According to the International Finance Corporation (IFC), 40 percent of micro, small and medium enterprises (MSMEs) in developing countries need financing of $5.2 trillion each year to boost the economy and generate new jobs. The Social Success Note (SSN) aims to bridge the investment gap by providing low cost capital for impact-driven SMEs and businesses. SSNs are innovative financing mechanisms that aim to leverage commercial capital for social good.
Aiming to be a functional tool for the entrepreneurial ecosystem, the newly launched Social Success Note Playbook offers a detailed explanation of SSNs, along with case studies, and the challenges and opportunities that come with these novel financing tools. The report has been created by the ANDE SGB Finance Learning Lab, ANDE India and Asha Impact, with the support of SAP and UNDP SDG Finance Facility, with inputs from the Michael & Susan Dell Foundation India, LLP, UBS Optimus Foundation, and Yunus Social Business. SSNs have the potential to improve the efficacy of philanthropy and government spending, especially in times of crisis. The playbook has been developed for impact investors, social entrepreneurs, outcome funders and other players in the impact ecosystem.
Here is a brief overview of Social Success Notes from the Playbook and how they are creating impact:
Leverages limited capital for maximum impact
SSNs provide low-cost capital to small and growing businesses (SGBs), many of whom are providing critical services to underserved communities (healthcare, education, sanitation,etc.) While social enterprises are able to expand their footprint in a financially viable manner, investors are able to support enterprises that create adequate impact and financial returns, and outcome payers are able to leverage their limited philanthropic capital to create maximum impact.
Gives access to low-cost debt capital
Social enterprises are often challenged when it comes to scaling due to their lack of access to funds that meet their business requirements. SSNs provide timely, mission-aligned capital on competitive terms to SGBs to help improve their risk-return profile while rewarding them for the social impact they are creating.
Verifiable and relevant performance metrics
SSNs are sector-agnostic and are a viable option for social enterprises that help define, measure and quantify their social impact in a cost-effective manner. There is a need to develop sector-specific metrics that can optimise evaluation costs and standardise measurement indices.
Financially incentivises social impact
Prior to SSNs, public and philanthropic capital powered social change. Commercial money that was invested for social impact is generally channelled towards business models offering a close to market rate of return. There is a need for more commercial capital to achieve the Sustainable Development Goals targets. SSNs make social impact investments attractive to commercial investors by financially incentivising the social impact created. Investors have the opportunity to invest in under-served sectors without compromising the depth of their social impact.
Aligns investor interest with the social enterprise
Payments from SSNs are linked to social targets, which serves as an incentive for all stakeholders including outcome payers, risk investors and social enterprises. If the targets are achieved, the outcome payer pays the investor over and above the lending rate. Financially rewarding investors indicate that their interests fully align with those of the social enterprise, which further maximises social impact. The mechanism incentivises commercial investors to consider businesses and sectors that were previously deemed unprofitable or risky.
To further understand the impact of SSNs, UNDP India hosted a special session in association with YourStory on Raising Capital Through Social Success Notes. The session was hosted by Karanraj Chaudri, Advisor, Social Impact, UNDP India and the panellists were Aparna Dua Senior Manager, Asha Impact; Amrut Joshi, Founder, Game Changer Law Advisors; Prachi Windlass Director of Education for the Michael & Susan Dell Foundation; and Gayathri V Founder, LabourNet. The panellists offered insights into the benefits of SSNs and how their organisations were driving social impact and helping bridge the funding gap.
You can see the full session here