Remarks by ADB Vice-President Stephen P. Groff on 25 June 2012 at the National University of Singapore, Singapore
Ladies and Gentlemen, good afternoon. I am delighted to be able to participate in the inaugural regional Impact Forum on behalf of the Asian Development Bank (ADB), which is sponsoring some of the sessions at this important event. The fact that the Forum was already oversubscribed weeks ago highlights the burgeoning regional and global interest in social entrepreneurship and impact investing.
I congratulate Impact Investment Exchange Asia (IIX Asia) for organizing this timely, stimulating program, and would like to take this opportunity to recognize several other supporters who helped make it possible, including: the Rockefeller Foundation, the National University of Singapore, Singapore Tourism Board, Microsoft, SK Group, Bank of America, Merrill Lynch, Bloomberg and the Singapore Ministry for Community, Youth and Sports.
ADB's role in the region
Since our founding in 1966, ADB has been driven by a dedication to improving people's lives in Asia and the Pacific. Although ADB is probably best known for its support to large scale infrastructure projects, such as the bridges and roads we help build to connect markets and manufactures, our role is to help developing member governments lay the foundations of inclusive and environmentally sustainable growth, to facilitate partnerships, and to share knowledge that allows imagination, innovation and industry to flourish. We do this in close collaboration with public, private and not-for-profit partners, using a variety instruments, including loans, equity investments, guarantees, grants, technical assistance, and by sponsoring platforms to link regional neighbors, discuss policies and share best practices.
Last year, ADB approved nearly $22 billion in financing, though we are able to mobilize even larger sums for development purposes through co-financing with others. We are proud to be part of Asia's rapid rise, considered by many to be the most successful story of economic development in recent history. National economies have expanded at an unprecedented pace and human conditions have dramatically improved. Years before the Millennium Development Goal deadline of 2015, the region has already achieved targets for reducing gender disparities in primary, secondary and tertiary education enrollment, for preventing a rise in HIV prevalence, for halting the spread of tuberculosis, and for halving the proportion of people without access to safe drinking water. Between 1990 and 2009, the percentage of Asians living on less than $1.25 dropped dramatically, from half the population to less than a quarter.
Yet because of Asia's sheer size, even 22% of people living in extreme poverty means significant deprivation remains. Asia's growth has also brought a new set of challenges, such as food insecurity, growing urban slums, rising inequality, natural resource depletion and environmental degradation. Asia and the Pacific is also highly vulnerability to natural disasters. Today's volatile global economy and slowing growth in traditional export markets pose serious threats to Asia's recent gains. Rising rates of non-communicable diseases and graying populations could have serious implications for productivity and economic growth.
Developing social enterprise
The enormity of these challenges requires more than just a public sector response – especially since aid funding is under increasing pressure as traditional donor countries tighten their belts. There is, therefore, a great deal of excitement around the emergence of social enterprises. By combining the “heart” of the aid sector with the ambitions, drive and business acumen of entrepreneurs, social enterprises have created a powerful model for tackling social and environmental problems.
Take Frontier Markets, for example. This Indian social enterprise seeks out innovative ways to bring high quality, low cost renewable energy, clean water, and health and hygiene products to poor households. Frontier Markets focuses on innovations that will make the greatest impact on women and children living in rural and peri-urban areas. It is steadily making progress toward its vision of reaching three million households, using a market-based model that puts a high value on customer care and service reliability.
In Viet Nam, a for-profit company, Ecolink, provides its network of 800 ethnic minority farmers a marketing channel for their fair trade, organic agricultural products, particularly tea. While it exports products to Western Europe and North America, it is also developing a local market, and aims to open 20 stores across Viet Nam.
Dhaka-based Waste Concern, meanwhile, collects organic waste from cities, recycles it into organic fertilizer, and generates revenues through the carbon credits it earns by eliminating greenhouse gases emitted by rotting garbage. But Waste Concern's impact doesn't stop there. Farmers report that their compost is more effective than environmentally unfriendly chemical fertilizers. Waste Concern saves cities and taxpayers the cost of waste collection. It helps improve the environment, and the sanitary conditions of Bangladesh's capital. It provides jobs at its processing and recycling center, and contributes to the country's food security by helping farmers achieve higher yields. This remarkable model is being replicated in other cities in Bangladesh, and elsewhere in South and Southeast Asia.
There are of course many, many more examples of the ways that social enterprises are contributing to job creation, provision of basic services, and improving our environment. However, most social enterprises remain small-scale initiatives, and the sector remains undersized in most developing countries across the region.
To truly realize the tremendous potential of social enterprises, we need to create the right regulatory and policy environments for them to grow. They need better access to financing to scale up their operations and increase their field of coverage. In recognition of the importance and value of social enterprises, ADB has taken some steps to help the sector grow.
How ADB is helping to boost the social enterprise space
ADB already advises governments on the basics of building and maintaining business-friendly environments through reliable rules, regulations and policies that don't work against or disadvantage private sector enterprise. Although aimed at supporting the development of the private sector, a conducive business climate can boost social enterprises as well.
Finding funding to support social enterprise remains one of the sector's greatest challenges. Micro-entrepreneurs and small businesses – which can include social entrepreneurs – often lack access to banking and related services due to the high transaction costs associated with serving them. By supporting microfinance, ADB supports making capital available to social enterprises as well.
For example, with support from Japan, ADB is assisting the Government of Thailand in improving its policy, supervision and regulatory environment so that low-income populations can access safe and affordable financial services. Inclusive finance is one area in which social enterprises are active – in fact, many microfinanciers are often considered to be social enterprises themselves, since they increasingly provide poor and near-poor households with access to a range of financial services, including credit, savings, insurance, and fund transfers. A better regulatory framework in Thailand can create opportunities to expand access to products such as micro-insurance.
Similarly, ADB's large-scale private sector microfinance initiative, the Microfinance Risk Participation Program, partners with financial institutions that actively lend to microfinance institutions (MFIs) and share the default risk on underlying MFI loans. The risk sharing arrangement –available to a range of international and local financial institutions in Asia – will boost loans to microfinance institutions, which in turn will result in scaled-up assistance to groups currently unable to access funds, such as poor households, women, and cash-strapped small enterprises.
ADB is also helping create a $20 million loan facility in the People's Republic of China to help partner banks build their wholesale lending capacity to microcredit companies (MCCs). MCCs are privately owned non-deposit taking microfinance institutions that lend to rural households and entrepreneurs. Although it's the partner banks who will borrow directly from ADB, this funding will be on lent to MCCs in rural and poorer parts of the country.
We are also supporting social enterprise development by collaborating with various partners, including Impact Investment Shujog, a sister organization of Impact Investment Exchange Asia (IIX Asia), to prepare social enterprise landscape reports and studies on impact investors and market intermediaries. The knowledge generated through this work is being made publicly available to inform, inspire and catalyze social entrepreneurship and impact investing. We have also supported forums that bring social enterprises and impact investors together in Bangladesh, India, Thailand and the Philippines.
ADB is also looking at how we can recognize the development contribution made by social enterprises in our country partnership strategies, the roadmaps we formulate with our developing member countries to guide development priorities and ADB assistance. We are also exploring how to expand on dialogue with governments about the regulation of capital markets and the financial sector to address social enterprises, with a view to encouraging policies that support their growth.
Finally, another action we intend to take is to begin referring social enterprises that provide renewable energy to underserved communities to Impact Partners. As we heard earlier today, Impact Partners – operated by IIX Asia – is a unique private platform that connects impact investors with a select group of pre-screened Asian social enterprises seeking investment capital.
Looking beyond the policy environment and individual enterprises, creating incentives for private investors and individuals to put their money on the line for socially or environmentally beneficial purposes is a crucial element of the sector's continued growth. Much of the promise on this front lies in the concept of Social (or Development) Impact Bonds, which provide a vehicle to invest in the delivery of services that produce social or developmental results with the promise of near-commercial returns. Our work on legal and regulatory fronts can have returns to this area as well. Social Impact Bonds are currently being tested in Australia, Japan, the U.K., and the U.S., and these pilots show that there is plenty of room to address many of the region's challenges through innovative market-based approaches.
Asia's strengths will benefit social enterprise development
Ladies and gentlemen, a critical factor behind Asia's economic success is an ability to innovate, and a willingness to do the hard work required to succeed. These are the same characteristics we see in the nascent social enterprise sector. I congratulate those of you who are contributing to shaping and replicating this model throughout the region. With your continued commitment to harnessing the power of the market for social and environmental objectives – and the imagination and tenacity that forms the core of the world's most dynamic region – Asia can become the world's social enterprise incubator. For its part, ADB will draw on its experience and partnership to do whatever we can to facilitate, promote and catalyze investment in the dynamic social enterprise space.
Thank you very much.