skoll centre for social entrepreneurship1 session 6 social entrepreneurship and social innovation
TRANSCRIPT
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP1
Session 6Session 6
Social Social Entrepreneurship and Entrepreneurship and
Social InnovationSocial Innovation
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP2
Towards A Social Towards A Social Finance Market-PlaceFinance Market-Place
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP3
OverviewOverview
• Background• Context• Landscape• Brokerage models• Social stock market
• Case studies: Traidcraft; cafedirect; Compartamos
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP5
Role Of Private Role Of Private SectorSector• Wealth creation• Return on capital• Profit maximisation
• Innovation• Market making
• Individual rational actor maximising personal utility in one off transactions?
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP6
Role Of GovernmentRole Of Government
• Govern for the common good• Democratic mandate and accountability
• Authorise• Procedural rights
• Coerce• Substantive rights
• Responsible for societal equality and fairness• Equality of outcome?• Equality of opportunity?
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP7
Role Of GovernmentRole Of Government
• Solve free-rider issues• Regulation for public benefit• Address individual hyperbolic discounting
• Ensure economic efficiencies• Utilities• Infrastructures• Welfare goods• Address market failures in public goods
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP8
Government And Government And FinanceFinance• Sets the economic context• Regulates via legislation• History of financial markets• Consequences of deregulation• Track record in social finance since 1997
• Non-UK examples
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP9
Role of Third SectorRole of Third Sector
• Value(s) driven• Absence of government
• Heterogeneous demand for public goods
• Absence of private sector• Non-market goods
• Reassurance of non-distribution structure• Complex goods/services• Third party beneficiaries• Unreliable beneficiaries• Pooled input resources(DiMaggio and Anheier, (DiMaggio and Anheier,
1990)1990)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP11
Financial MarketsFinancial Markets
• Cost efficient• Low transaction costs
• Information rich• Up-to-date
• Value driven allocation of funds• Success is rewarded
• Flexible and responsive• High liquidity
Meehan et al (2004)Meehan et al (2004)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP12
Social Finance MarketSocial Finance Market
• Inefficient• High transaction costs
• Information poor• Inconsistent or non-existent metrics
• Cause driven allocation of funds• Success goes unmeasured and unrewarded
• Static and inflexible• Low liquidity, limited resources
Meehan et al (2004)Meehan et al (2004)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP13
InefficientInefficient
Unlike resource allocation in Unlike resource allocation in the business world, where the business world, where
investors and companies seek investors and companies seek one another out in an one another out in an
information-rich environment, information-rich environment, philanthropy is largely a one-philanthropy is largely a one-
way streetway street
Meehan et al (2004)Meehan et al (2004)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP14
Application ProcessApplication Process
• Time consuming and inefficient• Different for each cause• Different for each source of funds
• Organisation, not mission, focussed
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP15
High CostHigh Cost
• Raising funds:• For-profit capital market: $2-4 per $100• Legal• Marketing • Admin
• Not-for-profit capital market: $10-24 per $100• Buying donor lists• Direct mail/Telephone calls
• Not-for-profit CEOs spend 30-60% of time on fund-raisingMeehan et al (2004)Meehan et al (2004)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP16
High CostHigh Cost
• Allocating funds:• Foundations: $12-19 per $100
• General overhead• Reviewing applications
• Intermediary groups (eg. United Way): $13 per $100
• Total cost: $22-43 per $100
Meehan et al (2004)Meehan et al (2004)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP17
Information PoorInformation Poor
• Only 38% US charities filed a ‘Form 990’ IRS return (2002)• Hard to obtain• Of these, 15% included serious errors
• No uniform not-for-profit accounting standards
• No single regulatory authority• Very fragmented market
Meehan et al (2004)Meehan et al (2004)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP18
Resource AllocationResource Allocation
• Distorted by:• Cause/mission focus• History of institutional loyalty• Lack of performance driven resource allocation
Meehan et al (2004)Meehan et al (2004)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP19
Static MarketStatic Market
• Financial contributions are largely final and irreversible• Grant not investment
• Cannot be withdrawn easily• Lack information to judge subsequent funding
Meehan et al (2004)Meehan et al (2004)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP21 SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP
Drivers Behind Social Drivers Behind Social FinanceFinance
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP22 SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP
Social FinanceSocial Finance
TheThe system of finance supply and system of finance supply and distribution to support socially distribution to support socially
entrepreneurial approaches to public and entrepreneurial approaches to public and environmental challenges. Social finance, environmental challenges. Social finance, therefore, is more than just the flow of therefore, is more than just the flow of
money into social or environmental money into social or environmental projects. It is conceived as an ethos projects. It is conceived as an ethos
about the way money is used…social finance about the way money is used…social finance can be seen as the discourse around such can be seen as the discourse around such flows that is developing in concrete terms flows that is developing in concrete terms
in the new institutions of supply, in the new institutions of supply, intermediation, and demand. This is a intermediation, and demand. This is a
discourse in flux with competing discourse in flux with competing perspectives driving the debateperspectives driving the debate
Nicholls with Pharoah (2008)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP23
Social Investment Social Investment OptionsOptions• Not-for-profit/charity that generates Not-for-profit/charity that generates exclusively social valueexclusively social value• Non-market rateNon-market rate
• Social enterprise that is profit-making but Social enterprise that is profit-making but also has a clear social/environmental also has a clear social/environmental purposepurpose• Sub-market/market rateSub-market/market rate
• Commercial opportunities in deprived areasCommercial opportunities in deprived areas• Market rateMarket rate
• ‘‘Social firms’ that employ disenfranchised Social firms’ that employ disenfranchised members of the communitymembers of the community• Sub-market/market rateSub-market/market rate
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP25
Spectrum Of Social Spectrum Of Social FinanceFinanceFinancial Financial InstrumentInstrument
Purpose of Purpose of FinanceFinance
Type of FinanceType of Finance ExampleExample
Private Private GrantGrant
Fulfilling Fulfilling Mission Mission Capacity BuildingCapacity Building
(Venture) Philanthropy(Venture) PhilanthropyPRIPRIMRIMRI
Impetus TrustImpetus TrustFB Heron FoundationFB Heron FoundationCalvert FoundationCalvert Foundation
Government Government GrantGrant
RegenerationRegenerationMarket Market DevelopmentDevelopment
Community Development Community Development LoansLoansUnclaimed AssetsUnclaimed Assets
Community Development Finance Community Development Finance Institution (CDFI)Institution (CDFI)Social Investment BackSocial Investment Back
Government Government ContractsContracts
Outsourcing Outsourcing Welfare ServicesWelfare Services
Contractual ExchangeContractual Exchange Greenwich LeisureGreenwich LeisureEaling Community TransportEaling Community Transport
DebtDebt Economic and Economic and Social Social DevelopmentDevelopment
Micro-FinanceMicro-Finance Grameen BankGrameen BankCitiBankCitiBank
Quasi-EquityQuasi-Equity Growth CapitalGrowth Capital Share of OwnershipShare of Ownership Bridges Community VenturesBridges Community VenturesCatalystCatalyst
Sub-Market Sub-Market EquityEquity
Growth CapitalGrowth Capital Restricted ‘Ethical’ Restricted ‘Ethical’ SharesShares
CafedirectCafedirectEthical Property CompanyEthical Property Company
MarketMarket EquityEquity
Growth CapitalGrowth Capital Standard SharesStandard Shares London Bridge CapitalLondon Bridge CapitalCompartamos BankCompartamos Bank
JointJoint EquityEquity Start-up/Start-up/Growth CapitalGrowth Capital
Co-operative Ownership Co-operative Ownership (IPS)(IPS)
MondragonMondragonBayWindBayWind
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP26
DemandsideDemandside
• Charities • 168,000 • Total income of £40bn
• Social enterprises• 55,000• Total income of £27bn
• Community Interest Companies (CICs)• 2,000 since 2005• No information on income
• Co-ops
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP28
SupplysideSupplyside
Risk level
Minimal Low Medium High
Provider Banks(Triodos)
CDFIsCharity BankLocal Investment FundsBridges C.V.
VenturesomeImpetusAdventure Capital Fund BigInvestFutureBuilders
CharitableTrustsGovernmentEquity
Current Funds Available
Extensive
£181m£62.5m£40m
£15-20m£3.5m£12m£250m1m EURO
£2.7bn£5bn>£10m
Potential
Loss
<1% 1-10% 10-50% 100%
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP30
The Investor UniverseThe Investor Universe
- 100% + 8%0%
Capital-protected Market-rate returnGrant-makers
- 15%
?
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP32 SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP
Supply And DemandSupply And Demand
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP33
Credit
Unions
Micro-Finance InstitutionsETHEX
Government
Social
FirmsCommercial Investors
Social Enterpris
es
Micro-Entrepreneu
rs
Tax-Payers
Philanthropists
Banks
Dedicated Intermediar
ies
Ethical
Investors
VP Funds
Foundations
SIB
Charities
N-F-P Social
Entrepreneurs
Co-ops
Members
Market Transaction
s
DEMAND SUPPLY
INTERMEDIARIES
Landscape of Social Landscape of Social FinanceFinance
CDFIs
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP35
Policy and Social Policy and Social EnterpriseEnterprise• The formation of a Social Enterprise
Unit within DTI (2002), now incorporated within the Office of the Third Sector
• The establishment of an Office of the Third Sector within the Cabinet Office with its own Minister (2006)
• Key objectives:• To better understand the sector and its impacts
• To provide an ‘enabling environment’ for it to flourish
• Tory policy too now!
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP36
Policy and Social Policy and Social EnterpriseEnterprise• To find solutions to some of societies’ most entrenched social problems• Over half social enterprises surveyed in 2005 were located in the 40% most deprived areas
• To support the growth in ethical markets • Between 1999 and 2004 the sale of Fair Trade marked food grew by more than 640%
• To support the development of a social finance marketplace
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP37
• SEs improve public services• Social enterprises are active in many public sector markets – particularly health and social care
• At their best they offer a high level of engagement with users and a capacity to build trust
• SEs increase overall levels of enterprise• 55,000 social enterprises generate £8.4bn to GDP pa
• The social enterprise model appears to be more attractive to women and certain ethnic minority groups than conventional business models
Policy and Social Policy and Social EnterpriseEnterprise
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP38
• Not to create social entrepreneurs but to create the environment in which they can succeed
• That means government can act as • Catalyst – government can help to overcome address market failures or barriers to growth
• Customer – government can purchase services from SEs
• Champion – government can help to overcome information failures
Policy and Social Policy and Social EnterpriseEnterprise
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP39
Policy and Social Policy and Social InvestmentInvestment• Social Investment Task Force (2002)• Phoenix Fund (2002) to capitalise CDFIs• Bridges Community Ventures Ltd (2002) to provide investment specifically for small businesses in deprived areas• Founded by Sir Ronald Cohen (Apax Partners, 3I) and Tom Singh (New Look)
• Initially raised £20 million from the private sector and £20 million in government matching investment
• Started investing a second fund in 2006
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP40
Policy and Social Policy and Social InvestmentInvestment• Adventure Capital Fund (2002), worth
£15 million, to offer longer-term financial and development investment to support community enterprise growth
• Community Asset Transfer fund of £30 million to support local authority asset transfers into community ownership (2002)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP41
Policy and Social Policy and Social InvestmentInvestment• Community Investment Tax Relief (2003) to provide investors with an income tax break on investment in social purpose organisations in deprived areas• CITR has attracted around £40 million of investment in the sector
• Longer term contracting between government and social enterprises (DTI, 2003)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP42
Policy and Social Policy and Social InvestmentInvestment• Futurebuilders (2005) fund worth £215 million to offer investment packages of grants/loans/technical support for organisations to bid for government service-delivery contracts
• Two pilot funds (2006), worth £200k, for innovation in encouraging private sector investment in social enterprise
• £10 million fund for social enterprise (2006) in recognition of the need to stimulate growth
• Social Investment Bank?
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP43 SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP
Landscape Of Social FinanceLandscape Of Social Finance
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP44
Government Banks Private Sector
Social Investment Bank
Third Sector
National and regional intermediaries
• CDFIs •Venturesome• Charity Bank• CAF bank
• Credit Unions • Princes Trust• Bridges• Futurebuilders• Social Investment Scotland
• Ulster CIT• Big Invest• Triodos• Unity Bank
Social investment will be greatly increased by the SIB if private sector capital is brought to the market by intelligently blending it with incentives and expertise.
Social Investment Social Investment BankBank
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP45
• Four initial activities that should attract significant additional finance into the sector: • Capitalise present financial intermediaries and fill gaps in the marketplace
• Develop the provision of advice, support and higher -risk investment so as to accelerate the growth of demand for repayable finance
• Develop programmes of sustained investment in specific markets such as community regeneration and financial inclusion
• Support existing and new intermediaries in their efforts to raise private capital
Social Investment Social Investment BankBank
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP46
Market Building Market Building ActivitiesActivities• Bond issues supporting community finance
• Opportunity for an SIB to support structural reform of the social fund (currently a government delivered soft loan fund)
• Opportunity to raise capital from bond issues that would then be lent on through credit unions and CDFIs
• Funds could also be lent on through new direct banking services
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP47
Private Brokerage Private Brokerage ModelsModels• Xigi
• www.xigi.net
• GEXSI• New Philanthropy Capital
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP48
• Founders:• Bain & Company • Deutsche Bank• Foursome Investments• GTZ-Deutsche Gesellschaft für Technische Zusammenarbeit
• Open Society Institute• Schwab Foundation for Social Entrepreneurship
• PricewaterhouseCoopers
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP49
• Social investment aims:• Quality: by way of greater social investment effectiveness in the finance and social entrepreneurship sectors
• Quantity: by way of financial ‘additionality’, enlarging globally the revenue pool available for social investment
• Operational 2004http://www.gexsi.org/index.htmlhttp://www.gexsi.org/index.html
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP50
• Development deals• Support civil society projects and programs
• Bring together private and public social investors with social entrepreneurs and social purpose organizations
• Created in tandem with ACCESS (Keystone) • Ratings agency designed to give SEs recognition under a common, global profiling system
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP51
• Quality assurance and risk management• Based on new, independent rating, implementation reviews, and assessments of effectiveness
• Strategic advice• GEXSI, in association with the institutions of its founders, and especially with GTZ, can tap into a worldwide system of on-the-ground development experts in some 120 countries
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP52
• Founded 2001• A bridge between donors and charities
• Researching a social issue and highlighting effective organisations that will flourish with additional funding
• Employs analytical tools used in finance and business in the voluntary sector
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP53
• International in scope• 2001-4, advice on:
• £18m donations• £20k-£1.5m per donation• 50 charities
• Global Philanthropy Forum
http://http://www.philanthropycapital.org/www.philanthropycapital.org/
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP54
EthexEthex
• Founded by Triodos Bank• Matched bargain market• Listings
• Ethical Property• cafedirect• Renewable Energy Fund• Golden Lane Housing• Triodos Bank NV shares
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP
Impetus (venture philanthropy 4m)
Futurebuilders (public services 125m)
Grants(100%)
Foundations, Government
No Trading Revenue
Potentially
sustainable - 75%+ Trading Revenue
Profitable - Surplus
Not Distributed
Trading Revenue
And Grants
Breakeven - All Revenue from Trading
Profit Distributing -
Socially Driven
Profit Maximizing
Patient Capital(50%)
High default risk
Low default risk
Loans(1-10%)
CDFIs and Banks (Triodos 50m, Charity Bank 10m)
Equity and equity/like capital (10-20%)
Foursome (40m)
CDVC Funds
Adventure Capital (community 2.7m)
Venturesome (2m)
Regional funds*
Objective 1 and 2 funds*
London Rebuilding Society (0.5m)
Gap for Social Equity Capital
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP57
Equity-Like CapitalEquity-Like Capital
Equity-like capital is not Equity-like capital is not centrally based on ownership of centrally based on ownership of the shares of the company which the shares of the company which
avoids problems that social avoids problems that social enterprises have historically enterprises have historically
had with issuing equity. Equity-had with issuing equity. Equity-like capital is structured as like capital is structured as subordinated debt, which has subordinated debt, which has
equity-like featuresequity-like featuresHoward (2004)Howard (2004)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP58
Social EquitySocial Equity
• Alternative Public Offering (APO)• Off-market
• EthEX (Triodos)
• Restricted control• Soft returns (0-3%)
• Traidcraft• Cafedirect• Ethical Property
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP59
Uses of Social EquityUses of Social Equity
• Suitable for high potential social ventures
• Social enterprises• UK 5,300
• Socially driven businesses• UK 500
• Other NFPs?
Howard (2004)Howard (2004)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP60
Sources of EquitySources of Equity
• Public• Clear demand
• Institutions• Pent-up demand
• Business angels• No evidence
• Venture philanthropy funds• Emerging
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP61
Equity ConstraintsEquity Constraints
• Market Liquidity• Exit strategies
• Financial returns• Unfavourable risk-return profile
• Legal structures• Control issues• Ownership role of grants
• Role of prior investments?
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP62
Social Equity Issues Social Equity Issues 1984-20051984-2005
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP63
Social Equity IssuesSocial Equity Issues
Organisation
Date Type Amount (£m)
Shared Interest
1995; 1996; 1997; 1999; 2001; 2002; 2003; 2004
Bond (5yrs)
8.3(1.0; 1.0; 1.3; 1.0; 1.0; 1.0; 1.0; 1.0)
Ethical Property
1999; 2002 Shares 5.5(1.3; 4.2)
Tradecraft 1984;1986;1991; 2002
Share 5.15 (0.3; 1.0; 0.6; 3.25)
cafedirect 2004 Shares 5.0
Baywind 1996; 1997 IPS Share
4.8(3.1; 0.7)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP65
Traidcraft CaseTraidcraft Case
• What are the financing options for growth open to Traidcraft?
• What are the implications of offering equity?
• How can Traidcraft best balance mission and commercial objectives?
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP66
cafedirectcafedirect
• 2004 APO: £5m = 51% of company• £1 per share
• Four founders retained 40.5% of total equity and held one Guardians’ Share
• Maximum stock holding = 15%
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP67
cafedirectcafedirect
• Capitalisation (2004) = £9.8m• Earnings (2004) = £146k• P/e ratio = 1.00/0.03 = 33
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP68
cafedirectcafedirect
Number of Shares
Number of Shareholder
s
% of total shares
1-300 1233 4.1
301-500 1531 8.4
501-1000 1185 12.5
1001-5000 548 16.8
5001-10000 32 3.2
10001 and over
29 55
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP69
• Earnings multiple• Trading not asset-basedTrading not asset-based• Expectation of sustainable earnings Expectation of sustainable earnings • Advised by Brewin Dolphin to 14xAdvised by Brewin Dolphin to 14x
• 7.1% return after tax7.1% return after tax
• IssuesIssues• Interest rates 3%Interest rates 3%• Inflation 2%Inflation 2%• FTSE food/beverage returns 6% (P/E 16.7)FTSE food/beverage returns 6% (P/E 16.7)• Ease of selling (liquidity)Ease of selling (liquidity)
Moving Share PriceMoving Share Price
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP70
• Profit before taxProfit before tax• Adjusted:Adjusted:
• Add back 80% of PPP investment Add back 80% of PPP investment • ‘‘Normalise’ for long-term US$ rateNormalise’ for long-term US$ rate• Deduct tax chargeDeduct tax charge
EarningsEarnings
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP71
• Recognises that ‘financial return’ is Recognises that ‘financial return’ is reducedreduced
•Due to ‘social return’ from investment Due to ‘social return’ from investment in producer organisationsin producer organisations
•But recognises that this gives financial But recognises that this gives financial benefit of 20% (eg continuity of supply benefit of 20% (eg continuity of supply during price volatility)during price volatility)
Adding Back 80% of Adding Back 80% of PPP?PPP?
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP72
• Recognises profitability is subject Recognises profitability is subject to fluctuations in the US$to fluctuations in the US$
• Adjustment ‘normalises’ profit using Adjustment ‘normalises’ profit using long-term average of $1.72 long-term average of $1.72
0
5
10
15
20
25
30
35
40
45
50
2000 2001 2002 2003 2004 2005
0
0.5
1
1.5
2
Adjust For US$ Rate?Adjust For US$ Rate?
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP73
5-year average
5-year forward
share issue planning
US$1.72?US$1.72?
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP74
(£k)(£k)
Profit before taxProfit before tax 802.2802.2
add:add: 80% of PPP investment 80% of PPP investment ( £574.0) ( £574.0)
459.2459.2
adjustadjust::
Long-term US$ exchange rate Long-term US$ exchange rate $1.72$1.72
(250.0)(250.0)
1,011.41,011.4
less:less: Tax charge, based on adjusted Tax charge, based on adjusted profitprofit
(290.3)(290.3)
EarningsEarnings 721.1721.1
Earnings x multiple of 14Earnings x multiple of 14 £10,095.8£10,095.8
Divide by: No of Shares in Divide by: No of Shares in issueissue
8,995.48,995.4
Price per sharePrice per share £1.12£1.12
Adjusted Share PriceAdjusted Share Price
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP75
CompartamosCompartamos
• 1990 Established as an NGO• 2000 Moved operations to a regulated finance company
• 2002 Issued debt on Mexican bond market
• 2006 Authorised to operate as a full-service bank
• 2007 IPO
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP77
APO Or IPO?APO Or IPO?
•Pre-IPO: $6.3M in grants catalyzed Pre-IPO: $6.3M in grants catalyzed $130M in private, commercial resources$130M in private, commercial resources•CGAP: $2M grant included no covenants CGAP: $2M grant included no covenants about future interest rates or profit about future interest rates or profit levels levels • Was the aid money from early years used Was the aid money from early years used inappropriately to enrich private inappropriately to enrich private investors?investors?
• Are Compartamos’ exceptional profits and Are Compartamos’ exceptional profits and high interest rates they are built on high interest rates they are built on defensible in light of the company’s defensible in light of the company’s social bottom line? social bottom line?
• Are they in line with the development Are they in line with the development objectives of its principal shareholders?objectives of its principal shareholders?
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP79
Interest RatesInterest Rates
Global MFI average interest rate: 30.9%
Global MFI loan size as % of GNI: 43.5%
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP84
Interest RatesInterest Rates
Largest share
Cost of funds is significant contributor
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP85
Interest RatesInterest Rates
For-profit corporation formed
All earnings retained up to this point
2006: ¼ earnings paid in dividends