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Join us in this monumental event for Impact Investing as we bring the top movers and shakers in the space to partake in discussions on Investing in Inclusion.

In the spirit of Investing in Inclusion, Impact Partners is celebrating Social Enterprises (SEs) that are ready to scale their impact at the Impact Forum SE Showcase.

Get to know these SEs from across the region and the exciting investment opportunities they present in the sectors of energy, education, health, and many more. The Impact Forum SE Showcase will be held on 13-14 June 2013 in Singapore. Purchase your Impact Forum ticket here and indicate your interest to attend the SE Showcase. Impact Partners investors may avail of special rates for purchasing both Forum and gala dinner tickets.

For more information, please send an email to enquiry@asiaiix.com.

For full details of ACSEP’s work, please see http://bschool.nus.edu.sg/acsep

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Oxfam’s £1 billion loan to Mongolia’s Xac Leasing blurs the line between private equity funds and not-for-profit organisations.

The transaction highlights the growing trend of impact investments, or utilising private equity strategies for investments focused on the greater good. It also signals environmental, social and governance (ESG) issues becoming more important for private equity funds.

However both trends raise questions about the for-profit and non-profit status of companies, and may signal the introduction of new corporate structures.

“Charities are excited about impact investing because regardless of budget, there are still billions of people in poverty and never enough resources,” said Matthew Kasdin, legal advisor for Impact Investment Exchange Asia (IIX), a platform for social enterprises to raise capital. “They see impact investing as a way to scale up their impact.”

Impact investments involve making investments in both for-profit and not-for-profit social enterprises which prioritise their missions over the business side.

But its exact definition is not settled. Some believe that impact investments should earn a pure market rate of return while others believe they should earn a so-called muted return – not as much as in a traditional investment.

“That isn’t necessarily settled in the industry, and I believe it never should be, as it is better to have a big tent servicing all investor appetites,” Kasdin.

New structures

It is essential that companies structure themselves for impact investments, and that investors are made aware of any of the company’s goals that differ from those of traditional corporations.

Social enterprise goals can be built into legal documentation. In a recent deal completed by IIX in the Philippines, the documentation included a investor representation that they recognized they were investing in an impact enterprise, and that management would be making decisions to advance the company’s social mission rather than to solely maximise profits.

“The company’s social mission was built into its articles of association and it was required to report on its social impact,” he said.

Traditional corporate or non-profit structures often do not fit a social enterprise’s needs, and there has been a push to introduce new corporate structures to encourage impact investors.

Kasdin said there has been a movement to form new legal structures and accommodate social enterprises. In the US, these take the form of benefit corporations and low-profit limited liability companies, called L3Cs. In the UK, there is the community interest company, while Korea has a special social enterprise law. The Philippines and other Asia-Pacific jurisdictions are following suit

What it means for private equity

Impact investments have taken off as ESG issues become more important to private equity firms. IFLR recently spoke with Kohlberg Kravis Roberts’ (KKR) director of European corporate affairs and head of sustainability about the firm’s focus on ESG issues.

But as the asset class becomes more prominent, counsel warn about blurring of the line between not-for-profit and for-profit organisations and activities.

A private equity lawyer agreed that ESG issues have come into focus in the last year as more investors require firms to disclose their social and corporate governance policies. These factors have long been a concern for multilateral investors such as the Asia Development Bank and the International Financial Corporation.

However maintaining charitable status in some jurisdictions prohibits firms from participating in any activity for profit. “It’s untested ground for a lot of countries,” the counsel said.

A level playing field for private equity firms and impact investors is also a concern as the investment process is nearly the same for impact and private equity investments. Private equity firms are especially wary of tax breaks charities receive, although they are participating in similar investment activity.

For US charities non-charitable activity such as impact investments will be taxable, though it is still unclear how taxation will work in other jurisdictions.

Some private equity funds are looking into impact investing. India’s Motilal Oswal Private Equity recently established a Rs 250-300 crore fund for investments in social enterprises. As impact investing becomes more popular and private equity further focuses on ESG issues, there may be more competition ahead for investment into well-run companies focused on social issues.

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Social enterprises play a vital role in addressing social and environmental challenges in developing countries in Asia and the Pacific.

With a significant number of people living in extreme poverty in Asia and the Pacific, social enterprises, i.e., organizations that pursue social goals through commercial strategies, serve as a vital link to narrow the gap in the region’s income disparity.

“Social enterprises harness the power of the market to tackle social and environmental problems in a sustainable, scalable fashion. They may be set up as a nongovernment organization (NGO) or a small business, but they operate like a business rather than a charity while pursuing their socially oriented mission,” said Bart W. Édes, Director of ADB’s Poverty Reduction, Gender and Social Development Division.

“The power of social capital markets lies not only in having great ideas but the ability for the ideas to meet investments.” - Professor Durreen Shahnaz, founder of IIX and Shujog

ADB supports sustainable and scalable models that combine private sector impact with the goals that are traditionally associated more with operational NGOs. These efforts are very much aligned with the United Nations’ celebration of the International Day for the Eradication of Poverty on 17 October 2012, encouraging all to help uplift the situation of poor people around the world.

Impact on Asian poverty

Success stories involving social enterprises abound in Asia and the Pacific. For example, in Cambodia, thanks to Sahakreas Cedac Ltd., five thousand farmer families learned technologies to improve their rice production and build their cooperatives, providing them with links to markets where they can sell their produce. As a result, they are starting to earn higher income and can now afford to send more children to school.

In Indonesia, Kedai Balitaku or Kebal is using “kaki lima”, an Indonesian food cart to provide healthy, affordable, and tasty food like the “Bubur Beras Merah” or red rice porridge to poor children in Jakarta. The enterprise has grown to four cooking centers and 22 food carts to help address malnutrition in the area.

Stories like these were shared in the first annual regional Impact Forum held in Singapore in June 2012. The Impact Investment Exchange Asia (IIX), also a social enterprise, organized the forum, while ADB supported some sessions to highlight outputs of an ongoing study on the creation of a platform to connect social enterprises with impact investors to benefit poor communities.

Ideas meeting investments

“The power of social capital markets lies not only in having great ideas but the ability for the ideas to meet investments. The Impact Forum presents the platform in which innovators can meet with investors who are inspired by the social enterprises’ vision and bring this vision to a larger scale,” said Professor Durreen Shahnaz, founder of IIX and Shujog, a Singapore-based, nonprofit sister organization of IIX that helps social enterprises around Asia to improve their organizational and fiscal accountability and enhance their governance in order to improve their attractiveness to potential investors.

Drawing upon Shujog’s expertise, ADB has prepared reports that offer insight into the role of social enterprise in different sectors and developing countries in Asia.

Harnessing the power of the markets, ADB continues to collaborate with partners to strengthen the promotion of social entrepreneurship and impact investing for the benefit of the region’s poor.

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BBC News also covered the event, interviewing Dr. Rodin about how investors “can help meet the world’s needs” and the role IIX can play. More information about the interview can be found here.

Videos of comments by IIX Founder & Chairperson Prof. Durreen Shahnaz and Rockefeller Foundation President Dr. Judith Rodin are available online.

RF_IIX_Durreen from gyneth tan on Vimeo.

RF_IIX_Dr_Rodin from gyneth tan on Vimeo.

The video of the panel discussion will be hosted online soon.  For immediate enquiries, please email gtan@asiaiix.com.

Impact Investment Exchange Asia (IIX) announced today that it successfully facilitated the seed capital round of funding for BagoSphere Pte. Ltd, a pioneering vocational training social enterprise that provides affordable and effective training programs catered to rural, low-income youths in the Philippines. The transaction closed through IIX’s Impact Incubator and Impact Partners platforms with four strategic investors. Law firm Clifford Chance provided pro bono legal support to BagoSphere for the transaction. The investment comes in the form of a convertible note and will fund start up costs and the establishment and operation of a training center in Bago City, Philippines.

BagoSphere is a vocational training social enterprise that provides affordable and effective training programs specifically catered to rural, low-income youth between the ages of 18 and 35 living near and at the base of the pyramid. The company targets training for call center jobs in the Business Process Outsourcing (BPO) market. The Filipino BPO industry has grown by 24% year-on-year and Bacolod City currently ranks 3rd on the list of emerging centers. BagoSphere was co-founded by Zhihan Lee, Ivan Lau and Ellwyn Tan. The triumvirate completed a pilot program in Bago City, near Bacolod City, Philippines in 2011, in which 90% of its graduates successfully landed a job at a call center, 64% are still in employment, and 14% of the graduates since have been promoted. Through stable skilled employment, graduates are able to earn a salary four-times higher than that of unskilled work, raising themselves and their families above the national poverty threshold.

“I am excited to have four strong investors join BagoSphere in its mission to improve the livelihoods of rural youths and support our organization in the strategy and discipline of running a financially sustainable social enterprise. I have been impressed with the quality of professionals at IIX and the strength of their ecosystem partners, such as Clifford Chance, who collectively have guided BagoSphere step-by-step through the capital raising process.” Zhihan Lee, Co-founder and CEO.

BagoSphere delivers an eight-times higher pass rate than existing training courses and provides increased access for rural youths through a deferred payment scheme. It earns revenues through a commission from the employer upon job placement and a train-first-pay-later tuition fee from each student via affordable monthly installments. BagoSphere attributes its success to its superior results-oriented training curriculum that teaches job skills, life skills and financial literacy to support students in improving their livelihoods; long term partnership with the local government; and mutually beneficial partnerships with stakeholders such as call centers, and experienced Singaporean and Filipino advisers.

The transaction was led by Small World Group Incubator (SWGI), a Singapore-based incubator that provides seed funding and mentoring to help start and grow small companies. SWGI has partnered with IIX to provide funding and mentorship to social enterprises seeking seed stage capital. SWGI was joined in the investment by three other investors.

“Small World Group looks forward to its partnership with the BagoSphere team in expanding their efforts to raise rural youths out of poverty through a for-profit social enterprise model. I congratulate the team and thank IIX for managing this transaction in such a professional and efficient manner. We are proud to partner with IIX in their Impact Incubator program.” Frank Levinson, Partner, SWGI.

IIX identified BagoSphere as a social enterprise with high potential to create positive social impact at scale and worked with the management team to become investment-ready and prepare for investor pitches. IIX hosted BagoSphere at its Impact Forum 2012, providing the company an opportunity to present to accredited investors at its Social Enterprise Showcase, and introduced the company to the investor base of its Impact Partners platform. IIX led the transaction process and secured strategic investors ranging from a Filipino social enterprise incubator to an education-focused Singapore philanthropist. IIX and its sister non-profit organization, Shujog, helped BagoSphere create a social impact framework for measuring their impact and embedding their mission in their management metrics.

“IIX is pleased to have assisted BagoSphere in raising investment capital which will allow it to scale up its successful pilot program and expand the impact of its activities. IIX is particularly pleased to have been able to help BagoSphere prepare to meet investors and to have been able to connect the company with investors from its Impact Incubator and Impact Partners platform. We are also thrilled that we have been able to work with Shujog to put in place a social impact framework and assessment methodology and monitoring framework which will help management ensure that the company is achieving its social objectives.” Robert Kraybill, Managing Director of IIX.

About IIX:
IIX is revolutionizing the way the world looks at sustainable economic development in Asia through the creation of social capital markets. It is creating the platforms, products and ecosystem development to connect socially and environmentally mission-driven enterprises with impact investors. IIX operates Impact Incubator and Impact Partners, Asia’s first private platforms dedicated to promoting impact investments in Asian social enterprises. IIX is expected to launch its public investment platform, Impact Exchange, by December 2012 providing liquidity and transparency to investors in Asian social enterprises.

About BagoSphere:
BagoSphere is the recipient of Singapore International Foundation’s Young Social Entrepreneurs Grant Program sponsored by Asia Philanthropic Ventures and an award winner of Start-up@Singapore’s Social Enterprise competition. BagoSphere is also incubated by Grameen Creative Labs @ National University of Singapore (NUS).

Contact Information:
For transaction inquiries, please contact En Lee, Director, Head of Investor Team at enlee@asiaiix.com or Raya Papp, Director, Head of Social Enterprise Team at rpapp@asiaiix.com.

For media inquiries, please contact +65 6221 7051 or info@asiaiix.com.

For pdf version of this press release, please click here.