Many Happy Returns

June 8th, 2016

Lusaka in Zambia was the venue for a recent global gathering of 200 practitioners, researchers and donors for the BEAM Exchange’s  inaugural conference “Shining a light on the use of systems approaches to build inclusive markets and reduce poverty”. BEAM is a knowledge hub supported by DFID and the Swiss Agency for Development and Cooperation and we gathered to take stock of learning on three illuminating tracks: Evidence; Results and Innovative Practices.

The ACRE team joined forces with Adam Smith International to lead a session in the Innovative Practices track called ‘Many Happy Returns – systems approaches and impact investment’. It was hugely popular, with a packed room of systems-thinkers questioning whether and how impact investment can lead to better social outcomes in systems programmes and vice versa. Both of these lenses (what systems approaches have to offer impact investors; and/or what impact investment can offer those running market development programmes) were relevant to the key questions of the session:

  • Can market systems programs help improve pipeline?
  • Does participation in programs using a systems approach help those businesses get access to capital?
  • Does pre-investment support lower barriers for businesses so they can graduate from grants to investment?
  • Expected social impacts – directly attributed to the enterprise receiving investment, and from the ‘catalytic’ effect?

MaryAnne Nguyo, ACRE

MaryAnne Nguyo, ACRE’s Business Development Manager based in Africa, described how a consortium of INGOs developed an innovative syndicate model to offer investors opportunities to make ‘impact first’ investments.  MaryAnn explained how Acre works and the role of INGOs using their knowledge of market systems to identify pipeline enterprises with networks, knowledge of local context and footprint being our unique strengths from an investor perspective.

Patience Samhutsa from Practical Action Zimbabwe delved deeper into how market system development work had helped their team identify businesses. Their work in the horticultural system using Participatory Market Systems Development   identified key constraints and opportunities with market players, including marginalised smallholder producers. The participatory process led to a partnership with a company to design an innovative grassroots-based e-commerce platform. This was piloted with some subsidy from Practical Action. When the company were ready to commercialise the service, ACRE facilitated access to technical assistance to produce a business plan for investors.

ACRE’s has learned that pre-investment support is vital. As MaryAnne said

“Many SMEs lack appropriate growth strategies, operations plans and capacity to produce investable business plans. We draw up the needs of enterprises and provide tailored support by match-making with appropriate service providers”.

Small holder farmers in DomborutinhiriI found the discussion amongst the session participants about the potential drawbacks of subsidising technical assistance for would-be investee businesses particularly thought-provoking. PWC’s director of international development Jack Newnham and others were clear that developing a local eco-system for business development services is critical.

My reflection is we need to learn from the past. Earlier keynote speaker Jim Tanburn of DCED  gave a history lesson, reminding us of the Business Development Services (BDS) era in the late 1990’s.  A key principle was “the expectation that with appropriate product design, delivery and payment mechanisms, BDS can be provided on a commercial basis even for the lowest-income segment of the entrepreneurial SE sector”. In reality most practitioners discovered that creating commercial services in these challenging markets was hard to achieve and BDS provision needed to be part of a broader strategy that used other levers in the system to bring about change.

I think Acre is trying to navigate these tensions carefully: on the one hand creating opportunity by offering support (sometimes subsidised to some degree) to businesses that need it in order to access finance to grow; whilst on the other promoting and strengthening local service providers in ways that are sustainable. Practical Action finds that this balancing act makes more sense if we’re operating within a systems approach rather than “hot housing” a select business.

Adam Smith International  advisor on inclusive economic growth Alexis Morcrette brought another perspective to the session. Their experience in market systems development projects in Malawi, Kenya, Sierra Leone and DRC has shown that challenges persist in making the connection between impact investors and market system projects. In Kenya’s port city of Mombasa they found businesses keen to grow and try new business models but a dearth of interested investors.  Affordable working capital and patient investment for growth were in short supply.

In general though the majority in the session were keen to unpack how we can develop pipeline and increase the number of investment-ready businesses. Questions around the risks and costs of technical assistance and critically the ‘who pays?’ issue were priorities. In the short term market systems programmes may pick up the subsidy but longer term strategies need to be designed. One key area for investment is to develop the skills of facilitators and providers.

Frankie Whitwell, Windward Commodities Development Director brought home to us that currently only a handful of businesses meet impact investment criteria, and they get inundated with initiatives. I heard general amusement in the room as it became obvious that one progressive business owner in Zimbabwe was known to (i.e. ‘working’) several different programs!  This chimes with what we know in ACRE – increasing the supply of investment-ready businesses is critical – and this is particularly true for an ‘impact first’ approach.  With more finance and funding going into investment pots it will be important to balance that with stronger efforts to support pre-investment businesses, and strengthen the systems they are a part of, to achieve greater social impacts.

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