Guest Lecture to Finance Honours class of Stellenbosch University on 7 May 2013, invited by Prof Suzette Viviers.

1. Social Enterprise
Stellenbosch University
7 May 2013

2. Introduction
 Samsung
 Vodacom
 Medscheme Group
 Alexander Forbes
 Hewlett Packard
 Edgars
 Diners Club International
 FirstRand
 Old Mutual Group
 City of Cape Town
 University of Stellenbosch
 LoveLife
 NSPCA
 Guide Dogs Association
 SANParks
 Peace Parks Foundation
 GivenGain
 Medicins sans Frontiers
 WWF SA
 UNICEF
 Greenpeace
 Nelson Mandela Foundation

3. Overview
Social Enterprise - Why 'Social'?
The Missing Middle - The Gap in Capital Markets
Investing for Impact - The Rise of Investor Activism
Relational Economics - The Power in People
The Source of Innovation - The Periodic Table of Elements
What role can finance play in the context of poverty and/or environmental
sustainability?
Do you think massive salaries are morally justifiable in the world of finance
today? Why?
In what way do you think relationships have a role to play in financial
innovation? Provide some real-world examples to illustrate points made.
What role does governance play in a business and its stakeholder relationships?

4. Wicked Problem: Poverty
 Nearly 50% of world’s population live on less than US$ 2 a day
 3 Billion people, 3 000 000 000, 3 thousand millions
 Less than R20 a day…R20!
 10 million children die every year from preventable diseases
 AIDS kills 3 million per year
 1 billion people lack access to sanitation
 1 000 000 000 people are illiterate
 25% of children in poor countries do not finish primary school
 20% of the population own 77% of the world’s wealth
 That’s you and me
 Poorest 20% own 1.4%
 And these people are right outside, all around us…

5. Solution: Aid?
 US$2.3 trillion in global aid since 1950 (William Easterley, World Bank)
 US$1 trillion in Aid to Africa, 6 Marshall Plans equivalent to
US$5,000/person (Richard Dowden, Royal Africa Society)
Aid and Income Growth in Africa
(10-year moving average)
0
2
4
6
8
10
12
14
16
18
20
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
Aid/GNI(%)
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
GrowthGDP/Capita(%)
Aid/GNI Growth GDP/Capita

6. Solution: ‘Social’ Enterprise?
 Economic growth is the fastest way to reduce poverty – China, Asian Tigers
 FDI is critical to economic growth but requires political and economic
stability, good governance – factors missing in poor countries
 ‘Social’ entrepreneurs needed to fill this gap
 Triple Bottom line – financial, social & environmental
 Sustainable profitable businesses
 Maximising financial and social returns
 Employment
 Empowerment
 Entrepreneurship training
 ESG (Environmental, Social, Governance)

7. Topic # 1: Social Enterprise
What is a social enterprise?
How do these differ from conventional enterprises?
Transformational Business Presentation

8. Topic # 2: The Missing Middle
How are social enterprises financed?
Which sources of funding are available in South Africa?
What are the challenges that social entrepreneurs face when seeking funding?

9. The Missing Middle
*Cumulative investment in frontier market SMEs.
**Estimated loans outstanding.
***Foreign development assistance, private
philanthropy & remittances, per annum.
Prosperity Ladder Concept: Legatum Global Development
Low Cost Capital
No Access to Capital
Abject Poverty
Poverty
Micro-
Entrepreneurs
Listed
Companies
Global
Enterprises
 Rule of law
 Property rights
 Physical security
 Economic freedom
 Health & education
ProsperityDriversProsperityDrivers
Grant Aid
$325 B***
Grant Aid
$325 B***
Public Capital
$ Trillions
Public Capital
$ Trillions
Microfinance
$25 B**
Microfinance
$25 B** Limited Access to Capital
High Cost Capital
Medium Cost Capital
SMEs$10 B$10 B
Private
Capital* “TheMissingMiddle”

10. Funding Sources
 Commercial Banks
 Development Banks
 Small Business Development Organisations
 Angel Investors
 Private Investors
 Corporate Investors
 Institutional Investors
 Public Investors
 International Investors
 Network
 Friends
 Family
10

11. Funding Requirements
 Business Plan
 Financial Forecasts
 Track Record
 Management & Board
 Good Governance
 Current Financials
 Creativity
 Communication
 Marketing
 Perseverance
 Sense of Humour
 Prayer

12. Topic # 3: Investing for Impact
Impact Investing Continuum
Case Study: Silulo Ulutho Technologies
Concept: Social Impact Bonds

13. Topic # 3: Investing for Impact
Impact Investing Continuum
Case Study: Silulo Ulutho Technologies
Concept: Social Impact Bonds

14. Impact Investing Continuum (Oostlander)

15. Impact Investing Analysis (Markets for Good)

16.  Founded in Khayelitsha, Cape Town
in 2004 by 4 local partners
 Computer training, internet access and
business support services
 1000’s of people introduced to ICT
and trained per year
 Affordable, accessible services
meeting critical needs at a local level
 18 Employees by 2009, 100+ in 2013
 R1,8 million in turnover in 2009 up to
over R 10 million to date
 From a car boot to over 20 training
and internet centres in W & E Cape
Silulo Ulutho Technologies

17. Financial Innovation: Social Impact Bonds
Source: From potential to action: Bringing social impact bonds to the US, McKinsey Company 2012

18. Topic # 4: Relational Economics
Why ‘Relational’?

19. Relational Economics
 Commitment is the basis of lasting, loyal relationships
 The bond that is formed through building a relationship with your stakeholders
 Should ultimately lead to advocacy
1. Expectation
2. Satisfaction after first purchase
3. Behavioural loyalty
4. Relationship forms
5. Emotional loyalty
6. Commitment
7. Advocacy
No emotional tie
Customer is satisfied unless
something better comes along
Positive interaction on both sides
Bond becomes stable.
Mutual problem solving
Find values in the brand and willing to
take action on behalf of it
Seven steps to loyalty
“Loyalty Hurdle”
“Loyalty
Hurdle”

20. Loyalty Economics
Source: Reichheld, 1996, 2001
The Loyalty-based Cycle of Growth

21. The Purpose of Loyalty
 The ‘Right’ Contributions from the ‘Right’ Relationships
 How do you find the ‘Right’ Stakeholders and keep them?
Source: Reichheld, 1996, 2001

22. Relational Economics:
A Virtuous Value Chain
Employee
Business
Partner
Customer
CostEfficiencies
&
Innovation
Custom
er
Intelligence
Superior
Service
Feedback
Fulfilment
Turnover
Training
& Incentives
Com
pensation
&
Opportunities
Superior
Productivity
Spend&
ProfileSuperior
Products
Loyalty&
Referral
ValueAdded
Benefits
Quality
Assurance
Investor
Competitor
returns/reinvestment
marketing/mindshare
Community
Responsibilities
Environmental
Concerns
Market & Industry
Conditions
Legal & Ethical
Regulations
Source: Habberton, 2005

23. Relational Economics:
Creating Shared Value
 CSR to CSV
 Value Creation not just Value Add
 Intrapreneurship
 Economic & social returns
 Stakeholder relationship management
Linked to normative structures in SA including:
 King III Report on company reporting:
 “…how a company has, both positively or negatively, impacted
on the economic life of the community in which it operated …”
 Principles for Responsible Investing & CRISA

24. Topic # 5: The Source of Innovation
The Periodic Table of Elements (as per Prof. J. Kinghorn…)

25. The Periodic Table of Elements