An Emerging Market for Social Investment in Vietnam

Breakout session: Mainstreaming social entrepreneurship in development aid – Grants as challenge investment fund

August 22, 2013Hanoi

Randolph Flay

2013 1

NEW PERSPECTIVES

Why should bilateral donors care about social impact investing?

(and in broader private sector engagement in socio-economic development outcomes)

2013 2

The World Has Changed

• Private resource flows dwarf ODA

Engine of Economic Growth

• Private sector fuels economic growth, innovation and job creation, sustainability

• JP Morgan estimates $1 trillion over the next decade in developing country investment opportunities

Broad-Based Development Impact

• Private sector interests increasingly align with development goals; opportunity to tap private sector skills, resources and technologies to drive more innovative, cost-effective development solutions across all USAID priority areas

• 93% of CEOs believe that sustainability issues will be critical to the future success of their business

Sustainability and Scale

• Market-led private sector approaches often increase the sustainability of development efforts, and global corporations bring an ability to scale solutions

• Scale: 53 of the 100 largest economies in the world are companies; P&G reaches 4 billion customers

2013 3

U.S. RESOURCE FLOWS TO THE DEVELOPING WORLD IN 2009: $226.2 BILLION

2013 4

U.S. Official Development Assistance - 13% U.S. Private Capital Flows - 31%

U.S. Remittances - 40% Foundations - 2%

Corporations - 4% Private and Voluntary Organizations - 5%

Volunteerism - 1% Universities and Colleges - 1%

Religious Organizations - 3%

Remittances 40%Private Flows 31%

Public

Flows

(ODA) 13%

Remittances 40%

Total Private

Philanthropy

16%

THE CHALLENGE

How can bilateral donors reduce the barriers to social investing and what tools are helpful?

2013 5

MODELS OF SOCIAL INVESTMENT SUPPORTChallenge Grants

Development Innovation Ventures

Purpose: To support cutting each social and economic development ideas from inception to scale-up and realization

Encourages social enterprises to think big and

focus on scale-up and viability of interventions.

Global Development

Alliances

Purpose: To leverage private sector and public

sector (donor) resources to address social and

economic development challenges.

Combines unique resources.

Demonstrates the financial value of engagement in

social sectors.Provides better financial sustainability for social

interventions.

Development Credit Authority

Purpose: To encourage private sector banks to begin investing in new social and economic

sectors by reducing the risk.

Reduces perception of risk for lenders.

Establishes relationships between organizations and

lenders.

Improves financial sustainability of social

interventions.

Development Grants Program

Purpose: To develop the capacity of local

organizations engaged in social and economic

development that have not worked extensively before

with USAID.

Raises organization capacity.

2013 6Innovation & Scale Partnerships & Resources Market for Investment Organizational Capacity

DEVELOPMENT INNOVATION VENTURES (DIV)

2013 7

DEVELOPMENT INNOVATION VENTURES (DIV)DIV Partnership Opportunity

Selection of winning applications is based on:• Cost-Effectiveness• Rigorous Testing• Pathways to Scale

The upcoming deadlines for DIV’s grant competition are:• December 16, 2013• April 15, 2014

Potential applicants are directed to go to the DIV Web site at: www.usaid.gov/div, or to send an e-mail to: DIV@usaid.gov.

2013 8

WHAT ARE

GLOBAL

DEVELOPMENT

ALLIANCES?

Business

InterestsUSAID

Development

Goals

Alliance

Opportunity

2013 9

GLOBAL DEVELOPMENT ALLIANCES

10

HOW ALLIANCES WORK

Corporate

Partners

Project

Implementing

Partners

Social

Enterprises

2013

2013 11

Global Development Alliance:

Key Facts

• Over 1,000 partnerships with 3,000

distinct partners

• Leveraged over $9 billion in combined

public and private resources

• On average leveraged $4 in private

resources for every $1 in USG funds

• Diverse portfolio of partnerships

spanning all regions and development

priorities

• Broad base of partner relationships:

30+ “global” strategic relationships /

MOUs

Selected Global Partner

Relationships

Open Door to the Private Sector”- The GDA Annual Program Statement - http://www.usaid.gov/gda

DEVELOPMENT CREDIT AUTHORITY

Impact of Credit Guarantees

12

Risk Perception

Collateral Requirements

Longer-term Financing

Capital Mobilized:

$2.7 billion

Default Rates:

1.75%

Loan repayment

Lender

Borrower

50%

Guarantee

on principal

USAID AND ACUMEN PARTNER FOR SOCIAL ENTERPRISES

• Launched: September 2012

• Purpose: $15 million in private debt capital to social enterprises

• USAID’s Role: USAID’s Development Credit Authority partially guarantee loans made from banks or nontraditional capital providers to social enterprises within Acumen’s portfolio.

• Goal: To reduced perceived risks in the markets to help attract growth capital for social enterprises needed to expand and reach scale.

2013 13

DEVELOPMENT GRANTS PROGRAM

• Competitive small grants program

• Provides opportunities for local organizations that have limited or no experience managing direct USAID grants.

• Purpose to build the capacity of these organizations to better meet the needs of their constituents in addressing social services or economic development needs.

• 2013 Round Closed August 15, 2013

2013 14

KEY TAKEAWAYS

• There is no “one size fits all” approach

• Tools donors provide to encourage social investing should be varied and flexible

• Policy environment should be:• Conducive to encourage private sector investments

• Supportive of the establishment and registration of various organizational structures to carry-out socio-economically valuable programs

2013 15

2013 16

“We are witnessing an unparalleled opportunity for innovative,

large-scale private sector partnerships to achieve meaningful

results in global development.”

USAID Administrator Rajiv Shah

June 27, 2011

“It’s rooted in our conviction that true development involves not

only delivering aid, but also promoting economic growth –

broad-based inclusive growth that actually helps nations develop

and lifts people out of poverty.”

President Obama

May 18, 2012

PARTNERSHIP OPPORTUNITIES

http://www.usaid.gov/partnerships

USAID/Vietnam: http://vietnam.usaid.gov

2013 17

2013 18

Randolph FlayDirector, Office of Program Development

U.S. Agency for International Development in VietnamE-mail – rflay@usaid.gov

General Inquiries:Vietnam.Partnerships@usaid.gov