Hybrid social finance is key to impact investing growth

A brand new study by Ashoka, McKinsey and FASE provides a harsh reality check but also a fresh perspective: hybrid social finance can be the key to unlock the necessary capital to scale social enterprises.

recently published study by Bertelsmann Foundation had a quite sobering effect on impact enthusiasts: only €70m went into impact investments in Germany so far. This is just a small fraction of the SRI (Socially Responsible Investments) market and an even smaller one of the entire assets available for investment.

So how can social enterprises find the necessary capital to scale? Should they compromise on social impact for the sake of more financial return? Or surrender to reality, stay small and reach only a handful of beneficiaries? The Ashoka/McKinsey study not only shares its reality check but also a promise: Hybrid Social Finance can be the key to unlock impact investments on a much larger scale. The hybrid principle: syndicating different types of capital sources – from grantmakers and donors to impact investors and public bodies – and combining them according to their needs in terms of risk, impact and return. The effect: social enterprises receive enough funding to develop and scale their business models. In other words: The impact investing market can finally take off and gain speed.

The Hybrid Social Finance Promise

According to the Ashoka/McKinsey research, “this approach could actually deliver on the promise of multiplying the funding available AND invested.” FASE has already piloted several of these hybrid financing models and syndications between different types of investors (case studies here). Such models use a variety of financing instruments in a creative way, so that social enterprises as well as capital providers come together in a tailored solution. This can be a donation paired with an impact investment to support a social enterprise that has both, a non-profit and a for-profit legal structure, or a crowdfunding in combination with an impact investment. Everything is possible. As long as there is a will, there is a way.

The hybrid approach helps to pave the way towards “a €50bn market for the good of all”, the study concludes.

“The full set of roadmap recommendations goes beyond philanthropic players. A functioning social financial market will require a German roadmap that for the first time not only includes investors and investees but looks to gradually develop foundations, banks, government, intermediaries, and even the crowd as investors.”

So to all the impact enthusiasts out there, present and future, investor, grantmaker, intermediary and entrepreneur: Let’s get it done!

More information on the subject

“Achieving Impact for Impact Investing” – The Findings by Ashoka/FASE/McKinsey, March 2016

“Creating Collaborative Funding Models for Social Enterprises” – A report by FASE on several pilot cases with hybrid financing models, July 2015

“Social Impact Investment in Deutschland” – A German impact market report by Bertelsmann Foundation, January 2016 (German only)

“A Recipe Book for Social Finance” – A new practice-driven paper by the EU that provides frameworks for developing social finance tools, February 2016