mortgage “charge-off ” rate at regular,

Capital aggregators are both expecting, and so far achieving, return rates on their social-impact investments . . . in line with high-performing benchmark equity and debt indexes.

34 Leverage for Good

non-CDFI, federally insured US banks. Microfinance insti- tutions similarly experience net loan loss rates under 1 per- cent. More generally, available evidence suggests that capital aggregators are both expecting, and so far achieving, return rates on their social-impact investments, both debt and eq- uity, in line with high-performing benchmark equity and debt indexes, such as the S&P 500, Russell 2000 Growth, PIMCO Total Return, and J.P. Morgan Emerging Markets Bond.14

Secondary Markets While capital aggregators are one important set of finan- cial actors that have surfaced on the new frontiers of phi- lanthropy, they are by no means the only one. A  second set consists of social-impact secondary markets. These are institutions that purchase the loans originated by capital aggregators, refreshing the capital available to the capital aggregators so they can make additional loans. To do so, the secondary market institutions use a process called “securi- tization” to bundle the loans into packages and use them as collateral against which to issue bonds on the capital markets.15

Secondary markets have long functioned in the regular capital markets, especially in the housing field. Readers famil- iar with US capital markets will recognize this as the function performed by the Federal National Mortgage Association, lovingly known as “Fannie Mae,” originally established as a government corporation to purchase federally guaranteed home mortgages from the originating commercial banks and savings and loans.

This function did not develop in the social-impact invest- ment arena until the late 1980s, however, with the estab- lishment of the US-based Community Reinvestment Fund (CRF), created to support the growing low-income hous- ing and community development market. As detailed by

Secondary market operators have also sprung up in the social-purpose arena.

New Actors 35

David Erickson in Chapter  3 of the companion volume to this monograph, CRF initially had to raise its capital through private placements of community development bonds.16 In 2004, however, it was finally able to issue a bond “rated” by one of the quasi-official rating agencies, Standard and Poor’s, which allowed it to attract eight new institutional investors that had previously been unable to invest in CRF bonds because of investment guidelines that prevented them from investing in unrated securities. To date, CRF has purchased over $1.4 billion in community development loans from more than 150 lending organizations located in 46 of the country’s 50 states.17

By demonstrating the power of securitization and secondary market purchases to inject fresh capital into social-impact investment markets, CRF has stimulated the emergence of additional secondary market institutions in different social-impact fields. For some of these, like CRF, secondary market transactions are their exclusive func- tion, while for others the secondary market activity is an offshoot of a robust loan origination activity. This is the case, for example, with Habitat for Humanity International (HFHI), the well-known international nonprofit that mobilizes volunteers to help low-income families construct homes for themselves. To cover the costs of building sup- plies and equipment for the houses they help build, HFHI affiliates have approximately $1.4 billion in mortgages out- standing to new homeowners. To allow the affiliates to con- tinue their construction activities, HFHI has developed a secondary market operation called the Flex-Cap Program under which it purchases a portion of these loans from the affiliates using capital it generates from selling investors seven- or ten-year notes backed by the pledged mortgages. Habitat then pays off these notes from the principal and interest payments made by the homeowners. The program has a 100 percent repayment rate and has allowed HFHI to raise $107 million.18

Nor are these isolated examples. Partners for the Common Good (PCG), a CDFI founded in 1989 to serve Catholic institutions, recently raised $25.3 million to purchase home

36 Leverage for Good

mortgages from its affiliates; Blue Orchard, a Swiss microfi- nance investment fund, raised nearly $200 million to purchase microfinance loans from 21 microfinance investment organi- zations around the world; and BRAC, the huge Bangladeshi nonprofit development organization, similarly recently raised $180 million in capital to purchase microfinance loans made by its affiliates.19

Social Stock Exchanges A third class of organizations taking shape on the frontiers of philanthropy brings the concept of a stock exchange to the social and environmental impact investment arena. Social stock exchanges provide a more efficient way for social-impact investors to connect with social ventures seek- ing capital. Unlike social-impact capital aggregators and secondary-market operators, who must go through the trou- ble of searching out investors who share their social-impact/ risk-return appetites and then market their investment prod- ucts to them, social stock exchanges simply provide platforms through which dispersed investors can locate social invest- ments in which they are interested. What is more, exchanges provide automatic assurance to such investors that they can exit the investments whenever this becomes necessary or desirable. Of course, for this to be possible, as Shahnaz, Kraybill, and Salamon note in Chapter 4 of the companion volume to this monograph, the exchanges must develop list- ing rules, standard disclosure requirements for the listed enti- ties, and trading mechanisms that are efficient, accurate, and fraud-proof.20

One of the earliest uses of this mechanism in the social-impact arena was in the environmental area. The Chicago Climate Exchange, created in 2003 in anticipation of the hoped-for passage of a “cap and trade” permit sys- tem for “carbon emission credits,” allowed companies able to achieve emission reductions cheaply to secure tradable

Social stock exchanges are a third class of organizations taking shape on the frontiers of philanthropy.

New Actors 37

credits that they could sell through the exchange to com- panies for which emission reductions would be far more costly.

Although the 2010 failure of cap-and-trade legislation in the US Congress caused a pullback for the Chicago Climate Exchange, the Kyoto Protocol, which came into effect in 2005, has allowed other emission trading exchanges outside of the US (which did not sign this protocol) to expand well beyond what the Chicago exchange was handling. Thus, the European Climate Exchange, the world’s largest, saw its volume expand from 94  million equivalent tons of car- bon dioxide in 2005 to 5.3 billion equivalent tons in 2010, and it is only one of 10 such exchanges operating globally. According to the World Bank, overall carbon trading stood at US$142 billion as of 2010, though the global economic slowdown coupled with an overly generous supply of free credits in Europe has caused at least a temporary pullback in trading.21

The first social investment “exchange” outside of the cli- mate arena emerged in 2003 in Brazil with the launch of the Bolsa de Valorous Socioambientais (BVSA), or social and environmental investment exchange, though this entity functions more like an online contribution platform than an actual investment vehicle. BVSA screens projects to deter- mine their alignment with the UN Millennium Development Goals, but donors who “invest” in these projects are entitled only to social, but no financial, return.22

More ambitious, formalized private placement markets have now surfaced as well. These include Mission Markets in the US, Impact Partners in Singapore, and Artha in India. More ambitious yet are several full-fledged social stock exchanges that are now nearing operational status in a number of locations around the world. These include Social Stock Exchange Ltd (SSE) in the UK, Impact Exchange (iX) in Mauritius, and the Impact Investment Exchange (IIX) in Singapore. The most fully developed at this point appears to be the Mauritius iX entity, which has received formal regulatory approval from the Stock Exchange of Mauritius (SEM) of rules for listing and

38 Leverage for Good

trading qualified social- and environmental-purpose enter- prises and social-impact investment funds within the SEM structure but under a separate SEM board. Further, iX Mauritius has now teamed up with the Singapore Impact Investment Exchange to work with the SEM to bring iX to a successful launch by the end of 2013.

Quasi-public Investment Funds Public-sector organizations have also joined the march toward creating specialized social-impact capital investment programs and facilities. Prominent among these have been the entries by several of the multinational development banks such as the World Bank and the Inter-American Development Bank. Unlike the capital aggregators described earlier, these institutions essentially pool public sector resources for social-impact purposes.

Thus, for example, the International Finance Corporation (IFC), an affiliate of the World Bank created to stimu- late private business in developing countries, has recently added a social-impact investment initiative to its portfo- lio. As just one example, the IFC has funneled $481  mil- lion to 63 private school projects in developing countries aimed at supplementing grossly inadequate public school systems with low-cost private education options. In Kenya, for example, 23 private schools have received an average of $300,000 in loans each and 113 others have received advi- sory support.23

The Inter-American Development Bank has similarly established a Multilateral Investment Fund (MIF) through which it has also actively entered the social-impact invest- ment field. One recent investment, for example, involved a $25 million loan and $5 million in equity finance in Mexico’s IGNIA Fund, which helped leverage a total of $102 million for investments in small and medium-sized enterprises serv- ing those at the base of the pyramid.24

Public-sector organizations have also joined the march toward creating specialized social-impact investment programs.

New Actors 39

Nor are multinational development banks the only public-sector entities developing social-impact investment entities. The UK government has been especially active, and especially inventive, in channeling public, or quasi-public, resources into social-impact investment activity. This has included dedicating proceeds from the UK lottery to the cre- ation of a “foundation of social innovation” called NESTA, and tapping the proceeds of long-dormant and unclaimed bank accounts to seed a sizable, quasi-public, social-impact investment fund called Big Society Capital that is expected to end up with assets approaching £400 million/ US$600 million.25

Foundations as “Philanthropic Banks” Finally, a number of charitable foundations have begun mov- ing well beyond the traditional foundation reliance on grants as the chief, or only, form of financial assistance and begun functioning as virtual “philanthropic banks” or social invest- ment funds. Some of these institutions are simply applying social, environmental, and corporate governance (ESG) screens to increased shares of their normal investment decision-making. But a number of others are combining this type of investment screening with more active engagement in the social-impact investment market.26 This has involved going well beyond the traditional foundation reliance on the tool of grants and utilizing a much wider array of financial instruments—for example, loans, loan guarantees, equity investments, bonds, and bond guarantees. And it has also involved tapping not only their grant budgets but their core investment assets as well, thus challenging the long-standing foundation tradition of keeping separate their two major lines of “business”: their “investment business,” which has histori- cally been expected to focus single-mindedly on responsibly maximizing investment income in order to support the foun- dation’s charitable activities; and their “grant business,” which

A number of charitable foundations have begun functioning as virtual “philanthropic banks,” . . . tapping their core investment assets and going well beyond their traditional reliance on the tool of grants.

40 Leverage for Good

has historically been expected to focus narrowly on dispens- ing some share of the resulting proceeds in the form of chari- table grants.27

A broad array of foundations has begun moving in this direction, ranging from midsized institutions such as the KL Felicitas Foundation, the Babcock Foundation, the Wallace Global Fund, and the Educational Foundation of America to some of the nation’s largest foundations, such as the Annie E.  Casey Foundation, the Kellogg Foundation, the Kresge Foundation, and the Robert Wood Johnson Foundation, among others. Thus, as detailed by Salamon and Burckart in chapter 5 of the companion to this volume, the KL Felicitas Foundation, created by dot-com entrepreneur Charly Kleissner and his wife, Lisa, has 78 percent of its core assets committed to social-impact investments.28 The H.B. Heron Foundation in New York, a pioneer in this arena, has 42 per- cent so invested. Nor is this an exclusively US phenom- enon. The Esmee Fairbarn Foundation in the UK and the Fondazione CRT in Italy have joined this parade as well, the latter creating a separate subsidiary, the Fondazione Sviluppo e Crescita (the Development and Growth Foundation) to get around Italian laws limiting the ability of foundations to use their assets in such leveraged ways to support for-profit enterprises.29

This expanded foundation experimentation with novel forms of financing is not entirely new, of course. The 1969 US tax law that established the foundation “payout” require- ment also opened the door for foundation use of an expanded array of financial instruments through what were called “program-related investments” (PRIs). However, PRIs were conceived as a form of grant funded out of a foundation’s 5 percent grant budget. What is more, due to the administra- tive constraints placed on this vehicle and the general con- servatism of foundation financial management, the number of PRI makers out of the more than 75,000 US foundations peaked at 133 in 2004 and dropped back to 120 as of 2007, the year before the US financial meltdown. While these tended to be fairly large institutions, moreover, the overall share of foundation assets devoted to such PRIs has never exceeded 1 percent.30

New Actors 41

What the new breed of “foundations as philanthropic banks” is doing is reimagining the field by taking the PRI con- cept to a new level—breeching “the Chinese wall” between the program and investment sides of the foundation house, utilizing a much broader array of financial instruments, and consciously seeking greater leverage from their investments by using their funds to catalyze the flow of private investment capital into social-purpose activities.

Social-Impact Investment Support Institutions To assist the capital aggregators, secondary markets, founda- tions as philanthropic banks, and quasi-public investment funds that have surfaced in this new social-impact capital mar- ket, a variety of types of service providers has also recently surfaced. Three of these in particular deserve special attention here: enterprise brokers, sustainability capacity builders, and new infrastructure organizations.

Enterprise Brokers One of the most significant of these support entities for the social-impact financial institutions are what might be called “enterprise brokers.” Enterprise brokers are individuals or institutions that perform the crucial middleman function of helping capital aggregators identify promising ventures capable of delivering the desired combination of financial and social returns, and helping such ventures find their way to investors with the substantive and financial interests aligned with the ventures’ activities and needs.

As described by Hagerman and Wood in Chapter  6 of the companion to this volume, the need for this func- tion arises from the significant transaction costs that exist on both sides of the social-impact investment market as investors and social entrepreneurs search out partner- ships that align their respective fields of activity, desired forms of investment, and risk and return profiles across a highly fragmented social-impact investment space.31 Also

A variety of types of service providers has also recently surfaced to assist the capital aggregators.

42 Leverage for Good

at work are the special difficulties of assessing risk in the social-impact arena given the uncertainties of new products being marketed by relatively untested social entrepreneurs to bottom-of-the-pyramid consumers whose market behav- ior has yet to be fully analyzed.

Capacity Builders Another function that has expanded and assumed new forms with the growth of social ventures and social-impact invest- ment is that of social venture capacity builders. As noted earlier, capacity builders and technical assistance providers have operated in the nonprofit or social-purpose organiza- tion arena for decades. Indeed, nonprofit capacity builders in the US have their own infrastructure organization called the Alliance for Nonprofit Management, a specialized orga- nization called BoardSource to provide advice on the man- agement of boards of directors, and a robust affinity group of foundation supporters known as Grantmakers for Effective Organizations (GEO).

For the most part, however, these existing organizations and consultants have focused on standard organizational management topics such as fundraising, special events, board development, accounting systems, and human resource policies. What characterizes the “new capacity builders” is a considerably different focus. Their objective is organizational sustainability and scaling. They assist organi- zations to develop earned-income strategies, access the new, nongrant forms of capital now available, and measure social outcomes.32

These new capacity builders fall into two broad groups, though there is extensive interaction between the two. One group takes its inspiration from a celebrated 1997 Harvard Business Review article that challenged founda- tions to act more like venture capitalists by taking a more active role in improving the management and operations of

New capacity builders have surfaced focusing on sustainability and scaling.

New Actors 43

the organizations they support.33 This has given rise to the field of “venture philanthropy” populated by organizations that provide a combination of funding and intensive, “high engagement” technical assistance and organizational devel- opment that they either provide themselves or hire outside consultancies to deliver for them. Some of these organiza- tions are traditional foundations like the Edna McConnell Clark Foundation, which has decided to pursue its mission of helping young people from low-income backgrounds become independent through a strategy of making very large grants to a limited number of promising organizations and pouring substantial capacity-building assistance into the grantee organizations to ensure their long-term sustainability (see Box 2.2).34

Others are regular public charities that have raised funds through other means and similarly use them to provide a combination of capacity-building assistance and funding to targeted ventures. Included here are organizations such

Box 2.2 Edna McConnell Clark Foundation: How We Work

We believe that an effective and efficient way to meet the urgent needs of youth is to make large, long-term investments in nonprofit organizations whose pro- grams have been proven to produce positive outcomes and that have the potential for growth. Our funding consists largely of support for business planning, capac- ity building and program evaluation, so that grantees can expand while maintaining the quality of their pro- grams, make an impact on the life trajectories of more young people, and eventually become organizationally, programmatically and financially sustainable. Our goal is to help develop a growing pool of organizations that serve thousands more youth each year with proven programs.

Source: “How We Work,” Edna McConnell Clark Foundation, accessed May 11, 2013, http://www.emcf.org/how-we-work/.

44 Leverage for Good

as New Profit, the Roberts Enterprise Development Fund (REDF), Social Venture Partners (SVP), and Venture Philanthropy Partners (VPP). New Profit, for example, is a 47-person firm founded in 1998 that has raised money from nearly 50 individual and family philanthropists to provide in-depth technical and financial help to 27 promising social ventures that have in turn served over 1.4  million people across the US.35

A second group of sustainability capacity builders are classic consultancies that have made a specialty of promot- ing organizational sustainability but do not themselves pro- vide financial assistance. Some of these are hired by venture philanthropies to deliver the required technical assistance, while others are hired directly by emerging social enter- prises or traditional nonprofits wanting to boost their reve- nues from earned income. Included here are the Bridgespan Group, a dedicated social-purpose consulting firm that grew out of the for-profit Bain Consulting firm; Community Wealth Ventures, a subsidiary of the antihunger organiza- tion Share our Strength that focuses on helping organiza- tions develop earned-income strategies; and the Nonprofit Finance Fund, which helps organizations manage their bal- ance sheets.

While venture philanthropy and social venture capacity-builders more generally emerged initially in the US, they have spread far wider. The European Venture Philanthropy Association, for example, has attracted 127 individual and organizational members that share five key features: they have capital to invest; they focus on providing long-term funding to social-purpose organizations, whether nonprofit or for-profit; they are primarily seeking a social, rather than a financial, return; and they take an active role in promoting the “core development” of the organizations they are supporting.36 (See Box 2.3 for the operating characteris- tics of “venture philanthropy” as practiced by the members of EVPA.)

Yet another model for capacity-building in the emerging social-venture and social-impact investing space is afforded by The Hub. Launched in London in 2005, The Hub is a

New Actors 45

network of 4,000 aspiring social entrepreneurs in some 31 chapters around the world, who meet to share experience, contacts, and ideas, and who share workspaces in which to nurture early-stage venture ideas. Separate Hub chapters are free to formulate their own approaches to capacity-building. Thus, for example, Hub Johannesburg runs a Hub Business Clinic that offers twice-monthly skills sessions for social entrepreneurs, while the Hub Bay Area recently launched

Box 2.3 7 Key Characteristics of European Venture Philanthropy

1. High engagement—Hands-on relationships between the social enterprise or nonprofit manage- ment and the venture philanthropists.

2. Organizational capacity-building—Building the operational capacity of the portfolio organizations, by funding core operating costs rather than individ- ual projects.

3. Multi-year support—Supporting a limited number of organizations for 3–5 years, then exiting when organizations supported are financially or operationally sustainable

4. Non-financial support—Providing value-added services such as strategic planning to strengthen management.

5. Involvement of networks—Providing access to networks enables various and often complement- ing skill-sets and resources being made available to the investees.

6. Tailored financing—Using a range of financing mechanisms tailored to the needs of organizations supported.

7. Performance measurement—Placing emphasis on good business planning, measurable outcomes, achievement of milestones and financial account- ability and transparency.

Source: European Venture Philanthropy Association. http://www. evpa.eu.com.

46 Leverage for Good

Hub Ventures, a structured program that helps a select group of entrepreneurs develop their concepts through mentorship, workshops, and other technical assistance and then awards $75,000 in seed capital for those with the most promising concepts.37

Infrastructure Organizations In addition to the entities described above, which all offer essentially “retail” assistance and support to social-impact investors, social entrepreneurs, or mainline nonprofit orga- nizations in new ways, a substantial network of infrastruc- ture organizations has also emerged to support the work of these operating entities at a more macro, or wholesale, level. These entities serve a number of crucial functions for the fields in which they operate:  they connect the actors in the field to each other; they popularize and publicize the field and thereby attract newcomers and external support; and they legitimize and strengthen the practice.

The social-impact investing space has provided the most fertile ground for the growth of such infrastructure organiza- tions, with separate entities emerging to service virtually every constituency, and every nook and cranny, of this rapidly devel- oping field. Thus, for example, one of the earliest entrants was the Opportunity Finance Network, created in 1985 to support US community development finance institutions (CDFIs) in their mission of aiding “low-income, low-wealth, and other disadvantaged people and communities join the economic mainstream.”38 Now US CDFIs also have the Community Development Venture Capital Alliance and the National Federation of Community Development Credit Unions. Similarly, “sustainability investors” have the Aspen Network of Development Entrepreneurs (ANDE); socially motivated banks participate in the Global Alliance for Banking Values. Similarly, advocates of “responsible investing” have joined together in the Social Investment Forum (SIF) to promote adherence to the UN Principles for Responsible Investment

A substantial network of social impact infrastructure organizations has also emerged.

New Actors 47

(UNPRI), which calls on firms to adhere to responsible envi- ronmental, social, and corporate governance (ESG) stan- dards.39 CGAP, the Consultative Group to Assist the Poor, is a consortium of 33 donors with the common goal to advance access to financial services for the poor.40 US foundation offi- cials making active use of program-related investments (PRIs) formed the PRI Makers Network to share experiences, develop best practices, and attract other foundations into the fold. As interest grew in other ways to extend the mission-related activi- ties of foundations as well (e.g., through screening endowment investments or strategically voting shares), a new organization emerged called More for Mission, initially headquartered at Boston College. Now these two foundation groupings have come together under the banner of the Mission Investors Exchange.41 European foundations engaging in social-impact investing and high-engagement grant-making have similarly felt the need for an infrastructure organization, and 130 of them have joined together, as noted earlier, in the European Venture Philanthropy Association. Microfinance investors have also found it useful to build infrastructure organizations to serve their particular needs, giving rise to the Microfinance Investment Exchange and the International Association of Microfinance Investors (IAMFI).

Notwithstanding this profusion of infrastructure organi- zations, a group of foundations, development agencies, and private financial institutions convened by the Rockefeller Foundation in a series of key gatherings in 2007 and 2008 came to the conclusion that a broader field-building effort was still needed that could bring these various separate ini- tiatives together under a common umbrella and move the field beyond what one pair of authors termed “uncoordi- nated innovation.”42 The upshot was the launch in 2009 of yet another infrastructure organization called GIIN, the Global Impact Investing Network, but this time with substantial funding from the Rockefeller Foundation, J.P. Morgan, and the United States Agency for International Development. The GIIN was charged with the task of accelerating the devel- opment of the social-impact investing industry by creating critical infrastructure, improving practice, establishing a com- mon language, and stimulating field-building research. To do

48 Leverage for Good

so, it has established an “Investors’ Council” made up of lead- ing impact investors from around the world; created so-called Impact Reporting and Investment Standards (IRIS), a broad set of indicators through which social-impact investors can measure the social performance of their investments; estab- lished an online database of impact investment funds called “ImpactBase” to facilitate collaboration among funds work- ing in similar fields and geographies; and carried out a vari- ety of outreach efforts to elevate the visibility of the field and encourage its expansion, including research designed to establish social-impact investing as an “asset class” with its own skill requirements, organizational structures, metrics, trade groups, and educational offerings.43

New Types of Grant-making Entities While the previous new actors on the frontiers of philan- thropy have all been involved in some aspect of social-impact investing involving nongrant forms of finance, other entities are bringing imaginative new approaches to mobilizing some of the less esoteric forms of charitable activity through such mechanisms as online portals, funding collaboratives, and corporate-originated charitable funds.

Online Portals and Exchanges One of the more innovative of these types of entities is a new class of online portals or exchanges that are making creative use of the new communications technologies to connect donors and investors directly to recipient organizations and ventures with an immediacy that has not been possible before. These are not just internet service providers that happen to be used to transfer cash, commodities, and volunteering opportu- nities, however. Rather, they are organizations specifically structured to serve as transfer points between donors and beneficiaries, often with the benefit of elaborate databases and security systems. What is more, they have evolved to handle

Online portals or exchanges make creative use of the new communications technologies to connect donors and investors directly to recipient organizations.

New Actors 49

at least three different types of valued resources: (a) financial resources, including short-term cash and long-term invest- ment capital; (b) commodities, such as computer hardware and software, pharmaceuticals, and food; and (c)  services, both paid and volunteer.44

As with so much of the activity on the new frontiers of phi- lanthropy, these online portals have mushroomed in number and scale. One recent source identifies over 170 such entities handling charitable giving alone.45 Just one of these, Network for Good, has generated an estimated half billion dollars of contributions to some 60,000 organizations from its incep- tion in 2001 through early 2011. Kiva, a different type of entity, allows small-scale social entrepreneurs in faraway places to access loans funded through donations from socially oriented investors in the US, western Europe, and elsewhere. From its founding in 2005 through 2012, Kiva has facilitated over $360 million in loans from over 835,000 individuals to nearly 885,000 social entrepreneurs, 82 percent of whom are women, and achieved a repayment rate of nearly 99 percent.46

TechSoup Global, another online portal, provides nonprofit organizations access not to cash, but to technology hardware and software contributions for a modest fee. Through late 2010, the organization had distributed $6.6 billion worth of technol- ogy products to 133,000 organizations around the world.47 Volunteer Match performs a similar function for volunteers, operating a huge matchmaking operation to help individuals and businesses with volunteer programs to connect potential volunteers with organizations that need their services. In 2010 alone, VolunteerMatch estimates that its volunteer assignments generated social value worth more than $600 million if organi- zations had had to pay for the assistance they received from the organization’s volunteer placements.48

To be sure, these online portals have not yet achieved a scale that rivals mainline contribution mechanisms. What is more, there is valid reason to question whether they are mak- ing a net addition to the resources being mobilized for chari- table purposes. Nevertheless, as this set of actors has gained traction and visibility they have prompted a wave of innova- tive newcomers to this field that together are injecting new vibrancy and immediacy into traditional charitable giving and

50 Leverage for Good

volunteering. Among these relative newcomers are Care2. com, mobilizing social change advocates; Idealist.com, pro- viding job postings in the social-purpose arena; Americares. com, delivering medical supplies; and DonorsChoose, pro- viding assistance to schoolteachers.

Corporate-Originated Charitable Funds Side by side with the emergence of for-profit social-purpose investment funds has been the appearance of another new set of entities—huge charitable funds originated by some of the country’s largest for-profit investment companies, such as Fidelity Investments, Charles Schwab and Sons, and Vanguard. These funds have been set up to manage chari- table funds for the investment clients of these firms as well as others. Thirty-two such corporate-originated charitable funds are now in operation in the US alone, with assets of $12 billion, mostly in the form of some 88,000  “donor advised funds.” These are pools of charitable resources that are similar to minifoundations, allowing donors to receive charitable tax deductions on the full value of their contributions when they set up the funds, but then permitting them to direct contribu- tions from the funds over their lifetimes.49

The first of these funds was founded only in 1991, but in 21 years it has already overtaken the scale of donor-advised funds managed by the country’s largest community foun- dation, which has been in existence for nearly 100  years. By streamlining their back-office and investment functions through service contracts with their originating firms, these entities have posed a significant challenge not only to com- munity foundations but potentially to the continued growth of foundations more generally. Taken together, the 32 corporate-originated funds already manage donor-advised fund assets roughly equivalent to those managed by the coun- try’s entire network of over 600 community foundations, which previously held a virtual monopoly on the management

A nother new set of actors are the huge charitable funds originated by some of the country’s largest for-profit investment companies . . .

New Actors 51

“Conversion foundations,” another type of charitable institution, emerge from the process of privatization of state-owned or -controlled assets.

of such funds.50 In the process they have helped to stimulate broader introduction of information-management technol- ogy and more sophisticated investment management in the charitable enterprise more generally.51 While still focused heavily on grant-making, moreover, these entities have begun to experiment with some of the broader financial instruments now penetrating the social investing arena generally.

Conversion Foundations Yet another type of charitable institution that has made its appearance on the new frontiers of philanthropy is what has come to be called a “conversion foundation.” Unlike classical independent foundations, which are normally formed out of the fortunes amassed by individual entrepreneurs, conversion foundations are formed out of the process of privatizing some public or quasi-public asset, a process I have termed “philan- thropication thru. privatization,” or “PtP.” The asset in question can be a government-owned enterprise, a government-owned building or other property, specialized streams of revenue under government control (e.g., proceeds from state-run lot- teries or sales of mineral rights), debt swaps, and conversions of quasi-public organizations such as nonprofits into for-profits.52

The emergence of this type of foundation can be traced in important part to the recent neoliberal push to privatize pub- lic, or quasi-public, institutions. While the proceeds of such transactions usually find their way into government budgets or, in some celebrated occasions, into the pockets of politi- cians, it turns out that in a number of cases the proceeds are placed into existing or newly formed foundations and form all or a portion of the assets of such institutions.

One of the earliest examples of this phenomenon was the creation of the Volkswagen Foundation out of the privatization of the Nazi Party–inspired, state-owned Volkswagen Company in the aftermath of the Second World War. The resulting foun- dation, created in 1960, has become one of the leading foun- dations in Europe, with assets of $3.5 billion dedicated to the

52 Leverage for Good

promotion of German science. In the process, the Volkswagen Foundation has served as a role model or template for several other privatization transactions in Germany.53

But the Volkswagen case is hardly an isolated exam- ple:  this alternative use of privatization proceeds has occurred far more frequently than has previously been rec- ognized, yielding significant charitable endowments, some of them quite huge. Indeed, over 500 such “conversion foun- dations” have been identified around the world, accounting for at least $135 billion in assets, with examples of each of the types of initial assets identified above.54 Thus, for exam- ple, La Scala, the famous Milan opera hall, is an example of the transfer of a government-owned physical facility to a foundation set up to manage it and raise additional support for it. The King Baudouin Foundation in Belgium provides an example of a foundation supported by a stream of rev- enue coming from a government-owned lottery. Debt swaps that give debtor nations relief from foreign debt in return for their placement of a corresponding amount of local cur- rency into a charitable endowment have occurred in many parts of Latin America and in the case of the Polish-German Cooperation Foundation; and the transformation of non- profit organizations into for-profit firms during which all or a portion of the nonprofit’s assets are vested in a charitable foundation has occurred with many nonprofit hospitals and health insurance nonprofits in the US and with nonprofit or cooperative banks in Italy, Austria, and New Zealand.55

Not only is this phenomenon important in and of itself, but also it points to a possible avenue for the creation of mean- ingful charitable endowments in many less-developed coun- tries, where the private wealth to create sizable foundations may be lacking, but where governments are in possession of sizable enterprises or valuable mineral rights whose sale could be used in part to create foundation-type philanthropic endow- ments dedicated to the health and welfare of local citizens.

Not only is this PtP phenomenon important in and of itself, but also it points to a posssible avenue for foundation formation in many less-developed countries.

New Actors 53

Funding Collaboratives Another intriguing development on the frontiers of philan- thropy has been the spread of funding collaboratives, which offer both individuals and institutions a vehicle for collec- tive grant-making or social-purpose investing. Though they differ significantly in the types of participants they engage (e.g., individuals vs. organizations), the types of resources they jointly assemble or influence (e.g., grants, loans, equity investments), and the types of recipients they support (e.g., individuals, nonprofits, social entrepreneurs, other organiza- tions), these entities share the idea of pooling knowledge and resources, operating collectively, and thereby reducing costs and maximizing impact. They also serve the important social function of bringing like-minded individuals and organiza- tions together around a common purpose.

“Giving circles” constitute one of the most common types of these funding collaboratives. These are groups of people who pool some share of their charitable resources together and decide collectively what organizations to sup- port through grant-making, voluntary assistance, or both. At least 500 such giving circles have been documented in the US, but this probably understates the number of such groups.56 Some of these are general purpose in orientation, while others are “identity” or “diversity” focused. In addition to their important charitable role, they also perform a social role, bringing together philanthropically inclined individu- als in a geographic area and building important social bonds among them.

Similar groupings have now arisen to serve the growing field of social-impact investing. One of these, called TONIIC, has built an exclusive global community of 42 impact inves- tors seeking to place $100  million into global social enter- prises. The network shares information about promising ventures among its members, conducts collaborative due dili- gence reviews, and encourages members to invest in a coordi- nated fashion in identified, promising ventures.57

Another intriguing development on the frontiers of philanthropy has been the spread of funding collaboratives.

54 Leverage for Good

The collaborative giving and investing bug has not only bit- ten individuals. It has also smitten organizations, which have come to recognize the need for collective action to address large problems. One of the earliest manifestations of this was the formation of what is now known as Living Cities, which grew out of a collaboration of six foundations determined to halt the deterioration of American cities. Now over 20 years old, this funding collaborative has blossomed into a network of 22 foundations and financial institutions that have col- lectively invested nearly $1 billion in urban redevelopment projects in 22 US cities.58 Investors Circle, another example of a funding collaborative, is a 20-year-old network of angel investors, foundations, and family funds that has stimulated the investment of $152 million in some 250 social ventures and funds dedicated to improving the environment, educa- tion, health, and community.59

A Teeming Subcontinent: Summing Up In short, an explosion has occurred on the frontiers of phi- lanthropy, a “Big Bang” that has unleashed a host of new actors eager to put their talents and energies into the search for new solutions to age-old problems, and who are finding new resources to finance their efforts. Some of these new actors are mining the supply side of the developing social investment market. Others are providing a variety of sup- port services either to the financiers or to the entities they are generating resources to support. And still others are applying new technologies or new approaches to traditional grant-based philanthropic efforts. Whatever the form, how- ever, the result is a burst of energy and innovation that has not been seen in philanthropic space at least since the time of Andrew Carnegie and John D. Rockefeller, if not quite yet since Jesus, Muhammad, and Maimonides.


Chapter 3

Scouting Philanthropy’s New Frontier II: New Tools

This explosion of new actors has not, of course, taken place in a vacuum. Rather, it has been accompanied, and in some sense prompted, by an enormous prolif- eration of tools through which to pursue social and environmental objectives. These two developments thus go hand in hand. A revolution is therefore under- way not only in the institutional forms functioning in “philanthropic space,” broadly conceived, but also in the tools they are deploying to advance philan- thropic objectives, supplementing the traditional tool of charitable grants and gifts with a withering array of new financial and nonfinancial instruments.

Many of these “new” tools are not new to the world, of course, as noted earlier. Rather, many of them, such as loans, equity investments, bonds, and securitiza- tion, have long pedigrees in the world of business finance, and increasingly in government as well.1 What is new is their deployment in the world of philan- thropy and social investment.

What makes these tools increasingly attractive in this new arena is their capac- ity for leverage, for bringing added resources into the social-purpose arena, par- ticularly the kind and scale of resources controlled by banks, investment houses, pension funds, insurance companies, and high-net-worth individuals. A founda- tion or individual making a grant or gift, for example, typically generates social value equivalent only to the size of the grant or gift. But if that same foundation or individual uses its resources to guarantee a loan made by a commercial bank or pension fund it can leverage far more resources than it puts at risk.

While many of the new tools being introduced into social-purpose activity are not new to the world, their deployment in this new arena has necessitated

A withering array of new instruments is now being deployed in the social-purpose arena, many of them for the first time at any scale.

56 Leverage for Good

a variety of adjustments and modifications, many of them highly innovative if not yet fully legitimized or understood. Loans have therefore had to be supplemented with a variety of “credit enhancements” to induce risk-averse private investors to keep interest rates low enough for social-purpose organiza- tions to afford. Equity investments have had to be modified to get around legal prohibitions on nonprofit distribution of profits. And new types of bonds have had to be invented to get around cumbersome “rating” provisions and ensure a flow of long-term, patient capital into promising social ventures.

While a full elaboration of the evolving shape of these new tools is the task for the chapters in our companion book, New Frontiers of Philanthropy, a brief overview of some of the central features of the major tools may help prepare readers for the fuller explications available in this more extensive volume. As before, we differentiate between the relatively new financial investment tools, such as loans and equities, and other, nonfinancial, tools that make new use of interventions such as crowd sourcing or socially responsible investing and purchasing.

Social-Impact Financial Investment Tools

Loans A useful starting point for the discussion of financial invest- ment instruments is the tool of loans, or debt, and its next of kin, “credit enhancements.” Loans are by far the most com- mon social-impact investment tool. When the US Congress opened the door for US foundations to make so-called “program-related investments” in the Tax Reform Act of 1969 and to count them as part of foundations’ required “payout requirement,” it mostly had loans in mind. And not surprisingly, loans have remained the dominant form of PRIs, accounting in 2006–2007, the latest period for which data are available, for nearly 80 percent of all PRI transactions and over 85 percent of all PRI dollars.2 Cooch and Kramer found a similar picture when they broadened the lens from PRIs to

Loans are by far the most common social-impact investment tool.

New Tools 57

“mission investing” by US foundations more generally: of 520 such investments identified, 63 percent were loans and another 19  percent some other type of debt.3 This picture has been further confirmed by an even broader, global study of 2,213 social-impact investments made by a pool of 52 investors. As shown in Table 3.1, as of 2011 these social-impact investors had $4.4 billion in social-impact investments outstanding, of which 75 percent of the deals and 62 percent of the assets ($2.7 billion in all) took the form of various types of debt.4

Loans are one form of debt. The basic concept of a loan is fairly straightforward:  a lender provides cash (the princi- pal) to a borrower, who is obligated to repay the cash, typi- cally with interest, either over time or at an agreed-upon time in the future (the maturity date). Compared to other forms of debt, such as bonds (discussed below), loans tend to be smaller in size and shorter in maturity. But all forms of debt differ from the other major type of investment capital, equity,

Table 3.1 Asset classes of social-impact investments

instrument type number % amount % (Usd, m)

Private debt 1,345 61% 2,296 52%

Bilateral loan agreement 152 7% 191 4%

Deposit 106 5% 70 2%

Guarantee 10 0% 73 2%

Equity-like debt 48 2% 78 2%

Public debt 1 0% 2 0%

Subtotal, debta 1,662 75% 2,710 62%

Private equity 548 25% 1,655 38%

Public equity 2 0% 10 0%

Subtotal, equitya 550 25% 1,665 38%

Real assets (reported) 1 0% 2 0%

Total 2,213 100% 4,377 100

Source: Jasmin Saltuk, Amit Bouri, and Giselle Leung, Insight into the Impact Investment Market: An In-Depth Analysis of Investor Perspectives and over 2,200 Transactions (London: J.P. Morgan Social Investment, 2011), 6. a Debt and equity are sums of the rows above, respectively.

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which involves a share of ownership and does not create an obligation for repayment unless the recipient entity earns a profit. Loans thus entail less risk than equities, but corre- spondingly typically involve less return.

As loans have come to be used in the social-impact arena, however, they have grown in complexity.5 Loans can thus be “secured,” that is, backed up by some asset that the lender can seize if the loan is not repaid, or “unsecured.” Real estate loans have therefore traditionally been the least risky because they are backed by tangible property. Social ventures frequently have little tangible property, however, which means that they are rarely in a position to offer security for their loans. J.P. Morgan’s 2011 study of 2,213 social-impact investments cited earlier thus found that 60  percent of the debt investments were unsecured. Loans can also be “senior,” or “subordinated.” A  senior loan has the first call on any payment or assets in case a borrower is unable to pay its loan obligations, whereas a subordinated loan is paid off only after other lenders or inves- tors. For-profit providers of loans to social ventures tend to require a senior position to reduce their risk. Finally, loans can be “soft” or “hard.” Soft loans are ones that offer flexible or lenient terms for repayment, usually at lower than market interest rates. Such flexible terms are typically needed by start-ups and even second-stage social ventures due to their frequent lack of tangible assets with which to secure their loans and the uncertain prospects for their enterprises.

Credit Enhancements Due to the relative riskiness of many social ventures, a vari- ety of inducements have had to be added to loans in order to attract lenders and get them to accept the below-market rates that early-stage social ventures typically require. This was the case with the African Agricultural Capital Fund (AACP) deal cited at the outset of this book. In order to induce J.P. Morgan’s Social Finance Unit to make an $8 million loan to this fund, the US Agency for International Development had

Credit enhancements are designed to alter the risk-return ratio sufficiently to allow private investors to participate.

New Tools 59

to guarantee the loan, thus protecting J.P. Morgan against any loss.6 Such guarantees are one type of inducements known as “credit enhancements.” Credit enhancements are designed to alter the risk-return ratio sufficiently to allow private inves- tors to get around their legal obligation to maximize profit for their shareholders enough to participate in a social-purpose deal. In other cases, foundations or other social investors with a “social-impact first” orientation will provide grants, subordinated loans, or equity capital as the base of a fund- ing “stack” to absorb any initial losses on an investment. In this way they protect private investors who hold more senior positions in an investment consortium, thereby encourag- ing the private investors to participate and lowering their return requirements. Thus, in one recent deal, Fair Finance, a UK microfinance lender, generated a £2 million loan from Société Générale and BNP Paribas that was underwrit- ten by a £750,000 foundation grant and a £350,000 soft loan from Big Society Capital, the UK Government’s social investment fund.7

Fixed-income securities Another class of debt instruments increasingly being used in the social-impact investing arena consists of fixed-income securities. These are essentially huge loans with longer maturi- ties, typically sold through underwriters or investment banks that then market them to various types of investors, includ- ing pension funds, insurance companies, and high net worth individuals. Given their size and highly indirect marketing, fixed-income securities are usually put through an elaborate rating process before they are offered to the investing public. Fixed-income financing is an enormous component of global capital markets with an estimated $95 trillion of outstanding debt at the end of 2010 despite the recent financial meltdown. They therefore have the capability to generate huge sums of capital for major undertakings.8

The most common type of fixed-income security is a long-term bond, but shorter term notes are also used.9 Borrowers who raise funds through fixed-income securities enter into contracts to pay bondholders the amount bor- rowed on an agreed maturity date and to pay interest, known

60 Leverage for Good

as the coupon, at regular intervals over the life of the bond. Bondholders, in turn, can sell the bonds to other investors if they choose to do so, with the price varying depending on the relation between the coupon rate on the bond and prevailing interest rates in the market.

Given their scale and complexity, fixed-income securities are used most commonly by fairly mature institutions with reliable streams of revenue capable of covering coupon pay- ments. Among social-purpose organizations, universities and hospitals have been the heaviest users of fixed-income securi- ties, often with the aid, in the US, of a credit enhancement in the form of tax deductions for investors on the coupon pay- ments they receive.

But innovative ways have been found to tap this lucrative tool to finance other social-purpose activities as well. At one end of the continuum of innovations is the International Finance Facility for Immunization (IFFIm), an ambitious global effort to underwrite the production, distribution, and delivery of vaccines against polio, measles, tetanus, and other deadly diseases to 500 million children in 70 of the world’s poorest countries. The financing of this effort has been pur- sued through bonds, but bonds that will ultimately be paid for through guarantees provided by several European govern- ments and marketed by Goldman Sachs and Deutsche Bank. As the IFFIm website explains, “by issuing bonds in the capi- tal markets” IFFIm “converts long-term government pledges into immediately available cash resources.” The inaugural issue of IFFIm bonds in 2006 raised $1.7 billion, 1.7 times the original $1 billion goal, and $3.6 billion have so far been raised in toto.10

Equally imaginative has been the Community Investment (CI) Note mechanism launched in 1995 by the Calvert Social Investment Foundation (Calvert Foundation), a Community Development Finance Institution headquar- tered in the US, with support from the Ford, MacArthur,

Especially imaginative has been the Community Investment (CI) Note mechanism launched in 1995 by the Calvert Foundation.

New Tools 61

and Mott foundations. CI Notes are essentially minibonds, unrated, and sold directly to individual investors by the Calvert Foundation, indirectly by brokers, and now online through a subsidiary of eBay. Investors can choose the term (1, 3, 5, 7, or 10 years) and the interest rate they would like to receive (0, 1, 2, or 3  percent). Calvert Foundation then invests the proceeds either in community-based intermediar- ies promoting affordable housing or inner-city development in the US, or microfinance and fair-trade farmworker coop- eratives internationally. To date, this innovative fixed-income instrument has generated $220 million of capital from 10,000 citizen-investors with losses below 1  percent—all of it off- set by Calvert Foundation reserves—thus ensuring timely payment of principal and interest to all investors.11 Perhaps equally importantly, the Calvert experience has led a num- ber of other social-purpose CDFIs and related institutions to launch their own unsecured and unrated retail note programs to raise capital for social-purpose initiatives.

Other examples of credit enhancements attached to bonds include the $30 million bond protection provided by the Bill and Melinda Gates Foundation that allowed KIPP Houston, a for-profit network of charter schools, to raise up to $300 mil- lion in tax-exempt bond proceeds from private investors for the expansion of its charter schools network at no cost to the Gates Foundation. More generally, the US Treasury created a new CDFI Bond Guarantee Program in 2011 to assist CDFIs to finance their affordable housing and community develop- ment activities in the wake of the 2008 financial crisis.

Securitization Closely related to the tool of bonds is an additional debt-related instrument known as securitization. Securitization is the mechanism that “secondary market” actors use to bundle individual mortgages or other debt instruments together for sale to investors in order to generate capital that primary lend- ers can use to make new loans. Like many of the other “new” tools entering the arena of social-purpose finance, securi- tization has long been used in the standard financial arena. Indeed, it was problems in the mainline securitization field that produced the US financial crisis in 2008, as securitized

62 Leverage for Good

mortgages turned out to be worth far less than advertised to unwitting investors, including some of the country’s premier banks and investment houses. But securitization has entered the world of social-purpose finance as well, although the global financial crisis has put a chill on investor willingness to buy the securities backed by social-purpose loans even though these loans have performed much better than the ones issued by mainline for-profit lenders.

Securitization involves the assembly of hundreds or thou- sands of individual loans into packages for sale to so-called spe- cial purpose entities, which then issue bonds or other securities backed by the loans for sale to ultimate investors.12 The loans securing the bonds can be home mortgages (mortgage-backed securities) or loans for various other purposes, such as car loans, credit card balances, or, in the social-purpose arena, loans to microenterprises or charter schools (asset-backed securities). The transactions involved in setting prices for the securities backed by these bundles of loans are naturally highly complex since estimates must be made of the riskiness and likely returns on the underlying loans given their maturities, interest rates, likelihood of being paid off, and the relation of all of this to gen- eral market conditions.

Given the uncertainties traditionally surrounding social-purpose investment, securitization made relatively slow progress in this field until relatively recently. Instead, secondary market actors in this investment arena had to rely on private placements and the creation of specially organized funding consortia rather than the established machinery available to market “rated” securities. In addition, they have had to secure various credit enhancements such as bond guarantees, and reserves against losses, from angel investors or philanthropic institutions.

In the early 2000s, however, secondary market operators in the housing and microfinance arenas finally succeeded in penetrating this highly lucrative vehicle for channeling significant resources into social-purpose activity. In particu- lar, in 2004 the Community Reinvestment Fund (CRF), a US-based secondary market focusing on low-income housing and community development mortgages, managed to assem- ble and market the first “rated” bond backed by low-income

New Tools 63

Even more attractive to social-purpose organizations than securitization is the tool of equity investments.

housing and community development loans, allowing it to attract funds in the process from eight new institutional investors whose strict investing guidelines would have kept it out of the deal without the rating. CRF subsequently brought three other rated securitizations to market before the 2008 financial crisis cooled investor responses.

The global microfinance industry has also managed to find its way to the securitization tool. Blue Orchard, a Swiss microfi- nance investment fund, brought the first microfinance security to market in 2004 and managed to raise $67 million, which was used to refresh the capital of microfinance investment inter- mediaries (MIIs) across the globe. Subsequently, at least nine other securitization deals for microfinance loans have been suc- cessfully closed, the most recent being the huge $180 million securitization successfully marketed by the Bangladesh Rural Advancement Committee (BRAC) in 2006. As of 2008, a total of $525 million had been raised through the securitization of microfinance loans globally, a sizable sum, though still only 12 percent of all outstanding MII investments.

Equity Even more attractive to social-purpose organizations than securitization is the tool of equity investments. The loans that underlie securitizations must ultimately be paid back with interest, after all. Equity investments carry no such obligation. Equity investment usually takes the form of selling ownership shares in an enterprise to an equity investor in exchange for capital. Unlike with debt, the organization has no legal obli- gation to repay the amount invested or to pay interest. Equity investors usually invest in organizations that they believe will grow. In return they expect to receive dividends paid out of the organization’s earnings and/or capital gain on the sale of the organization or on selling their shares to other investors. But if the enterprise does not pay dividends or does not do well, the equity investor can lose his or her money. Equity

64 Leverage for Good

investments thus carry the highest risk and therefore typically command the highest returns.

Equity finance has historically been less commonly used than debt finance by social-purpose organizations.13 One reason for the historically limited use is that many social-purpose organizations are nonprofit in form and are legally prohib- ited from issuing ownership shares or distributing any profits they may earn. What is more, even for-profit social enter- prises take considerable time to generate profits, making them unattractive to social-purpose investors. Even patient capital providers like foundations have been somewhat reluc- tant to make equity investments. Thus, the 2007 study of 52 US foundation mission investors by Cooch and Kramer found that only 14 percent of the 520 investments made by these institutions were equity investments. Although equities accounted for 45 percent of the investment dollars, moreover, the overwhelming majority of these were real estate deals where a tangible asset was involved.14 More generally, a J.P. Morgan study of 52 social-impact investment funds with at least $25 million in assets under management found in 2011 that equity investments accounted for only 25  percent of the 2,213 investments identified, though they accounted for 38 percent of the assets.15

Nevertheless, the recent growth of social enterprises, many of which take the form of for-profits, cooperatives, or other hybrid forms, has opened the social-purpose field to a much more substantial use of equities and to the growth of a wide assortment of equity funds to provide them. Perhaps reflect- ing this, a more recent J.P. Morgan survey suggests some expansion in social-impact investor use of equity. According to this survey, over 80  percent of a sample of social-impact investors reported making some use of equity investments in 2012 compared to only 66 percent that reported using private debt instruments, though this recent study did not report the share of deals or finances that involved the equity tool.16

Equity finance has historically been less commonly used by social-purpose organizations, but recent developments are changing this.

New Tools 65

Much of this social-purpose equity investment takes the form of so-called private equity, that is, investments in firms that are not listed on regulated stock exchanges open to the public. Rather, the investments are handled privately, typi- cally through equity funds, which have grown substantially in both numbers and assets in recent years. One estimate of the private equity fund market in the US identifies 375 so-called socially responsible “alternative investment funds,” that is, funds that invest in unlisted companies that incorporate envi- ronmental, social, and governance (ESG) criteria into their investment decisions. Taken together, these funds have close to $81 billion of assets under management, an increase of nearly 16 percent over the previous year. Of this total, roughly $34 billion are in private equity and venture capital funds and $44 billion in real estate funds, some portion of which also takes the form of equity investments.17

The Community Development Venture Capital Alliance (CDVCA), the trade association supporting one branch of this industry that focuses on supporting business develop- ment in lagging regions, describes its members’ purpose as being to “provide equity capital to businesses in underin- vested markets, seeking market-rate financial returns as well as the creation of good jobs, wealth, and entrepreneurial capacity.”18 Kentucky Highlands, one of the earliest of these funds, was originally formed in 1968 to stimulate growth and create employment opportunities in an economically depressed nine-county region of southeastern Kentucky but has since expanded its geographic focus and leveraged its original funding from the federal government by attracting bank capital stimulated by the Community Reinvestment Act. In 35  years, Kentucky Highlands’s equity investments have helped 220 businesses generate $178 million in support, creating more than 9,900 jobs and generating risk-adjusted market rates of returns to its investors.19

Equity finance through equity funds is hardly restricted to the US and other developed markets, however. A  con- siderable number of such funds have found it possible to undertake equity funding with meaningful returns in emerg- ing markets as well. Thus, for-profit firms such as UK-based Bridges Ventures, Dubai-based Willow Impact Investors, and

66 Leverage for Good

Singapore-based Aavishkaar International have established operations adhering fairly closely to a classical private equity model, raising money from investors expecting a market rate of return and finding promising ventures serving the “bottom of the pyramid” in which to invest (see Box 3.1).20

In addition to the private equity reaching ventures through equity funds, individual investors also make considerable amounts of equity investment in social-purpose ventures directly, often with the aid of angel investor or social entre- preneurial networks such as the Social Venture Network, Investors’ Circle, the Slow Money Alliance, or TONIIC. Investors’ Circle, for example, is a network of 150 investors, donors, and family offices that has helped to place $150 mil- lion of investment in over 200 separate companies and net- works addressing social and environmental objectives.21

Private equity can take a variety of forms. “Standard equity” is typically used for more mature firms needing equity to scale up proven operations. Another type of equity, known as “quasi equity,” discussed below, is more often used for early-stage firms needing greater leeway or for nonprofit social enterprises that are barred from sharing ownership with investors or distributing profits to owners and therefore

Box 3.1 Aavishkaar International

“We at Aavishkaar have taken it upon ourselves to be the leaders of micro equity investments to create scalable small entrepreneurs with significant social impact.”

“[The] Aavishkaar I [Fund] was created to promote inclusive development in rural and semi-urban regions in India. The fund’s mission was based on the premise that promising Micro, Small to Medium-sized enter- prises (MSMEs) will help drive positive changes in the underserved regions of the country . . . Aavishkaar I’s capital [US$14 million] is fully deployed in 22 compa- nies . . . operating across Agriculture, Dairy, Healthcare, Water and Sanitation, Technology for Development, Education and Renewable Energy sectors.

Source: Aavishkaar International, http://www.aavishkaar.in.

New Tools 67

not able to use standard equity. Even standard equity takes a variety of forms, moreover, such as “common stock,” “pre- ferred stock,” and “convertible preferred equity.” These forms of so-called standard equity offer investors successively expanded ownership rights and privileged access to any gains that the firm may generate. The greater the uncertainties sur- rounding the enterprise, the more such rights and privileges will be demanded by equity investors.

Because equity provides no guarantee of return, equity investors, particularly private equity investors, that is, those investing in companies not listed on any public exchange, typically take great care in assessing enterprise capabilities and pinning down their rights to review enterprise decisions, often taking positions on enterprise boards. Complex “term sheets” are utilized to detail such things as the amounts and uses of the equity funds invested, the valuation of the firm and its business model, the exact type of equity instrument being used, the decision rights granted to the investor, and incentives or controls placed on the owners or managers.22

Beyond the capital promoting social-purpose activi- ties through private equity funding, which typically focuses on early-stage or mezzanine finance, another type of social-purpose equity investment has also grown enormously in recent years as a byproduct of the emergence of invest- ment screening mechanisms such as the UN Principles for Responsible Investment (UNPRI). These mechanisms apply socially and environmentally conscious investment criteria to public equity being sought by more mature firms through reg- ulated stock exchanges.23 Some 230 pension funds and other investment institutions controlling over $25 trillion in assets have endorsed the UNPRI criteria. As of 2011, $3.3 trillion in investment assets were being managed under some form of responsible investment criteria in the US, and the compa- rable figure in Europe as of 2011 was €6.8 trillion (close to US$9 trillion at 2012 exchange rates), with approximately one-third of these assets in Europe in equities.24

Quasi Equity Powerful as equity finance is as a source of capital, it is not universally available for social-purpose activities. For one

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thing, many social enterprises are quite young. A  survey of social enterprises conducted in the UK in 2011, for exam- ple, revealed that 54  percent of social enterprises were less than 10 years old, and 31 percent less than five years old. By comparison, the comparable percentages for all small busi- nesses in the UK were 33 percent and 15 percent.25 Given the amount of time it takes for an enterprise to become reliably profitable, this can deter equity investors. In addition, many social enterprises are nonprofit in legal form and are barred from issuing ownership shares to potential investors or dis- tributing profits to them in the form of dividends. Finally, even where they are investing in for-profit firms, equity investors can worry about whether they will be able to find a market for their shares if they want to exit from an equity investment in a social venture.

At the same time, all of these social-purpose ventures are in need of risk capital both to get started and to expand, and loans may not be appropriate if returns are not secure enough to meet loan repayments. Fortunately, a number of innovations have surfaced to cope with this challenge. One of these is the creation of “matched bargain markets” or full-fledged social stock exchanges as detailed above. Such exchanges provide a reasonably reliable market through which investors can exit from social-purpose equity invest- ments without costly transaction costs.26 Another innova- tion is the use of structured finance instruments that pool different types of finance in a single deal, with equity inves- tors buffered by other sources that provide grant fund- ing or loans to absorb the initial risk of loss. Aavishkaar International, for example, reports that its investment instruments are generally “a mix of common equity and convertible debentures. When appropriate, we also use quasi equity, preferred convertibles, preferred redeemable, mezzanine loans, royalties and other venture capital instru- ments. Flexibility in structuring of investments to help scale

Quasi equity essentially gives investors returns that look like equity returns but without giving them ownership shares in the organization.

New Tools 69

businesses while minimizing promoter’s dilution is one of our major differentiators.”27

One of the more interesting developments in the field of social-purpose equity investing, however, is the expanded use of various forms of so-called quasi equity. Quasi equity essen- tially gives investors returns that look like equity returns but without giving them ownership shares in the organization (see Box 3.2). This is done by creating some form of debt con- tract or royalty arrangement that guarantees investors a share of revenue growth either for the organization as a whole or a particular program.28 For example, HCT Group, a network of UK charities that provide transportation services for dis- advantaged communities but also compete for commercial transportation contracts, used a quasi-equity instrument to generate £4 million (US$6.4 million at 2012 exchange rates) to purchase vehicles and facilities, but did so without diluting the nonprofit ownership structure of the organization.29

Box 3.2 Quasi-Equity

“Sometimes debt financing is inappropriate for social sector organisations, especially in the high-risk start-up phase. Equally, equity investment may not be possible if the organisation is not structured to issue shares.

“A quasi-equity investment allows an investor to benefit from the future revenues of an organisation through a royalty payment which is a fixed percentage of income. However the investor may gain nothing if the organisation does not perform. This is similar to a conventional equity investment, but does not require an organisation to issue shares. The share of future revenues that a quasi-equity investor receives is usu- ally linked to income and not profit, as social sector organisations are often not structured to make profits for distribution.”

Source: “What is social Investment,” Big Society Capital, accessed June 12, 2013, http://www.bigsocietycapital.com/ what-social-investment.

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Social-Impact Bonds Another innovative tool that has recently made its appear- ance in the social-purpose finance arena goes variously by the name of social-impact bonds or, in the US, pay-for-success. Social-impact bonds provide a way to finance preventive ser- vices that can ultimately save governments or other entities substantial sums over the long run but that typically have trouble attracting the upfront capital needed to sustain them- selves until such savings materialize. They do so by monetizing the future savings to government from promising preventive services and using them, or at least the promise of them, to attract private investors willing to take the risk of financing the services upfront in return for a guaranteed share of the savings once evidence of success begins to be demonstrated.

Here’s how they work:  governments recruit intermedi- aries who believe they know how to structure a preventa- tive human-service initiative that can save the governments money once put in place, and who are willing to recruit private-sector funders who will cover the multiyear upfront cost. In return, the government pledges that if the interven- tion meets or exceeds its goals, the government will return the investors’ original investment plus some return based on a sliding scale dependent on the degree of success the inter- vention achieves.

As this suggests, social-impact bonds (SIBs) are really not bonds in the true sense of the word, but rather, like quasi equity, a strange amalgam of equity and debt. Like equity, social-impact bonds only generate returns for their inves- tors if the activities they support meet certain performance thresholds. If not, investors are at risk of losing their princi- pal or ending up with no net return on their investment. Like bonds, however, SIBs have fixed terms and the upside return is capped.30

The initial trial of this new tool is underway at Peterborough Prison in the UK. A  British social investment fund called Social Finance raised £5 million (≈US$ 8 million) from 17

. . . monetizing the future savings to government from promising preventive services and using them to . . . to attract private investors.

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Recent estimates put the share of low-income people with insurance in the world’s 100 poorest countries at less than 3 percent.

investors to fund a comprehensive rehabilitation program for first-time offenders leaving the Peterborough facility over a six-year period, with a promise from the UK government that it will pay back this investment with interest on a slid- ing scale if the intervention achieves a target reduction in the recidivism rate of the affected offenders compared to a con- trol group.31

Already this idea has spread to the US, where it goes by the name “pay-for-success.” The first US adoption was announced in early August 2012 in New York City with a sim- ilar first-offender focus, but with capital advanced not mostly by charitable foundations, as in the UK example, but by the for-profit investment firm, Goldman Sachs, which is investing $9.6 million in loan funds in the effort.32

Other New Tools In addition to the social-impact investing tools newly avail- able on the frontiers of philanthropy are a variety of other new instruments or approaches being deployed in the social and environmental action arena. Three of these in particular also deserve attention here: microinsurance, socially respon- sible investing and purchasing, and new types of grants.

Microinsurance Less exotic, but no less powerful, a new tool of philanthropy is microinsurance. Like many of the other new tools exam- ined previously, there is nothing especially new about the tool of insurance. What is new is the creation of adaptations of the standard tool of insurance to make it accessible to the millions of people living almost totally exposed to multiple forms of risk at the bottom of the economic pyramid. Recent estimates put the share of low-income people with insurance in the world’s 100 poorest countries at less than 3 percent.33 This means that over 97 percent of the populations in these countries remain exposed to any of a series of typical threats to their security—illness, drought, storms, floods, or death of

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a family member—that can drive them further into poverty or frustrate efforts to escape from it.

While many savings or insurance schemes, such as funeral insurance, have surfaced indigenously to help mitigate this exposure, these typically lack the crucial feature required for cost-effective and reliable insurance—namely, risk-pooling over a large enough group of people to reduce premiums to a low enough level to be affordable while providing enough protection to be worth the cost.

Fortunately, however, thanks to cooperation among national governments, international organizations such as the International Labour Organization, and private insur- ance companies, new “microinsurance” products have sur- faced and begun to tap the bottom-of-the-pyramid market.34 One estimate in 2010 put the number of people covered by microinsurance schemes globally at 135 million. But this just scratches the surface of the global need and is heavily concen- trated in only a few countries. Indeed, a 2010 Swiss Re study estimates the number of people living on $1.25 to $4.00 a day who could afford small premiums but are not covered by con- ventional insurance to be in the neighborhood of 2.6 billion, with an additional 1.4 billion people living on less than $1.25 a day potentially reachable with the help of subsidies.35

As with so many other of the new tools being deployed on the frontiers of philanthropy, the limited penetration of insurance products into the bottom-of-the-pyramid market is a consequence of the delayed recognition on the part of for-profit insurance providers of the possibilities for profit- able operations that this market offered. Also at work, how- ever, have been the inherent complexities of the insurance product—the product must be marketed to huge numbers of people in order to be viable, mechanisms must be put in place to verify the occurrence of an insured loss and calculate its value, some way must be found to estimate the likelihood of such losses in advance so that premiums can be calculated, and the premiums must be kept low enough to be affordable by low-income clients.

Overcoming these barriers has required considerable innovation and teamwork on the part of governments, insurers, foundations, international organizations, and

New Tools 73

other actors with connections to those on the bottom of the pyramid. The innovations underway are already striking: a program in India that has mobilized private insurance com- panies to extend health insurance to some 63 million indi- viduals living below the poverty line in 25 Indian states;36 claim verification systems for crop insurance that index payments to weather conditions and for livestock that use radio-frequency identification devices; mobilization of microinsurance finance institutions, such as Prodem in Bolivia, or utility companies, such as CODENSA in Colombia, with significant links to the low-income popu- lations of their countries, to market a variety of insurance products to their under-served customers. These innova- tions have been encouraged, and in turn disseminated, through a growing network of infrastructure organizations such as the Microinsurance Network, the ILO facility men- tioned earlier, the Joint Learning Network for Universal Coverage, and the Munich Climate Insurance Initiative.37

Socially Responsible Investing and Purchasing A rather different mechanism for achieving social and envi- ronmental purposes without the need of complex financial instruments takes the form of socially responsible investing and purchasing. Advocates of social-impact investing have been somewhat dismissive of this route to social and environmen- tal change, seeing it chiefly as a way to “minimize negative impact rather than proactively create positive social or envi- ronmental benefit.”38 But, in practice, this mechanism has gained considerable traction on the positive side of the ledger as well.

The key to socially responsible investing and purchasing is the mobilization of investors and consumers to pressure com- panies to operate in socially and environmentally responsible ways. This can be done through a variety of channels—pro- moting positive or negative investment screens, establishing

The scale of assets in Europe managed according to a . . . socially responsible investment standard as of 2012 [stood at] €6.8 trillion, or close to US$9 trillion.

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investment standards, voting shares of stock in ways that encourage responsible corporate behavior, introducing reso- lutions for vote by shareholders, engaging corporate leaders in dialogue, boycotting undesirable products, or encouraging purchase of other products that meet various criteria, such as those relating to labor rights, health concerns, treatment of animals, sustainable forestry, or support for indigenous people.39

Though hardly entirely new, socially responsible invest- ment and purchasing expanded considerably in the 1990s and into the 2000s, as new technologies and increased corporate sensitivity to risks to their “reputational capital” gave added leverage to investors and consumers with social concerns on their minds. One important boost was the development in 2006 of the UN Principles of Responsible Investment, which established standards for responsible environmental, social, and governance behavior on the part of corporations. By 2012, as noted earlier, some 230 pension funds and other investment funds had endorsed these principles and pledged to follow them in their own investment activities.

Socially responsible investment has attracted particu- lar interest in European investment circles. The European Sustainable Investment Forum (Eurosif), a network of 79 pension and investment funds and eight national affiliated SIFs, puts the scale of assets in Europe managed according to one or another type of socially responsible investment standard as of 2012 at €6.8 trillion, or close to US$9 trillion.40 What is more, the growth of socially responsible investing appears to have outpaced the growth of overall investment on the continent in recent years, with four out of six responsible investment strategies growing by more than 35  percent per annum since 2009.41 In the US, the comparable figure is a siz- able $3.3 trillion of assets managed under responsible invest- ing guidelines.

Whether because of such socially responsible investment pressures or other factors, socially responsible investment reporting has become a staple of larger corporations globally. Institutions such as Instituto Ethos in Brazil have actively dif- fused this practice in their countries and regions, with over 600 firms in Brazil alone producing social responsibility reports

New Tools 75

showing their alignment with Ethos’s demanding standards. As one observer put it:  Ethos “officialized” corporate social responsibility (CSR) in Brazil, making it “the thing to do for corporations that wanted to be considered progressive and responsive to the country’s enormous social problems.”42

Side by side with the expansion of ethical investing has been an expansion of ethical purchasing. As Lydenberg and Grace report, the global market for organic food and bever- ages already totaled $23 billion as of 2007, and organic per- sonal care sales in the US alone totaled another $9 billion. As pressures mount on businesses to report on their social responsibility practices, they have joined consumers as socially responsible purchasers, utilizing their supply chain management to serve their social responsibility aspirations. Japanese, European, and some Latin American companies have been especially active in this fashion, as have their governments.

To be sure, while the growth of socially responsible invest- ing and purchasing have been impressive, they still represent a tiny fraction of the activity in their respective domains. What is more, the evidence of actual financial impact of either tactic on the financial health or stock prices of companies remains scant.43 Nevertheless, there is evidence that at least some companies are behaving as if it does make a difference, which may be all that counts.

Grants While much of the buzz on the new frontiers of philanthropy has focused on non-grant forms of assistance on grounds that traditional grant-making is not capable of achieving signifi- cant leverage, in fact some important innovations have also recently appeared in the grant world as well. What is more, these innovations come on top of a variety of prior ways in which grant-making has attempted to achieve greater leverage through such devices as start-up grants, matching grants, and pilot projects intended to demonstrate workable innovations that governments can subsequently take up.

Some important innovations have also recently appeared in the grant world as well.

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One such recent innovation is the practice of “venture philanthropy” covered previously in this volume, which combines big-bet grant-making with intensive organizational capacity-building and close-in supervision. But another whole area of innovation involves various forms of competi- tion pursued through prizes and crowd sourcing. This form of grant-making has been described as “a breath of fresh air in the world of grants.”44 Unlike traditional grants, which are essentially designed and managed by foundation program officers, competitions, prizes, and crowd sourcing begin from the premise that there is a market of ideas and that the best use of foundation resources is to tap into it as broadly as possible.

Some prizes are used after the fact to reward notable accom- plishments in a field. Examples here include the Pulitzer Prizes for literature or the Nobel Prize. Increasingly, however, a different type of prize is emerging that takes the form of an open competition to provide a solution to a concrete problem. Examples here include the X Prize, which offers $10 million to the first team to achieve a specific goal, such as designing a pri- vate vehicle that could fly a pilot to the edge of outer space; or the Case Foundation’s Make It Your Own Awards, which allow citizens to vote on which of a number of community improve- ment organizations Case should reward with a $25,000 grant; or Toyota’s Ideas for Good prize, which it gives to the person or organization that applies one of five categories of automo- tive technology developed by Toyota successfully in another field to solve a community or public problem.

According to a recent McKinsey and Company report, such prizes have mushroomed in recent decades. Almost $250  million in new prize money became available dur- ing the first decade of the twenty-first century, and the total funds available through large prizes more than tripled over the decade of the 2000s, surpassing $375  million. Indeed, McKinsey and Company estimates that the total prize sector could now be worth as much as $1 to $2 billion.45

Unlike traditional grants, prizes and crowd sourcing tap into the existing market of ideas.

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Conclusion In short, an enormous explosion is taking place in both the actors and the tools occupying the new frontiers of philan- thropy. But how can we explain this phenomenon, and what insights can such explanations offer into the durability of this phenomenon? It is to these more analytical questions that we must now turn.


Chapter 4

Why Now?

From the evidence at hand, it appears that a number of underlying forces have been at work to produce the new frontiers of philanthropy at the present time. What is more, both demand and supply factors have been at work.

The Demand Side of the New Social Capital Market That a new frontier has formed in the world of philanthropy and social invest- ment in recent years seems due, in the first instance, to a set of demand factors that have gained salience during this period. These factors take at least three different forms.

The New Inferno In the first place, long-standing problems of poverty and inequality that continue to entrap large swaths of the world’s population have recently been joined by serious environmental threats to form a modern version of Dante’s inferno, with its multiple circles of human suffering. Today’s counterpart to Virgil, Dante’s guide through the nine circles of hell, is the environmentalist Lester Brown, whose World on the Edge paints as vivid a picture as did Dante’s Divine Comedy of what awaits us if bad habits and current tendencies continue unabated.1

As Brown puts it: “A gathering ‘perfect storm’ of trends threatens to send civiliza- tion into economic and political chaos.”2 To Dante’s imagined nine circles of hell Brown adds six terrifying trends.

First up in the catalog of sins from which our world is suffering in Brown’s account is the depletion of the earth’s water supply as a consequence of overdrill- ing by farmers and deforestation of large portions of the earth’s land area. As a consequence, water tables are falling and wells going dry in some 20 countries, including the three that produce half of the world’s grain—China, India, and the US.

A gathering perfect storm of trends threatens our civilization.

Why Now? 79

Water shortage, in turn, combines with overfarming, over- grazing, and expanding urbanization to yield the second dev- astating trend:  loss of the earth’s topsoil and ultimately of its inherent productivity, leading ultimately to desertification, when the earth becomes unable to support life. Desertification now affects 25 percent of the earth’s land area and threatens the livelihood of more than 1 billion people, with two huge dust bowls forming in the Asian heartland and in central Africa, and with evidence of severe drought even in the American West.

These problems are in turn intensified by the third devastat- ing trend: overconsumption of fossil fuels and the resulting warming of the earth, posing enormous threats to the food supply, generating more severe and more numerous weather emergencies, and displacing millions of people.

Those displaced by the rising seas, more destructive storms, and expanding deserts will then become part of a fourth devastating trend: a massive growth in the numbers of “environmental refugees,” people forced from their homes by the devastating storms provoked by rising temperatures, by the advancing desert, by falling water tables, and by unregu- lated toxic wastes. This phenomenon is, in turn, being accen- tuated by a fifth distressing trend: rapid population growth, especially in the least prosperous regions of the world. This has produced what Brown terms a “demographic trap,” as larger families produce poverty and poverty leads to larger families. At least 40 percent of the population in the world’s 20 poorest countries are thus under 15. Large numbers of youngsters, especially young men, without decent employ- ment opportunities, in turn becomes a prescription for disaf- fection, crime, and ultimately even insurgencies.

All of this is contributing to the sixth deadly sin: a striking rise in the number of failed states. And as states fail, further deterioration of the economic infrastructure of roads, power, water, and sanitation systems ensues, inviting further frag- mentation of authority and the rise of rival armed gangs and cliques. Somalia, Chad, Sudan, the Congo, Afghanistan, and

Desertification now affects 25 percent of the earth’s land area and threatens the livelihood of more than 1 billion people.

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Iraq have moved fairly far down this road, and even highly populated countries like Pakistan and Nigeria have significant portions of their territories in “failed state” status.

Taken together, this complex of miseries has massively expanded the need for serious attention to poverty alleviation and long-term solutions to food, water, health, and environ- mental crises—not alone to relieve human suffering in the places where it is concentrated, but to avoid terrifying conse- quences for all peoples in all places.

Tapped-out Governmental and Charitable Resources These interrelated environmental, economic, social, and political needs would be difficult to meet under any cir- cumstances. But they are being confronted now by a world that has been experiencing enormous economic shocks, unsustainable governmental spending, and charitable resources that, while growing, do not come close to being able to deliver the resources needed to address the problems that exist. With the US debt now 107 percent of the coun- try’s gross domestic profit, and debt levels in France and Germany above the European Union’s legislated upper limit of 60 percent of GDP, even the world’s richest countries are in no position to take robust action to mitigate these global problems.3 Indeed, most of them are in cutback mode with respect to some of the most crucial social and environmen- tal protections for their own people, and this in the face of still escalating unemployment in many places.4 And global charity, even generously estimated, is a very small fraction of what governments are able to spend. Even in the US, phi- lanthropy from all sources—individuals, foundations, and corporations—accounts for no more than 10 percent of the income of the country’s nonprofit organizations, and a dra- matically smaller share of overall government social welfare spending.5

The Rise of Social Entrepreneurs A third set of demand factors that has contributed enor- mously to the developments outlined here has been the appearance of a new social force in the form of a growing army of so-called social entrepreneurs, “restless people,” as

Why Now? 81

journalist David Bornstein has styled them, who become almost possessed by imaginative new ideas to address major problems and who are “so relentless in the pursuit of their visions that they will not give up until they have spread their ideas everywhere.”6

Why this development occurred when it did is hard to pin down with certainty, but probable culprits likely include the worldwide spread of education, creating sizable cadres of educated professionals in very unlikely places; the “global associational revolution” that led to a widespread surge of social-change-oriented nongovernmental organizations, or NGOs, able to engage some of these educated professionals;7 the dot-com explosion with its inspiring message of techno- logical innovation leading to dramatic changes in life-chances; and the networking possibilities created by the new commu- nication technologies and by capacity-building organizations such as Ashoka, which has spent the past several decades identifying and fostering this new breed of actor on the demand side of the philanthropic marketplace. Whatever the cause, the result has been to create a mechanism to perform the critical function of translating almost incomprehensible human need into concrete, actionable solutions capable of yielding demonstrable results and attracting the attention of a new breed of socially conscious investors.8

Microcredit was the leading edge of this development, and its rapid growth into a $65 billion industry with its own network of microfinance investment funds in the 35  years leading up to 2010 has been a source of inspiration to many of these social entrepreneurs. Indeed, a veritable “fourth sec- tor” has emerged around the world consisting of socially conscious individuals who have discovered novel ways to produce social value out of existing resources in ways that produce real change in the lives of disadvantaged people.9 They are thus providing inexpensive fresh water, eyeglasses, sanitary pads, housing, healthcare, solar panels, primary edu- cation, cell phones, and dozens of other products and ser- vices needed by disadvantaged consumers or made by them for sale in other markets.

These social entrepreneurs need capital in order to grow their businesses, and this need is enormous. According

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to one estimate, of the 365 to 445  million micro, small, or medium-sized firms in developing countries, 70 percent need outside funding but lack access to it.10 These firms, which gen- erate a third of the GDP and 45 percent of the employment in developing countries, have unmet demands for capital estimated to total $2.1 to $2.5 trillion. This estimate is similar to the estimate cited earlier of $400 billion to $1 trillion in potential demand for capital in businesses serving bottom-of- the-pyramid populations in just five fields (housing, water, maternal health, primary education, and microfinance).11

In short, the reality of an enormous number of people living on the edge of economic, environmental, physical, and social disaster, increasingly attracting the attention of innovative social entrepreneurs who are finding new ways to combine existing resources to produce low-cost prod- ucts and services, but who are confronting constrained resource availability from both government and tradi- tional private philanthropy, translates into a huge demand for the new tools and new actors that we have identified emerging on the new frontiers of philanthropy and social investment.

Supply-Side Factors But the existence of a large and growing demand for invest- ment capital and other forms of philanthropic innovation is not yet a guarantee that this demand will be met. To the contrary, the current mismatch between needs and resources, even though especially intense in recent years, is hardly a new development. By itself, therefore, it can hardly account for the striking recent emergence of the new actors and tools that we have documented. At best it is a necessary condition for these developments. But it is certainly not a sufficient one. For this latter, supply-side factors are needed as well. What is particularly unique about the present situation is that such factors have not only surfaced, but have mushroomed in the past decade or more. Why is this so?

“Social entrepreneurs crystallize need and translate it into concrete projects.”

Why Now? 83

First Responders and Incentivizers One important factor, clearly, were the adventurous first responders to the capital needs of early social entrepreneurs, first in the developed Global North, and subsequently in the Global South. These early efforts established a surface plausi- bility for the idea that it might be possible to find imaginative and workable ideas for solving massive problems of inad- equate housing, lagging services, and lack of employment opportunities within the communities experiencing these problems, and to do so in a way that, at a minimum, protected the principal of those providing the upfront capital and, in many cases, offered the prospect of a reasonable rate of finan- cial return. This opened the possibility of attracting not just philanthropic capital, but also actual private investment capi- tal, into such efforts.

Some of the earliest experience in attracting such capital into this type of venture occurred in the housing field in the US. A crucial ingredient here was the series of incentives provided by government policymakers. This included the provisions in the 1969 tax act’s payout requirements for charitable founda- tions authorizing foundations to make program-related invest- ments (PRIs) in for-profit ventures, and to count these toward their required grant-making obligations if they promoted valid foundation objectives. This was followed by a succession of other measures: by the Community Reinvestment Act (CRA) of 1977, which incentivized commercial banks to channel more of their lending into the disadvantaged communities from which they drew significant deposits; by the Low-Income Housing Tax Credit (LIHTC) of 1986, which provided tax credits for private investments in low-income housing; and by the Reigle Community Development and Regulatory Improvement Act of 1994, which fostered the network of Community Development Finance Institutions designed to help channel the funds from banks, insurance companies, and other institutions into valid, community-based housing and community development efforts.

Taken together, these policy steps helped to stimu- late a significant flow of private investment capital into low-income housing and community development activity in disadvantaged neighborhoods across the country and to

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foster a cadre of professionals and institutions with experi- ence tapping private investment resources for social-purpose activities.12

Institutions such as the Low Income Support Corporation (LISC) and the Enterprise Foundation emerged to link the providers of finance to the developers of low-income housing and community development projects.

Other early responders included the Calvert Foundation, created in 1988 by a consortium that included Calvert Investments, a socially responsible mutual fund company, and the Ford, MacArthur, and Mott foundations; and the Acumen Fund, established in 2001 with support from the Rockefeller Foundation. Both of these institutions are early examples of what we earlier termed social-impact capital aggregators, generating capital resources from institutional and individual social investors and channeling them to promising social ventures in the US and around the world. The Calvert Foundation currently has nearly $200  mil- lion invested in 250 community organizations in all 50 US states and over 100 countries, while Acumen has generated $69  million in investment capital that it has committed to 63 social ventures in eight countries generating an estimated 55,000 jobs.13

Along with the network of Community Development Finance Institutions fostered in the US and comparable early community development investment vehicles in other coun- tries, these early responders not only generated important capital to finance developing social enterprises, but also gen- erated something at least equally important: an initial track record of promising innovations and a set of experienced pro- moters of a new route out of poverty and disadvantage fea- turing what Acumen Fund describes as “imaginative business solutions” developed by “pioneering entrepreneurs” sup- ported by “investors willing to take on a risk/return profile that is unacceptable to traditional financiers.”14 What is more, they served as prototypes for similar policy innovations in other countries, such as the 2002 Community Investment Tax Relief Scheme in the UK, which fostered a comparable set of community development investment vehicles in that country.

Why Now? 85

New Concepts: The Fortune at the Bottom of the Pyramid What gave thrust to the work of these first responders, how- ever, was a second important supply-side development that arose, interestingly enough, in the realm of ideas. Indeed, proving once again the truth of Plato’s observation that “ideas rule the world,” one of the most significant causes of the revolution in the financing of social-purpose activities in recent years has been the reconceptualization that has occurred about the causes of poverty and how to overcome it. That reconceptualization was spearheaded by the micro- finance industry, brought to wide public attention by Nobel laureate Muhammed Yunus, but transformed into a power- ful intellectual current by C. K. Prahalad.

Microfinance is, in many respects, an old story, but it is a story that has been repeatedly forgotten since its first appear- ance in the Irish Loan Fund created by Jonathan Swift in the eighteenth century. As it resurfaced through small-scale lend- ing experiments in Bangladesh and elsewhere in the 1970s, microfinance accomplished a fundamental conceptual break- through:  it demonstrated that the poor represent a resource rather than a liability, and a resource that can generate growth and wealth if approached in the right way. In the case of microfinance, that approach took the form of recognizing in groups of uneducated, poverty-stricken, rural women eager to improve their life circumstances a resource in the form of peer pressure that could substitute for absent physical or financial collateral to secure small revolving loan funds through which each of the women in the group could, over time, establish some type of income-earning microenterprise that could propel them down the road toward economic self-sufficiency while enabling them to pay back the loan with interest.

What ultimately lifted this concept to takeoff status was not only the significant international recognition provided through the work of Muhammad Yunus and his Grameen

“Ideas rule the world.”—Plato

What ultimately lifted this concept of the poor as a resource to takeoff status was a book.

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Bank, or the financial expansion provided by a number of early capital aggregators such as Accion and Kiva, but a book by a University of Michigan corporate-strategy professor of Indian origin by the name of C. K. Prahalad. What Prahalad argued in his 2004 boldly titled book, The Fortune at the Bottom of the Pyramid, is that the phenomenon that gave rise to the success of microcredit was not restricted to small-scale lending to groups of rural residents, but rather applied to a wide range of products and services needed by people liv- ing in even the direst of poverty, and that such products and services could be delivered to these people at prices far more affordable than they were currently spending while still earn- ing profits for investors and entrepreneurs.15 This alchemy was possible, Prahalad showed, due to a “penalty” levied on bottom-of-the-pyramid (BOP) consumers as a result of the difficulties and dangers of delivering goods and services to the areas where they live, and the resulting lack of competi- tion to drive prices down. BOP consumers thus end up pay- ing more for the items they consume than do the better-off. Prahalad thus showed that, by designing products and dis- tribution channels that can be accessed by people of limited means who have needs for a variety of products but often pay a premium price, clever entrepreneurs can take advantage of this “bottom-of-the-pyramid penalty” to improve the living conditions and economic prospects for BoP residents while covering their own costs and earning meaningful profits.

New Players/New Mindsets The crystallization of the idea of a “fortune at the bottom of the pyramid” happened to coincide, moreover, with a third crucial supply-side element:  the appearance at the door of the philanthropic arena of a new set of actors that Matthew Bishop and Michael Green have dubbed “philanthrocapital- ists”—generally young, dot-com millionaires and billionaires who, having made vast riches relatively early in life, have turned to philanthropy as a way to give back and create value in a different sphere. Bill Gates is doubtless the living icon for this development with his bold decision to retire from his Microsoft day job, establish a large foundation, and turn his energies and intellect to solving the world’s problems

Why Now? 87

of poverty and ill-health. Jeffrey Skoll and Pierre Omidyar, founders of e-Bay and early supporters of the social venture phenomenon, are other exemplars of this same phenom- enon, as is Charly Kleissner, whose KL Felicitas Foundation is a model of what a foundation that aspires to function as a philanthropic bank looks like.16

This group of funders is driven by what Kleisner describes as a “deep responsibility to do something meaningful with the wealth we’ve created” but also a passion to bring the entrepre- neurial style that had stood them in such stead in the world of business to their new social-purpose objectives.17 Many of them are therefore not content with traditional philanthropy, or at least what they perceive to be traditional philanthropy, and have resolved to transform it, producing a philanthropy that is “ ‘stra- tegic,’ ‘market conscious,’ ‘impact oriented,’ ‘knowledge-based,’ often ‘high engagement,’ and always driven by the goal of maxi- mizing the ‘leverage’ of the donor’s money.”18 As Bishop and Green put it:  “As entrepreneurial ‘philanthropreneurs,’ they love to back social entrepreneurs who offer innovative solu- tions to society’s problems” and are comfortable with, indeed insistent on, utilizing financing approaches that bring to the world of philanthropy some of the dynamism and leveraging possibilities characteristic of modern corporate finance.

But it is not only dot-com multimillionaires turned philan- throcapitalists who have gotten religion and resolved to turn their attention and their considerable talents and resources to confronting the world’s problems. Demographers have iden- tified similar sentiments in two entire new generational clus- ters—Generation X (those born between 1961 and 81) and the millennials (those born between 1982 and 2001). Unlike their baby boomer parents, these generations are populated disproportionately by people found to be seeking a better balance between work and other aspects of their lives, and to exhibit extraordinary enthusiasm and idealism.19

Whatever the truth of these demographic generalizations, there is strong evidence that significant numbers of a whole

A whole new generation of business school students have been bitten by the social enterprise and social-impact investing bug.

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new generation of business school students and recent gradu- ates have been bitten by the social enterprise and social-impact investing bug, eschewing careers that focus solely on maxi- mizing earnings in place of bringing their business skills to activities with a significant social-purpose dimension. One clear manifestation of this is Net Impact, a 20-year-old orga- nization of young professionals that describes itself as “a com- munity of more than 30,000 change-makers using our jobs to tackle the world’s toughest problems, demonstrating that it’s possible to make a net impact that benefits not just the bot- tom line—but people and the planet, too.”20 Characteristically enough in our globalized world, Net Impact is a global presence, boasting 300 student and professional chapters worldwide.

Ironically enough, these sentiments seem to have received a significant boost from the 2008 global financial meltdown and ensuing recession. Suddenly, high net worth individuals across a broad front, as well as mom-and-pop investors, had to come to terms with the almost overnight disappearance of substantial portions of their wealth. Whatever the economic impact of this realization, the psychological one seems to have been equally transformative for many. If wealth could disap- pear so quickly, perhaps accumulating it was not the highest goal one could have in one’s life. Perhaps using at least some of it to do good in the world could produce more true value in the form of personal satisfaction, particularly if this could be done in a way that would at least preserve the principal and perhaps even generate a reasonable return.

How fully such sentiments surfaced in the aftermath of the financial crisis is difficult to determine at this point, but the spurt of interest in so-called impact investing among family offices and advisors to high net worth individuals in the wake of the crisis is certainly consistent with the belief that it played a role. What is more, chaos on Wall Street, “the City,” and other financial centers also produced more concrete contributions to the growing supply of social capital by releasing thousands of skilled financial experts, some voluntarily and some not so voluntarily, to consider alternative careers. And a number of these skilled professionals were sufficiently burned out by their high-pressure, quick-return, financial-industry experiences to crave opportunities to put their talents and knowledge to work

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in settings that yielded more personal satisfaction. Not surpris- ingly, a good number of them found their way into the expand- ing industry of social-impact capital aggregators.

Emblematic of this development is the career of Pasha Bakhtiar, a Swiss-born researcher who entered the world of traditional investment banking in 1998, earned an MBA, and seemed well on his way to a successful career in this lucra- tive field, even earning a “Rising Star in Wealth Management” award from Institutional Investor in 2007. But in 2010, in the wake of the global financial crisis, Bakhtiar turned his back on the world of traditional investment banking to cofound Willow Impact Investors, a social-impact investment firm that aggregates capital for investments in what it terms for-profit companies “committed to generating positive, sustainable, and demonstrable social and environmental impact while complying with a commercial imperative.”21

Financial Crisis: Limited Alternative Investments The financial crisis and ensuing recession contributed to the supply side of the social capital market in an even more direct way as well:  it made social-impact investments look good by transforming them into some of the most profit- able investments available. It did so, of course, not by boost- ing the returns on social-impact investments but by deflating the returns on other types of investments. With global stock markets staggering, the financial industry experiencing rapid disintermediation, and interest rates on everything from US treasuries to certificates of deposit plummeting to historic lows, social-impact investments that offered even 3–4 percent returns and default rates that looked like the gold standard next to previously prized junk bonds and derivatives emerged as some of the most attractive investment options available. And many of these problems persisted for more than four years. The year 2013 thus opened with money managers and investors complaining of suffering from “battered investor syndrome” as they looked out at money market accounts yielding barely a half of a percentage point of interest, two-year certificates of

The financial crisis . . . made social-impact investments look good.

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deposit under 1  percent, 10-year US treasuries under 2  per- cent, and global stock markets barely back to where they had been five years earlier.22 Doubtless some of the $4.4 billion in social-impact investments clocked in 2011, not to mention the $2.5 billion invested in 2010, was motivated at least in part by invidious comparisons with the returns available from more traditional investments, especially with respected investment firms such as J.P. Morgan reporting both expected and realized returns on social-impact investments in line with relevant mar- ket benchmarks.23

Infrastructure Building on the contributions of these first responders and new converts has been a concerted effort to create an infra- structure to support the new frontiers of philanthropy. To be sure, as noted earlier, a robust set of infrastructure orga- nizations had already surfaced in this arena by the turn of the twentieth century into the twenty-first. The Opportunity Finance Network, the Social Investment Forum (SIF), the Consultative Group to Assist the Poor (CGAP), the PRI Makers Network, More for Mission, the Microfinance Investment Exchange, and the International Association of Microfinance Investors (IAMFI) are just a few of the entities created in the past decade or two to promote the new actors and new tools surfacing in the social investing arena.

Notwithstanding this profusion of infrastructure orga- nizations, however, a group of foundations, development agencies, and private financial institutions convened by the Rockefeller Foundation in a series of key gatherings in 2007 and 2008 came to the conclusion that a broader field-building effort was still needed that could bring these various separate initiatives together under a common umbrella and move the field beyond what one pair of authors termed “uncoordi- nated innovation.”24 The upshot was the launch in 2009 of yet another infrastructure organization called GIIN, the Global Impact Investing Network, but this time with substantial funding from the Rockefeller Foundation, J.P. Morgan, and the US Agency for International Development.

The GIIN was charged with the task of accelerating the development of the social-impact investing industry by creating

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critical infrastructure, improving practice, establishing a com- mon language, and stimulating field-building research. As noted earlier, to do so, it has established an “Investors’ Council” made up of leading impact investors from around the world; created so-called Impact Reporting and Investment Standards (IRIS), a broad set of indicators through which social-impact investors can measure the social performance of their invest- ments; established an online database of impact investment funds called “ImpactBase” to facilitate collaboration among funds working in similar fields and geographies; and carried out a variety of outreach efforts to elevate the visibility of the field and encourage its expansion, including research designed to establish social-impact investing as an “asset class” with its own skill requirements, organizational structures, metrics, trade groups, and educational offerings.25

Technology Finally, the appearance and growth of the new frontiers of philanthropy chronicled here has been significantly enhanced by the vast advances in communication technology over the past two decades. This technology has effectively made it possible to bring the supply of capital virtually to the door- step of the social entrepreneurs in need of it, and for orga- nizations such as the Calvert Foundation and Acumen Fund to assemble significant portfolios of investment capital from contributions with denominations as small as $20. In addi- tion, the new technology has significantly reduced one of the major causes of the so-called bottom-of-the-pyramid penalty, access to BOP consumers. In the process, it has rendered a variety of BOP business models far more viable than they could otherwise ever have been. As Churchill and Peterson show in Chapter 17 in the companion volume to this book, for example, technology is enabling providers of microinsur- ance to reach the BOP market on a mass basis thanks to the availability of mobile phones, smart cards, and new payment systems. Online giving and investment portals such as Kiva

Technology has effectively made it possible to bring the supply of capital virtually to the doorstep of the social entrepreneurs in need of it.

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and Network for Good would similarly not have been pos- sible were it not for the technological advances.

Summary In short, there is reason to believe that the recent changes taking place on the frontiers of philanthropy are more than a passing fad. Some significant underlying forces have been at work to produce this development at this time. What is more, these forces are operating both on the demand side of this evolving market—creating a strong need for the changes that are underway—and on the supply side—stimulating the availability of both the talents and the finances to meet this need.

Some of these forces are admittedly ephemeral (one can hope, for example, that global markets will return at some point to a greater degree of normalcy). But others appear more durable—the new excitement about the BOP market, foundations’ interest in expanding the leverage they can get out of their resources, the new attitudes and new actors taking an active role in social and environmental problem-solving, and the maturation of social-impact investments as an asset class.

But none of this means that the road ahead for these developments is clear of obstacles. To the contrary, signifi- cant challenges remain. It is to these that we must therefore now turn.


Chapter 5

Remaining Obstacles

The discussion to this point has painted an enormously positive picture of the potential consequences of the changes taking place on the frontiers of philan- thropy and social investing. More than that, it has documented some underlying factors that appear to be driving these changes and giving them durability, thus enhancing the possibility that they can achieve the enormous breakthroughs they promise in the lives of millions of disadvantaged people throughout the world.

But no clear-eyed assessment of these developments can proceed very far with- out acknowledging the considerable obstacles that these developments also still confront. These obstacles take a number of forms, but five of them seem espe- cially important to acknowledge and, ultimately, confront.

No Good Deed Goes Unpunished: Normative Implications of the New Frontiers In the first place, it is important to recognize that the shift in the locus of decision-making responsibility for allocating social-purpose resources from charitable foundations and government program officers to private-sector investment managers, and the new investment focus and metrics-oriented emphasis that this will bring with it, does not come without distributional consequences. Simply put, there will be winners and losers resulting from this shift in the locus of responsibility, and in the criteria for allocating resources, in the social-purpose arena. And not all of these consequences will best serve the social-purpose objectives claimed for the new-frontier initiatives.

As Mike Edwards reminds us in Part A of Chapter  20 of our compan- ion volume, performance metrics give inherent advantages to some types of interventions over others, and these are not always the interventions with the

Considerable obstacles still confront the developments on the new frontiers of philanthropy.

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greatest social impact. Impact measures, for example, tend to be short term in nature, rarely extending beyond a year or two. Significant social change, however, often takes five or 10 years. Do we really want to tie ourselves to assessment regimes that systematically disadvantage initiatives with the greatest chance of achieving long-run change?

In addition, the investment orientation and metrics emphasis of the new frontiers give an advantage to service activities— providing healthcare, or food, or electricity to people. But past experience has shown that some of the most profound improvements in the lives of disadvantaged people result not from the provision of particular services but from the elimi- nation of unequal structures of power and barriers to oppor- tunity, and these require vigorous advocacy efforts instead. This is the lesson, for example, of the American civil rights movement. Civil rights organizations were not in the busi- ness of providing housing, or needed healthcare, or educa- tion to the country’s African-American citizens. They could therefore hardly have had much appeal to social-impact inves- tors fixated on these tangible manifestations of social impacts as the major criteria for success. But the truth is that their ultimate impact on the life-chances of millions upon millions of America’s African-American citizens easily trumped that of any number of narrow service initiatives with strong two- or even four-year performance records. Fortunately, however, there were enlightened foundations and individual people of conscience willing to support the advocacy campaigns that opened the doors of opportunity through which tens of thou- sands of America’s African-American citizens have been able to walk since then. Will all the hype and enthusiasm generated by the “new frontiers” phenomenon draw too much attention and resources away from the similar advocacy efforts still required to break down oppressive structures of power and barriers to opportunity? Without confronting these dilem- mas, the social-impact investment movement can easily find

Some of the most profound improvements in the lives of disadvantaged people result not from the provision of particular services but from the elimination of unequal structures of power and barriers to opportunity.

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itself running afoul of the very social change impulses it is claiming to be advancing.

The Conundrum of Social-Impact Measurement One way to protect against the risks of mission creep inevi- tably involved in pursuing social-purpose objectives through market means is to build in performance standards for the social-purpose objectives that are every bit as stringent as those for the financial objectives of such investments. To their credit, the promoters of the new social-impact invest- ment movement recognized the need for such social-purpose performance standards and have launched a variety of efforts to develop them. To date, however, these efforts remain what Brian Trelstad, a prominent leader in this field, describes as still “an elusive quest.”1 Despite the compelling logic of the concept of “blended value,” or blended return, embracing financial, social, and environmental elements, this concept remains merely a powerful metaphor since no tool yet exists to measure reliably the blended return on philanthropic investments, and certainly none that can compare the relative blended returns across a diverse set of interventions.

Much of the work to date has focused on formulating a common taxonomy of potential social, environmental, and financial performance indicators. The most ambitious of these taxonomies is the Impact Reporting and Investment Standards (IRIS), supported by the Rockefeller Foundation and developed under the auspices of the Global Impact Investing Network. This taxonomy includes more than 400 indicators in terms of which social-impact investors can dem- onstrate the social and environmental, as well as financial, performance of their investments. As noted earlier, how- ever, the dilemma is that with so many different indicators against which social performance can be demonstrated, the performance measurement system comes to resemble those grade-school drawing contests designed so that the number of prizes is large enough to send every child home a winner.

The formulation of a reliable way to measure social impact remains, at best, a “work in progress.”

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To get around this problem, the creators of IRIS have joined forces with B-Lab, a nonprofit organization involved in identifying and promoting so-called benefit corporations, to create a rating system for social-impact investments and investors.2 Called the Global Impact Investing Rating System, or GIIRS, this system rates companies in terms of their perfor- mance in four major areas—corporate governance, treatment of workers, impact on the environment, and role in the com- munity, including patterns of supply-chain management and diversity of the workforce—giving companies a composite score based on answers to 50–120 weighted questions.3 The system thus bears marked resemblance to the various corpo- rate social responsibility reporting systems that are part of the socially responsible investing and purchasing movement.4

While these developments are promising, most observers are in agreement with Trelstad in seeing the formulation of a reliable way to measure social impact to be what one author calls, at best, a “work in progress.”5 What is more, the take-up of nonfinancial performance measures remains limited among investors. Thornley and Dailey, writing in 2010, reported “lim- ited evidence” of reporting on nonfinancial performance by most investors in their annual reports, with anecdotal reporting the most prevalent form of reporting by those who do report.6 O’Donohue et al. found a similar dearth of serious nonfinan- cial performance reporting among a surveyed group of “impact investors,” with only 2 percent using a third-party impact mea- surement system, and the rest using, at best, their own propri- etary systems or the systems used by their investees.7

This is understandable enough given how complicated, expensive, and subjective nonfinancial performance measure- ment can be, but it could lead the field in the wrong direction. Many close observers of social-purpose activity endorse an approach to measuring the impact of this work that I have else- where termed “What would Google do?” And what Google would do is to focus on the user, to assess impact by asking the people who are meant to benefit from an investment.8 Instead, prominent experts in the social-impact investing world have proposed what they term an “investor-centered” approach to building social-impact performance measure- ment systems. But this leaves the field of social-impact

Remaining Obstacles 97

investing vulnerable to false claims of social impact and the potential for significant mission creep as standard financial performance measures come to trump more uncertain and costly nonfinancial ones. Indeed, there is already evidence of such pressures in the social enterprise field. Thus, a recent survey of 25 social ventures in the US found that 22 experi- enced “significant conflicts” between their missions and the demands of corporate stakeholders, and that the two that were most successful financially reported deviating most significantly from their social mission by reducing the time devoted to advocacy, weeding out the most needy, and hence most costly, clients, and focusing on activities with the great- est revenue-generating potential.9

Still a Boutique Business Quite apart from the challenge it faces in demonstrating its social-impact bona fides to skeptics, the social-impact invest- ment movement has also not quite succeeded in making the “sale” to its primary audience:  mainline institutional inves- tors such as pension funds, insurance companies, sovereign wealth funds, and major corporations.10 To be sure, important progress has been made, with an estimated $8.0 billion in new impact investments clocked in 2012 according to recent data assembled by J.P. Morgan Social Finance and GIIN, up from $4.4 billion in 2011, and $2.5 billion in 2010, with a projected increase to $9.1 billion in 2014.11 What is more, new funding intermediaries are forming on an increasingly global scale, as the earlier discussion indicated.

Impressive as this progress is, however, it is well to remem- ber that $8 billion is still well under one-twentieth of 1 per- cent of the $14,442 billion of assets just in US commercial banks, less than one-tenth of 1 percent of the $7,963 billion of assets in US mutual funds, and just slightly over one-tenth of 1 percent of the $6,080 billion of assets in US pension funds.12 And that is just US capital markets. A World Economic Forum

The social-impact investment movement has not quite succeeded in making the sale to its primary audience: mainline institutional investors.

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report issued in September 2013 confirms this basic point and identifies this limited penetration of social-impact invest- ing into the world’s mainstream capital markets as threaten- ing to tag the social-impact investing movement as little more than “ ‘a hype,’ ” or passing fad.13

As Mary Tingerthal reports in Chapter  14 of our com- panion volume, advocates of low-income housing and com- munity development finance, who have dreamed of tapping the highly promising tool of asset-backed securities to finance the revitalization of ailing communities, have so far found this dream “largely unrealized.”14 Even in the field of international microfinance, which has attracted considerable private-sector funding, the ability to leverage resources by “securitizing” debt instruments remains in its infancy: only 12 percent of the $4.2 billion in debt instruments held by microfinance invest- ment intermediaries internationally, and less than 1  percent of total microcredit loans outstanding, have been assembled into debt instruments that can be sold to investors in order to refresh the makers of microfinance loans.

The subfield of “sustainable and responsible investing,” which covers entities that apply some type of environmental, social, or governance criteria to their investments, has attained greater scale. The most recent data found $3.7 trillion of assets managed against such screens in the US.15 This is a much less active form of utilizing assets for social and environmental purposes, however. Even so, it still represents a fairly modest 2.6 percent of all financial assets in US financial institutions.

The reasons for this slow climb are not hard to discern and have been recognized from the outset. Among the fac- tors well rehearsed in the literature are the relative immaturity of many social enterprises, the limited experience of many of the management teams, the novelty of some of the invest- ment vehicles, and the enormous uncertainties surrounding the liquidity of the investments due to the lack of tested exit opportunities. Add to this the inevitable country risk factors, the exchange rate risk factors, the high transaction costs, and the lack of clear data on investment returns and it is easy to see why social finance remains today what Federal Reserve Bank official David Erickson calls a “boutique business,” and why three-fourths of the respondents to a recent J.P. Morgan

Remaining Obstacles 99

survey of impact investors concluded that this industry, while “growing,” is nevertheless “still in its infancy.”16

The Pesky Issue of Deal Flow Another factor inhibiting the growth of the social-impact investment market arises not from the supply side of the mar- ket in the form of investor reticence, but from the demand side in the form of investee absence. How can this be so? After all, as noted previously, of the estimated 365 to 445 million micro, small, and medium-sized firms in developing countries, 70 per- cent need, but do not have, access to external funding, and this does not even include the informal enterprises so numerous in these countries. Why are these enterprises not pressing their claims for capital on the increasingly plentiful sources of it?

Broadly speaking, three main lines of explanation of this apparent paradox can be identified. The first such line of explanation focuses on inefficiencies in the social capital mar- kets. Such markets have long been fragmented, disjointed, relatively small, and therefore difficult to access. Even with the new technologies, the geographical, physical, conceptual, and psychological distances between the 400  million small entrepreneurs in need of capital and the relative handful of social capital aggregators in a position to deploy it remains measured in light-years. Add to that the significant costs of due diligence and structuring transactions and it is easy to see why the flow of investible deals remains somewhat anemic despite the clear need.

The second line of explanation for why impact investors continue to identify a “shortage of quality investment opportu- nities” as one of the top two most serious challenges they face relates less to the inefficiencies of the market than to the skill deficits on the part of potential investees.17 The entities involved in social-purpose activities are typically nonprofit organiza- tions, small-scale mom-and-pop enterprises, faith-based chari- ties, cooperatives, mutual societies, and courageous, individual

Inefficiencies in the social capital market, skill deficits on the part of investees, and the sheer difficulty of BOP businesses conspire to limit investment demand.

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social entrepreneurs. Few are schooled in the basics of finance. As outlined in a recent Venturesome report, many lack a clear understanding of the difference between operating income and investment capital, are unable to identify their own finan- cial needs with precision, are unschooled in the different finan- cial instruments available to them, and are unaware of how to assemble multiple sources of finance into manageable funding packages.18 This lack of basic financial literacy leaves a yawning gulf between the seekers of capital, who tend to bring forward, at best, micro deals, and the potential providers of it, who are accustomed to operating at a scale orders of magnitude larger than this. And it is a gulf that those involved in building the social-impact investing industry have curiously neglected to address very coherently in their zeal to bring the new investors to the table first.19

It is perhaps the third line of explanation for the lagging deal flow in the impact investing market that is the most damning, however. Simply put, there are too few deals because the BOP market, for all its promise, is an enormously difficult market in which to operate, and certainly in which to operate at a profit while adhering to meaningful social-purpose objectives. Harvey Koh and colleagues identify the situation well when they describe the “heavy burden” that firms pioneering new business models in BOP environments regularly confront:

They must develop and refine their models the hard way, by trying them out in an unforgiving, low-margin marketplace. Inevitably they suffer failures and setbacks on the road to viability. Often they also have to invest heavily in educating customers about the possibilities of new “push” solutions and in developing unskilled suppliers and fragmented distribution channels to serve their requirements. Although excited by their novelty, investors are often rattled by the firms’ risk profiles and are unimpressed by their financial returns, all the while suspecting that they might actually be savvy nonprofits masquerading as commercially viable models.20

A “pioneer gap” confronts the social-purpose market, limiting the supply of investible deals able to absorb the pent-up supply of social investment capital.

Remaining Obstacles 101

Despite the optimistic assumptions about the enormous flow of resources poised to pour into promising bottom-of- the-pyramid businesses, the task of bringing such businesses to the point of attracting serious capital is a long and tortuous one. As Koh and his colleagues point out, it took the Grameen Bank 17 years to break even after its launch in 1976, and other trajec- tories have proven equally demanding. The Acumen Fund has had to filter through more than 5,000 companies over 10 years to find 65 promising enough to invest in, and this with a set of financial return expectations that is highly conservative by investment standards. Indeed, the average after-tax profit of Acumen’s portfolio companies remains underwater. And no wonder. Monitor Group research in India suggests that it takes 10 years for an inclusive social enterprise to achieve a scale suf- ficient to generate profitable operations.21

Given this situation, social-impact investors have shied away from the early financing of promising BOP businesses. But this creates a classic “free rider” problem: while all inves- tors would benefit from joint support of promising businesses during their early, uncertain start-up phases, no particular investor can see it in its interest to do so for any particular promising business since once its concept is proved, multiple competitors will swoop into the market to benefit from the initial investment without sharing in the cost. The result is what Koh and colleagues term “the pioneer gap,” the absence of funding to support the critical start-up phase of promising social ventures and the resulting lack of sufficient investible deals to absorb the pent-up supply of social investment capital.

Just as in other cases of such “market failures,” what is needed in such circumstances is a nonmarket solution to the market imperfection. Traditionally, this role is played by government in cases of other so-called collective goods, such as national defense, and government can play a criti- cal role here as well. The UK’s Department for International Development, for example, provided crucial early-stage financing for the M-PESA mobile phone electronic payment system that has brought financial services for the first time to 9 million Kenyan residents. The US Agency for International Development provided similar assistance in the early devel- opment of clean-burning cooking stoves in Ghana.22

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But given the political risks of choosing successful tech- nologies or business models, responsibility for overcoming this particular market imperfection may more properly belong to the institutions we earlier referred to as “foundations as philan- thropic banks,” that is, foundations willing to tap their endow- ments as well as their grant budgets to leverage their resources for maximum impact on the causes they have chosen to advance. Koh and his colleagues refer to this as “enterprise philanthropy,” but we might just as well refer to it colloquially as “PRIs on ste- roids.” It essentially involves identifying highly promising BOP business propositions that have gotten beyond the initial proof of concept and helping them to validate the commercial viabil- ity of their products, prepare the market for their launch, and get them into initial operation in order to facilitate the eventual investment of private, return-seeking capital that can bring the resulting businesses to scale.23 Such support can take the form of grants, but it might equally take the form of low-interest or no-interest loans, or noncontrolling equity.

Getting Beyond Comforting Assumptions What the discussion above suggests is that those promoting, or operating on, the new frontiers of philanthropy may be approaching a moment of truth. Many of the developments identified here have been launched with enormous fanfare and enormous hope. Long-standing tensions between doing good and doing well were miraculously being suspended; market rates of return were available from activities pur- sued with the intention of achieving social and environ- mental progress; private investment markets were available to replace government and private charities as the principal sources of social-purpose growth capital; and a new era of social-purpose finance was just around the corner.

These assertions have hardly been disproved. Indeed, the developments outlined in this monograph, and in its com- panion volume, retain considerable momentum and immense

Three comforting assumptions [of] social-impact investing . . . have now been significantly challenged.

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promise. Still, the field has achieved sufficient maturity to be able to acknowledge the hard slog that still lies ahead. In par- ticular, three comforting assumptions that have helped to fuel the hype around social-impact investing, as well as some of the other innovations on the frontiers of philanthropy, have now been significantly challenged, if not completely refuted, and the resulting realities must now be confronted as the field moves into the next phase of its development.

Traditional Market Risk-Return Ratios? In the first place, many of the return expectations broadcast in the early literature on social-impact investing seem overly optimistic and unsupported by the actual experience of the pioneers operating in the field. To be sure, there are power- ful examples of BOP businesses that are producing significant social benefit while generating impressive market returns. But those businesses required years of painful incubation before they sprang into view as mature enterprises achieving the returns for which they are now celebrated in the literature. Yet this long and costly incubation is too often discounted or totally ignored, as are the dozens of other promising busi- ness offspring that never survived the embryo stage. While it may not be the case, as Kevin Starr has warned, that “there’s really only one bottom line—it’s either impact or profit, and the demands of investors can pull an organization away from the target population toward those able to pay more,” the fact remains that enticing investors with the returns achieved by the handful of success stories can create expectations that can easily move the field in this direction.24

The solution here need not be to give up on the promise of social-impact investing and the mobilization of private invest- ment capital for social and environmental purposes. Rather, the solution is to recognize the need for more complex finan- cial packages in order to accommodate the financial return needs of private investors without ignoring the exceptional risk profiles facing most start-up businesses serving BOP markets.

A Substitute for Government? This brings us to a second comforting assumption that has crept into the new frontiers of philanthropy mindset. This is

104 Leverage for Good

the assumption that social-impact investing, the mobilization of private investment capital for social and environmental pur- poses, can significantly substitute for lagging governmental resources and involvement. To be sure, the ideology of priva- tism has a long lineage in American political thought, and par- ticularly so in the philanthropic arena.25 It should come as no surprise, therefore, that a potent theme in the “philanthrocapi- talism” playbook is the suggestion that just as the private sec- tor can “do it better than government” in running businesses and generating profits, so too it can do the same in advancing social and environmental objectives. Government is therefore not needed, or at least not needed as much, in this arena.

This assumption, too, however, finds little support in the evi- dence. If it takes a village to rear a child, it appears to take a virtual cabinet of government departments to generate even a small trickle of private investment capital into social-purpose activities. This, at any rate, is the experience in the one field of social purpose investment in the US that has attracted per- haps the most substantial, if still small, flow of such capital— that is, affordable housing and community development. To stimulate and sustain that flow of funds has required the joint actions of no fewer than seven government agencies: the US Congress, the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), the Internal Revenue Service, and the Community Development Financial Institutions Fund in the Department of the Treasury. These officials have responsibility for administering four different programs that have been needed to get private investment capital flowing into inner cities and affordable housing. As described earlier, these are the Community Reinvestment Act (CRA), incentivizing bank investments in distressed communities; the Low-Income Housing Tax Credit, which offers tax credits to investors in low-income housing; the Community Development Financial Institutions Fund,

Unlocking capital for social-purpose activity turns out to require a crowbar.

Remaining Obstacles 105

which supports the nationwide network of CDFIs; and the New Markets Tax Credit, which provides tax breaks to inves- tors in distressed areas.

As we have seen, public-sector funding, or other forms of assistance, provided either directly or through multinational development banks, has been equally important in help- ing to nudge private-sector investors into participation in social-purpose efforts in other settings as well, including the UK and in much of the developing world. Unlocking capi- tal for social-purpose activity turns out to require a crowbar and often the kind of muscle and resources that govern- ments alone can wield. While no one can doubt the crucial role that private capital can, and is, playing, no one either can realistically expect the private sector to do it on its own.

Goodbye to Traditional Philanthropy? Finally, from what has been said, it should be clear that the predictions of the imminent demise of traditional phi- lanthropy that have accompanied the rise of social-impact investment in some quarters are as exaggerated as the ones that reached Mark Twain announcing his untimely death. As the discussion of the “pioneer gap” and the need for complex financing “tranches” make clear, the new world of social-impact investing requires the old world of traditional philanthropy in order to succeed. The one cannot easily function without the other.

This is not to say that traditional philanthropy can be maxi- mally helpful if it continues to function in traditional ways. Rather, traditional philanthropy will have to change if it wishes to remain fully relevant in the new world of social-purpose finance that is emerging. It will need to function as a catalyst for more complicated funding consortia. It will need to part- ner with other types of funding institutions, both public and private. And it will need to learn how to combine its traditional tool of grants with other resources of its own, and with the resources of other types of institutions, to achieve the leverage needed to gain traction on the serious problems the world con- fronts. In philanthropy as well as in other spheres, the world of “either-or” must be replaced by the practice of “both-and.”


Chapter 6

Prescription: The Way Forward

From what has been reported here it should be clear that the new frontiers of philanthropy hold enormous promise for gaining meaningful traction on a wide range of social, economic, and environmental problems facing the world at the present time. To be sure, the solutions on offer from many of the new develop- ments taking place on the frontiers of philanthropy and social investing may not be appropriate for all problems or all locations. One recent analysis suggested, for example, four key conditions that must be met for social-impact investment to work properly: (1)  the issue or problem should be of a scale that makes it unlikely that either government or philanthropy will have the resources alone to address it; (2) there must be a viable market-based solution available or in reasonable prospect; (3)  mainstream private investors should not already be heavily engaged; and (4) market-based solutions must be considered morally acceptable.1 Clearly, not all of the globe’s challenges, and perhaps not even the most severe of them, will meet these criteria. What is more, even those that do will stumble along the way because many of the new techniques have their own problems: their complexity deters many potential participants, standards for ensuring valid social outcomes are not fully developed, and investors with the patience to wait out the lengthy proof-of-concept phase of social-purpose investments may not be forthcoming.

Yet, despite these limitations, observers have identified a number of areas where these new actors and tools enjoy significant potential, and new such areas are being discovered on a regular basis. Included are such areas as housing, health- care, education, utilities, agriculture, financial services, and insurance. In all of these, imaginative products such as low-cost solar panels, modular hous- ing, cheap eyeglasses, reusable sanitary napkins, and clean-burning stoves are

“Despite obstacles and limitations, there is sufficient promise . . . to warrant further active encouragement.”

Prescription 107

transforming lives while generating at least modest profits for investors and entrepreneurs. In short, despite the obstacles and limitations, there is sufficient promise in the develop- ments taking place on the frontiers of philanthropy to war- rant further active encouragement of them.

But what form should such encouragement take? Based on the discussion here, six steps seem especially worth pursuing.

Visualize In the first place, there remains a significant need to enable more people to visualize and grasp the dramatic changes underway on what we have termed the “new frontiers of phi- lanthropy.” The developments portrayed in this book are dif- fuse and diverse. It is therefore all too easy for people to miss the forest for the trees, indeed to fail to comprehend that there is a substantial forest at all. Drawing a circle around these developments and finding a way to portray them coherently is thus the first step toward allowing the various stakehold- ers involved—individual investors, investment managers, financial institutions, social entrepreneurs, philanthropic institutions, nonprofit managers, and the general public—to appreciate the enormity of the changes and to begin to posi- tion themselves more actively in relation to them. Hopefully, this monograph and its companion volume, with their sys- tematic identification and analysis of a sizable range of the new actors and tools that are emerging, will contribute use- fully to this visualization goal and to the action that will hope- fully flow from it.

Publicize Visualization is just a first step toward the broader awareness- raising needed to bring the message of the new frontiers to the various groups of stakeholders whose involvement holds the key to its promise. For this, a much more robust educational and field-broadening effort will be required.

To be sure, some components of the new frontiers phenom- enon have begun to achieve meaningful scale in terms of the numbers of institutions engaged. The Forum for Sustainable and Responsible Investing (US SIF Foundation) thus identi- fies 443 institutional investors, 272 money managers, and over

108 Leverage for Good

1,000 community investment institutions such as community development financial institutions and credit unions in the US alone that are applying various environmental, social, and cor- porate governance (ESG) criteria to their investment analysis and portfolio selection as of the end of 2011, and 200 of these institutions filed or cofiled shareholder resolutions on these issues at publicly traded companies from 2010 through 2012.2

But though impressive, these numbers are hardly overwhelm- ing, especially given that the sustainable and responsible investing movement had its start four decades ago and is a less demanding form of activity than the more direct forms of social-impact investing identified in this volume. Especially striking is the limited involvement on the part of founda- tions, which are institutions with clear social objectives that could be advanced by the use of social, environmental, and good-corporate governance screens on their investment port- folios. Yet US SIF was able to identify only 95 out of the coun- try’s 76,545 foundations—a mere one-tenth of 1 percent of the foundations—that reported applying ESG criteria to their investments. And only $60.3 billion of the total $590.2 bil- lion in foundation assets—or about 10 percent of the total— is definitively subject to such criteria as a consequence.3

Elsewhere, knowledge of the developments outlined here remains hit-or-miss at best, even among critical stakeholders, such as foundations, investment managers, pension funds, mutual fund firms, and nonprofit organizations across a broad array of fields. The social-impact investing component of this new development is particularly in need of broader commu- nication and awareness-raising. As evidence of this, a 2013 survey by CFA Institute, the largest association of investment professionals in the world, found that two-thirds of financial advisers surveyed confessed to being unaware of “impact investing.”4 In short, despite a substantial investment of time and resources, this field remains a distant subcontinent, well

Despite a substantial investment of time and resources, this field remains . . . well off the beaten path of mainline philanthropy and much of private investment, and virtually unknown to all but the most intrepid nonprofit explorers.

Prescription 109

off the beaten path of mainline philanthropy and much of pri- vate investment, and virtually unknown to all but the most intrepid nonprofit explorers.

To overcome this, it will be necessary to take information on the new frontiers of philanthropy out to a broader strata of participants and observers, to bring knowledge of the new tools and actors “from the margins to the mainstream,” as a recent World Economic Forum document recently put it.5 This will require new materials that can penetrate the academic settings where the next generations of non- profit executives, money managers, and foundation officials are being trained, as well as new “mainstream messengers” capable of serving, as two prominent advocates of the field have recognized, as “the conduits that can absorb the lessons from visionary practice and communicate them effectively to much wider audiences,”6 a task that this book, and the field-broadening efforts that can flow from it, has set for itself, and that others will hopefully help it achieve.

Incentivize A third important encouragement needed is outright incen- tivization. A key conclusion of recent work assessing the early history of some of the emerging new forms of philanthropy and social investment is the continued importance of credit enhancements, regulatory requirements, tax breaks, and other forms of incentives for these new tools to live up to their promise of delivering meaningful social, economic, and envi- ronmental gains to disadvantaged populations and regions while still attracting the involvement of private investors. The long gestation period of microcredit, the “pioneer gap” facing most other BOP products before they become commercially viable, and the array of regulatory requirements, tax advan- tages, and grants that was required to stimulate a flow of pri- vate investment capital into affordable housing in the US all speak volumes about the need to engage other actors beyond the private investors who have been the featured actors in the hype recently surrounding social-impact investment.

In a sense, the rhetoric of social-impact investing has come full circle over just the past half-decade. Initially promoting the new, market-based, social investment instruments as a way

110 Leverage for Good

to fill in for lagging government and traditional philanthropic support of social and environmental problem-solving, advo- cates of these new, market-based instruments have recently come to the realization that government and institutional philanthropy are actually not only important, but “doubly important,” to the success of the market-based approaches.7 Increasingly needed are complex funding “stacks” that com- bine grants, unsecured loans, and various forms of guaran- tees, subsidies, and occasionally regulations provided by governments and charitable foundations in order to unleash the flow of private investment capital and to make complex undertakings possible.

For this to be possible, however, both governments and foundations will need to alter their current modus operandi. Governments in the US and the UK have begun to do this, albeit only in selective spheres. Elsewhere, the environment for the new approaches outlined here is often more restric- tive. Credit enhancements from external sources that lower the interest rate on loans to social entrepreneurs in India, for example, are disallowed by laws prohibiting external loans at rates below those offered by the Bank of India. Elsewhere, foundation support of for-profit businesses is prohibited or discouraged even if the businesses advance the social-purpose missions of the foundations, while laws permitting compa- nies to seek a balance between social purpose and financial return are nonexistent in many places. Coherent efforts to eliminate legal and other impediments and institute positive incentives for the kinds of investment in social-purpose activi- ties described here will thus be necessary, as Shirley Sagawa argues convincingly in Chapter 24 of our companion volume.8

So, too, will be a willingness on the part of more founda- tions to join the ranks of foundations as “philanthropic banks” outlined above and described more completely in Chapter 5 of our companion volume. They, too, will be needed to join the public-private investment consortia that the new actors

The rhetoric of social-impact investing has come full circle regarding the relative roles of the private market, government, and foundations.

Prescription 111

and tools make possible, to tap into their full asset base, and to make use of a wider array of tools of action than traditional one-off grants.

Legitimize For these incentives to be forthcoming, however, more prog- ress will be needed in developing the social-impact perfor- mance standards that can fully legitimize government and foundation support for the new forms of social investment. Because they are utilizing market means and potentially gen- erating market-rate returns to at least some of their investors, social-impact investing, as well as some of the other new forms of philanthropy and social-purpose activity, must be even more vigilant than traditional philanthropy about retaining public trust. Demonstrating their social-purpose bona fides will therefore be a perennial, and growing, challenge for such initiatives, particularly if the hoped-for return rates begin to materialize, a point that early supporters of these initiatives have clearly recognized.9

To date, however, the field has yet to produce what the pivotal 2009 Monitor report identified as a “standard-setting body that would help create a threshold for what would be con- sidered an impact investment.”10 Although a standard-setting body has been established, its criteria tend to mirror broader corporate social responsibility criteria rather than targeted thresholds for what can be considered an impact investment. And while targeted impact measures have been identified, they are not attached to a standard-setting body establishing thresholds and are at any rate so numerous that almost any investment seems likely to be able to justify itself as a social impact one in terms of them.

If the field is serious about its nonfinancial performance indicators, it will need to broaden its approach. Instead of focusing its search on “investor-centered” indicators, as some have suggested, it will need to focus at least equal attention

If the field is serious about its nonfinancial performance indicators, it will need to broaden its approach.

112 Leverage for Good

on indicators that are convincing to the two chief sources of the incentives these tools have proven to need in order to function effectively:  government and private philanthropy. And this will likely involve some way to bring the constituen- cies of these investments more actively into the performance measurement picture, something that none of the extant per- formance systems does.

Capacitize A fifth step needed to capture the promise resident in the new frontiers of philanthropy is to attend to the critical issue of deal flow. This will require more than visualizing and publi- cizing the new opportunities. Also required is serious train- ing to build what one observer has called the “investment readiness” of actual or potential entrepreneurs.11 Many of the personnel in position to access the new resources potentially available through the new frontiers of philanthropy are lack- ing the rudimentary financial knowledge to do so effectively. They are often managers of nonprofit organizations, commu- nity organizers, or microbusiness owners. Most of their expe- rience is in the world of grant funding or small-scale bank lending. A fairly robust training effort is therefore required to prepare such organizations and personnel to generate deals that meet the market tests required for the new tools of social investment.

A report by the UK social investment fund Venturesome, for example, identified a broad range of issues facing social investees in the UK as they seek to negotiate the new finan- cial environment in which they find themselves. As reflected in Box 6.1, these include some basic financial skills and basic financial awareness. Left unattended, they will continue to impede the realization of the promise that social-impact investing holds out.

Hopefully, this book and its companion volume will pro- vide material that can begin to remedy these shortcomings, but some energetic outreach will be needed to put the materi- als to work.

A fairly robust training effort is required to attend to the critical issue of deal flow.

Prescription 113

Actualize Finally, at the end of the day, what is needed is the hard task of doing deals, of scouting the terrain of promising social innovations, deciding which ones might hold promise of becoming commercially viable while generating significant social or environmental payoff, supporting them through the treacherous proof-of-concept phase, assessing their realistic capital and managerial needs, amassing the needed combi- nation of financial and technical assistance, and taking the resulting concepts to scale. Clearly, the transaction costs of this set of tasks are enormous. It is no wonder, then, that a recent status report on the social-impact investing “industry” identified “placing and managing capital” as one of the six top challenges the field faces.12

This challenge will not likely be met by social-impact inves- tors working on their own. It will require consortia to come together to share intelligence, identify promising investment options, pool resources, spread risk, improve practice, and

Box 6.1 Key Gaps in Knowledge on the Part of Potential Social Investees

(i) an inability to identify their own financial needs; (ii) lack of understanding of the difference between

operating income and capital; (iii) lack of awareness of the financial instruments

available and the relative pros and cons of each; (iv) limited awareness of the different capital provid-

ers available to them; (v) failure to recognize that grants are not free

money, but rather involve significant costs; and (vi) lack of confidence and knowledge to structure

deals blending different investor appetites and instruments.

Source: Emilie Goodall and John Kingston, Access to Capital: A Briefing Paper (London: CAF Venturesome, 2009), 4, accessed February 10, 2013, http://www.marmanie.com/cms/upload/ file/CAF_Venturesome_Access_to_Capital_0909.pdf.

114 Leverage for Good

reduce transaction costs. Some promising signs of such devel- opments are already in view. One intriguing example is the West Coast’s TONIIC consortium, a group of social-impact investors that has come together for precisely this set of pur- poses.13 Still, some of the infrastructure identified by the Monitor Institute in 2009 as needed to actualize the prom- ise of impact investing, such as a series of “industry-defining funds that can serve as beacons for how to address specific social or environmental issues,” or the placement of substan- tial risk capital in “catalytic funding structures” that would be available to help incentivize a range of impact investments, have either not yet appeared or are still in embryo.14 Clearly, fully actualizing the promise of the new frontiers of philan- thropy remains a work in progress, though a work that con- tinues to attract talent and energy.

Conclusion Enormous challenges confront the global community at the present time. Failed states, international terrorism, global warming, persistent poverty, deforestation, water shortages, ill-health, food shortages, and youth unemployment are just some of the problems that exist.

The new tools and actors examined in this volume are not a panacea for solving these problems. Yet it is hard not to see them as one of the more promising developments in an otherwise dismal scenario of lagging resources and resolve. Though not without their problems, these developments hold the promise of bringing significant new resources into efforts to solve the world’s problems of poverty, ill-health, and environmental degradation; of unleashing new ener- gies and new sources of ingenuity for social and environ- mental problem-solving; of democratizing giving and social problem-solving; and of constructively leveraging new tech- nologies and new attitudes about social responsibility to gain new traction on enduring human problems.

It is perhaps not surprising, therefore, that these develop- ments have even found their way into the consciousness of an aging, now-retired, conservative pope, whose 2009 encycli- cal, Caritas in Veritate, pointedly acknowledged that “the tra- ditionally valid distinction between profit-based companies

Prescription 115

and non-profit organizations can no longer do full justice to reality, or offer practical direction for the future.”15

The new frontiers of philanthropy described in this book provide powerful support to this observation. But so, too, do they underline the pope’s caution about the need to remain vigilant that the “new composite reality” that is emerging, while not excluding profit, makes sure that profit is used, as Benedict put it, as “a means for achieving human and social ends.” This is the hope that the new frontiers of philanthropy holds out for us, and that this book, and its companion vol- ume, seek to advance. At a time of diminished resources and diminished expectations, it is, for better or worse, one of the most promising hopes we have.

Suggested Readings C. K. Prahalad, The Fortune at the Bottom of the Pyramid:

Eradicating Poverty through Profits (Philadelphia:  Wharton School Publishing, 2004).

Lester M. Salamon, editor. New Frontiers of Philanthropy: A  Guide to the New Actors and Tools Reshaping Global Philanthropy and Social Investment (New  York: Oxford University Press, 2014).

Jessica Freireich and Kathryn Fulton, Investing for Social and Environmental Impact (n.p.: Monitor Institute, 2009).

Antony Bugg-Levine and Jed Emerson, Impact Investing: Transforming How We Make Money While Making a Difference (San Francisco: Jossey-Bass, 2011).

Lucy Carmody, Benjamin McCarron, Jenny Blinch, and Allison Prevatt, Impact Investing in Emerging Markets (Singapore: Responsible Research, 2011).


Appendix A

New Frontiers of Philanthropy

Project Advisory Panel

Frank Altman President and Chief Executive Officer, Community Reinvestment Fund Doug Bauer Executive Director, The Clark Foundation Shari Berenbach President and Chief Executive Officer, US African Development Foundation Lucy Bernholz Founder and President (former), Blueprint Research & Design Stuart Davidson Managing Partner, Labrador Ventures Christopher L. Davis President, Money Management Institute William Dietel Managing Partner, Dietel Partners David Erickson Director, Center for Community Development Investments, Federal Reserve Bank of San Francisco Marc J. Lane Founder, Marc J. Lane Wealth Group Maximilian Martin Founder and Global Managing Director, Impact Economy Clara Miller President, F.B. Heron Foundation Mario Morino Cofounder and Chairman, Venture Philanthropy Partners Luther Ragin Jr. President and Chief Executive Officer, Global Impact Investing Network

118 Appendix A: Advisory Panel

Lisa Richter Principal, GPS Capital Partners Jack Sim Founder, World Toilet Organization Greg Stanton Founder, Wall Street Without Walls Vince Stehle Executive Director, Media Impact Funders Luc Tayart De Borms Managing Director, King Baudoin Foundation Mechai Viravaidya Founder, Condoms & Cabbages Kimberly Wright-Violich President (former), Schwab Charitable Fund


Appendix B

Companion Volume New Frontiers of Philanthropy: A Guide to the New Actors and Tools Reshaping Global Philanthropy and Social Investing

Lester M. Salamon, Editor Oxford University Press, 2014 ISBN 978019935754


Acknowledgments Foreword | William Dietel, Dietel Partners Preface | Mario Morino, Venture Philanthropy Partners Directory of Authors PART 1: INTRODUCTION

1. The Revolution on the Frontiers of Philanthropy:  An Introduction | Lester M. Salamon, Johns Hopkins University


2. Capital Aggregators | Lisa Richter, GPS Capital Partners 3. Secondary Markets | David J. Erickson, Federal Reserve Bank

of San Francisco 4. Social and Environmental Exchanges | Durreen Shahnaz

and Robert Kraybill, Impact Investment Exchange (IIX) and Lester M. Salamon, Johns Hopkins University

5. Foundations as “Philanthropic Banks” | Lester M.  Salamon, Johns Hopkins University, and William Burckart, Impact Economy

120 Appendix B: New Frontiers Contents

6. Enterprise Brokers | Lisa Hagerman, DBL Investors, and David Wood, Harvard University

7. Capacity Builders and Venture Philanthropy | Melinda T. Tuan, Melinda Tuan Consulting

8. Online Portals and Exchanges | Vince Stehle, Media Impact Funders

9. Corporate-Originated Charitable Funds | Rick Cohen, Nonprofit Quarterly

10. Funding Collaboratives | Angela M. Eikenberry, University of Nebraska, and Jessica Bearman, Bearman Consulting


11. Overview: The New Tools of “Philanthropy” | Luther Ragin Jr., Global Impact Investing Network (GIIN)

12. Loans, Loan Guarantees, and Credit Enhancements | Norah McVeigh, Nonprofit Finance Fund, and Julia Sass Rubin, Rutgers University

13. Fixed-Income Securities | Shari Berenbach, US African Development Foundation, and Elise Balboni, Local Initiatives Support Corporation (LISC)

14. Securitization | Mary Tingerthal, Minnesota Housing Finance Authority

15. Private Equity Investments | Monica Brand, Accion International, and John Kohler, Santa Clara University

16. Social Impact Bonds / Pay-for-Success | Drew von Glahn, World Bank, and Caroline Whistler, Third Sector Capital Partners

17. Insurance | Craig Churchill and Lauren Peterson, International Labor Organization

18. Socially Responsible Investing and Purchasing | Steve Lydenberg, Domini Social Investments, and Katie Grace, Harvard University

19. Grants | Peter Frumkin, University of Pennsylvania


20. Who Gains, Who Loses? Distributional Impacts of the New Philanthropic Marketplace |

• Who Loses? Mike Edwards

• Who Gains? Matthew Bishop, The Economist, and Michael Green, Social Progress Imperative

Appendix B: New Frontiers Contents 121

21. The Demand Side of the Philanthropic Marketplace | Alex Nicholls, Oxford University, and Rodney Schwartz, ClearlySo

22. The Elusive Quest for Impact: The Evolving Practice of Social Impact Measurement | Brian Trelstad, Bridges Ventures

23. The New Frontiers of Philanthropy in Global Perspective | Maximilian Martin, Impact Economy

24. Creating a More Enabling Environment: A Policy Agenda for the New Frontiers of Philanthropy | Shirley Sagawa, Center for American Progress

Appendix A: Advisory Committee Appendix B:  Table of Contents for Companion Volume, New

Frontiers of Philanthropy, Edited by Lester M. Salamon

Bibliography Index



Chapter 1

1. “USAID and Impact Investors Capitalize New Equity Fund for East African Agribusiness,” Microfinance Africa, accessed May 11, 2013, http://seedstock.com/2011/10/05/ usaid-global-impact-investing-network-join-to-create-east-africa-agricultural- investment-fund/.

2. For a discussion of this term in the context of social-impact investing, see Jessica Freireich and Kathryn Fulton, Investing for Social and Environmental Impact (n.p.: Monitor Institute, 2009), 33. (Cited hereafter as 2009 Monitor Report.)

3. For a fuller explication of this nontraditional mode of charitable foundation operation and some of the institutions pioneering it, see Chapter 2 of this volume and Chapter 5 of the companion to this volume, New Frontiers of Philanthropy: A Guide to the New Actors and Tools Reshaping Global Philanthropy and Social Investing. Edited by Lester M. Salamon (New York: Oxford University Press, 2014).

4. Cited in John Tzetzes, Book of Histories (Chiliades), trans. Francis R.  Walton (Lipsiae, 1826), 2:129–30.

5. For comparison purposes, the assets held by US foundations as of 2010 totaled $618 billion, which yielded approximately $45 billion of charitable grants. By comparison, the assets in commercial banks in the US totaled $14.4 trillion (nearly 25 times the foun- dation assets), in mutual funds $8.0 trillion, in insurance companies $6.6 trillion, and in money market funds $2.8 trillion. By “leverage” here I do not mean loading moun- tains of debt on the balance sheets of charities, but rather using charitable resources to stimulate a greater flow of private investment capital into social and environmental pur- poses. The recent financial crisis is full of lessons about the dangers of over-leveraging, but the philanthropic world is seriously under-leveraged, which brings its own dangers in terms of leaving serious social and environmental problems to fester. Foundation data from the Foundation Center accessed at Foundation Center, “Highlights of Foundation Yearbook,” Foundations Today Series (2011), accessed May 10, 2013, http://foundation- center.org/gainknowledge/research/pdf/fy2011_highlights.pdf; data on other institu- tions from the Federal Reserve as reported in the US Census Bureau, Statistical Abstract of the United States, 2012, accessed May 10, 2013, http://www.census.gov/compendia/ statab/cats/banking_finance_insurance/financial_assets_and_liabilities.html.

6. Based on data generated by the International Association of Microfinance Investors, “Microfinance Investment,” International Association of Microfinance Investors, accessed May 11, 2013, http://www.iamfi.com/microfinance_investment.html.

124 Notes

7. “About Us,” Aavishkaar, accessed August 12, 2012, http://www.aavishkaar.in. 8. Grassroots Business Fund, 2011 Annual Report of the Grassroots Business Fund

(Washington, DC:  Grassroots Business Fund, 2011), accessed May 11, 2013, http:// gbfund.org/sites/default/files/GBF_AR_2011.pdf.

9. “The Bamboo Finance Private Equity Group,” Bamboo Finance, accessed May 11, 2013, www.bamboofinance.com.

10. Small Enterprise Assistance Fund (SEAF), “Our Impact,” accessed June 6, 2013, http:// seaf.com/index.php?option=com_content&view=article&id=36&Itemid=82&lang=en.

11. C. K. Prahalad, The Fortune at the Bottom of the Pyramid:  Eradicating Poverty through Profits (Philadelphia: Wharton School Publishing, 2004).

12. Lucy Carmody, Benjamin McCarron, Jenny Blinch, and Allison Prevatt, Impact Investing in Emerging Markets (Singapore: Responsible Research, 2011), 102.

13. On some of the difficulties of the “impact investment” terminology, see below and Chapter 20 of the companion volume.

14. Antony Bugg-Levine and Jed Emerson, Impact Investing:  Transforming How We Make Money While Making a Difference (San Francisco: Jossey-Bass, 2011), 151.

15. Lester M. Salamon, ed., New Frontiers of Philanthropy:  A  Guide to the New Tools and Actors Reshaping Global Philanthropy and Social Investing (New York: Oxford University Press,  2014). ISBN: 9780199357543. See Appendix B for a full table of contents and ordering information.

16. Christa Velasquez, “Advancing Social Impact Investment through Measurement,” accessed May 11, 2013, http://www.frbsf.org/cdinvestments/conferences/social impact-investments/transcript/Velasquez_Panel_3.pdf.

17. As noted more fully below, the term “philanthrocapitalism” was coined by Matthew Bishop and Michael Green to depict a new class of dot-com billionaires like Bill Gates who have turned their attention to philanthropy. See Matthew Bishop and Michael Green, Philanthrocapitalism: How the Rich Can Save the World (New York: Bloomsbury, 2008). The terms “impact investment” and “impact investors” were coined by a group of philanthropists and investors assembled by the Rockefeller Foundation to consider how to expand the available pool of resources for social- and environmental-purpose activities.

18. This definition is consistent with Webster’s New World Dictionary, which defines “phi- lanthropy” as “a desire to help mankind”; and “philanthropic” as “interest in the gen- eral human welfare.” Victoria Neufeldt, Webster’s New World Dictionary of American English, Third College Edition (New York: Prentice Hall, 1991), 1014.

19. Webster’s New World Dictionary, Third College Edition, 1272. 20. Frieriech and Fulton, 2009 Monitor Report, 6. 21. Nick O’Donohoe, Christina Leijonhufvud, Yasemin Saltuk, Antony Bugg-Levine, and

Margot Brandenburg, Impact Investments:  An Emerging Asset Class (New  York:  J.P. Morgan, 2010), 5.

22. Bugg-Levine and Emerson, Impact Investing, 9. 23. Steven Godeke and Raúl Pomares with Albert V. Bruno, Pat Guerra, Charly Kleisner,

and Hersh Shefrin, Solutions for Impact Investors:  From Strategy to Implementation (New York: Rockefeller Philanthropy Advisors, 2009), 10.

24. Bugg-Levine and Emerson, Impact Investing, 9. 25. Freireich and Fulton, 2009 Monitor Report, 35–36.

Chapter 2 Notes 125

26. Kevin Starr, “The Trouble with Impact Investing: P1,” Stanford Social Investment Review ( January 24, 2012): 22, accessed May 11, 2013, http://www.ssireview.org/blog/entry/ the_trouble_with_impact_investing_part_1.

27. In a lead article in a recent edition of the Federal Reserve Bank of San Francisco’s Community Development Investment Review, Thornley and Dailey thus call attention to their use of the term “community impact investing” rather than “impact investing” precisely in order to make clear that they are focusing on “low-income domestic mar- kets and only to investments targeting social returns.” Ben Thornley and Colby Dailey, “Building Scale in Community Impact Investing through Nonfinancial Performance Measurement,” Community Development Investment Review 6.1 (2010): 3.

28. Bugg-Levine and Emerson, Impact Investing, xix. 29. This usage is also gaining ground in international circles. Thus, for example, the UK’s

new Big Society Capital institution refers to its field of activity as “social investment,” which it defines as “the provision and use of capital to generate social as well as financial returns.” See “Social Investment Is a Way of Using Capital to Generate Social Impact as well as Some Financial Return for Investors,” Big Society Capital, accessed May 11, 2013, http://www.bigsocietycapital.com/what-social-investment.

30. For the former position see, for example, Rob Schwartz, Social Investment (London: Clearly So, 2012). For the latter position see Freireich and Fulton, 2009 Monitor Report, 14.

31. In the US, the breakdown of these sources for the core nonprofit service and expressive organizations takes the following form:  10  percent from private philanthropy from all sources; 38 percent from government grants and payments; and 52 percent from private fees and payments. See Lester M. Salamon, America’s Nonprofit Sector: A Primer, 3rd ed. (New York: Foundation Center, 2012), 39.

32. Lester M. Salamon and Stephanie Geller, “Investment Capital: The New Challenge for American Nonprofits,” Communiqué 5 (Baltimore: Johns Hopkins Nonprofit Listening Post Project, 2006), 5, http://ccss.jhu.edu/publications-findings?did=265.

33. Salamon and Geller, “Investment Capital,” 8.

Chapter 2 1. Included here were the Kentucky Highlands Investment Corporation (1968), the

Massachusetts Capital Resource Company (1977), the Arkansas Capital Corporation (1985), and Kansas Venture Capital, Inc. (1987), See “Kentucky Highlands Investment Corporation,” Rural Housing and Economic Development Gateway, US Department of Housing and Urban Development, accessed March 2, 2013, http://www.hud.gov/offices/ cpd/economicdevelopment/programs/rhed/gateway/pdf/KentuckyHighlands.pdf; “Mass Capital, Company,” Massachusetts Capital Resource Company, accessed May 11, 2013, http://www.masscapital.com/company/; “Company History & Information,” Arkansas Capital Corporation Group, accessed May 11, 2013, http://arcapital.com/pro- grams/our-history/; “Kansas Venture Capital, Inc. (“KVCI”),” Kansas Venture Capital, Inc., accessed May 11, 2013, http://www.kvci.com/. I am indebted to Belden Daniels for references to these early entities.

2. These included programs such as the following: the Low-Income Housing Tax Credit, which provides tax incentives for private investments in low-income housing; the 1977

126 Notes

Community Reinvestment Act, which made regulatory decisions on bank branch- ing contingent on demonstrations by banks that they were making investments in the same low-income neighborhoods from which they were extracting deposits; and tax and grant subsidies for so-called community development finance institutions, i.e., financial institutions with a primary mission of improving economic conditions for low-income individuals and communities. For more detailed discussions of these developments, see David Erickson, The Housing Policy Revolution (Washington, DC:  Urban Institute Press, 2008); and Lean Benjamin, Julia Sass Rubin, and Sean Zielenbach, “Community Development Financial Institutions:  Expanding Access to Capital in Under-served Markets,” in The Community Development Reader, ed. James DeFilippis and Susan Saegert (New York: Routledge, 2008).

3. For a discussion of “impact investing” as an “asset class,” see O’Donohoe et al., Impact Investments, 6.

4. CGAP, “The History of Microfinance,” prepared for CGAP UNCDF donor training, “The New Vision of Microfinance: Financial Services for the Poor,” accessed June 11, 2013, http://www.slideshare.net/JosephSam/the-history-of-microfinance-cgap. Cited in Lisa Richter, “Capital Aggregators,” Chapter 2 in Salamon, New Frontiers of Philanthropy.

5. “CDFI Data Project,” Opportunity Finance Network, accessed February 13, 2014, http://www.opportunityfinance.net/industry/default.aspx?id=234; see also O’Donohoe et al., Impact Investments, 80–81.

6. These concepts were first articulated by Freireich and Fulton, 2009 Monitor Report, 32. See also Thornley and Dailey, “Nonfinancial Performance Measurement,” 6.

7. This figure is adapted from one presented in Freireich and Fulton, 2009 Monitor Report, 32. However, Freireich and Fulton assume that all social-impact investors have the same financial and social-impact expectations. In fact, however, there is reason to question this assumption, though the basic concept that some meaningful floor exists for both social and financial return for both sets of investors, and the many that fall in between, is a cru- cial defining one for the field.

8. “About Us,” Acumen Fund, accessed August 18, 2012, http://acumen.org/. 9. Willow Impact Investors, for example, describes itself as pursuing “an investment strat-

egy that seeks to generate market-rate returns or more, while investing in businesses that deliver tangible positive environmental impact or social benefit.” The firm identifies as its “primary objective” to “deliver strong and sustainable financial returns for our inves- tors while achieving maximum social and environmental impact.” “Investment Policy,” Willow Impact Investors, accessed March 2, 2013, http://www.willowimpact.com/ about-us/company/investment-policy.html.

10. Adam Gromis, Impact Exchange Manager, e-mail to author, September 4, 2012. See also Jasmin Saltuk, Amit Bouri, and Giselle Leung, Insight into the Impact Investment Market:  An In-Depth Analysis of Investor Perspectives and over 2,200 Transactions (London: J.P. Morgan Social Investment, 2011), 8.

11. Richter, “Capital Aggregators.” 12. “Global Trends in Clean Energy Investment:  Q4 2009 Clean Energy Fact Pack,” New

Energy Finance, accessed May 11, 2013, http://www.newenergyfinance.com. 13. O’Donohue et al., Impact Investments, 6. 14. Carmody et  al., Impact Investing in Emerging Markets, 10; O’Donohoe et  al., Impact

Investments, 34–35; Saltuk, Bouri, and Leung, Impact Investment Market, 24–27.

Chapter 2 Notes 127

15. For a discussion of the tool of “securitization,” see Chapter  14 by Mary Tingerthal in Salamon, New Frontiers of Philanthropy.

16. David J.  Erickson, “Secondary Markets,” Chapter  3 in Salamon, New Frontiers of Philanthropy.

17. “Quick Facts,” Community Reinvestment Fund, accessed September 1, 2012, http:// www.crfusa.com/AboutCRF/Pages/QuickFacts.aspx.

18. “Flexible Capital Access Program (FlexCap):  Investment Summary,” Habitat for Humanity International, accessed May 11, 2013, https://www.missioninvestors.org/ system/files/tools/Habitat%20for%20Humanity%27s%20FlexCAP%20summary.pdf.

19. “Fact Sheet,” Blue Orchard, accessed May 11, 2013, http://www.blueorchard.com/ jahia/webdav/site/blueorchard/shared/Publications%20and%20Resources/ BlueOrchard%20Factsheets/0907_Fact%20sheet%202009_EN.pdf.

20. Durreen Shahnaz and Robert Kraybill, “Social and Environmental Exchanges,” Chapter 4 in Salamon, New Frontiers of Philanthropy.

21. World Bank, State and Trends of the Carbon Market (Washington, DC: World Bank Group, 2011), 9, accessed May 11, 2013, http://siteresources.worldbank.org/intcarbonfinance/ Resources. For a discussion of recent trends, including a 2013 refusal by the European Parliament to support a slowdown in the issuance of new permits in view of the drop in their price, see Stanley Reed and Mark Scott, “In Europe, Paid Permits for Pollution Are Fizzling,” New York Times, April 22, 2013, B1.

22. Evan Weaver, “Marrying Cash and Change: Social ‘Stock Markets’ Spread Worldwide,” Christian Science Monitor, August 30, 2012, accessed November 15, 2013, http://www. csmonitor.com/World/Making-a-difference/Change-Agent/2012/0830/Marrying-c ash-and-change-Social-stock-markets-spread-worldwide.

23. Carmody et al., Impact Investing in Emerging Markets, 60. 24. “The IDB Group: Your Partner for Impact Investing in Latin America and the Caribbean,”

IDB Group, accessed May 11, 2012, http://idbdocs.iadb.org/wsdocs/getdocument. aspx?docnum=36886146.

25. “About Us,” NESTA, accessed May 11, 2013, http://www.nesta.org.uk/about_us; Robert Hutton, “Cameron Opens $1 Billion Big Society Bank to Fund Charities,” Bloomberg, April 4, 2012, accessed May 11, 2013, http://www.bloomberg.com/news/2012-04- 03/cameron-opens-1-billion-big-society-bank-to-fund-charities.html; “How We Are Funded,” Big Society Capital, accessed May 11, 2013, http://www.bigsocietycapital. com/how-we-are-funded.

26. One recent estimate puts the amount of foundation assets subjected to such screens at some $60 billion in the US, roughly 10 percent of all foundation assets, still a fairly small fraction of total foundation assets, but growing. US SIF, Forum for Sustainable and Responsible Investment, Report on Sustainable and Responsible Investing Trends in the United States: 2012 (Washington, DC: US SIF, 2012), 54. For more detail on such “socially responsible investing,” see Chapter 18 of the companion volume.

27. In the US, for example, foundations are required by law to dispense at least 5 percent of the value of their assets in grants or related administrative costs in support of their approved charitable missions

28. Lester M.  Salamon and William E.  Burckart, “Foundations as Philanthropic Banks,” Chapter 5 in Salamon, New Frontiers of Philanthropy.

29. I am indebted to Thomas van Dyke and Shari Berenbach for identification of a number of these institutions.

128 Notes

30. Data on the number of foundations making PRIs and the share of qualifying distribu- tions recently taking this form from Steven Lawrence, “Doing Good with Foundation Assets:  An Updated Look at Program-Related Investments,” in The PRI Directory, 3rd ed., ed. Foundation Center (New  York:  Foundation Center, 2010), xiii. Total num- ber of private foundations in the US from Foundation Center, Foundation Yearbook (New York: Foundation Center, 2010). In an effort to promote greater use of the PRI mechanism, the Internal Revenue Service recently issued a proposed rule that would pro- vide a broader array of examples of the types of activities that would satisfy the IRS restric- tions on PRIs. Internal Revenue Service, “Notice of Proposed Rulemaking: Examples of Program-Related Investments REG-144267-11,” in Internal Revenue Bulletin:  2012-21, May 21, 2012, accessed April 13, 2013, http://www.irs.gov/irb/2012-21_IRB/ar11. html.

31. Lisa Hagerman and David Woods,” Enterprise Brokers,” Chapter  6 in Salamon, New Frontiers of Philanthropy.

32. For further detail on these “new capacity builders,” see Melinda Tuan, “Capacity Builders and Venture Philanthropy,” Chapter 7 in Salamon, New Frontiers of Philanthropy.

33. Christine Letts, William Ryan, and Allen Grossman, “Virtuous Capital:  What Foundations Can Learn from Venture Capitalists,” Harvard Business Review (March– April 1997): 36–46.

34. Edna McConnell Clark Foundation “How We Work,” accessed May 11, 2013, http:// www.emcf.org/how-we-work/.

35. “About Us,” New Profit, accessed May 11, 2013, http://newprofit.com/cgi-bin/iowa/ about/9.html.

36. European Venture Philanthropy Association, European Venture Philanthropy Directory 2010/11 (Brussels: European Venture Philanthropy Association, 2010), 15. Unlike their US counterparts, European venture philanthropy organizations combine the attributes of US venture philanthropies, which generally restrict themselves to grant funding, with what we have termed “foundations as philanthropic banks,” which deploy a far wider array of financial instruments.

37. “About,” The Hub, accessed October 20, 2012, http://www.the-hub.net/about. 38. “About,” Opportunity Finance Network, accessed October 12, 2012, www.opportunity-

finance.net/about. 39. “About Us,” UN PRI, accessed October 20, 2012, http://www.unpri.org; “About Us,”

Social Investment Forum, accessed October 20, 2012, http://www.socialinvest.org. 40. “About Us,” CGAP, accessed October 20, 2012, http://www.cgap.org/p/site/c/

aboutus/. 41. “What’s New in Mission Investing,” Mission Investors Exchange, accessed October

20, 2012, http://www.moreformission.org; “About Mission Investors Exchange,” Mission Investors Exchange, accessed October 20, 2012, https://www.missioninves- tors.org/about-us; “The Origins of Mission Investors Exchange,” Mission Investors Exchange, accessed October 20, 2012, http://www.missioninvestors.org/about-us/ origins-mission-investors-exchange.

42. Freireich and Fulton, 2009 Monitor Report, 12. 43. O’Donohoe et al., Impact Investments, 17. 44. For further detail on these entities, see Vince Stehle, “On-Line Portals and Exchanges,”

Chapter 8 in Salamon, New Frontiers of Philanthropy.

Chapter 2 Notes 129

45. Markets for Good, Upgrading the Information Infrastructure for Social Change (Summer 2012), 11, accessed May 11, 2013, http://www.marketsforgood.org/wordpress/wp-content/ uploads/2012/11/MarketsforGood_Information-Infrastructure_Fall-2012_.pdf.

46. “About,” Kiva, accessed October 20, 2012, http://www.kiva.org/about/stats. 47. “TechSoup Global by the Numbers, Quarterly Report, October 2010, “ TechSoupGlobal,

accessed May 11, 2013, http://www.techsoupglobal.org/press/selectcoverage. 48. “Our 2011 Annual Report Infographic,” VolunteerMatch, accessed October 23, 2012,

http://blogs.volunteermatch.org/engagingvolunteers/2012/06/25/our-2011-annua l-report-infographic-the-story-of-you/.

49. For further detail on these entities, see Rick Cohen, “Corporate-Originated Charitable Funds,” Chapter 9 in Salamon, New Frontiers of Philanthropy.

50. “2011 Donor-Advised Fund Report,” National Philanthropic Trust, accessed May 11, 2013, http://www.nptrust.org/images/uploads/2011%20Donor-Advised-Fund- Report%281%29.pdf.

51. Early critiques of the corporate-originated charitable funds centered on the fact that they were legally constituted as “public charities” as opposed to foundations, and thereby avoided the legal restrictions on foundations, including the restrictions requiring the payout of at least 5 percent of their assets each year as grants. As Cohen shows, however, the larger such funds have established internal procedures that encourage robust payout, and most of the funds have proved to have payout rates at least as high as those required of foundations.

52. This discussion draws heavily on Lester M.  Salamon, “Privatization for the Social Good: A New Avenue for Global Foundation-Building,” in The Privatization Barometer ( July 2010), 48–54; and Lester M. Salamon, Philanthropication thru Privatization: Building Assets for Social Progress (New York: East-West Management Institute, 2013). Available at http://bit.ly/1brWDcL.

53. Examples of these other foundations include Deutsche Bundesstiftung Umwelt, Landesstiftung Baden-Wurtemberg, and Stiftung Innovation (Rhineland-Palatinate).

54. Salamon, Philanthropication thru Privatization. 55. In 1990, for example, Italy converted its 88 small, nonprofit, and quasi-public savings

banks into joint stock companies, but left the ownership of the resulting stock in a set of what became 88 foundations, which inherited the charitable arms of the preexisting savings banks. Thanks to a number of strategic consolidations and mergers among the owned banks, by the time the foundations were authorized to sell this stock in 1994, its value exceeded €24 billion (or US$31 billion at current exchange rates). Since then the assets of these “foundations of banking origin” have climbed further, producing a phil- anthropic revolution that has transformed Italy from a philanthropic backwater into one of the leading philanthropic nations in the world as measured by the per capita size of its philanthropic endowments. As of 2008, the combined assets of Italy’s foundations of banking origin exceeded €50 billion, or some US$65 billion. Fondazione Cariplo and Compagnia di San Paolo, two of the largest of these foundations, both had assets in excess of €9 billion, or approximately US$12 billion, as of 2008, which put both of them ahead of such major US foundations as the Rockefeller Foundation ($3.1 billion in assets as of 2008), and the Ford Foundation, America’s second largest ($9.1 billion in assets as of 2008). Data on US foundations from Foundation Center, Foundation Yearbook: Facts and Figures on Private and Community Foundations, 2008 Edition (New York: Foundation

130 Notes

Center, 2008), 18. Data on Ford Foundation:  “About,” Ford Foundation, accessed February 6, 2010, http://www.fordfound.org/about.

A virtually identical process occurred even earlier in New Zealand, when a series of New Zealand nonprofit savings banks were converted into stock companies, and the shares placed into a network of 12 community trusts. More recently, the purchase of a number of nonprofit health insurance organizations and hospitals by for-profit firms in the US has led to the creation of close to 200 so-called health conversion foundations, including the $3.3 billion California Endowment. For further detail see Grantmakers in Health, “A Profile of Foundations Created from Health Care Conversions,” 2009, accessed November 15, 2013, http://www.gih.org/files/usrdoc/2009_Conversion_Report.pdf.

56. For further detail on these funding collaboratives, see Angela Eikenberry and Jessica Bearman, “Funding Collaboratives,” Chapter 10 in Salamon, New Frontiers of Philanthropy.

57. “Global Gathering,” TONIIC, accessed October 19, 2012, http://toniicglobalgathering. eventbrite.com/.

58. “History,” Living Cities, accessed October 19, 2012, http://www.livingcities.org/about/ history/.

59. “About,” Angel Investors Network, accessed October 19, 2012, http://www.angelinves- tors.net/about.

Chapter 3 1. For an analysis of the use of varied tools of action, including varied financial tools of action,

in the governmental sphere, see Lester M. Salamon, The Tools of Government: A Guide to the New Governance (New York: Oxford University Press, 2002).

2. Lawrence, “Doing Good,” xvi. 3. Sarah Cooch and Mark Kramer, “Compounding Impact:  Mission Investing by US

Foundations,” FSG Social Impact Advisors, 2007, 17, accessed November 15, 2013, http://www.cdfifund.gov/what_we_do/resources/Compounding%20Impact%20 Mission%20Investing%20by%20US%20Foundations.pdf.

4. Saltuk, Bouri, and Leung, Impact Investment Market, 11–12. Two years later, however, this same source reported that the share of impact investors surveyed who reported using a private equity instrument exceeded the share reporting use of debt by 83 per- cent to 66  percent, though no information was provided on the numbers of transac- tions of each type that these different investors made. See Yasemin Saltuk, Amit Bouri, Abhilash Mudaliar, and Min Pease, Perspectives on Progress:  The Impact Investor Survey (London: J.P. Morgan Social Finance, January 2013), 9.

5. For further detail on the character and operation of loans and credit enhancements, see Norah McVeigh and Julia Sass Rubin, “Loans, Loan Guarantees, and Credit Enhancements,” Chapter 12 in Salamon, New Frontiers of Philanthropy.

6. “USAID, Global Impact Investing Network Join to Create East Africa Agricultural Investment Fund,” SeedStock, accessed May 11, 2013, http:// s e e d s to c k .c o m / 2 0 1 1 / 1 0 / 0 5 / u s a i d – g l o ba l – i m pa c t- i nv e s t i n g – n e t w o r k- j oin-to-create-east-africa-agricultural-investment-fund/.

7. For further detail, see Alex Nichols and Rod Schwartz, “The Demand Side of the Philanthropic Marketplace,” Chapter 21 in Salamon, New Frontiers of Philanthropy.

Chapter 3 Notes 131

8. Financial Markets Series, Bond Markets 2011 (London: TheCityUK, 2011), 1, accessed May 11, 2013, http://www.thecityuk.com/assets/Uploads/BondMarkets2011.pdf.

9. For further detail on the operation and use of bonds in social-impact investing, see Shari Berenbach and Elise Balboni, “Fixed-Income Securities,” Chapter 13 in Salamon, New Frontiers of Philanthropy.

10. “Bonds,” IFFIm, accessed May 11, 2013, http://www.iffim.org/bonds/. 11. “Community Investment Note,” Calvert Foundation, accessed May 11, 2013, http://

www.calvertfoundation.org/invest/how-to-invest/community-investment-note. 12. Some securitization transactions use a financial instrument called a collateralized debt

obligation (CDO) instead of a bond as the vehicle for raising capital from investors. CDOs can be backed by a variety of types of loans and can be sold in “tranches” that carry different maturities, interest rates, and risk associated with them. For further detail on securitization in the social-purpose arena, see Tingerthal, “Securitization,” in Salamon, New Frontiers of Philanthropy.

13. For further detail on equity and quasi-equity, see Monica Brand and John Kohler, “Private Equity Investments,” Chapter 15 in Salamon, New Frontiers of Philanthropy.

14. Cooch and Kramer, Compounding Impact, 17. A later study of 74 mission-investing foun- dations by the Foundation Center found half of these institutions making mission-related equity investments, but mostly in publicly traded equities, though a third reported mak- ing private equity investments of the sort typically available to small, social enterprises. Steven Lawrence and Reina Mukai, Key Facts on Mission Investing (New York: Foundation Center, 2011), 3.

15. Saltuk, Bouri, and Leung, Impact Investment Market, 11. 16. Saltuk et al., Perspectives on Progress, 9. 17. Joshua Humphreys, “Sustainability Trends in US Alternative Investment,” US

SIF Foundation:  Forum for Sustainable and Responsible Investment, 2011, 3, accessed October 19, 2012, http://www.investorscircle.net/accelsite/media/3195/ Sustainability%20Trends%20in%20US%20Alternative%20Investments%20Report.pdf.

18. This set of venture capital funds is supported by a trade association called the Community Development Venture Capital Alliance (CDVCA).

19. “Equity Investments,” Kentucky Highlands Investment Corporation, accessed November 3, 2012, http://www.khic.org/equity.html. Another example of the same type of fund is CEI Ventures, a for-profit subsidiary of a 26-year-old community development financial institution headquartered in Wiscasset, Maine, that makes equity investments in promis- ing companies providing quality jobs for low-income people in northern New England. The firm’s Coastal Ventures II fund raised $20 million from 30 institutional and individ- ual investors for equity investments in companies that “promote socially beneficial prod- ucts and services, opportunities for women and minorities, environmentally friendly business practices, and the enrichment of distressed and rural communities.” “Overview,” CEI Ventures, accessed November 3, 2012, http://www.ceiventures.com/.

20. “About Us,” Aavishkaar, accessed November 4, 2012, http://www.aavishkaar.in/ about-us/.

21. Humphreys, “US Alternative Investment.” 22. For a discussion of these and other features of equity investing, see Monica Brand and

John Kohler, “Private Equity Investments,” Chapter  15 in Salamon, New Frontiers of Philanthropy.

132 Notes

23. For a fuller discussion of the tool of “socially responsible investing and purchasing,” see Steve Lydenberg and Katie Grace, “Socially Responsible Investing and Purchasing,” Chapter 18 in Salamon, New Frontiers of Philanthropy.

24. US Social Investment Forum Foundation, Sustainable and Responsible Investing Trends, 11; Eurosif, European SRI Study: 2012 (Brussels: Eurosif, 2012), 63, accessed May 11, 2013, http://www.eurosif.org/research/eurosif-sri-study/sri-study-2012.

25. Social Enterprise UK, Fightback Britain: A Report on the State of Social Enterprise Survey 2011 (London: Social Enterprise UK, 2011), 15.

26. A “matched bargain market” is a private trading platform, typically handled by an investment company, through which social-purpose investors can sell their shares to other investors looking to enter a particular market. One example is that provided by the Ethical Property Company (EPC) in the UK. This social venture offers office space for social-purpose organizations in the UK. It finances its property acquisitions from equity capital raised from the sale of shares. Its shares are not sold on the London Stock Exchange or the Alternative Investment Market, however. Rather, its 1,357 shareholders bought their shares through a matched bargain market guided by Stocktrade, a division of the stockbroker firm of Brewin Dolphin, which also handles all trades and is responsible for using all reasonable effort to match willing buyers and sellers both for EPC and other social ventures that have chosen to use this route to financing their operations as well. “How to Invest,” Ethical Property, accessed November 4, 2012, http://www.ethicalprop- erty.co.uk/howtoinvest.php.

27. “Investment Approach,” Aavishkaar, accessed November 4, 2012, http://www.aavish- kaar.in/about-us/investment-approach/.

28. For further detail on “quasi-equity,” see Brand and Kohler, “Private Equity Investments,” in Salamon, New Frontiers of Philanthropy.

29. For information on the HCT Group, see “Welcome to HCT Group,” HCT Group, accessed November 4, 2012, http://www.hctgroup.org.

30. For further detail on social-impact bonds or “pay for success,” see Drew van Glahn and Caroline Whistler, “Social Impact Bonds / Pay-for-Success,” Chapter 16 in Salamon, New Frontiers of Philanthropy.

31. The goal is to reduce the 60 percent recidivism rate for such offenders and thereby save the government millions of pounds. If the funded social sector organizations providing the wraparound rehabilitation services succeed in reducing one-year postrelease recon- victions by at least 7.5 percent among this population compared to a control group, then the investors will get their money back with 2.5  percent interest. If the performance exceeds this target, investors will be rewarded with a return higher than this, up to a max- imum of 13 percent. Based on information available in Social Finance, A New Tool for Scaling Impact: How Social Impact Bonds Can Mobilize Private Capital to Advance Social Good (Boston: Social Finance, 2012), accessed November 4, 2012, http://www.social- finance.org.uk/resources/social-finance/new-tool-scaling-impact-how-social impact-bo nds-can-mobilize-private-capita; “Home,” Social Finance, accessed November 4, 2012, http://www.socialfinance.org.uk

32. MDRC, a New  York–based employment and training organization, will manage the program and make payments to a set of nonprofit organizations that will carry out the program. For Goldman Sachs to break even on its payments to MDRC, the program will have to reduce recidivism on the part of program participants by 10 percent compared to a control group. Greater success will save the city more money and accrue a higher

Chapter 4 Notes 133

return for Goldman Sachs. “Mayor Bloomberg, Deputy Mayor Gibbs, and Corrections Commissioner Schriro Announce the Nation’s First Social Impact Bond Program,” City of New  York, Office of the Mayor, accessed November 4, 2012, http://www.nyc.gov/ html/index.html.

33. Jim Roth, Denis Garand, and Stuart Rutherford, The Landscape of Microinsurance in the World’s 100 Poorest Countries (Appleton, WI: Microinsurance Center, 2007).

34. On the International Labour Organization’s Microinsurance Innovation Facility, see “Microinsurance Innovation Facility,” International Labour Organization, accessed May 11, 2013, www.ilo.org/microinsurance. For a broader discussion of microinsurance, see Chapter 17, “Insurance,” by Craig Churchill and Lauren Peterson, in Salamon, New Frontiers of Philanthropy.

35. Swiss Reinsurance Company, Microinsurance—Risk Protection for 4 Billion People (Zurich: Swiss Re, 2010); Craig Churchill and Michael J. McCord, “Emerging Trends in Microinsurance,” in Protecting the Poor: A Microinsurance Compendium, vol. 2, ed. Craig Churchill and Michal Matul (Geneva: International Labor Organization and Munich Re Foundation, 2012).

36. For a discussion of this and other innovations mentioned here, see Churchill and Matul, Protecting the Poor.

37. For further detail on these initiatives, see Chapter  17 in Salamon, New Frontiers of Philanthropy.

38. O’Donohoe et al., Impact Investments, 5. 39. For further detail on these approaches, see Lydenberg and Grace, “Socially Responsible

Investing and Purchasing,” in Salamon, New Frontiers of Philanthropy. 40. Eurosif, European SRI Study, 63, The seven distinct types of socially responsible invest-

ment mechanism identified by Eurosif include sustainability-themed investment, best-in-class investment selection, norms-based screening, exclusion of holdings from investment universe, integration of ESG factors in financial analysis, engagement and voting on sustainability matters, and impact investment.

41. Eurosif, European SRI Study, 7. 42. Quoted in Lester M. Salamon, Rethinking Corporate Social Engagement:  Lessons from

Latin America (Sterling, VA: Kumarian Press, 2010), 33. 43. See, for example, David Vogel, The Market for Virtue: The Potential and Limits of Corporate

Social Responsibility (Washington, DC: Brookings Institution Press, 2005), 37. 44. The discussion here draws heavily on Peter Frumkin, “Grants,” Chapter 19 in Salamon,

New Frontiers of Philanthropy. 45. McKinsey and Company, And the Winner Is . . . Capturing the Promise of Philanthropic

Prizes (n.p.: McKinsey and Co., 2009), 16.

Chapter 4 1. Lester Brown, World on Edge:  How to Prevent Environmental and Economic Collapse

(New York: W.W. Norton, 2011). 2. Brown, World on Edge, PowerPoint presentation available at “Books,” Earth Policy

Institute, accessed April 14, 2013, http://www.earth-policy.org/books/wote. 3. Landon Thomas, Jr., “As the Bailouts Continue in Europe, So Does the Flouting of Rules,”

New York Times, November 29, 2012, B3.

134 Notes

4. David Jolly and Jack Ewing, “Unemployment in Euro Zone Reaches New High,” New  York Times, November 30, 2012, accessed May 11, 2013, http://www.nytimes. com/2012/12/01/business/global/daily-euro-zone-watch.html.

5. Salamon, America’s Nonprofit Sector, 39. 6. David Bornstein, How to Change the World:  Social Entrepreneurs and the Power of New

Ideas (New York: Oxford University Press, 2004), 1. 7. Lester M. Salamon, “The Rise of the Nonprofit Sector,” Foreign Affairs 73.4 ( July–August,

1994): 109–22. 8. See Bornstein, How to Change the World, for examples of such actors. On the “global asso-

ciational revolution,” see Salamon, “The Rise of the Nonprofit Sector.” 9. See, for example: Carlos Borzaga and Jacques Defourny, The Emergence of Social Enterprise

(London:  Routledge, 2001); Alex Nichols, Social Entrepreneurship:  New Models of Sustainable Social Change (Oxford: Oxford University Press, 2006); Dennis R. Young, Lester M. Salamon, and Mary Clark Grinsfelder, “Commercialization, Social Ventures, and For-Profit Competition,” in The State of Nonprofit America, 2nd ed., ed. Lester M. Salamon (Washington, DC: Brookings Institution Press, 2012).

10. Peer Stein, Tony Goland, and Robert Schiff, Two Trillion and Counting:  Assessing the Credit Gap for Micro, Small, and Medium-Size Enterprises in the Developing World (n.p: International Finance Corporation and McKinsey & Company, 2010), 1.

11. O’Donohoe et al., Impact Investments, 39. 12. Although, only three-tenths of 1 percent of all foundations—less than 200 institutions

in all out of more than 75,000—have made any PRI in a typical recent year, and only eight-tenths of 1 percent of foundation charitable distributions are taking this form, the fact remains that the PRI program created a significant cadre of foundations skilled in making charitable investments in low-income housing, community development, minor- ity housing, and other social-purpose activities. Data on the number of foundations making PRIs and the share of qualifying distributions recently taking this form from Lawrence, “Doing Good”,” xiii. The total number of private foundations in the US is from Foundation Center, Foundation Yearbook, 2009 (New York: Foundation Center, 2010). For further description of the revolution in housing policy that these initiatives fostered, see Erickson, The Housing Policy Revolution.

13. “Mission and History,” Calvert Foundation, accessed January 2, 2013, http://www. calvertfoundation.org/index.php?option=com_content&view=article&id=66&Ite mid=76; “Acumen Fund Ten Year Report, 2001–2011,” 2011), 1, accessed January 2, 2013, http://www.acumenfund.org/uploads/assets/documents/Acumen%20 Fund%20Ten%20Year%20Report%202001%20-%202011a_3wcsNw56.pdf.

14. “About Us,” Acumen Fund, accessed December 4, 2012, http://www.acumenfund.org/ about-us.html.

15. Prahalad, Fortune at the Bottom of the Pyramid. 16. For a fuller portrayal of this model, see Salamon and Burckart, “Foundations as

Philanthropic Banks,” in Salamon, New Frontiers of Philanthropy. 17. Charly and Lisa Kleissner, and Raul Pomares, personal interviews with author, March 26,

2010 and January 23, 2012. 18. Bishop and Green, Philanthrocapitalism, 6.

Chapter 5 Notes 135

19. Atul Dighe, “Demographic and Technological Imperatives,” in Salamon, State of Nonprofit America; William Strauss and Neil Howe, Millennials Rising: The Next Great Generation (New York: Vantage, 2000).

20. “Home Page,” Net Impact, accessed October 1, 2012, http://netimpact.org/. 21. “About Us: Our Team,” Willow Impact Investors, accessed August 10, 2012, http://www.

willowimpact.com/about-us/. 22. Data on rates from New York Times, January 4, 2013, B8. “Battered investor syndrome”

comment from Ed Yardeni, founder of Yardeni Research, as quoted in Nathan Popper, “Even with Fiscal Agreement, Investors Facing Imminent Obstacles,” New  York Times, January 1, 2013, accessed September 14, 2013, http://www.nytimes.com/2013/01/02/ business/economy/daily-stock-market-activity.html?_r=0.

23. O’Donohoe et  al., Impact Investments, 11, 31–34; Saltuk, Bouri, and Leung, Impact Investment Market, 16–24.

24. “Investing for Social & Environmental Impact:  A  Design for Catalyzing an Emerging Industry,” Monitor Institute, accessed May 11, 2013, http://www.monitorinstitute.com/ impactinvesting/documents/InvestingforSocialandEnvImpact_FullReport_004.pdf

25. O’Donohoe et al., Impact Investments, 17.

Chapter 5 1. Brian Trelstad, “The Elusive Quest for Impact: The Evolving Practice of Social Impact

Measurement,” Chapter 22 in Salamon, New Frontiers of Philanthropy. 2. “Benefit corporations” are businesses that meet especially demanding standards of cor-

porate purpose, accountability, and transparency. B-Lab provides a rating system for such corporations and awards a “B-corporation” label to companies that demonstrate adher- ence to one of a number of third-party rating systems for corporations. “About B-lab,” B-Lab, accessed February 5, 2013, http://www.benefitcorp.net/about-b-lab.

3. “How GIIRS Works,” B-Lab, accessed February 5, 2013, http://www.giirs.org/ about-giirs/how-giirs-works.

4. See Lyndenberg and Grace, “Socially Responsible Investing and Purchasing,” in Salamon, New Frontiers of Philanthropy.

5. O’Donohue et  al., Impact Investments, 72; E. T.  Jackson and Associates, Accelerating Impact: Achievements, Challenges and What’s Next in Building the Impact Investing Industry (New York: Rockefeller Foundation, 2012), xvi.

6. Thornley and Dailey, “Nonfinancial Performance Measurement,” 16. 7. O’Donohue et al., Impact Investments, 22. More recent data suggest some improvement

in the penetration of nonfinancial impact measurement, though the phrasing of some survey questions makes it difficult to assess this development fully. Thus, a recent survey of impact investors found only 33 percent reporting that they considered “standardized impact metrics” “very important,” though another 65 percent were willing to rate them “important” or “somewhat important.” Similarly, only 30 percent of responding impact investors reported using “third-party ratings” for “all potential investments,” though another 60 percent indicated that they use them “if available.” Saltuk et al., Perspectives on Progress, 16.

8. Lester M. Salamon, “What Would Google Do? Designing Appropriate Social Impact Measurement Systems,” Community Development Investment Review 7.2 (December

136 Notes

2011):  43–47. Applied to the field of social-impact measurement, this approach has been termed “constituency voice” and developed formally by David Bonbright through an organization called Keystone. “Constituency Voice,” Keystone, accessed February 9, 2013, http://www.keystoneaccountability.org/analysis/constituency.

9. SEEDCO, The Limits of Social Enterprise (New York: SEEDCO Policy Center, 2008). 10. E. T. Jackson and Associates, Accelerating Impact, xiii. 11. The $8 billion figure comes from a survey of 99 investors identified by the Global Impact

Investment Network and J.P. Morgan Social Finance and reporting managing US$10 mil- lion or more of impact investment capital as of the end of 2012. The $4.4 billion and $2.5 billion figures come from a similar survey of 52 impact investment intermediaries undertaken by J.P. Morgan in late 2011. See Saltuk et al., Perspectives on Progress, 3–4; and Saltuk, Bouri, and Leung, Impact Investment Market, 5.

12. “Federal Reserve Statistical Release, Z.l, Flow of Funds Accounts of the United States, March 2011,” Board of Governors of the Federal Reserve System, accessed May 11, 2013, http://www.federalreserve.gov.releases/z1/201000311.

13. “Michael Drexler and Abigail Noble, preface to World Economic Forum, From the Margins to the Mainstream: Assessment of the Impact Investment Sector and Opportunities to Engage Mainstream Investors (Davos: World Economic Forum, September 2013), 3.

14. Tingerthal, “Securitization,” in Salamon, New Frontiers of Philanthropy. 15. US SIF Foundation, Sustainable and Responsible Investing Trends, 11. 16. Erickson, “Secondary Markets,” in Salamon, New Frontiers of Philanthropy. For discus-

sions of factors limiting the growth of the social-impact investing industry, see Katie Hill, Investor Perspectives on Social Enterprise Financing (London: City of London, Big Lottery Fund, Clearly So, 2011); E. T. Jackson and Associates, Accelerating Impact, xiv, 19–20. For J.P. Morgan survey results, see Saltuk, Bouri, and Leung, Impact Investment Market, 5.  Although continued progress was reported in a 2013 report by J.P. Morgan Social Impact, it was notable that the most the authors could claim was that 58 percent of the respondents to their survey were able to report that “more than a few investors” were “already designing an impact investment strategy” but that only 4 percent of respondents could report that “many investors” were doing so. Saltuk et al., Perspectives on Progress, 18.

17. Saltuk, Bouri, and Leung, Impact Investment Market, 4.  A  similar complaint surfaced in second place in a 2013 publication drawing on a similar survey. See Saltuk et  al., Perspectives on Progress, 9.

18. Venturesome, Access to Capital: A Briefing Paper (London: CAF Venturesome, 2011). 19. As E. T. Jackson puts it gingerly in his assessment of the state of the impact-investing in-

dustry: “While the impact investing industry has, understandably, been focused largely on its supply side efforts to mobilize and place capital, its leading organizations have done rel- atively less work on actively developing the capacity of ventures to effectively prepare for capital infusion and to use it effectively.” E. T. Jackson and Associates, Accelerating Impact, xv.

20. Harvey Koh, Ashish Karamchandani and Robert Katz, From Blueprint to Scale: The Case for Philanthropy in Impact Investing (San Francisco: Monitor Group, 2012), 10, accessed February 2, 2013, http://www.mim.monitor.com/downloads/Blueprint_To_Scale/ From%20Blueprint%20to%20Scale%20-%20Case%20for%20Philanthropy%20in%20 Impact%20Investing_Full%20report.pdf.

21. Koh, Karamchandani, and Katz, From Blueprint to Scale, 4–6. 22. Koh, Karamchandani, and Katz, From Blueprint to Scale, 15–16. 23. Koh, Karamchandani, and Katz, From Blueprint to Scale, 18–19.

Chapter 6 Notes 137

24. Starr, “Trouble with Impact Investing”; see also Laura Hattendorf, “The Trouble with Impact Investing:  P2,” Stanford Social Innovation Review 14 (April 18, 2012), 14; Tingerthal, “Securitization.”

25. See, for example, Lester M. Salamon, “Of Market Failure, Voluntary Failure, and Third-Party Government:  Toward a Theory of Government-Nonprofit Relations in the Modern Welfare State,” in Lester M. Salamon, Partners in Public Service:  Government-Nonprofit Relations in the Modern Welfare State (Baltimore:  Johns Hopkins University Press, 1995), 33–52.

Chapter 6 1. Bugg-Levine and Emerson, Impact Investing, 90. 2. US SIF Foundation, Sustainable and Responsible Investing Trends, 11. 3. US SIF Foundation, Sustainable and Responsible Investing Trends, 54; “Highlights of

Foundation Yearbook, 2011 Edition,” Foundation Center, accessed February 10, 2013, http://foundationcenter.org/gainknowledge/research/pdf/fy2011_highlights.pdf.

4. Usman Hayat, “Do Investment Professionals Know about Impact Investing?” CFA Institute, July 2013, cited in World Economic Forum, From the Margins to the Mainstream, 5.

5. World Economic Forum, From the Margins to the Mainstream. 6. Bugg-Levine and Emerson, Impact Investing, 151. 7. E. T.  Jackson and Associates, Accelerating Impact, xviii; Frieriech and Fulton, 2009

Monitor Report, 47–48; Koh, Karamchandani, and Katz, From Blueprint to Scale, 7–9. 8. Shirley Sagawa, “A Policy Agenda for the New Frontiers of Philanthropy,” Chapter 24 in

Salamon, New Frontiers of Philanthropy. 9. Frieriech and Fulton, 2009 Monitor Report, 47; O’Donohoe et al., Impact Investments, 76;

Ben Thornley, David Wood, Katie Grace, Sarah Sullivan, Impact Investing: A Framework for Policy Design and Analysis (n.p.:  Insight at Pacific Community Ventures and The Initiative for Responsible Investment at Harvard University, January 2011), 15–16; UN Development Program, Human Development Report (New York: UN Development Program, 2011), v.

10. Frieriech and Fulton, 2009 Monitor Report, 47. 11. E. T. Jackson and Associates, Accelerating Impact, 29. 12. E. T. Jackson and Associates, Accelerating Impact, 21–27. 13. “About:  How It Works,” TONIIC, accessed February 24, 2013, http://toniic.com/

about/how-it-works/. 14. Frieriech and Fulton, 2009 Monitor Report, 46. 15. Encyclical Letter Caritas In Veritate, Of The Supreme Pontiff, Benedict XVI, To the Bishops

Priests and Deacons, Men And Women Religious, the Lay Faithful, and All People Of Good Will, On Integral Human Development, In Charity and Truth, Para. 46, accessed May 5, 2011, http://www.vatican.va/holy_father/benedict_xvi/encyclicals/documents/ hf_ben-xvi_enc_20090629_caritas-in-veritate_en.html.



Bond. A particularly large type of fixed-income security, usually subjected to a rating process by a rating agency to provide assurance to potential investors (“rated bonds”), though unrated bonds, or notes, are also used, especially in the social-impact investment universe.

Capital stack. A capital fund that pools different layers, or “tranches,” of invest- ment capital, each with its own risk-return characteristics, and therefore each with its own potential class of investors.

Collateral. Any form of asset used as security for a loan to be surrendered to lenders in whole or in part if the loan cannot be repaid.

Community Development Finance Institution. One of a network of approx- imately 1,300 community development loan funds, venture capital funds, credit unions, and community development banks in the United States that focus on investing in distressed urban and rural communities and have been designated by the US government as eligible to receive support from the fed- eral government’s CDFI support fund.

Conversion foundation. A charitable foundation formed out of the process of privatizing some public or quasi-public asset, such as a government-owned enterprise, a government-owned building or other property, specialized streams of revenue under government control (e.g., lotteries), or the conver- sion of a nonprofit into a for-profit company.

Credit enhancement. A special inducement such as a guarantee added to loans in order to attract lenders into what are perceived as risky investments.

Debt. Any of a number of forms of investment, such as loans, bonds, or mort- gages, that convey to investors a claim on repayment of both the original “principal” amount of the investment plus “interest,” i.e., a percentage of the original investment, either over time or at an agreed-upon time in the future (the maturity date).

Donor-advised fund. A pool of charitable resources that donors deposit for management in community foundations, corporate-originated charitable funds, or other nonprofit institutions, for which the donors receive the full value of their charitable deduction at the time of deposit and out of which

140 Glossary

they make charitable contributions to eligible nonprofit organizations over a period of years.

Enterprise broker. An individual or institution that performs the critical mid- dleman function of helping social-purpose investors identify promising ven- tures capable of meeting their investment objectives.

Equity investment. An investment that gives an investor an ownership share of an enterprise and hence a claim on a portion of any profits the enterprise gen- erates, as well as the opportunity to sell these shares for a profit at a later date.

Finance-first investor. An investor who seeks to achieve a risk-adjusted market rate of return on an investment while still meeting a threshold of social or environmental impact.

Fixed-income security. A huge loan with generally long maturity, typically sold through underwriters or investment banks that market portions of it to var- ious types of investors, including pension funds, insurance companies, and high-net-worth individuals.

Foundation as philanthropic bank. A foundation that makes programmatic use of its assets and not just its grant budget for program-related purposes and that makes extensive use of nongrant forms of assistance to achieve greater leverage with its resources.

Funding collaborative. A network that offers groups of either individual or institutional donors and investors vehicles for collective grant-making or social-purpose investing.

Impact-first investor. An investor who seeks to maximize the social or environ- mental impact of an investment while still meeting a threshold of financial return.

Investment capital. Revenue that fundamentally goes to build long-term or- ganizational capacity and capabilities through the purchase of such things as equipment, facilities, skills, and strategic planning that are expected to gen- erate annual operating revenue for the organization over the longer haul.

Online portals and exchanges. Organizations that make use of the Internet to facilitate direct provision of cash, commodities, and/or services (paid and volunteer) to recipient social-purpose organizations.

Operating income. The income organizations use to run their ongoing annual operations.

Private equity. An equity investment that is made without the benefit of listing on a registered public exchange.

Program-related Investment (PRI). Support that foundations in the US are permitted to count toward their required minimum distribution, but that they can provide in the form of loans, equity, or other financial instruments

Glossary 141

to for-profit as well as nonprofit organizations so long as the support does not have a commercial purpose and is in support of the foundation’s general charitable mission.

Public equity. An equity investment that is made through a registered public stock exchange.

Quasi-equity. A form of equity investment that allows an investor to ben- efit from the future revenues of an organization through a royalty payment geared to income rather than a share of any profits earned and that often con- veys some advisory role in the management of the organization but not an ownership share.

Rated security. A bond that is rated as creditworthy by one of the quasi-official bond rating agencies, such as Standard and Poor’s.

Secondary market. A financial institution that raises capital through the issu- ance of bonds and uses it to purchase the loans originated by primary lenders, refreshing the capital available to these lenders so they can make additional primary loans.

Secured debt. Debt that is backed by some asset that the lender can seize if a loan is not repaid.

Securitization. A financial process that involves assembling bundles of loans (e.g., mortgage loans) into packages and using them as collateral against which to issue bonds on the capital markets, with the proceeds of the bond sales going to pay for the purchase of the bundles of loans.

Senior debt/loan. A loan or other debt that has a first call on payment or col- lateral in the event a borrower is unable to pay its debt obligations.

Social stock exchange. A regulated trading platform through which dispersed social-purpose investors can locate and invest in social-purpose enterprises and through which social-purpose enterprises can secure capital they need to expand and grow.

Soft loan. A loan with flexible terms intended to permit start-up firms time to become profitable.

Subordinated debt/loan. A loan or other debt that is paid off only after other lenders or investors are paid, in the event a borrower is unable to pay its full obligations.

Unsecured debt. Debt that is not backed by a particular asset (collateral) that could be seized in the event a loan is not repaid.



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About the Author

Lester M. Salamon is a Professor at The Johns Hopkins University and Director of the Johns Hopkins Center for Civil Society Studies. He previously served as the founding director of the Johns Hopkins Institute for Policy Studies, as the director for Governance and Management Research at the Urban Institute in Washington, D.C., and as deputy associate director of the U.S. Office of Management and Budget. Dr. Salamon is an expert on the tools of government and has been a pioneer in the empirical study of the non- profit sector in the United States and around the world. His book, America’s Nonprofit Sector: A Primer, is the standard text used in college-level courses on the nonprofit sector in the United States. His Partners in Public Service: Government and the Nonprofit Sector in the Modern Welfare State won the 1996 ARNOVA Award for Distinguished Book in Nonprofit and Voluntary Action Research, and in 2012 was awarded the Aaron Wildavsky Enduring Contribution Award from the American Political Science Association. Dr. Salamon’s recent books include The Tools of Government: A Guide to the New Governance (Oxford University Press, 2002); Global Civil Society: Dimensions of the Nonprofit Sector (Kumarian Press, 2004); Rethinking Corporate Social Responsibility: Lessons from Latin America (Kumarian Press, 2010); America’s Nonprofit Sector: A Primer, Third Edition (Foundation Center, 2012); and The State of Nonprofit America, Second Edition. (Brookings Institution Press, 2012). Dr. Salamon received his B.A. degree in Economics and Policy Studies from Princeton University and his Ph.D. in Government from Harvard University. He served from 1998 to 2006 as the Chairman of the Board of the Chesapeake Community Foundation.



Aavishkaar International, 3, 8, 66, 68 ACCION International, 28, 86 Acumen Fund, 3, 10, 31–32, 84, 91, 101 African Agricultural Capital Fund (AACP),

1, 7–8, 58–59 Agrícola Viñasol (AVSA), 9 Alliance for Nonprofit Management, 42 Americares.com, 50 angel investors, 54, 62, 66 Annie E. Casey Foundation, 40 Archimedes, 4 Ashoka, 81 Aspen Network of Development

Entrepreneurs (ANDE), 46 asset-backed securities, 62, 98

Babcock Foundation, 40 Bain Consulting, 44 Bakhtiar, Pasha, 89 Bamboo Finance, 8 Banco Compartamos, 28 Bangladesh Rural Advancement Committee

(BRAC), 36, 63 Bank of America, 28 banks (commercial), 4–7, 24, 27–28, 55, 83 barter arrangements, 2, 4 Benedict XVI (pope), 114–115 Berenbach, Shari, 13 Big Society Capital, 3, 39, 59 Bishop, Matthew, 86–87 B-Lab, 96 blended-value return, 19–20, 95 Blue Orchard, 3, 36, 63 BNP Paribas, 59 Board of Governors of the Federal Reserve

System (FRB), 104 BoardSource, 42 Bolsa de Valorous Socioambientais (BVSA,

Brazil), 37 bonds, 2–3, 14, 22–23, 26, 35, 39, 55,

60, 70–71

Community Investment Notes and, 61 Community Reinvestment Fund (CRF)

and, 34 coupon (interest) on, 60 definition of, 22 obstacles to philanthropy’s use of, 23 ratings and, 56, 63 securitization and, 62 social-impact bonds and, 3, 26, 70–71

Bornstein, David, 81 bottom of the pyramid (BOP)

businesses serving, 9, 82, 86, 91–92, 101–103, 106–107

“free rider” problem and, 101 market limitations at, 100–101 microfinance and, 39 microinsurance and, 71–73 “penalty” facing, 86, 91 “pioneer gap” and, 101, 109 Prahalad on, 85–86

Bouri, Amit, 57 Bovespa, 3 Bridgespan Group, 44 Bridges Ventures, 3, 31, 65 Brown, Lester, 78–79 Bugg-Levine, Antony, 20 Burckhart, William, 40

Calvert Foundation, 3, 13, 59–61, 84, 91 capacity-building

consulting firms and, 44 earned-income strategies and, 42 organizational scaling and, 17, 42 organizational sustainability and, 42 public charities and, 43 venture philanthropists and, 43–45, 76

capital aggregators, 4, 12, 14, 26–34 Community Development Finance

Institutions as, 29, 33–34 definition of, 27 different types of, 28

156 Index

capital aggregators (Cont.) finance-first investors and, 29-30 impact-first investors and, 29–31 microfinance and, 85 as middlemen in the social-impact

capital markets, 29, 36, 84, 99 return rates among, 34 structured investment products

and, 29, 31 carbon emission trading, 37 CARE, 8 Care2.com, 50 Caritas in Veritate (2009 papal encyclical),

114–115 Carnegie, Andrew, 54 Case Foundation, 76 CDFI Bond Guarantee Program, 61 CEI Ventures, 131n19 Charles Schwab and Sons, 50 Chicago Climate Exchange, 36 Churchill, Craig, 91 Citibank, 28 Civil Rights movement, 94 civil society strengthening, 6–7 climate change, 79 CODENSA, 73 collateral, 35, 58, 85 collateralized debt obligations

(CDOs), 131n12 common stock, 67 community development banks, 29 Community Development Finance

Institutions (CDFIs) environmental, social, and corporate

governance criteria (ESG) and, 108 fixed-income securities and, 60–61 investment instruments and, 29 Opportunity Finance Network and, 46 Reigle Community Development and

Regulatory Improvement Act and, 83

return rates among, 33–34 Community Development Financial

Institutions Fund, 104–105 Community Development Venture Capital

Alliance (CDVCA), 46, 65 Community Investment (CI) Note

mechanism, 60–61 Community Investment Tax Relief Scheme

(United Kingdom, 2002), 84 Community Reinvestment Act (1977), 65,

83, 104, 126n2

Community Reinvestment Fund (CRF), 3, 35, 62–63, 83, 104

Community Wealth Ventures, 44 Consultative Group to Assist the Poor

(CGAP), 47, 90 consulting firms, 44 conversion foundations, 26, 51–52, 129n55 convertible preferred equity, 67 Cooch, Sarah, 56–57, 64 corporate-originated charitable funds, 5, 17,

50–51, 97, 129n51 corporate social responsibility (CSR), 75 credit enhancements, 56, 58–59, 62, 110

angel investors and, 62 foundations and, 59–61

credit unions, 24, 29, 108 crowd-sourcing, 26, 76

Dailey, Colby, 96 Dante, 78 debt, 56–57, 59–61, 64, 69, 98. See

also loans capital aggregators and, 28 collateral and, 58 compared to equity, 63 debt swaps and, 51–52 definition of, 22 European Union countries’ budgets

and, 80 fixed-income securities and, 59–61 social-purpose organizations’ difficulty in

financing, 23 United States government budget

and, 80 Department for International Development

(United Kingdom), 101 desertification, 79 Deutsche Bank, 60 The Divine Comedy (Dante), 78

Edna McConnell Clark Foundation, 43 Educational Foundation of America, 40 Edwards, Mike, 93 Emerson, Jed, 20 enterprise brokers, 4, 14, 26, 41–42 Enterprise Foundation, 84 enterprise philanthropy, 102 environmental, social, and corporate

governance (ESG) standards, 39, 47, 65, 108

environmental improvement initiatives, 2, 6–7, 17, 37

Index 157

environmental refugees, 79 equity, 1–3, 14, 22, 26, 28, 33, 39, 53, 55,

57–59, 63–69, 102 capital aggregators and, 28, 33 capital gains and profit considerations in,

63–64, 68, 70 common stock and, 67 compared to debt, 63 convertible preferred equity, 67 definition of, 22 exit and, 68 as form of credit enhancement, 59 legal requirements regarding, 56 preferred stock, 67 private equity and, 1–2, 65–67 public equity and, 67 quasi equity arrangements, 22, 66–69 risk and, 58, 64, 70 standard equity, 66–67

equity funds, 27–28, 64–67 Erickson, David, 35, 98 Esmee Fairbarn Foundation, 40 Ethical Property Company (EPC), 132n26 European Climate Exchange, 37 European Sustainable Investment Forum

(Eurosif), 74 European Venture Philanthropy Association

(EVPA), 44–45, 47 exit

in equity arrangements, 68 in secondary markets, 12 in social-impact investing, 98 in social stock exchanges, 2, 37, 68

failed states, 79–80, 114 Fair Finance, 59 Fannie Mae (Federal National Mortgage

Association), 34 Federal Deposit Insurance Corporation

(FDIC), 104 Feed the Future initiative, 1 Fidelity Investments, 50 finance-first investors and, 29–30 financial return. See under return “first responders” to social

entrepreneurs, 83–84 fixed-income securities, 59–61. See

also bonds Fondazione CRT, 40 Fondazione Sviluppo e Crescita

(Development and Growth Foundation), 40

Ford Foundation, 60–61, 84 The Fortune at the Bottom of the Pyramid

(Prahalad), 85–86 Forum for Sustainable and Responsible

Investing, 108 fossil fuel consumption, 79 foundations, 1–7, 18, 24, 27, 30–31,

43, 47, 51–52, 54, 59, 71, 80, 83–84, 90, 92

capital aggregators and, 28 Civil Rights movement and, 94 Community Investment Notes

and, 60–61 compared to corporate-originated

charitable funds, 50–51 conversion foundations, 26,

51–52, 130n55 credit enhancement role of, 59–61 equity investments and, 64 as philanthropic banks, 14, 16, 26, 39–41,

86, 102, 110 program-related investments (PRIs) by,

56–57, 83 role in philanthropy, 3–5, 25, 42–44, 47,

51–52, 54, 80, 93 role in social-impact investing,1–3, 5, 7,

13, 18,27,30–31, 39–41, 46–48, 59, 71, 83–4, 86–87, 90, 92, 102, 105, 109–110

social, environmental, and corporate governance (ESG) screens in decision-making and, 39, 108

Franklin, Benjamin, 16 Freireich, Jessica, 30 Fulton, Katherine, 30 funding collaboratives, 26, 53–54

Gates, Bill, 86 Gates Foundation, 1–2, 61 Gatsby Charitable Foundation, 1–2 Geller, Stephanie, 23–24 giving circles, 53 Global Alliance for Banking Values, 46 global associational revolution, 81 Global Financial Crisis (2008-2009),

61–63, 88–89 Global Impact Investing Network (GIIN),

33, 47–48, 90, 95 Global Impact Investing Rating System

(GIIRS), 96 global warming, 79, 114 Goldman Sachs, 60, 71, 132–133n32

158 Index

Goodall, Emilie, 113 Google, 96 government

role in philanthropy, 2, 80 role in social-impact investing, 1, 8,

27–28, 38–39, 83–84, 101, 103–105, 110–113

Grace, Katie, 75 Grameen Bank, 85–86, 101 Grantmakers for Effective Organizations

(GEO), 42 grants, 2–3, 5–6, 21–22, 26, 39–40, 48–55,

59, 75–76, 102, 105, 109–111, 113 as form of credit enhancement, 59 new methods in, 48–54, 75–76 philanthropy operating income

and, 21–22 Grassroots Business Fund, 8 Green, Michael, 86–87

Habitat for Humanity International (HFHI), 35–36

Hagerman, Lisa, 41 H.B. Heron Foundation, 40 HCT Group, 69 housing market in the United States, 35,

62–63, 83–84, 104, 109 The Hub (social entrepreneurs

network), 44–46

Idealist.com, 50 Ideas for Good Prize, 76 IGNIA Fund, 38 ImpactBase, 31, 48, 91 Impact Exchange (iX), 37 impact-first investors, 29–31 impact investing. See social-impact investing Impact Investment Exchange (IIX), 3, 37 impact measurement. See blended-value

return; nonfinancial impact measurement

Impact Partners, 38 Impact Reporting and Investment

Standards (IRIS), 48, 91, 95–96 infrastructure organizations, 46–48, 90–91 Instituto Ethos (Brazil), 74–75 insurance

companies, 4–7, 17, 24, 26, 83, 97 microinsurance and, 71–73, 91 risk pooling and, 72

Inter-American Development Bank, 38

Internal Revenue Service (IRS), 104 International Association of Microfinance

Investors (IAMFI), 47, 90 International Finance Corporation

(IFC), 8, 38 International Finance Facility for

Immunization (IFFIm), 60 International Labour Organization

(ILO), 72–73 investment capital, 5–8, 17–18, 21–24

contrasted with operating income, 21–22 debt as a form of, 22–23, 28 definition of, 21 obstacles to philanthropy’s use of, 23–24

investment screens, 39, 47, 67, 73–74, 98, 108, 127n26

Investors Circle, 54 Irish Loan Fund, 85 Italy, 129n55

Jackson, E.T., 136n19 Jaipur Rugs, 9 Joint Learning Network for Universal

Coverage, 73 J.P. Morgan Chase, 28, 47, 90 J.P. Morgan Social Finance Unit, 1–2, 58–59

Karamchandani, Ashish, 100–102 Katz, Robert, 100–102 Kellogg Foundation, 40 Kentucky Highlands, 65 King Baudouin Foundation, 52 Kingston, John, 113 KIPP Houston, 61 Kiva, 49, 86, 91 Kleissner, Charly, 40, 87 Kleissner, Lisa, 40 KL Felicitas Foundation, 40, 87 Koh, Harvey, 100–102 Kramer, Mark, 56–57, 64 Kraybill, Robert, 36 Kresge Foundation, 40 Kyoto Protocol, 37

La Scala (Milan opera hall), 52 Leung, Giselle, 57 leverage, 4–6, 39, 55, 87, 92, 98, 102, 105

definition of, 4, 123n5 grants and, 75 program-related investments and, 41 securitization and, 98

Index 159

Living Cities, 54 loan guarantees, 1–3, 14, 39, 55, 57, 59, 110 loans, 1–3, 14, 22–23, 26, 28, 39, 53, 55–58,

68, 102, 110. See also debt collateral and, 58 hard versus soft forms of, 58 risk and, 58 senior versus subordinated forms

of, 58–59 Low-Income Housing Tax Credit (LIHTC)

of 1986, 83, 104, 125n2 Low Income Support Corporation

(LISC), 84 Lydenberg, Steve, 75

MacArthur Foundation, 60–61, 84 Make It Your Own Awards, 76 matched bargain markets, 68, 132n26 microfinance

collateral and, 85 microfinance investment intermediaries

(MIIs) and, 63 origins of, 85 return rates and, 34 securitization and, 62–63, 98 size of the industry of, 6–7, 28 social entrepreneurs and, 81

Microfinance Investment Exchange, 47, 90 microinsurance, 71–73, 91 Microinsurance Network, 73 mission investing, 9, 18. See also

social-impact investing Mission Investors Exchange, 47 Mission Markets, 37 More for Mission, 47, 90 Mott Foundation, 61, 84 M-PESA mobile phone electronic payment

system, 101 Multilateral Investment Fund (MIF) of

the Inter-American Development Bank, 38

Munich Climate Insurance Initiative, 73 mutual funds, 4, 27, 97, 108

National Federation of Community Development Credit Unions, 46

NESTA, 3, 39 Net Impact, 88 Network for Good, 49, 91 New Markets Tax Credit, 105 New Profit, 3, 44

New York City, comprehensive rehabilita- tion initiative in, 71, 132–133n32

New Zealand, 130n55 nonfinancial impact measurement, 95–97,

111, 135n7 Nonprofit Finance Fund, 44 nonprofit organizations, 5–8, 17, 19, 21–24,

35–36, 42–44, 46, 51–53, 64, 66, 68, 80, 96, 99, 108–109

Obama, Barack, 1 O’Donohue, Nick, 96 Office of the Comptroller of the Currency

(OCC), 104 Office of Thrift Supervision, 104 Omidyar, Pierre, 87 online portals and exchanges’ role in philan-

thropy, 26, 48–50, 91 Opportunity Finance Network, 46, 90 organic food market, 75

Partners for the Common Good (PCG), 35 pay-for-success. See social-impact bonds Pearl Capital Partners, 1 pension funds, 4–7, 24, 28, 55, 59, 67, 74,

97, 108 Peterborough Prison initiative, 70–71 Peterson, Lauren, 91 “philanthrocapitalism,” 16, 86, 104 “philanthropreneurs,” 87 philanthropy. See also social-impact

investing advocacy efforts necessary for, 94 “Big Bang” in, 2–4, 54 bonds as tool in, 2–3, 14, 22–23, 26, 35,

39, 55, 60, 70–71 capital aggregators’ role in, 4, 12,

14, 26–34 debt as tool in, 56–57, 59–61, 64, 69,

98 definition of, 7, 15–16 demand-side factors and, 14, 78–82, 92 enterprise philanthropy, 102 equity as tool in, 1–3, 14, 22, 26, 28, 33,

39, 53, 55, 57–59, 63–69, 102 financial investment tools and, 56–71 foundations’ role in, 1–7, 18, 24, 27,

30–31, 43, 47, 51–52, 54, 59, 71, 80, 83–84, 90, 92

government’s role in, 2, 24, 27, 80, 103–105, 110, 112

160 Index

philanthropy (Cont.) grants as tool in, 2–3, 5–6, 21–22, 26,

39–40, 48–55, 59, 75–76, 102, 105, 109–111, 113

incentivization and, 109–111 investment capital as a tool in, 5–8,

17–18, 21–24 leverage as tool in, 4–6, 39, 55, 87, 92, 98,

102, 105 loans as tools in, 1–3, 14, 22–23, 26, 28,

39, 53, 55–58, 68, 102, 110 metrics-oriented emphasis in, 6, 93–95 new actors in, 12–14, 25–54, 86–89, 114 new tools in, 12–14, 55–77, 114 obstacles to, 13–15, 93–105 operating income and, 5, 21–22, 99 performance standards for social-purpose

objectives and, 95–97, 111 recommendations for, 15, 106–115 secondary markets as tool in, 2, 4, 12, 14,

26, 34–36, 61–63 securitization and, 3, 14, 26, 34–35,

55, 61–63 social stock exchanges as tool in, 2, 14,

26, 36–38 supply-side factors and, 14, 82–92 technological innovation and,

48–51, 81, 91 “pioneer” gap in social-impact investing,

100–101, 105, 109 Plato, 84–85 Prahalad, C.K., 9, 28, 86 preferred stock, 67–68 PRI Makers Network, 47, 90 private equity, 1–2, 65–67 privatization, 51–52 prizes as tool in philanthropy, 26, 76 Prodem, 73 program-related investments (PRIs), 9,

40–41, 47, 56–57, 83, 134n12 public equity, 67

quasi equity arrangements, 22, 66–69 quasi-public investment funds, 4, 7,

26, 38–39

Reigle Community Development and Regulatory Improvement Act of 1994, 83

return blended-value return and, 19–20, 95

capital aggregators’ rates of, 34 in equity arrangements, 66–68 financial return, 6, 17, 22, 29–32, 34, 37,

41–42, 44, 59, 66–67, 84, 101–103, 110–111

impact-first versus finance-first investors and, 29–31, 59, 103

loans versus equity and, 58 microfinance’s rates of, 34 social return, 5–6, 17–19, 31–33, 37, 41,

44, 110 Richter, Lisa, 8, 33–34 risk

equity and, 58, 64, 70 exchange rates and, 98 investors’ perceptions and assessments

of, 29, 32, 42, 59, 84, 100, 103, 113 loans and, 58 microinsurance and, 71–72 social enterprises and, 68–69 social-impact bonds and, 70 structured investment products

and, 31, 68 Roberts Enterprise Development Fund

(REDF), 44 Robert Wood Johnson Foundation, 40 Rockefeller, John D., 54 Rockefeller Foundation, 1–2, 18, 33, 47,

84, 90, 95 Root Capital, 3 royalty arrangements, 68–69

Sagawa, Shirley, 110 Salamon, Lester M., 23–24, 37, 40 Saltuk, Jasmin, 57 Schwab Charitable Fund, 3 secondary markets, 2, 4, 12, 14, 26,

34–36, 61–63 definition of, 34 loan origination function of, 35–36 securitization function of, 34–35,

61–63 securitization, 3, 14, 26, 34–35, 55, 61–63

asset-backed securities and, 62, 98 bonds and, 62 collateralized debt obligations (CDO)

and, 131n12 definition of, 61 Global Financial Crisis and, 61–62 leverage and, 98 in microfinance, 62–63, 98

Index 161

mortgage-backed securities and, 61–62 secondary markets’ role in, 34–35, 61–63

Shahnaz, Durreen, 36 Share our Strength, 44 Skoll, Jeffrey, 87 Small Business Investment Funds, 8 social and environmental impact investing.

See social-impact investing Social Capital Partners, 3 social cooperatives, 6–7 social enterprises, 45, 64, 68, 87, 97, 101 social entrepreneurship, 8–9, 45–46,

49, 80–82 Social Finance (social investment

fund), 70–71 social-impact bonds (SIBs), 3, 26, 70–71 social-impact investing. See also

philanthropy bonds as tool in, 2–3, 14, 22–23, 26, 35,

39, 55, 60, 70–71 capital aggregators’ role in, 4, 12,

14, 26–34 compared to socially responsible

investing and purchasing, 73 debt as tool in, 56–57, 59–61, 64,

69, 98 definition of, 20 demand side and, 99–101, 112–113 equity as tool in, 1–3, 14, 22, 26, 28, 33,

39, 53, 55, 57–59, 63–69, 102 financial investment tools and, 56–71 financial returns and, 89, 111 fixed-income securities and, 59–61 foundations’ role in, 1–3, 5, 7, 13, 18, 27,

30–31, 39–41, 46–48, 59, 71, 83–84, 86–87, 90, 92, 102, 105, 109–110

funding collaboratives and, 53 government’s role in, 1, 8, 27–28, 38–39,

83–84, 101, 103–105, 110–113 incentivization and, 109–111 infrastructure organizations and,

46–48, 90–91 intention and, 19 key conditions for, 106 leverage as tool in, 4–6, 39, 55, 87, 92, 98,

102, 105 loans as tools in, 1–3, 14, 22–23, 26, 28,

39, 53, 55–58, 68, 102, 110 mainline financial institutions and, 28 market inefficiencies in, 99 metrics-oriented emphasis in, 6, 93–95

new actors in, 12–14, 25–54, 86–89, 114 new tools in, 12–14, 55–77, 114 nonmarket solutions and, 101 obstacles to, 96–105, 110 performance standards for, 95–97, 111,

114, 135n7 “pioneer gap” in, 100–101, 105 recommendations for, 106–115 secondary markets as tool in, 2, 4, 12, 14,

26, 34–36, 61–63 securitization and, 3, 14, 26, 34–35,

55, 61–63 social stock exchanges as tool in, 2, 14,

26, 36–38 supply-side factors and, 14, 82–92 technological innovation and,

48–51, 81, 91 terminology regarding, 9, 11, 18–20

Social Investment Forum (SIF), 46–47, 90 socially responsible investing and purchas-

ing, 26, 73–75, 96 social purpose, 20–21, 104, 110 social return. See under return Social Stock Exchange Ltd (SSE), 37 social stock exchanges, 2, 14, 26, 36–38

for carbon emission credits, 36 definition of, 36 exit and, 2, 37, 68 exit option for investors and, 37 rules and requirements for, 37

Social Venture Network, 66 Social Venture Partners (SVP), 44 social ventures, 42, 44, 54, 56, 58, 68, 84,

86, 101 Société Générale, 59 sovereign wealth funds, 97 Starr, Kevin, 103 Stock Exchange of Mauritius (SEM), 37 structured investment products, 29,

31, 68 sustainable and responsible investing,

98, 107–108 Swift, Jonathan, 85

tax credits, 50, 60, 83–84, 104–105 Tax Reform Act of 1969 (United

States), 56, 83 technological innovation, philanthropy and,

48–51, 81, 91 TechSoup Global, 3, 49 Thornley, Ben, 96

162 Index

Tingerthal, Mary, 98 TONIIC (funding collaborative), 53,

66, 114 Toyota, 76 Trelstad, Brian, 95–96

UBS, 28 United Nations Principles for Responsible

Investment (UNPRI), 46–47, 67, 74 Untied States Agency for International

Development (USAID), 1, 47, 58–59, 90, 101

Vanguard, 50 venture capital funds, 24, 29, 65 venture philanthropy, 24, 43–45, 76 Venture Philanthropy Partners (VPP), 44

Volkswagen Foundation, 51–52 Volunteer Match, 49

Wallace Global Fund, 40 water supply depletion, 78–79, 114 Willow Impact Investors, 31, 65, 89,

126n9 Willow Tree Impact Investors, 3 Wood, David, 41 World Bank, 8, 38 World on the Edge (Brown), 78

X Prize, 76

Yunus, Muhammad, 28, 85

Zara Solar, 9

  • Cover
  • Leverage for Good
  • Copyright
  • Contents
  • List of Figures
  • List of Tables
  • List of Boxes
  • Foreword
  • Acknowledgments
  • Chapter 1 Introduction: The Revolution on the Frontiers of Philanthropy and Social Investment
  • Chapter 2 Scouting Philanthropy’s New Frontier I: New Actors
  • Chapter 3 Scouting Philanthropy’s New Frontier II: New Tools
  • Chapter 4 Why Now?
  • Chapter 5 Remaining Obstacles
  • Chapter 6 Prescription: The Way Forward
  • Appendix A New Frontiers of Philanthropy Project Advisory Panel
  • Appendix B Companion Volume New Frontiers of Philanthropy: A Guide to the New Actors and Tools Reshaping Global Philanthropy an
  • Notes
  • Glossary
  • Bibliography
  • About the Author
  • Indexv