Social Investors on the Sidelines

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.