Reaching the neediest: One OPIC client explains its strategy for investing in the world’s poorest and most remote communities
As a leader in Impact Investing, OPIC helps channel capital to address some of the world’s major social and environmental challenges such as access to education, healthcare and financial services. But to get that capital to the people who need it most, OPIC works with partners like Global Partnerships, a Seattle nonprofit and a major microfinance lender to poor communities in developing countries.
OPIC financing to Global Partnerships has supported lending to poor communities in Latin America, reaching more than a million people in 10 countries, many based in remote rural areas. Last year, OPIC awarded Global Partnerships an Impact Award for its work providing microfinance lending and supporting a wide range of programs, from financial literacy for female entrepreneurs in Ecuador to financing for home solar panels in Nicaragua and technical assistance to Fair Trade coffee farmers in Peru.
Here Global Partnerships CEO Rick Beckett discusses the practical challenges of reaching the poorest and most remote communities and some of the solutions that work.
One of the biggest challenges in investing for positive development impact is reaching people who are most in need. Why is this so difficult?
The challenge is that the deeper we go into poverty or the further we go into remote places, the more difficult it is to make markets work. The economics just get harder. The poorer people are, the fewer resources they have to purchase anything, and the more remote their living conditions, the more expensive it often is to reach them. But we can make progress “extending the frontier” if we’re willing to think differently and try innovative approaches.
What are some specific ways that Global Partnerships has worked through this challenge?
We invest in social enterprises that value inclusion and build it into their business models.
For example, advances in technology can fundamentally change the economics of including more people. We see that today with our investments in partners that deliver solar lights and small home systems to impoverished households. Product prices have dropped to the point that these households can save enough on kerosene to afford them, particularly if the purchase price can be spread out. Coupling small home systems with “pay-as-you-go” technologies, which allow poor people to spread payments out using mobile money or other payment technologies, makes clean energy and light affordable and accessible.
Sometimes the opportunity lies in thinking differently about the distribution channel. For example, we invest in partners that leverage the group lending model of microfinance for deeper social impact by integrating credit with education. Microfinance institutions motivated by a desire to have greater social impact can bring targeted education – on financial literacy, basic nutrition, preventive healthcare, business training – through a channel that already exists to deliver basic credit. The marginal cost of doing so is very low and can be paid for through the credit product. Moreover, the population served by the group lending model is disproportionately poorer women with high rates of illiteracy. And the group model works as well or better in rural markets, which are often underserved, as it does in urban markets.
Could you explain more about the role of Global Partnerships’ local partners?
Global Partnerships’ mission is to expand opportunity for people living in poverty. We do that by making impact-led investments in local partners – microfinance institutions, cooperatives, and social businesses – that deliver products and services to people living in poverty.
As an impact-led investor, our role is to find partners and make thoughtful investments where our capital can sustain and expand access to those products and services that have clear, positive impact in the lives of people living in poverty. We’ve screened and performed due diligence on approximately 1,000 social enterprises to find the 74 partners in which we have invested. Those partners are the organizations in developing countries that actually deliver products and services like microfinance with education or solar lights and small home systems.
Global Partnerships emphasizes “credit with integrated services.” Why is this important?
It’s important because it leads to greater social impact. Imagine that you’re a small lot farmer growing and selling coffee to provide for your family. You certainly need access to credit – to purchase materials and bridge your family from harvest to harvest. But you also need technical training to increase yields, diversify crops and improve crop quality. And you need access to markets where you can sell crops at fair and sustainable prices, rather than to local intermediaries that extract a disproportionate share of value. It is the synergy of access to credit and training and markets that drives social impact.
As you look at 2015 and beyond, what are the most important strategic opportunities for Global Partnerships?
We are encouraged by the growth and development of different kinds of social enterprises addressing different facets of global poverty. We are in the early days of seeing which market-based solutions to global poverty can be sustained and scaled. It’s a privilege to participate in work that holds this kind of promise for creating a better world. Geographically, Global Partnerships has made a strategic decision to expand into Africa, the continent with the world’s most pervasive and persistent poverty.
More broadly, impact investing as a sector is in a relatively early stage of development, and it’s growing rapidly. Fund managers that have a proven track record of delivering sound financial returns and clear social impact are well positioned for growth, and that is certainly true for Global Partnerships.
Cooking at night with solar-powered lights. A woman cooks beside the illumination of her small Sun King Pro solar light, which is manufactured and distributed by Greenlight Planet, a partner of Global Partnerships. GP’s investment in Greenlight Planet will help address the working capital crunch for solar distributors in Latin America, which in turn will get more high-quality solar lights into local distribution channels. This means more families living in poverty will have access to high quality, affordable solar lights that can help improve their quality of life. Learn more about GP’s investment in Greenlight Planet here: http://bit.ly/1u4x4np. Photo © Global Partnerships 2015.