FemS3: Impact Investment With An Emphasis On Impact
Fem Sustainable Social Solutions (FemS3) is a Bangalore-based nonprofit with a mission to uplift the bottom of the pyramid by giving financial support to scalable and sustainable market-based solutions. Working closely with partners in the microfinance industry, FemS3 believes strongly in the power of social entrepreneurship to pull people out of poverty. Their services include providing early stage funding and implementation support during the pilot phases of social enterprises.
Working closely with European partners, FemS3 has recently helped launched an impact investment fund, the OPES Impact Fund, which will work to fill the gap between seed fund and soft capital for young social enterprises. Based in Milan, Italy, FemS3 will provide the on-ground support such as screening of potential investment targets and creating detailed investment reports.
FemS3’s international ties stem from its parent organization, Associazione Fem Italia Onlus, an Italian organization founded in 2006 to empower women and support microventures in South Asia and Latin America. They are also part of a broad network under MicroVentures, an investment firm that specializes in lending to microfinance institutions emerging countries in Asia and Latin America.
Dr. Martin Vogelsang, Director of Fem Sustainable Social Solutions, recently answered some of our questions regarding the organization and the market they operate in. Dr. Vogelsang has received his PhD in Business Ethics from Universitaet Eichstaett, Germany, and spent extensive time in private banking and management consulting before transitioning to impact measurement and accountability in the nonprofit sector.
What micro-entrepreneurial model or service has shown the most potential to change the socioeconomic status of the BOP in India?
We don’t cover every sector, but we have a whole variety of thoughts on some potential sectors such as affordable housing, water supply, telemedicine, health care, organic farming, and waste management. All of these are segments necessary to improve; it’s more of a question of what’s easier, or which kind of project can we have high leverage with a lot of small investments. What we want to do is something that will really create value among the people living at the Bottom of the Pyramid.
Further, out of our portfolio of nine different projects or project areas, we have so far managed to create one health project in Bombay, Swasth India, which we definitely believe will be scalable in the future. What we do at Swasth India is successful because it is a no frills approach. It’s a mini-hospital with one doctor, one nurse, and a lady at the front desk. The main social return on investment is savings through selling generic medicines, and savings through a special hiring process for doctors at the end of their career who are experienced and willing to work for a lower salary.
I also think that telemedicine is still very much a technology project and this will probably take a few more years to see if it will become a scalable, sustainable solution.
What has been the biggest challenge or obstacle that you have faced while working with FemS3 in India?If you talk about government and the bureaucracy, it’s the sheer pain of bringing money into the country and all the regulations surrounding this issue. It’s also the selection of partners. The project proposal has some imminent flaws because on one hand we are required to decide on the project partners before the project starts, and at the same time we are asked to do market based solutions, which is a contradiction in itself. There were some challenges, but our European funders have been very flexible.
Another obstacle has been that sometimes it takes awhile to convince traditional NGO’s to enter into our kind of approach. So let’s say you have an NGO that has been working in the area of waste management for 20 years, and is used to applying for grant funding. Now they have to convince investors of their model, which requires changes in their thinking and how they approach their own business. That’s not easy.
Based on your experiences in the private banking sector in Europe and in impact investing in India, what similarities or differences you see between the two markets?
I see a lot of differences. First of all, in a straight for-profit capital market you have intermediaries and government structures. You don’t have that, at least not at the moment, when it comes to impact investing. There isn’t a government structure or intermediary, like the stock market, it’s mainly just a deal between you and the investee. There are some quite interesting initiatives rising in India at the moment, those are the impact investor circles where the different types of investors meet, and set investment targets, and maybe even fund an investment to one or another investment project. These things happen, but a key difference is that at the moment it is a guessing game. There is the GIIRS, an important initiative coming from the US. They have impact measurement tools, and a great catalog, but this catalog will only work for really mature companies. There are so many questions asked that don’t fit for a very young company.
When you look at young social enterprises today it is like looking at the the Internet economy in 1997. During this time everyone was investing and no one had a clue what the company was about; they just invested because there was a dotcom after the name. In a way, impact investing is quite similar. You have established companies like SELCO Solar Power or Husk Power Systems, which are mature and the investors that want to play it safe will go to these kinds of companies. It is very difficult to convince investors to go to young early stage startups. This is mainly because there is no government structure that provides transparency. I think this is going to happen, but I would estimate this doesn’t happen for another 10 years.
What’s next for Fem Sustainable Social Solutions?
Our networking partners in Italy have launched “OPES Impact Fund” and we at FemS3 over here in India are going to support them with our knowledge and expertise on the field. It will be a very patient kind of seed funding where we will be looking at an exit strategy of between 7-14 years – the most social approach you can take. We are really trying to capitalize on what we have learned so far. We see that although there is a lot of impact investing in India, it is mainly focusing on later stage and already mature business models. We want to fund and support young business models for very early stage investments. It’s very high risk and we don’t expect a high financial return on our investments, but I think we can create a lot of leverage if we help these early stage social businesses.
I think those that understand the way the ecosystem works will learn the lessons, and allow us to set standards for impact investing in a way that’s generally accepted. I see it as a promising way of helping developing countries. If you look at microfinance, it took microfinance 20 years and subsidies of 16-17 billion USD before it became what it is now. You have to give things time, but social business is something I’m absolutely positive will take off.