By Brandon Keim
Honey Care Africa, founded
in 2000, was a classic early-millennium
story of social enterprise
success. Its business
plan—sell cost-subsidized beehives to farmers
in Kenya, buy honey from them at fair-trade
prices, and market the honey to upscale
retailers—helped thousands of rural
households. It gave farmers much-needed
income and an alternative to practices that
result in poaching and deforestation. The organization
received an Equator Prize from
the United Nations, plaudits from the World
Bank, and funding from high-profile development
agencies and foundations.
There was just one problem: Honey Care
Africa couldn’t make ends meet. Without
nonprofit support, it couldn’t stay in business.
In 2010, the organization regrouped.
It brought on a new CEO and enlisted the
services of Open Capital Advisors, a financial
intermediary based in Nairobi. Open
Capital, part of a new generation of impact
investors, helped Honey Care Africa
revise its model. Under its new plan, Honey
Care reduced its reliance on farmers—most
of whom didn’t actually like working with
bees—and hired local technicians to manage
the hives. Farmers would still receive
income for keeping hives on their property,
but the new division of labor would enable
yields and revenues to rise.
Next, Honey Care needed to acquire working
capital. Open Capital brought in the Grameen
Foundation, the Lundin Foundation,
and Root Capital, and it created an investment
structure that minimized risk for those investors
while allowing Honey Care to grow. Two
critical factors united Open Capital and its investment
partners: a belief that market-based
tools can promote social good—and membership
in the Aspen Network of Development
Entrepreneurs (ANDE).
ANDE, headquartered in Washington,
DC, has chapters in six regions: Brazil, Central
America and Mexico, East Africa, India,
South Africa, and West Africa. It’s a hybrid
entity that combines elements of a think tank
with elements of a trade association. ANDE is
not itself an impact investor. Rather, it helps
people who work in that sector, and it puts
particular emphasis on fostering the growth
of small and growing businesses, or SGBs. In
development circles, SGBs are known as “the
missing middle.” They tend to be overlooked
by grassroots microfinance organizations
and corporate lenders alike, and as a result
they have limited access to both financial
and social capital.
Many people in the development community
believe that SGBs are critical to
prosperity. They’re arguably more efficient
at alleviating poverty than very small or very
large businesses, they create high-wage jobs,
and they promote innovation. Nourishing
the sector that finances SGBs is ANDE’s
core mandate. “We’re not about impact
investing per se,” says Randall Kempner,
executive director of ANDE. “Our vision
is, we work with the full scope of players
relevant to building a vibrant ecosystem in
an emerging market.”
Defining a Sector
ANDE traces its roots to informal discussions
that took place among people at several
organizations—including Acumen,
Root Capital, and the Grassroots Business
Fund—that would become founding members
of the network. For each of those organizations,
SGBs represent one part of
a broader portfolio; ANDE, by contrast,
brings dedicated focus to that segment of
the developing-world economy.
The network launched in 2009, with
startup support from the Bill & Melinda
Gates Foundation, the Rockefeller Foundation,
and six other prominent funding institutions.
ANDE had 32 founding members.
From that base, the network has swelled to
encompass 170 member organizations that
work in a total of roughly 150 countries. To
date, according to ANDE’s 2013 impact report,
member-managed funds have directly
invested $1.7 billion in SGBs. In addition,
member organizations have spent $400 million
on services such as training and research.
Cumulatively, ANDE members have worked
with about 60,000 SGBs.
It’s an impressive trajectory. And although
ANDE is able to leverage the reputation and
the resources of its parent organization—the
Aspen Institute, a high-profile think tank—its operations remain fairly lean. (It started
with just 2 employees, and now has only 11.)
The network, in fact, owes much of its success
to its core strategy: From the start, Kempner
decided not to finance beneficiary companies
directly.
Instead, ANDE focuses on helping member
organizations in nonfinancial ways.
“We’re trying to support the intermediaries,”
says Kempner. “I trust that they’re
going to have impact.” Much of that support
consists of bringing people together through
conference calls, network conferences, and
the like—simple but important activities
that strengthen the social fabric of the SGB
sector. Membership in ANDE, says Annie
Roberts, a cofounder and partner at Open
Capital, “helps us connect with people we
might not have met otherwise and gives us
a lot of credibility in the market.”
Events hosted by ANDE give leaders of
SGBs a chance to expand their network.
Fernando Assad, founder of Vivenda, a
Brazil-based startup that helps poor families
improve their homes, notes that ANDE
facilitated an introduction to Itaú, the country’s
second-largest bank. And an invitation
to participate in an upcoming social housing
event organized by ANDE’s Brazil chapter,
he says, is potentially even more valuable. It
will give him a chance to meet government
officials and leaders from a variety of companies
in the housing industry.
For ANDE leaders, meanwhile, hosting
events offers an opportunity to help shape
what people are talking about. The network
runs working groups on six issue areas—capacity development, legal affairs, metrics,
policy, women’s entrepreneurship, and youth
entrepreneurship—and regularly holds discussions
around each of them. In a similar
initiative, ANDE has undertaken sector-mapping
projects in Brazil, Central America, East
Africa, and Mexico. By compiling descriptive
lists of companies, foundations, and businesses
in each region, the network provides
SGBs and other players in this nascent field
with a basic tool for finding each other. “It’s
a very interesting time,” says Rebeca Rocha,
coordinator of ANDE’s Brazil chapter. “We
are in a moment when the whole sector is
defining itself.”
Making a Big Tent Bigger
In the impact investing field, a debate has
unfolded over the proper balance between
creating social impact and pursuing financial
gain. To put it another way: Should impact
investors accept below-market returns as a
cost of doing good? Is doing good the central
purpose of impact investment, or is it merely
a sideline to a standard investment strategy?
ANDE leaders have declined to take
sides in that debate, preferring instead to
create common ground where all parties
can come together. It’s a strategy that meets
with approval among ANDE members. Steve
Wright, vice president of poverty insights at
the Grameen Bank, generally opposes the
profit-maximizing, just-another-asset-class
approach to impact investment. Yet he appreciates
the chance to interact with investors
who have different views. “One of the tremendous
values of ANDE is that JP Morgan,
Citi, and others are in the tent,” says Wright.
To Paul Basil, who leads another ANDE
member organization, the conflict between
social value and financial profit matters
less than the friction between newcomers
and veterans. “The tension comes from a
lack of knowledge,” says Basil, founder of
Villgro, an innovation incubator based in
Chennai, India. “The more you talk, the
more lines of communication are open, the
more you understand each other.” He cites
the value of ANDE-supported investor training
programs, which help newly established
investment managers adjust to common
developing-world challenges—the lack of
reliable market data, for example.
Another sector-wide conversation involves
developing metrics. ANDE has put
its weight behind the Impact Reporting and
Investment Standards, or IRIS, a catalogue
of measurements developed by the Global
Impact Investing Network. As a condition of
membership, ANDE now requires its members
to collect IRIS data on five core metrics
for each company that they fund: earned revenue,
number of full-time employees, level
of full-time wages, new investment capital,
and greenhouse-gas emissions. IRIS contains
hundreds of other metrics, but ANDE
considers these five to be the most useful for
gauging bottom-line performance.
Officials at ANDE are careful neither to
overstate nor to understate the value of the
IRIS approach. “It’s just a language,” says
Genevieve Edens, impact assessment manager
for the network. “It’s not a reporting
tool. It’s a way to standardize what we’re
counting. By speaking the same language,
we can start to compare one company to another,
create benchmarks for performance,
and create market intelligence. That’s the
power of a big network.”
The use of IRIS is still evolving. But
already those five core metrics have yielded
enough data to help ANDE back up its assertions
about the vital role played by SGBs. By
the most recent count, 277 companies have
reported on their performance via ANDE
member organizations, and those companies
are growing by an average of 10 percent annually.
What’s more, they pay their employees
an average annual salary of $11,500—an amount that is much larger than the minimum
wage (and often the median wage) in
the countries where those companies operate.
“The most important challenge that
ANDE helps to address is demonstrating the
development and business case for SGBs,”
says Willy Foote, CEO of Root Capital.
Today, the aim of ANDE leaders is to
make that case to a broad audience of potential
investors. During its first half-decade,
the network concentrated on supporting
its member organizations. Now it’s time to
grow beyond that base. “As a first step, our
goal was helping people understand the importance
of helping SGBs,” says Kempner.
“But it’s one thing to build a sector, and
another thing to drive more capital to it.
Now we need to help others to believe.”