- Used as a precision tool to support local enterprise, venture capital can be well-suited for fragile contexts where it’s difficult or impossible for traditional aid or foreign investment to operate, Zwane says.
- Seeing returns on investment in the impact investment sector requires both patience and a willingness to suffer capital losses in exchange for holistic social gains.
- Social impact investing will not and should not crowd out public service provision in sectors like education and health, Zwane says – but it can partner with the public sector to boost the adoption of evidence-based approaches.
The scale of social and environmental problems facing the world today is beyond the scope of any government budget. Every year, there’s a $2.5 trillion funding shortfall in achieving the Sustainable Development Goals, which are benchmarks of global need. Funding crises are particularly acute in fragile states, where governments struggle to raise revenue and the outflow of illicit capital – in the form of gun running, the drug trade, and money laundering – is nearly double the amount of foreign direct investment.
It’s in those situations, says Alix Zwane, that social impact investing can do things that traditional aid and investment can’t. Zwane is the first CEO of Global Innovation Fund, a partnership for international impact investing launched by Australia, Sweden, the US, the UK and the Omidyar Network. GIF wields a $200 million endowment it uses to provide early stage capital to innovative ideas tackling global poverty. The fund is a touchstone of a generational shift in a sector focused increasingly on borrowing tools and language from the realm of venture capital.
Before she landed at GIF, Zwane headed up the humanitarian incubator Evidence Action and helped forge the Bill and Melinda Gates Foundation’s strategy for tackling water, sanitation, and hygiene issues in the developing world. In the humanitarian field, though, Zwane may be best-known for her work developing the chlorine dispenser, which built on insights from behavioral science to provide drinkable water for over 3 million people.
Alix Zwane, CEO of Global Innovation Fund
Zwane brings that focus on ensuring that aid programs generate a proven return on investment to her current role, where she evaluates funding proposals based both on whether they’ll have real monetary payoffs, and whether they’ll generate improvements in incomes, employment, health, and education for some of the poorest people on the planet. Capital returns are nice to have, Zwane says. Social returns are absolutely necessary. One GIF venture in Northern Nigeria financing an agribusiness firm generates an 8% loss for the fund due to the steep depreciation of the naira, Zwane noted. But GIF took the plunge anyways because evidence indicated that the impact on the well-being of whole communities from farmers’ increased incomes, expanded access to agricultural inputs, and more formalized agricultural supply chains would generate a social rate of return for northern Nigerians far greater than the fund’s monetary losses. No less important, the venture operates in a context of violence: Boko Haram attacks in Northern Nigeria leave hundreds dead and thousands displaced every month.
All of us who care about development and improving the lives of poor people in countries where incomes are low need to think carefully about how to help the private sector grow and flourish and be an engine of inclusive growth [and] dignified, productive jobs for people.
Zwane’s brand of impact investing – which is not shy about taking financial hits or engaging with enterprises in fragile states – requires a high tolerance for risk. It also requires patience. Neither are in great supply in the realms of either traditional finance or international aid and development – or among human beings more generally. Zwane cites findings from the field of behavioral science that confirm that people are reluctant to make low-cost investments that will pay off in the long term. On the flip side, she notes, “Sometimes people are willing … to pay for products that don’t actually work. Again, this is human nature.” In her view, GIF plays a balancing act between unchecked market forces and slow-moving development assistance. “As the world in which we live changes, the way that we finance and fund development needs to evolve as well,” she tells Grant and Ravi. Dig it or dread it, the private sector is here to stay in global development.
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Opinions and views expressed by guests are their own and do not reflect those of the International Rescue Committee.
