Paper

Social Investors on the Sidelines

Can social investors be the vanguard for micro and small enterprise investments?
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This paper analyzes the reasons for low private investments in Micro and Small Enterprise (MSE) development and the potential role of Socially Responsible Investment (SRI) professionals.

Based on a survey by Enterprising Solutions Global Consulting (ESGC) and expert interviews, the paper states that:

  • SRIs worth US $24 billion await MSEs;
  • Over 200 development agency-financed 'model funds' created for MSEs in 1990s expected private sector investments to follow;
  • However, such investments remain insignificant.

It identifies the major impediments as:

  • High fund management costs and low capital bases;
  • Lack of:
    • Strong track record to establish as a credible asset class,
    • Benchmarking,
    • High returns.
  • Low access to reliable information;
  • Relative abundance of development agency finance;
  • Overly aggressive social objectives of funds.

The paper also states that:

  • SRIs could be the vanguard for MSE investments as more than 60 % of the SRI professionals would be satisfied with a 5% to15% annual return which small enterprise funds can achieve;
  • Finding the right investment vehicle is a challenge as survey suggests 75 % respondents prefer an investment company model while 67% prefer a specialty mutual fund;
  • Investments need to be publicly and widely available with:
    • At least US $30 million managed nationally,
    • Up to 20% portfolio in microfinance institutions and the rest in MSEs.

About this Publication

By De Sousa-Shields, M.
Published