Creating an impact investment culture in Armenia: Our way of doing it
BY Dmitry Mariyasin, Vahagn Voskanyan | August 22, 2018|Comments 0
According to some estimates, implementing the SDGs will cost a whopping 172.5 USD trillion by 2030, while current aid flows to developing countries sit at 350 USD billion annually. You might want to read the previous sentence again or let us summarize it for you: we have 350 USD billion per year, but we need around 172 USD trillion annually to reach the Sustainable Development Goals. Tricky, no?
I guess the quick answer is yes, it is tricky. However, we believe that this gap can be partly filled by something called impact investing. This is, in short, investments made into companies, organizations, and funds with the intention to generate social or environmental impact alongside a financial return.
At the UN in Armenia, we are testing impact investing and other new funding mechanisms to explore how they can be best used in middle-income countries to generate financing for the SDGs. Our UN team, led by UNDP Armenia, is experimenting around a set of initiatives that are already turning to be great learning experiences that we are proud to share in this blog.
Our impact venture accelerator
To support initiatives that put social or environmental issues at the core of their businesses, we created ImpactAIM: an impact venture accelerator. In short, ImpactAIM is a programme to support sustainable companies to scale up their impact. One of the criteria for ventures to be part of this initiative is that their business must reflect the mission and programme priorities of the United Nations in Armenia.
With this exciting idea in mind, last year we launched a call for proposals for companies to apply. We partnered with Catalyst Foundation and Impact Hub Yerevan, and received 96 applications from 25 countries! We were happily surprised with this great response and we moved quickly to select our candidates. After a detailed process which included almost 30 interviews, we selected seven ventures to be part of the programme: Dasaran, Armacad, Armath, WiCastr, Smart Kindergarten, Sylex and IoTLab.
These companies are currently enrolled in an intensive program which combines study sessions based on cutting-edge methodologies and hands-on experience in areas that are crucial for the start-up/business development world.
The selected ventures also receive intensive mentorship to help them strengthen their market base and increase their investment absorption capacity. We are also trying to leverage the existing expertise of different UN agencies into the programme. This is the case of UNICEF, currently mentoring ventures working on education issues, but we are working to better integrate the expertise of agencies across the UN system.
At the end of the programme, we will introduce the ventures to a network of impact venture capitals and angel investors to broke potential funding opportunities.
Impact Investment Catalyzing Facility
With the launch of the impact venture accelerator in December 2017, we realized that there is much more that we can do to support the expansion of impact ventures. In order to do that, and to stimulate the flow of private funds towards SDG targets, we are piloting an impact investment facility which will have two main elements:
- To support the establishment of impact funds through partnerships with fund managers to attract financing into impact ventures.
- To introduce impact-focused financial tools in Armenia. For example, long term loans, loans with subsidized interest rates and credit guarantees, that will encourage banking capital to fund impact ventures that target SDGs.
What this means is that UNDP is going to introduce available impact and SDG targeting funding opportunities to engage external financial facilities for further disbursements to impact-focused clients. Considering that this type of funding usually includes a grant component and technical assistance, banks will be incentivized to add impact and SDG targeting into existing structures.
Looking into social impact bonds
Here in Armenia we are also developing social impact bonds to respond to key SDG bottlenecks. A social impact bond is a multi-party agreement based on the idea of “pay for success”. The Government identifies a social problem that it has a) not been efficient in solving or b) lacking the necessary resources to solve it. The service providers who could efficiently solve the social problem are then identified, along with investors who are willing to pay the service providers upfront. The Government only pays the investors back when the pre-defined success indicators are reached or, in other words, pays only for success.
Currently we are working on the design of two social impact bonds:
- Improving quality of agricultural education in cooperation with FAO Armenia.
- Improving learning outcomes of the IT sector in cooperation with UNICEF Armenia.
Our short but strategic roadshow
During the last few months we have been spreading the word about impact investment. We participated in the Social Good Summit in Geneva and the Social Capital Markets (SOCAP2017) in San Francisco, where we met impact investors and made a strong pitch for partnerships with the private sector to achieve the SDGs. e now have a clear sense of what impact investors and key stakeholders outside the UN need and expect. We have also received feedback from key players in the industry and, together with INSEAD, organized Impact Investment for Development Summit in Yerevan in March 2017, which was the first time a dialogue on the role of impact investment took place in Armenia.
Landing impact investments to the day-to-day reality
Moving forward, we are looking into setting a legal framework that will allow the UN, private sector and other partners to make investments to support ventures promoting sustainable development. The fancy word for it is “impact investment platform”. The Impact Bonds, the Accelerator and the Catalyzing Facility are all specific and practical way to facilitate these investments, and help solve development challenges on the ground in Armenia and beyond.
Working with the Armenian Government
The Office of the Prime Minister in Armenia is eager to help accelerate SDGs. Our goal is to support Government to figure out ways of bringing academia and government together to engage citizens around the SDGs.
We also hope to engage social entrepreneurs to identify funding. Since its inception four years ago, the lab continues to evolve, from a social venture incubator to an accelerator. The accelerator takes the profitable business and scales globally.
We also set up, together with the Government of Armenia, the National SDG Innovation Lab to ensure that both public and private partners work in a coherent way. The Lab brings together contributors from the public and private sectors to experiment and create to unlock Armenia’s development potential.
For each new project that we work on, including this one pertaining to impact investments, we always ask ourselves three questions:
- Are we building a user (citizen)-driven intervention?
- Are we helping advance innovative approaches that help leapfrog to SDG achievement?
- Are we using the potential of private initiative and capital to achieve our objectives?
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