12 July 2018 | Sibonakaliso Mavuka ( Manager: Research, Business Development, Special Projects) |
Impact investing in South Africa is increasing – becoming less of a buzzword and gaining traction among development and commercial investors. Given this, and the unique position of social investors, Sibonakaliso Mavuka, Social Investment Specialist at Tshikululu Social Investments, argues that there’s never been a better time for them to lead thinking and action in this space.
In the recent past we have seen many organisations launching funds centred around “impact” investing: the idea of pursuing both social and financial returns from their investments. What is worth noting is that the social returns aspect of impact investing is something social investors have been pursing for decades and, in some cases, even centuries through their programmatic investments and social investments. Through their work, social investors also have a profound understanding of social impact, meaning they are well placed to lead the conversations in this growing sector. This begs the question of what role (if any) social investors, who together command billions of Rands, should play within the impact investing space.
While corporate finance and investment skills are not common amongst social investors, they do have access to risk-free capital (due to grants being considered a 100% financial loss), capital that has a higher risk-tolerance and capital that is more patient than that of commercial investors in terms of return timeframes. As such, access to this kind of capital provides social investors with the independence to pursue uncertainty, long-time horizons and enter new markets that maybe considered too risky to prove the business case.
To this end, social investors have a unique role to play in this space. Through their grant funding activities social investors can provide capital required to pilot and prove business models aimed at improving the lives of the poor. Also, by taking on higher risk in the financing of potentially impactful projects through guarantees or layered structures, social investors are able to de-risk the impact investment and crowd-in finance-first impact and commercial capital.
Given this unique position they are placed in and the advent of this concept of impact investing, social investors should not shy away from this opportunity but rather start thinking about their role in leading the mainstreaming of impact investing in South Africa.