 I'm Dan Rondi, I hold the Shrier Chair here at CSIS, and I also co-direct the U.S. Leadership and Development Project here at CSIS, which is in partnership with Chevron. This is, as part of the U.S. Leadership and Development Project, we have what's called the Chevron Forum Series, and this conversation around impact investing is part of the Chevron Forum, and so we're particularly grateful to our friends at Chevron for helping make this happen. The prompting of this conversation was a breakfast that several of my colleagues and I had with Paul Brest, who's the former president of the Flora and William, William & Flora Hewlett Foundation, and for those of you who haven't seen it, Paul Brest has written a very interesting paper about what can impact investing create, when can impact investing create real impact, and I think it also speaks to Paul Brest's work on measurement and evaluation and impact. He's written a book called Money Well Spent that some of you have read, and if you haven't read the book, I recommend that you buy it at retail on Amazon.com and read it. We had a very interesting conversation earlier this morning about measurement and evaluation, and I think his take on impact investing I think reflects sort of his many years as leading the Hewlett Foundation and thinking about the issues of impact, and so he looked at this issue of impact investing from the concept of impact as opposed to say from a concept of sort of investing, and so I think that's where his jumping off point is on the topic, and as he says up front in his paper that he's not an impact investor, but he's somebody who's looked at the field and I think has got some very interesting insights to share with us. We then have a series of Washington based panelists, because what I said to Paul was, look, we're in Washington, there's a lot of energy around this discussion about impact investing. I think the fact that everybody has shown up on an afternoon like this one, I think reflects the energy. There's been a lot of effort by the Obama administration to find ways to support the growth of impact investing, and there also been a series of things before the Obama administration to support impact investing, whether it's at the International Finance Corporation or USAID or at OPIC through things like the Development Credit Authority and through a variety of other instruments and approaches. So we have three very thoughtful people who will be providing in essence a response to Paul's presentation, but also a chance for us to have a jumping off point for a broader discussion among the panel, but also with this very thoughtful and expert audience that we have with us. So we have Agnes Dashowitz, who is with USAID, who runs a very interesting program that you'll hear about, and she used to work with Harold Rosen. Harold runs the Grassroots Business Fund and is an alum along with Agnes of IFC, and then we have Ambassador John Simon, who is a former U.S. Ambassador of the African Union, but also relevant to this conversation, was Executive Vice President at OPIC and now runs something called Total Impact Advisors. So we have a very interesting group in front of us, and also we have a great audience. So without further ado, I'm going to turn the floor over to Paul Bress. Paul, the floor is yours. Thanks for having me. It's a really pleasure to be here. I'm going to run through these slides very quickly because I think that what's most interesting is for us to then start a conversation and for you to participate in it. I just should say that this is, these slides go with an article that's about to come out in the late summer or fall in the Stanford Social Innovation Review, and the editor of the review sent it out for comments to about 15 people, and Harold Rosen was one of the commentators. I'm actually my co-author, who is a fellow at the Hewlett Foundation and I are now supposed to comment on the comments, so maybe your comments will help us comment on the comments, and then of course the commentators make so and so forth. Okay, so I don't want to focus too much on the definition because I think the argument shouldn't be about the definition, so this is an intentionally broad definition of impact investing. Actively placing capital and enterprises that generate social environmental good services or other benefits with expected returns ranging from almost nothing but some to above market. So the issue, I think, is not how you define it, but what impact is, and that's what we're really going to talk about. So I want to define several categories of investors. First, they're socially neutral investors, and that doesn't mean that their investments don't have consequences. It means that the only thing they care about is market returns. They care about financial returns, and if you doubt whether they're social neutral investors, those of you who are old enough to have retirement funds, think about how your retirement funds are managed, most of them, not all. So they're socially neutral investors, and then they're impact investors, and impact investors is socially motivated. The impact investor wants to have some social impact, and among that category of socially motivated investors, they're non-concessionary. That is, they want to have it all. They want to have good financial returns, and they want to have social impact, and then they are their concessionary investors. They're willing to make some trade-off in financial return in order to have social impact. I'm not going to linger on this slide. The real point here is that different impact investors may have different goals, and there's really a broad range of goals. My guess is because of CSIS and your presence here, many of you are interested in development goals, but that's just one possible set of goals one might have. So basically, here's how it works. The ecosystem, kind of the structure of impact investing. There's a financial investment in a social enterprise for the benefit of beneficiaries, and there may be, we'll talk a bit about this later, non-monetary benefits as well. And then because it is an investment, there is at least the expectation or hope that something gets returned to the investor. Impact, because what I want to talk about is not the definition but what impact is. Impact means making a difference, and that depends on the counterfactual. The counterfactual is what would have happened if you hadn't done something. So we're going to talk about three kinds of impact. An enterprise has impact if it produces something of value that wouldn't have happened otherwise, and an investor or somebody making non-monetary contributions to the process has impact if it increases the quality or quantity of the investing organization's output beyond what would have otherwise occurred. So I'm going to talk first of all about enterprise impact, then about investment impact, and then non-monetary impact. Enterprise impact is, everybody's familiar with that, so I'm going to go over it quickly. Non-monetary impact is pretty simple. Investment impact is where I think the most interesting issues arise. So the point of this slide is really that without enterprise impact, nothing makes any difference. That is, no matter how smart an investor you are, no matter how much elbow grease you put into non-monetary inputs, unless the enterprise itself has impact, it's all for naught. So anybody recognize this almost iconic picture of an enterprise? Husq power, right? Somebody mentioned husq power. So husq power is an Indian enterprise that uses rice husks to make power in small communities that are off the grid. So how does an enterprise have impact? One is it can produce a product like power that's needed for its customers and beneficiaries. It can have operational impact, for example, it creates jobs. That is the very operation of the organization is valuable. Or it might have sector impact, something which a really terrific article by Matt Manek and Paula Goldman at Omidyar called Priming the Pump talks about Omidyar's support for entire sectors or fields. So these are three kinds of enterprise impact. With product that impact sign of being paradigmatic, right? It produces something of value, whether it's health or energy or clean water or what have you. So what are the criteria for an enterprise having impact? The first question is, did the enterprise produce its intended output? But that's not enough, right? That's important. But the next question is, did the output actually contribute to the intended outcome? So, you know, you can have a company like A through Z, which makes malaria bed nets. They produce the output, the bed nets, but the question remains, do the malaria bed nets actually reduce malaria? A much harder question to answer. The counterfactual is, it would have happened anyway, right? So you distribute the bed nets, but this was a period of drought or something else happened to deal with the malaria otherwise. So right now the state of philanthropic evaluation is pretty bad. And the state of evaluating impact investments is even worse. I think these are probably, this is great inflation maybe. The iris, which is a system trying to unify a number of outputs of companies, is actually played a very important role in creating some standards in the area. And it works though not on the ultimate outcome, but really on outputs. And Gears is a rating system largely based on ours. They're working to improve it. So, and an important question here, maybe not for you, but for an organization like BLab which runs Gears, is there enough donor demand? Do donors really care enough about impact to support developing this further? Let's skip that. Okay, so enterprise impact, basically if you've ever thought about the impact of any nonprofit organization or any organization supported by governments, you're thinking about enterprise impact. And the concept is no different in impact investing than it is anywhere else. Is the enterprise making something valuable happen that otherwise wouldn't have happened? Investment impact is where it gets interesting. So the question, let me come back to my three categories of investors. They're socially neutral as one category and then they're socially motivated. This concessionary investor finds it kind of painful. This concession he's making, the nonconcessionary investment gets it all. And the question I want to focus on is when does a socially motivated investment, which is what impact investments are, when does it have impact? And there are two possibilities. One is it provides capital that the enterprise wouldn't otherwise have and it reduces the cost of capital beyond what it would otherwise get. So assuming that the enterprise has an absorptive capacity to use the money wisely, then a grant almost has impact. Almost has investor impact because by hypothesis, ordinary investors would not make grants because grants are unrecoverable donations. This is Andrew Carnegie. Since you failed the Hust Power question, I'm not going to ask you to identify Andrew Carnegie. But that's easy. Again, it's not necessarily easy because grants can screw things up. If you make a grant in a situation where you'd much better have competitive markets, the grant can actually mess up markets. But assuming the enterprise can usefully, can make use of the funds, grants are great. So the question is in concessionary investments, concessionary investments also almost always have, again, if it's a wise investment, they have investment impact because by hypothesis, an ordinary market, an ordinary commercial investor would not make concessionary investments. Anybody recognize this iconic picture? Yes, several people have not. So this is 1298, 1298 ambulance. Apparently all the numbers up to this were taken in India so you couldn't have 911. And this is an organization I think supported initially by Acumen Fund that provides ambulance service to the very poor. So here's a case where the investor takes a higher risk than the market would or takes lower returns. In this case, probably both. The interesting question is when can a non concessionary investment, that is an investment that expects market returns, risk adjusted market returns are better. When can it have impact? So I'm going to raise and dismiss, although you may want to come back to it in the discussion, that the possibility of having impact in public markets. Let me put it this way. I think, suppose I think that AT&T has really valuable impact because it provides telecommunications and jobs. So I put all my retirement funds into AT&T. Will that actually help AT&T increase its services? And the answer is no. Absent some huge massive movement of funds or a movement in public markets, any group of investors is not going to have any effect. So where can it have an effect? I think in imperfect markets, where there are market frictions, and I think the classic case where it can have an effect is where there's imperfect information. To use a term that I learned when I audited a class by a fellow named David Chen who runs an impact investing fund, says I see something that you don't see. In many respects, it's the same quality that allows a good venture capitalist to make an investment that other people don't see. The investor has special information. But there's the danger, of course, that people claim that nonconcessionary investments are having impact. By this slide, I don't mean to suggest that clean tech is never an impact investment, but when you have a huge fad, and when people investing in clean tech are investing alongside of Kleiner Perkins and major venture capitalists who have no social motivations, you wonder whether they're really having impact. And then finally, non-monetary impact, which is conceptually much easier. So there are all sorts of ways in which people in the field of impact investing can help. One is, this is I mentioned Omidyar before, improving the enabling environment, creating property rights, reducing corruption, facilitating markets. Fund managers impact investing fund managers find opportunities. That's the I see something that you don't see. And hopefully they make it available so that many people can see it. Fund managers also aggregate capital. And most of us who are interested in impact investing don't want to go out and find the deals ourselves. So you know, so we go to grassroots business fund and have them do it. They provide TA technical assistance to the organizations. And here's something really important. What's the what the hope of every impact investor is that at some point, the enterprise or sector in which he or she's investing no longer needs impact investing, right? They are the booster rockets that get this into into orbit. And then it just becomes commercially, the markets become attractive to commercial investors. So gaining socially neutral investors is sort of one of the things that that can really facilitate impact investing, making its difference. And then finally, another non monetary benefit is protecting the social mission. The the story of microfinance is one in which as microfinance in some areas becomes became a commercial success, there were temptations by the organizations to lose the social mission to charge higher rates than necessary or to use unpleasant ways of recovering the loans or or to begin creaming. And so one role that, for example, investors can play on the board of a of an organization is to protect its mission, even as it attracts more commercial investors. So I'll stop there and turn it over to my fellow panelists. Thank you very much, Paul. Thank you very much. I'm going to ask I'm going to ask Harold Rosen to speak first only because I know you you've commented on the on the paper. So Harold, I'm going to ask you to to respond and also to provide your your comments on the on the topic of impact investing. Okay, thanks, Dan. And thanks to all of you for giving me the chance to address and share some ideas and hear what you think. It's encouraging to see so many former colleagues or present colleagues and investees of ours here in the audience. So it makes me feel like something went right that many of you are still in business or even doing well. So and there's a lesson there somewhere. So and Dan did to tell me that I could be myself today, which is a dangerous thing to say, but I can be a little frank. So I will. So I knew I was with the IFC for 30 years. I was the small business guy. I did a lot of regular investing work. I ran a lot of their technical assistance and early micro finance and SME activities, really an IFC and the World Bank. So we did a lot and a lot of the people in the room who I just referred to were among the group that they used to call Harold stray cats. I always love telling that story that I won't name any but some who have grown quite big were at, you know, 10, 15 years ago, that image of a little kid that finds a stray cat on the street that's terribly unhealthy looking but interesting and brings it into his mother and says, mom, can I keep it? I see some of my friends cringing in the front. They said, oh, he's going to be himself. One of the pleasures of my life is I'm actually a stray cat to all the people who've invested in us now. And after a spin off, I am probably the scariest thing that most of our main investors have ever done. And in a way, I say, so why one part of that kind of calls me because I feel like I know how to invest and Agnes used to work with me. We had a pretty good team. I would call First World Investment Quality, but then I'm treated through it, let's say specialized initiatives or I'm basically too scary for most of the organizations that are invested in us. Sorry, Mitchell. But if Mitchell wasn't there, Opik wouldn't have done it with us either. So there's something there, which is breaking a new mold. Now, microfinance is an absolutely mainstream asset class in the DFIs. I would love to see impact investment get there in less than the 12 or 15 years it took us in the DFI community. I think we can do that. Anyway, GBF is make a very long story short is a impact investing fund. We were spawned inside the IFC and largely funded by them and Omidyar and a few others. We spun out five years ago and had a phase where we were all grandfunded, like many others in the field. Two years ago, we split that into a nonprofit, which is still grandfunded. We all work for the nonprofit. We're the management company. We also have an investment in the fund. So it's a for-profit fund alongside of the nonprofit. And there's a reason it relates to some of what Paul was talking about. We are two years into a five-year booking period of what's really a 10-year closed-end fund. It's $49 million, which includes Opik, DEG, FMO, Calvert, Deutsche Bank, 30 private investors and an equity investment by the nonprofit. Sorry, I'm running through a lot of ground. There's another 11 million, which is grants from the nonprofit that we use to build the organizations into which we invest. That's a critical part of the equation. And as Agnes knows, I was prepared to actually call this off and not do it if we couldn't raise enough of that money, because as I always say, the world does not need another fund. They need the enterprises into which all the funds out there can invest. And by the way, one of the guys who runs our technical assistance is sitting there modestly and exhausted. We've just in our mid-year technical assistance review, Eric Meissner, is a great guy. And we've, if any of you want to know what the dirty underside of doing small-ticket business advisory services to build these kind of businesses, Eric is one of the world's walking experts. So we have this five-year booking period. We're learning a lot. What's really special about us is that this business of BAS, which I think we're doing in a very serious hands-on way, we're big on social impact. We keep a very careful track to make sure we're not just being like everyone else, but that we're reaching a lot of four people in a sustainable way. We're building good businesses that in turn have big impacts. We're also, because we have this luxury of five years of money, I have this occasion. I can be myself sort of and speak out about some of what I see in the field. And I think what things like Paul's article does a great job of laying out potential issues. Some of the things we've learned that relate to Paul's article that I also commented on. I don't know if my response is actually going to cross the bar and make it into the journal, but I'm told it might. So if I'm also working on a blog that's even more direct, so some of you may enjoy that. So one of the things we've learned is that the difficulty factor of building these businesses into anything approaching a commercially investable transaction is way harder than people make out. Especially if you care about real impact, the idea of making anything approaching a market-based return, whatever that means in this field, it just doesn't happen except on deals. You know, we keep hearing about the cell tells and if you take a few of these deals that made all those private equity funds, even the quote regular funds didn't make anything like. I think I say that in the response to Paul's article. I know what all the DFI's make on their funds, and to put it mildly, it's a lot less than what the stated expectations are. And my fundraise, as Agnes used to always cringe walking into a fundraise meeting with me, I would walk in and first start by saying, you know, if I do a really good job and you're all the lucky, I'll get a high single low double digit return. So half the room gets up and runs out as fast as they can. And then I say, and I need grant money to build the enterprises and make sure we're sticking to heart before I finish that. Another half of who's left is so we're left with a small the front row is filled. And that's who ended up being in our fund. So I'm delighted with that we have a group that gets it, or at least bits of big organizations that get it. And that's the fun. If I can help Mitchell build OPIC into a nimble sort of impact investing shop or part of it, I would love that. One of the things we're doing now is just trying to keep our head down and build a track record. We booked 20 million, we're committed 20 million out of the 50 million in the first five years. You know, so far so good, we've got a seven and actually an 8% cash on cash shield. We every payments come in on time, which is very hard in this. We have no specific losses. And some of these are four and five years old. So they're starting to mean something. Mitchell made good and sure on the fundraise that this was real investment and she wasn't going to also have egg over her face in the first year or two. So I feel like in my board also says, please, Harold, don't do the conference circuit. Don't, you know, powder your nose as they put it. Build your track record and then others will come when you get to a new round. And that's what we're doing. We're trying hard to share our lessons right now. I don't want to start sharing things that we haven't proved. But I think small ticket closely monitored business advisory services is one thing I think we're getting good at. And I'd love to be able to do like case studies with some of the leading business schools or sharing. I'm not much of a knowledge person myself, but I think we're learning a lot. So that's something I think we could do. And we're sort of gearing up for what to do with all the stuff Eric and his team is learning. I think speaking out and just doing what I'm doing now but in a select small set of audiences is the best way I can start, you know, telling this story. Because as I always say in this field, everyone's fundraising all the time. So it's really hard to be frank and about challenges and difficulties, which also relates to this lack of transparency that everyone I don't want to say everyone. A lot of people pretend or like to think they're making a higher return than they are. And it's easy in this field to kick the can down the road, restructure an investment, you know, put some BAS money in and you've got a spotless portfolio. We've got to make sure that we actually are doing good investment work and we can share the lessons of how we do that. And then the other thing I call it is just cutting through the fog because there is so much well intended enthusiasm in this field. It's very difficult to see. So the transparency like how have all of the grand funded and I was one until recently, so I'm not criticizing. How do all of the grand funded investors in this impact field or investors don't really need to get their money back of what, how are they doing? I can't talk about them, but one thing with us is as soon as someone misses a payment, it is immediately apparent in our fund. And I figure that's a high I know why others don't do it because if you don't get a good return, you're out of business, which is kind of the way we wanted it. I don't want to scare Eric and my other employees here, but I don't crow too much about this because we haven't proven it yet. But in another year or two, we'll have a meaningful enough track record that when as we're starting to run out of money in this fund, I hope some of our existing private investors or some of the existing agencies will say, yeah, not a great return, but good enough that that crosses the bar and we'll do some more. So and let me just stop there. Thank you, Harold. Probably gone longer. And anyway, Sudan, thanks for the chance and good luck. Thank you. Thanks. I'm going to ask John Simon to follow on. We were just, you know, Harold, I think, did a very good job of talking about, OK, what does this look like operationally? John, I think you spent a lot of time helping to find opportunities and bring the various players together in your current life, but also in your past life, you had to make policy decisions at OPIC about whether or not. Could you talk a little bit about from wearing that hat your past life at OPIC and also your current life at total impact? Sure. And thank you, Dan, for pulling this together. Thank you, Paul, for an excellent paper. I think it's a real contribution to some of the major issues that we struggle with in the impact investment community. I would like to note that I think Harold's board is very wise to admonish him against having too much conference circuit activity versus investment activity. I think, you know, we in the impact investment sector love metrics. And one metric we really need to get is a number of words per dollar invested. I think our words per dollar invested is a very high, is unreasonably high. And we really need to bring that down. And it's interesting. You spend a lot of time at various events discussing these very metaphysical epistemological questions like, you know, what is impact? What is an asset class? Or that's one of my favorites. What is the market rate return? And I think we waste a lot of time doing that instead of getting on with the work that Harold does of, all right, let's find some good deals that people can look at and say, yeah, that's a real impact there. And that's worth investing in. And the return I get, who knows if it's above or below market? I mean, this day and age where your 10-year treasury is below, I guess it used to be below 2%. Now it's below 3%. But still pretty low. If you can beat that, that's not so bad if you're trying to manage your portfolio. And obviously, some other folks are looking to beat it more. I would make a point about stated returns never being what they're anticipated on. I don't think when I was at the Overseas Prime Investment Corporation or in my current life, I've ever seen a fund with the exception, I think, of yours, Harold, that promised a return of below 20%. And we get these reports from the service that tells us what the different vintage year funds returns actually are. And I don't think I've ever seen one that showed the top quartile being above 20%. So somehow, there's a little dichotomy there between what people say and what they can deliver. And I think there's an interesting paradox that Paul's presented in his paper. Maybe we can call it the breast paradox. I mean, Paul posits that if you're looking for a market rate return, well, you can only have impact if you're doing something that a socially neutral investor wouldn't otherwise do. And if you're looking for a market rate return, well, that's what a socially neutral investor is looking for. So how is it that you can do something that can achieve scale? Because that's really where you only get impact. I mean, if we fund a lot of basket weaving cooperatives, that's only going to do so much. We only can really get impact if we achieve scale. To get scale, we have to track non-concessionary funding. But according to Paul, if we attract non-concessionary funding, we're really not making any other impact than otherwise would be there. And I think the way that you resolve this paradox, I mean, one way is the one that Paul said, which is that you have investors who can find both the diamonds in the rough, both the impact and the return that other people can't see. And there may be some magical type people who can do that. But I think most real people have a tough time making that work. But there is another way. I mean, Paul actually put up five ways. But the one that I think is most interesting is the fifth, which is there are a lot of sectors and geographies and business models that, at the outset, are not going to be the types of things that you could attract commercial capital to. If you're going into a post-conflict situation, there's not a lot of a few folks have said. This quote's been attributed to many, many people. I remember Paul Neal used to say, this former Treasury Secretary, capital is a coward. Capital doesn't go to places where there's undue risk. But capital is required in a post-conflict situation, in a frontier market, in a sector such as clean water or primary health care, which typically has not been money producing in many parts of the world. And what the impact investor does is the impact investor said, all right, I will fund that. I'm not worried so much about whether I get, you know, 5% or 10% or 15%. I will not want to know that that business is going to succeed because of the business fails and my impact, as Paul said, is zero. I've done nothing. I would have been better off giving my money away. But I do expect if that model is going to ultimately achieve a real impact, an impact that's significant beyond the village or the country in which it is, I do want to know that ultimately it's going to be commercially sustainable. Will my return be that commercial return? Well, depending on how good a negotiator are and depending on how you structure the investment, maybe, maybe not. But ultimately, I want to believe that I'm investing in something that is the type of thing that will attract commercially-oriented investors because that's the way you're going to get from the village to the country, from the country to the continent, from the continent to the world. And the question, I think, you're posing, Dan, is, all right, how do we hit that inflection point? How do we, I mean, impact investing exists. It's existed for years. OPIC has always done some amount of impact investing depending on how you come. Mirza Jahani from Aga Khan Development Network is here. Aga Khan Development Network has been doing some sort of impact investing for years and actually has done a pretty good job of finding those things that are both high impact and relatively high returning. So it's always been out there, but to get to a point where it justifies all the work that people like myself and Harold and Agnes are putting into this, I think you have to be able to imagine an industry that's beyond sort of little stovepipes and pockets of money and can really reach mainstream capital. And to do that, I think there are a few elements that have to happen. First and foremost, you need transparency on what's really occurring. And that's why, to some extent, the word to action ratio is not just bad, not just not good. It's actually bad because to the extent that we set false expectations and then fail to achieve those, we will scare away a lot of the mainstream capital that ultimately will hopefully drive the scaling up of the types of enterprises that we're trying to do. The second piece, I think that has to be out there is the ability to pull the various different pots of money together out of their very stovepipes. And we talked a little bit about that launch into vehicles that can utilize the concessions that certain grantors and donors are willing to give to make the investments more attractive for the folks who are farther up the spectrum closer to the commercial-type investor. And the last point I'd make is the amazing thing that we see. So we're in the business of helping businesses navigate the impact investment world and attract impact investment capital. And on a good week, we probably see about 10 enterprises that come in our doors looking for us to help them. So, you know, our little company sees about 500 enterprises a year. I go and I talk to Harold and I talk to Harold's peers and I talk to others and they say, where are the businesses? Where are the enterprises that we can invest in? We're looking for enterprises that meet certain criteria and we can't find them out there. And yet over here, there are hundreds in our little case, thousands, I'd wager tens of thousands. The problem is there's a real challenge to turn the folks that come into our door into something that Harold is willing to look at. And to bridge that challenge, you need to put a lot of work in in terms of upgrading the management system, in terms of making the financials more presentable, in terms of sometimes refining the business model. So it's a bit more focused, a bit more economical and a bit more in line with the type of ramp up that an impact investor is looking to see. And that effort requires effort. And so I think supporting the folks in the world, and this is a bit self-serving, but who do that type of work is essential to creating the connective tissue that can help this market progress. So thank you. Thanks, John. Agnes, you've worn several different hats. You were at IFC and then you went with Harold to the Grassers Business Fund and so had your fingers in these issues for a long time and now have gone over to USA to help think about these issues from the US government's perspective. Can you talk a little bit about, A, reflect on what you heard from Paul, what you heard from the other panelists, more broadly about the sector, and then talk a little bit about what the US government is doing and what you're doing in your current job. First of all, thank you, Dan, for this invitation. It's great to really see a lot of familiar faces and to kind of reconnect a little bit with the impact investing world. I have to say that I think Paul's paper is really coming at a right time because in my past career, the issues that Paul raises, Harold and I discussed constantly. I think that it brings to bear a lot of advice for people who want to go into impact investing but also raises a lot of questions that I think haven't been answered. I am now part of a new group, well it's not so new anymore, a USAID called the Private Capital Group for Africa. And I think this impact investing discussion is timely because USAID for the last few years, including with my group, has been really trying to recognize that private investment is key to economic growth and has been trying to figure out how do we align our interests with investors? So how do we align the developmental goals with what the investors are also seeking in the same markets and together really have the catalytic effect that we need at scale in countries, especially for me in Africa. We do this through various mechanisms that we do have available. We guarantee debt into funds. We most recently participated as an LP in a fund, an SME fund in Pakistan, which was the first time that USAID has ever done that. So we're trying to figure out how do we help investors? How do we share risk with them in order to catalyze capital into developmentally important sectors? So I think the impact investing conversation, especially about transparency and measurement is incredibly important because if governmental institutions such as USAID are expected to continue really supporting that kind of conversation and those kinds of investments, we need to have the ultimate transparency. We need to have the ultimate really monitoring of what's really happening because we are really spending taxpayer dollars who are spending your dollars. Therefore, it's not just a reputational risk for us. We're really, for us to be responsible investors in this space, we really, really need to have the ultimate transparency, which I think is what this conversation is trying to start and trying to continue. So I really welcome that. Okay, so let me put this to the panel and then I'm gonna open it up to the group. But if I think about the microfinance sector, the US government played a critical role in actually creating the microfinance sector 30 years ago and it's moved into a, many people I think are familiar with the fact that it's moved into, there's a segment of the microfinance world that's not commercial, but there is now a sector that is commercial and I think it's been a result of the significant efforts of USAID. I'd say USAID has historically been the largest grant maker too and the US government has been the largest grant maker too, the microfinance sector. There's an earmark in the Congress for microfinance and then IFC, the shorthand always was the largest commercial investor in the microfinance sector and I think, Harold, I think you had something to do with as you were mentioning earlier that I think you brought the first deals, microfinance deals to IFC at the time when it wasn't considered something cool. It was considered, I guess, as you termed it, a strike hat and so there were a series of things taken by government and there have been I know a number of things the Obama administration has done. They've made some investments in measurement and looking at helping to try and bring about some of these metrics. There's some work not necessarily for impact investors in terms of business advisory services, something that Harold alluded to in terms of various forms of technical assistance than the various initiatives such as the ones that Agnes is involved with but also the work of development credit authority and certain parts of OPIC and what they're doing as well as some specific opportunities at the Malayum Challenge Corporation. There have been a series of things that have been done but let me, the question I want to put to this group and I want to start with the folks who are responding to Paul's work mainly because they're more familiar with sort of the Washington conversation is, okay, what should the US government be doing? I think, John, you alluded to it a little bit and it was based on our conversation at lunch. So John, let me start with you and then we'll just go down the row here. What should the US government be doing more of to bring about the growth of this sector? So I think there's certain things that are naturally in the sphere of the public sphere and certain things that really I think are better left to the industry and the private sector players. So I think transparency is fundamentally important. I would not want to put public mandates on for transparency. I think the industry needs to be better at pulling together its ways of becoming more transparent and I think that that is essential to the growth of this sector and essential to the right growth of this sector but I'd be wary about having that be a public activity. One thing that has been done, USAID I think has funded some of the activity in Irish and Gears and I think that's all well and good but I would be wary of mandates in that area. The one thing that we did talk about at lunch that I think is critical is there are all these public programs that are critical components of at least in the international sphere impact investments. I mean Harold made the point that his largest investor is OPIC. Of the dozen or so deals that we've closed recently are coming to closure. DFI's are a part of about 60% of those so you know, a 7 or 8 of those. And these public pots of money are right now, when you think about the investors who are active in impact investing. You have angel investors, folks like the members of the tonic group out in the West Coast. They deploy a few hundred thousand to a million per deal, not a whole lot. You have foundations. Sometimes they can deploy a large amount of money but usually it's relatively small. You have some of the impact funds like Harold's fund which I think is one of the bigger sources of capital bamboos, the GBS, the accuments of the world. And then you have the DFI's which by and large are probably an order of magnitude bigger than almost any of those others. And so the DFI's I think are an essential component and we have a very fragmented DFI world here in the US. It's less fragmented in other countries. I think having a development finance bank of the US which is something my former colleagues at CGD have advocated for, I think would be a great way to bring a lot of the different resources that we have to bear together. And then the last point is, I think you have to figure out how to take that big world of opportunities and encourage a process to help them get to be investible. And I think things like the business, the challenge funds that the UK has done, we've had a few of our deals get African Enterprise Challenge Fund grants that have been essential to making them work. Things like supporting business development services that can help companies get to the point where they have clean financials and a clear business plan and a clear ramp up schedule that the investors are looking to see. Things like that I think are essential. There's one last component that I should raise but it's very much in flux now which is what the regulatory environment is. So when we went into this world, we had to get registered as a broker dealer. We have to make sure that yes- You had to take a series seven. We had to take a series 79 and a 63 and probably I should at some point take a 23. It's no small thing and it's no small lack of expense. I would argue it would be nice to get a break on that from impact investing. Of course, in a post-2008 world, that was almost impossible. But now with the JOBS Act, we have crowdfunding and who knows where that's gonna lead us in terms of open doors. I could easily see the pendulum swinging a little bit too far in the other way. And I think one big scandal of a bunch of folks being defrauded for a so-called do-good investment could be really, really bad. So I do think that's an area that requires a little bit of looking at. I am concerned that too much in either direction is a negative. Okay, Harold, what should the US government be doing? What should the DFI sector be doing? Where if you take the analogy of the venture capital industry or let's say how Silicon Valley became the world's hotspot for entrepreneurship, what happens? And there's a reason I'm saying this towards answering Dan's question. A couple of guys in college start up something in their garage and within half a generation they can be billionaires because there's an ecosystem. There's help, there's entrepreneurs who will bring their business savvy with them to the table and help the guy grow. And if he needs a CFO, he'll get it. All of those things. So the US government could play a role in simulating at least the pieces of that in certain tough markets where we know that's not gonna work. There's reasons in Tanzania why someone just as smart as the Google guys would have not a chance in hell of getting the right inputs together. So the government could do this. If you look at how much money gets spent by the big agencies in a place like Tanzania on business development services or technical assistance, it's mammoth, it is way more than they can observe and the track record shows what happens when you spend too much money for something that's hard and granular. So I always say take 3% of what gets thrown away on bad technical assistance in any of those markets and say that's ear market. And the US government could do this. I don't wanna speak for Agnes' agency but it would be a rounding error given the amounts you could sensibly move to take bits of even just one big government's programs and say, okay, a little bit of vouchers for BAS or technical assistance, a little bit of under-trans so that we can do like in microfinance happens galore, under-tranches and different types of soft capital to make the top tranches reasonably commercial, that could happen. And I think sometimes the big agencies, I'll just talk about the one I was with, you get yourself scared into thinking that your governance and environment and your theological tenants won't let you do this. Like why would the World Bank soft loan window ever think about putting an under-tranch below private investors just like the US government did for SBIC in the late 70s with huge success. That sort of thing. I heard what I think John was saying about there is a transformational element. It's not a shortage of capital, I think. There's plenty of capital more than you could ever move. It is prying loose pieces of the right kinds of things at the right time, even for funds, much less individual businesses, that's hard. I think the problem is we often go at it, those who haven't got all the bruises that I have from trying to change big organizations can easily look at such an institution and say, oh, pick on the World Bank or ought to be able to do this. The problem is big institutions, especially when they get big and quote successful, don't change like this. The best you're gonna do is take little pieces of them and the US could do this because we are the biggest shareholder in most of these organizations in question, even if it's not the US government. Say, look, enough. Let's take a half of 1% of what IDA spends in a year. That's the soft loan window of the World Bank and try that under some structure like what the challenge funds did and diff it. Diff it, I always say, those challenge funds were probably the best story I've ever seen of cutting through the morass, getting at some usable money out of a complicated environment. US government could do that. So if you took in the three or four pieces of the puzzle and even just a region like Africa, that the US government could do and I think we tend to make the mistake of let's start with a clean slate, which you never have and you never throw away the theological entrapments and the bureaucratic things that come out of public or charitable agencies, the best you're gonna do is say, let's take a little piece of this and that, put it together. The US government could do that, just saying, okay, we're gonna try a little bit of IDA, a little bit of AID. They occasionally do this in pieces. The problem is one thing at a time almost never works. In other words, one of these enterprises we work with and we've got 20 of them now, they're pretty funky. They're not size differentiated. They're big, a lot of them. Often the biggest companies in their markets and because of that they are facing business challenges that they're just not equipped to deal with. Even if angel investors, I hate to say this, but from Silicon Valley there is that kind of capital. There are groups that crowd source capital. Some of my investors are involved in that too and I know a lot about this. The problem is those are all, I don't wanna say throwaways, but they're done as do good or I have this in my charity budget so even though I'm a businessman I'll put a little money into it and along with that does not come the business smarts. Way more important than the money that angel investor would put in would be the, so how could you de-risk or bring local business people from Africa into these deals so that you've got some local smarts? That's one of the things we're still exposed with. So just to close on what we're thinking if we do get that far and our track record justifies keeping going or getting bigger after this round, I'm pretty committed that we're gonna try to figure out a way to get local investors with us in regional funds or something because right now our big exposure is we're a global fund that's investing in a wide range of geographies. There's a reason for that because we try to stay selective so we need a wide funnel but it's probably not sustainable in that we don't have good smart local business sense in the deals and that's another one that it would take very little money to de-risk that or to make it interesting. So that's a long-winded answer. I think the US government or any big government could do many of the pieces of that puzzle. Agnes, do you wanna take that question? Yeah, maybe I shouldn't give in. If you don't have a payroll. Let me just tell you a few things about I do have some thoughts about it. Mainly because that's actually what we're trying to do. So first, I think we could do a couple of things better as USAID and I won't speak for the other agencies. First, I think we can and we need to build more skills to interact with investors starting with really teaching all the USAID staff in the field the language of investing, the expectations and the behavior of investors. I think just developing a further understanding of that is key to the US government really being part of the conversation in the sector. Number two, we can be more flexible. We're really working on that. We are trying to not be as country-specific as sometimes we were in the past, where I think there's an argument to be country-specific because I think the people who are actually doing the work in the field have the most knowledge about what's happening and they should be the decision makers on what's happening and that's why a lot of the things that we do are very country-specific. But I think we could probably, as Harold said, take a percentage of some of the things that we do and try to make that money a little bit more flexible so that we can use it more rapidly. We can also probably work better with others, meaning that not just with other DFIs but really with the other government agencies. And I think the recent launch of Power Africa Initiative is trying to address that where we have formed an inter-agency transactions team where all the agencies involved in energy work within the US government, USAID, MCC, ExSim, OPIC, and others are really sitting at the table together and looking at joint projects and joint investments. And I think most importantly, and we're doing some of that as well already, is we can create a feedback loop with the private sector. I think that developing this kind of dialogue where we hear from the private sector that's involved in the field, in the sectors that we're trying to assist what's working and what's not working would really help us design better programs that are much more catalytic towards investment than maybe they have been in the past. Thanks, Agnes. I see a whole slew of people I want to call on and who's got a microphone as Maggie? You have a microphone? But why don't you, if you would sort of come up. I want to call on my friend Mitchell from OPIC if you're looking at me. And first I'm going to call on Mitchell. I want to hear from Mirza. I want to hear from Sherry Barnback. I want to hear from my friend Bruce. And I want to hear from Mildred. So maybe, I'm not going to ask Mitchell to speak first since she's with the US government. I'll give her a chance to collect her thoughts. So I'm going to ask Mirza to speak first. So why don't you come up and put Mirza on the spot. Then we're going to open up to others. But I know there's a lot of brain trust right here in this front row. And then there's a lot of thoughtful people beyond that. And we'll get to a lot of people, I promise. Thank you very much, Dan. I know next time we're to sit in the room. Yes, exactly. When I come to your functions. I think the one thing that we've learned at the Aga Khan Tivawa network is that it revolves around the issue of risk, which some of you have alluded to, but have not really been specific on. And I do feel that when we look at risk-adjusted returns, clearly the equation is around both the returns as well as the risks. And if you had asked me what I think governments around the world should do, is there ought to focus on the area of risk? And how does that risk come down for investors over time? And certainly in the interactions that we are having with different varieties of investors, it's always that the lower the risk that you can demonstrate, partly because of the track record that the Aga Khan network has, the more willing they are to go down that line of concessionary lending that we really do need to break into. So that's the only point that comes immediately to mind. I think about your Excel spreadsheet for investments that the Aga Khan network makes. And there was a conversation with the IFC, and they had sort of a 15-year timeline or something like that. And I think for the Aga Khan network, it's something like 50 years. And then it sort of drops off beyond that, right? I mean, you take an extremely long view, beyond long view, it's sort of massively long view on things like telecoms in Afghanistan, et cetera. And so traditionally what we've done is that his Highness the Aga Khan himself has taken on that risk. And the question increasingly for us is if other people come in and share in that risk, can we do a lot more? And so that's the question I would have for the panel as well. Okay, Mitchell, you do this for a day job, you think about, you've thought about these issues for a long time, and just Mitchell Strauss from OPIC. I thought you were all just magnificent. And Paul, I don't know you well, but you were particularly magnificent since I don't know you well. I thought I'd say that. I was happy to hear Mirza mention the part about the risk. And the slide that you had was one of the news slides for me where you showed that the risk being out of proportion was something that needed to be considered. And one of the things we're trying to work on at OPIC is utilizing our guarantee capacities, which lately mostly we use our guarantee capacities to raise other people's money and just use that money in our transactions. But returning to the old fashioned kind of guarantee where your mother and father guarantee the car dealer when you buy the car. We're working now on setting up structures, hopefully aligning with other foundations in the family, in the field, in the sector entities, and giving some guarantee capacity to that entity to help mitigate the risk of others. Similarly, we're looking at some people, some not-for-profits who've been much like politicians on this raise money, raise money, raise money, all the time getting on airplanes to see whether we can't use our willingness and trust in that entity's ability to function as an enterprise. And instead of lending directly, or going to Wall Street to get other people's money, we'll take a little of the risk away from the social investor wannabe because it's that little toe into the water on the West Coast. It looks like it's warm, but it's cold and you get your toe in there. So we wanna take the water temperature to a nice temperate level and try and just use old tools in a new way. So thanks for letting me say something. Please, Randall Kempner and Andy. Just a question to Paul, I hope we can get to this. I wanted you to justify your grades. If I were gonna do the grades, I would say we're still in elementary school and it should be needs improvement. Like S, S plus, or satisfactory, satisfactory plus. We're not quite to letter grades yet, but the interesting to know in a Y of D in particular and what concrete steps you would have to actually improve the grade. Please test the Sherrys. Sherry, you have a new life now, but you had a past life. You had several past lives that are relevant to this conversation. Okay, great. Yeah, I'm Sherry Berenbach, I'm the president and CEO of the African Development Foundation. And I have been very much involved in the impact investing field for quite some time. And if I have one comment to share for Paul and perhaps all the panelists, is that what I find when you really look at the broad parameters in the impact investing space is that the old relationship between risk and return, that there was this notion of even a risk adjusted return, I think is really something that no longer is tremendously relevant. Because what you have, once you have investors who are impact embracing, you have some who are willing to, who will be taking an investment where they're getting, they're looking for a high return and they want low risk. And you have others who are willing to take a low return and high risk. You know, the whole landscape really does start to move around. And so it's important for us not to be too beholden to our prior financial training because there doesn't necessarily have to be that relationship between risk and return. Okay, so we had some questions and some comments. I'm gonna ask Paul, why don't I ask you to respond first to the question about grades and grade inflation or pass, fail? Okay, I, you know, maybe the grades are generous. I mean, there are two barriers. There are two barriers. By the way, somebody who says C plus and D are generous grades, that's, you're really tough. One barrier is the difficulty of measuring impact. But it's relatively, relatively easy to measure outputs. And again, I think one has to give credit to Iris and to the Gears Rating System for trying to create some standardized quite areas and criteria for outputs across a fairly diverse area. When you move from outputs to outcomes to whether you're actually having impact, you're talking about doing randomized controlled trials to see whether something's had impact. And even when you've done randomized controlled trials in one area, there was interesting CGAT papers summarizing RCTs involving impact, involving microfinance. You know, what looks at some level like the same strategy in one region doesn't work in another. So measuring impact is just really tough. Measuring enterprise impact, especially. I think in some ways it's easier to know whether you're having additionality in an investment than you are whether the enterprise is working. The second barrier is do donors and investors care? There's an interesting study done by a group called Hope Consulting about three years ago. And the question is how much research are donors and impact investors willing to make before they make a grant or a concessionary investment? And the number, it gets as you increase the standard of research, the number is not surprising, it gets smaller. And only around 5% of donors are willing to do any serious research, kind of spend, I'm not sure what the metric is, but more than a few minutes. Figuring out whether the organization they're making a grant to is doing anything very good. Well, an interesting question I think, and this is a question in our field, which BLab, which does gears ratings has to deal with is, is there a financially viable model for their digging deeper and increasing the grade from a D to a C? Does anybody care even if they do the work? I kind of, my hope is that if the information is provided in a useful form and easier to digest form that more donors and impact investors will use it, but it remains to be seen. Do you want to comment on the other comment? Yeah, and I think you're right. Modern finance theory treats risk and return as an aggregate. But I think you're quite right. I mean, there are, if you look at individual, there are people willing to invest in make community development funds where they don't want to take a risk, but they're willing in effect to sacrifice some return. And then I think in much of the impact investing world and development, I think the de-risking is going to be very important to getting investors. I think you're quite right. And I think that's actually maybe a weakness in our paper, which you haven't read, but it's a weakness where we kind of adopt the traditional finance model. John. Yeah, just on this issue of risk and return, I think there are two important points that where the old finance theory breaks down impact investing. One is we've been accustomed to measuring return on an IRR basis. But if you're focused on investment that you're gonna be in for the next 10 or 15 years as some impact investors are, IRR may not be the most relevant metric. I mean, you can get a very high IRR by having one very good year and selling out, and then you have to put your money into 2% treasuries for the rest of the period. And at the end of the day, your IRR from that investment may be high, but your overall return is not so great. You might've been better off to get a 6%, 7% year on year for the next 20 years and be very happy. The second point that we've just experienced in terms of risk in the deal sample that we've dealt with is we see a polarization between deals that are fairly low returning but also low risk because they utilize a lot of risk mitigation from, say, donors and high impact, because obviously we wouldn't do anything in the impact investment sector that wasn't high impact. And then at the other extreme deals that are very high risk, because they're at the frontier in a frontier market in a new sector, have a decent return, not a Google type return expectation, but a decent return and high impact. We don't see a lot in between. So we see a lot where investors can get something that's less than 5%, but they're taking relatively little risk because of the sort of grant capital that might be absorbing it. And we see a lot of venture type deals, but we don't see a lot where you're getting a modest return and a modest risk and a high impact. Harold or Agnes, do you want to comment on any of the comments or the question? You know, I would like to comment on risk because I think that's really where we at USAID are trying to figure out how we can help because whether it's taking some sort of first loss positions or whether it's guaranteeing an investment that a new investor might be making and into an impact investing fund where that investor is dipping that toe into water. I think those are some of the more traditional ways that we've tried to move this along, but we'll really open the suggestions as far as how we can really move this needle and other than supporting the ecosystem, such as Gears and Iris and so on, if it can actually make some difference on raising more capital, but not only. I think the risk faced by a lot of impact investors also comes from the fact that a lot of enterprises, and this is what John was saying, that could have very high impact or not really prepared to receive an investment from a fund. So they need a lot of work, pre-investment, post-investment to actually be scaling up at the kind of speed that you want them to, to get a return, even a single-digit return, and also just to be able to deploy to capital in a responsible way. So I think it's really important that we not only try to support the investment community, but we also try to figure out ways to support the enterprises that could become the recipients of those investments. Yeah, well, it's not in my nature to be unduly optimistic on this one. I would say there's actually enough examples and working models out there that there's hope in many parts of this mosaic on the de-risking of investment pools through public or charitable money. In microfinance, there's actually a lot of that. It's more on the European side, but I've been involved in, there's things like EFSA and huge billion-dollar pools of capital that's just to let banks make otherwise undoable local currency, denominated investments in microfinance. The only thing I fault that for is that all of the microfinance players like to kick that under the rug and the fact that microfinance, both the building of the institutions and that sort of thing is a well-kept secret, even though they're huge things, you just, you could even Google and you can't find them. I don't know how they manage that, but it's for obvious reasons. It's because no one wants to tell the story that of course microfinance is dealing with a market failure, even the most, or especially the most commercial ones. And again, nothing wrong with that, but it keeps the model being picked up and taken to agriculture or goods and services for the poor. Because if I walk in and say, I need to do the exact same thing that I did for 15 years in microfinance to build agriculture in Africa, you get thrown out of the room saying that's business, why should we need soft money for that? The bigger issue is on the investment side. I think that one has hope because there's a model out there, there's returns and you can show and there's plenty of capital, a lot of it's DFI, but there's private and capital too that's doing what I just described on the underpinning and the soft side. On the investment side, that question Dan asked about sort of, or somebody about, I know John was saying, below five and above something, if we take real impact investment and that's a big question, what is it? First of all, there is a lot that happens at below 5%. A lot of it is like receivables, financing and things that are relatively safe and secureable. That's spectacular and I mean it, that should keep happening and happen more. But if you look at things that go longer term, riskier, deal with the profound and 10 year issues in these companies, not like selling one purchase order, I'm not belittling that model, that's a very different story. There is this feeling because a lot of people made money beyond funds largely because of sell tell or two or three investments, this fiction that the private equity fund, business and emerging markets is a 20 or 30% business, even with sell tell and it wasn't. And I think I say this in my draft response to Paul's article, this is one of these areas I think I know too much. The number of prospective investors in our fund that gave Agnes and me the, as I call it, the go away little boy story, in other words, no, we just invest in, man, Mitchell's laughing. No, we just invest in these 20 or 30% funds, we don't do amateurish things like this. Some of them forget, I invested in a lot of those funds, I know what they made, and let's say even with these big Google type winners in which we're not gonna have in this field, anyone who can get even low double digits, low teens on this sort of investment, if it's real social impact, that would be spectacular. It's just no one knows that story. Most people with real capital to invest in this field I say don't know it or don't wanna admit that. The hope is that now the first generation of private equity funds, even easier ones, the more commercial ones, the track records coming in. So I think that little dirty secret is getting a lot harder to keep. So these, I don't know, I won't name any of them, but the ones that are more commercial or raising hundreds of millions of dollars for quote impact investment, if you look at what those have all returned, those track records are coming in from the first round done 10 and 15 years ago, they're high single digits. Some of them are low double, but I'm saying if people like us can actually get a high single digit return and show good social impact, I can't imagine there's not more of that kind of capital. It's just that business of transparency and letting people know that what you're getting done on both sides of this divide, that is a hard story to get told. Okay, I wanna hear from Mildred Kahlir and Bruce McNamer. And then I wanna, and Michael Levitt and this woman up front. I would just add that I think, one of the challenges with impact investing is a lot of it comes in very small labor-intensive packages. And so this idea of wanting to get to scale, wanting to get to sort of the nirvana of where microfinance was able to raise hundreds of millions of dollars and all put it to work in a short space of time, that's a very challenging thing, as Harold has said in spades and as Agnes and everybody up there knows. So I think part of this is about helping the individual enterprises scale, but some of it is just creating in that ecosystem a variety of intermediaries that can scale so that they can each do more and do it in a more streamlined way, whether it's efficiency in fundraising or efficiency in providing technical assistance, coming up with issues and systems that can help solve some of these inefficiencies out there. And I think some of what's also happened in the impact space is people have become enamored of the individual transaction. And that's frankly the hardest way to start and where you've got the greatest risk because you've got no diversification. So the fact that Harold is able to raise the fund that he did is gonna give those investors a chance to see that pooled approach and that's obviously what we at SEAF have done in terms of having funds that invest in multiple transactions. We know they aren't gonna all succeed, but overall we hope and we have the experience now to show having made almost 400 investments that you can achieve those high single digit returns and you've diversified the risk by not putting all your eggs in one basket. Now the question is how do the entities that are really specializing in this space, how do they scale so that they can get greater efficiency and do more at the same time we're beginning to experiment in a lot of other areas. Thank you. That's down to Bruce McNamara, CEO of Technoserv. Yeah, just a couple of comments. One, reflecting Harold on your observation about ecosystems and a role for government, you can think about an ecosystem of institutions, but you also think about a sort of systemic approach to investing in agriculture for example in a value chain context where the opportunity, the enterprise may not be there for that investment if there's been no investment at the same time at the input supply side or on farmer productivity or at this particular processing. So the market failure is not at the enterprise level, it's at the value chain level and to the extent that the US government and others are funding and increasingly funding investment in value chain activities a tighter integration of the multiple points where investment capital could be deployed would certainly make a hell of a lot of sense. And then the second thing I'm just shocked to see that still it's the case Harold, to your point that there is not this tronching of returns. And I've yet to see a class of that impact investment that says I will take a 0% return in order to goose the return for that neutral, for that socially neutral investor to come in there because really back to Dean Bress point, a lot of these are the real impetus for impact investing ought to be crowding in folks into an area where they're just not familiar with the risks. And just a related point, it's on the greater than 5%, sometimes those are the unsexiest sort of areas to invest but the returns ought to be accruing to local institutions, to local banks for example who are just not lending for example there because of unfamiliarity with the risk. And it can be the role for impact investing with loan guarantees and the like with all kinds of rates of mitigating risk to get the banks in and operating in areas they otherwise wouldn't go. I don't know how to modernize this but we were talking earlier about the success of the enterprise funds or some of the enterprise funds. And one of the things that I think allowed some of it to work, we were a technical assistance provider. We were funded by AID in all the same countries the enterprise funds were working in totally disconnected from the enterprise funds. But we could provide the enterprise funds with experts to do the due diligence, didn't go against the return. And then once the money went into a company we would supply them with COOs or whatever it did and help build their skills and markets. So we were I think making a real contribution at the success of the enterprise levels without having to change the apparent return. And I don't know how we do that anymore but I think it was a significant not just my organization but others made a significant contribution to the success of the enterprise funds both by contributing to the due diligence phase because we would go in and knock out companies or there'd be companies that would be close they'd be get near the sniff test and we'd get them over the hump to at least prepare them to go after the successfully get the dough. Well that was the different generation of AID where all the good guy TA providers got a bunch of dough to operate in. Georgia, Russia, Czech Republic, Hungary, whatever it was. Half the enterprise funds wouldn't let us in. The ones that were run by Wall Street guys were offended by the idea of having these TA providers and the ones who were run by Main Street and they were all guys. The Main Street guys said, you all come if you can do this and help us we'll take your free help all funded by again standing AID grants to provide it wasn't called capacity building whatever we called it in the 90s. TA and we just tied it to the enterprise funds. Okay this woman up front we'll do another round but I wanna just get this one last person up front and then we're gonna call on some others in the back. Thank you to the panel for everything that you've shared with us today. My name is Giselle Harris and I work with the International Development Division of Landa Lakes and I had two questions for the panel. The first relates to something that John already touched on which is that as there's increasing impact investing funds flowing it doesn't necessarily, there's still a gap between investment readiness of a lot of enterprises you work with. So there's been a growth of organizations including Landa Lakes International that are playing the role of enterprise accelerator or business incubator and I wanted thoughts from the panel on what you think is working on that piece of the impact investing process. What's not in any words of advice or insight that you would give on that. My second question is for Agnes specifically. Landa Lakes has a couple of projects in Kenya and Tanzania where we in many ways act like an impact investment fund for agriculture technology businesses. So giving funding as well as technical assistance and bringing them to graduation. And some of these businesses are really large in scope and part of the scope of the projects in general is to make them financially sustainable beyond the life of the project. So I wanted to hear from you how can we interact with private capital group on Africa for future years. So Agnes can we ask you to respond to that? Why don't you take that question first and then I know Paul there were several questions and comments directed towards you and others. Sure, so come on. Hi, so on enterprise accelerators because that's basically what both of your questions are kind of focused on. You know when I was a GBF frankly I still did not see that the enterprise accelerators that did exist were really integrated with whoever was really looking for the deals. I don't have an answer of why that was but it was still even though we talked to each other here in DC in the field it looked very different. And I think that there was huge potential to really connect any enterprise accelerators not only with impact investment funds but also with the local banks as I think Bruce was saying. On my group an enterprise accelerator so basically we work with the missions. So to the extent that Kenya mission is interested in developing a program that would then be also linking the enterprises that you guys are developing with local financiers I think that's great but in fact that should already be part of your program. So basically I think that all enterprise accelerators should not just build the capacity of the businesses but also have some ideas for where they should go to raise some financing and should be part of that community. So that's really my answer to the question in that I think that A, Kenya mission but also B, really making sure that whatever you're actually when you're proposing the programs to USAID that you're building in that finance component because a lot of times it is lacking from a lot of proposals that we get and it's absolutely integral. I just wanted to respond to Bruce's question about whether there are examples of people backstopping and one which I think probably John has a broader knowledge of than I do but some social impact bonds here's the current New York recidivism bond in which the Bloomberg Foundation is backstopping Goldman Sachs which is sort of a market investor although Goldman Sachs is probably taking a larger risk than it would on other investments. They're upside will be pretty good if the bond pays off so they have very limited downside and Bloomberg is limiting the downside. Given that the Goldman Sachs investment is about $10 million you wonder why they just didn't write it off to the public relations but that's a different question. John. Actually it's worth mentioning something on that. So as I understand that deal from the folks there and I don't know if anyone from here is from Goldman Sachs who can contradict me if not I'll say what I was saying. They did that deal largely as a PR deal. The mayor wanted to get pay for performance going in the city. He was able to talk to folks at Goldman and they were able to structure the deal in a way that past Goldman's compliance requirements and still created the pay performance model the mayor wanted but what they've said is since they did that deal they've been getting calls from all over the place. They've already done a second deal and they've been getting calls from all over the place to do more of these things and they're actually looking at raising a fund to do a number of things including more of these types of bonds. So it does speak a bit to the demand out there for people to find more than just financial return from the capital. Now whether at the end of the day they're willing to put their money into a deal that has real risks associated with the social return as well as the financial return I think is an open question but they've actually geared up a whole effort here where one didn't exist because of the publicity they got from that. To one other point though about that how you can use one investor's money to help create a different return for another investor. I mean, there's another example sitting right in front of us where two of the people in the front row invested in the medical credit fund one of them got a higher return than the other and that lower return was able to bring in the return from the other and they can tell you if they wanna, which is which but the result of that was an ideal that had five investors two investors, one public one private were willing to take a lower return to allow three other private investors to come in with a slightly higher return. And so that model I think exists and I think you can find other examples and I think they're real potential for it. Okay, there's a woman back there who's got her hand up. Good afternoon. I found this extremely fascinating. I come from the foreign aid world. I work with Congressional Research Service and I do global health and I came to this session because I've been concerned about the direction and the trends that I think global health is going in. I think global health has reached its peak in terms of excitement and investments in it. And I thought that listening to this might give ideas about how impact investment could be used and can address issues of global health, particularly in developing countries where people live in impoverished conditions and health is related to poor poverty. So if any of you can give examples of how it's been done or what can be done. Yeah, okay. Other comments from the audience? That's the last round here. So I'm gonna, this woman here in the middle, Maggie, this woman right here. Good afternoon, ladies and gentlemen. My name is Rosemary Sekero. We just in a process finishing our invest, we've started an investment fund which focus on small and medium businesses in East Africa, Kenya, Uganda, Tanzania, Rwanda and Burundi. I want to commend on Mr. Harold Rosen for the work you, for the speech on African investments. How do you compare now the impact of investment in Africa now comparing to China? Which is more valuable and what do you see looking at China? Are you going to do the same work or how do you get into it comparing the really impact of, especially on the ground and the rural areas working with small and medium businesses or just investment, thank you. Okay, the gentleman in front here, blue shirt. Yeah. Hi, I'm Tony Amar from Mercy Corps. I come from investment banking background and joined Mercy Corps about nine months ago. And what I wanna say is something Harold and John touched on primarily in saying, talking about transparency and talking about the difficulty of raising funds for impact primarily at the right time and from the right people. And the private banking world, it's fairly much easier to raise funds because you know who invests and what and how. However, in the impact world, it's a lot more difficult due to the lack of transparency, not just within the between the investing and the investor, but due to the inability of nobody knows who's investing and what and why, due to the risk, due to the idea that as much as we think it's an old industry, it's fairly new to a lot of people. And so what do you guys think we can do in the near future to change that and facilitate this industry going forward and make it far more easier to mobilize capital, whether a grant or investment capital to move things forward? Okay, John Simon, can I ask you to take the health question? Sure. There's a range of things that are amenable to impact investment and there are things that are not. And I think that one of the tasks when we look at development holistically and we think about impact investment as a tool to promote development, we have to be judiciants in terms of identifying if we're allocating capital, what areas really can utilize investment as a tool and what areas really make sense to have more of the old grant funded model. I think today, if you look at the development agencies, there's heavily weighted more towards a grant model than they could be. I think there's a lot that can be done, including in the health sector, to move towards more investment type models. Medical credit fund I referred to before is one such situation. We're looking to generate investment with Mirza in a hospital, in a tertiary hospital in Pakistan. Again, using investment instead of grant, which is what was used before. I think health infrastructure writ large, both at the facility level, at the sort of payment processing level, at the health worker training level. Health worker training is something that there's a huge dearth of health workers throughout the developing world and you can imagine a profitable model that's able to produce that. But I think people have to be very wary of having a hammer and thinking everything looks like a nail. There's still a very strong role for grant funding in a whole ecosystem like health. And I think that we can push a lot farther with where we can apply investment, but we do have to be careful about turning everything into an investment. Okay, Harold, China, Africa. Let me just add one thing to what John said about health and having been part of some of the both IFC and then GBF when we're inside IFC looking for health things to do in Africa at the enterprise level. I think John is right that there is in principle a lot of things out there that are starting to happen, that could happen, but as far as investable transactions that could receive even mostly commercial capital and still get the job done in outlying areas of tough African countries, I think we're still a long ways off of that. And I think the IFC experience, there was a large thing they've done with McKinsey to look all over East Africa. I believe the experience is it's a lot harder than it sounds to find things that can receive and use capital for those sorts of things. Same story, of course there are things that could be shaped, but even more than agriculture, I would say those are gonna be tough, take a lot of capacity building and the history of both infrastructure and healthcare is that most governments are gonna not be that happy if they see investors making what looks like a commercial return off their poor people. That was true in infrastructure funds in Asia. That's even more true in health and especially given this concern about what happened with microfinance in India. Not that that taints the whole field, but in a way it gets people thinking, so are we gonna let private investors make a good return off taking care of poor people in rural Kenya? I think the answer is watch out or at least make sure you got the segmentation of capital so somebody with the right incentives is gonna be in for first loss or that sort of thing. Let me just talk a little bit about, I also wanted to say about the Africa-China business. It was a good question and a lot of people say to me, why are you, I mean, I made a personal commitment when we set up GBF that we're gonna do at least half of what we do in Sub-Saharan Africa. No one told us we had to do that, but I felt like for my time and I'm not picking on the World Bank Group, it's the same elsewhere I think. The mentality in the world is, well, let's start with the easier places like middle income countries and if we can make it work there then we'll get to Africa. And somehow we never got around to helping in tough African countries and maybe, maybe not, did we succeed in the turkeys and Mexicos of the world. But you walk around any African country and say, so where's all this impact investment or where are the agencies? I'm guessing in your country too, you say, well, that seems like they say they spend a lot of money and not much of it gets down to things that help people, help themselves. So my sense is Africa has plenty of good entrepreneurship. There are better opportunities. I will confess I've stayed away from China partly just because it's big, hairy and it doesn't feel like it needs help from people like us. I've tried to go around this the other way is say, let's start on tough places and I track very carefully the GNP per capita and the development level of where our money goes. And I always say, if I start having a profile on that score that looks anything like even the DFIs, I should be put out of business because there's lots of other people that will invest in middle income countries. So that's one thing is I don't think there's enough sort of tagging to the figure skating. They give a score for technical merit and then another for difficulty factor. I think somehow there ought to be a dollar of economic value creation ought to be higher in places where it's tougher or the income's lower. We're, stay tuned, we're working on a system for this. When we start getting metrics, I see Eric and Manuel are cringing that what's he gonna think of next? But there is a reason for that and I think that's something we gotta do cause not many people are gonna want even India's a question but China to put soft or charitable money into creating social impact in those places, you can make an argument but I think that's gonna be harder. In Africa, there's so much money washing over the place and there's so much of it that looks like it could be better spent. I'm optimistic. I think if you look at the technical assistance money that gets spent, I was going to say blown but let's say spent. In most African countries, a very small percentage of that would make a very big difference for the kind of volume and type of enterprises in things like health. The question of what could we actually, I wanted to say that because the incubator question kind of relates to this, it is a very good point. Incubators ought to work very well. There is a very big gap between what comes out of even the best of the incubators and what becomes of a size and type that even people like us can invest in. I think the reason for this is the gap doesn't get addressed. You need commercial smarts, but you need some kind of cushion to do that and it's too small and too funky even for us because now we have to service investors. It's that, there's plenty of incubators. There's lots of people like us sort of looking for deals and even ready to help them but it's that bridging period that that's why I'm saying local mentoring or why I'd like to involve local business people. Somehow we've got to find a way to get what comes out of those incubators to, you know, if they get in front of the wrong group of investors and there's this whoosh of, let's just make it grow as fast as possible. That's usually what happens at business plan competitions and selection panels, you've all been part of these. And I stay away from them now just because I've seen so many cases where literally the whole story is how to, as we used to call it and I see how to powder your nose. In other words, do a PowerPoint gulsome Silicon Valley investor into putting $5 million in and the enterprise is hollow sometimes or in cases like India, sometimes the government in the regulatory environment forces you to have valuation discussions before there's an enterprise. That's the problem is the wrong flavor of capital coming in at the wrong time can ruin an enterprise and I've seen plenty of that. It's that matching the kind of capital to the stage of the enterprise is just a really hard thing to do. Especially when you're a fund and you have to do volume and these things don't lend themselves to a lot of volume. Agnes, do you wanna take the Mercy Corps question? From what I recall, the Mercy Corps question was about why there isn't more information about who is doing what and that's why it's difficult to raise financing. Or misinformation. Or misinformation. Yeah, I mean, I think there's a lot of attempts to really try to address that. I know that Jin has been doing quite a bit on trying to collect information from various impact investing funds. So has Andy, our Randall Tampner's here who heads that. They've really been trying to, like I said, infuse a lot more transparency into what's happening. It is a fairly new industry when you think about it, especially as far as collection of information is concerned. So I think it's going to take some time but I think it's going to get there and I think that that's what everyone is saying when they're talking about building the ecosystem. So I think it's gonna get there and I think I'm actually very positive about that because the information is definitely forthcoming. I wanna thank the panel, especially Pat, thank Paul Bress for coming all the way from California to do this for us. So please join me in thanking the panel.