July 2004, World Business Council for Sustainable Development (WBCSD)
Sustainable livelihoods (SL) business is doing business with the poor in ways that simultaneously benefit disadvantaged communities and benefit the company. One of the greatest challenges around sustainable livelihoods business is to orchestrate a mindset shift – a fundamental need to embrace new ways of thinking about how business could be done. This core challenge also applies to the financing of these ventures: to make the most of available resources, companies need to redefine how, from whom and for whom they raise capital.
This guide focuses on how to source funding for a sustainable livelihoods business. It aims to provide a blueprint for action. It will help managers decide when to raise capital in-house and when to seek external funds. It explores public – private partnerships, how to raise capital for local operational partners, and why securing this funding may be core to the company’s success. It also suggests that sometimes the cheapest, most readily accessible, capital is not the best source of funding.
Finding capital for sustainable livelihoods businesses highlights several key concepts:
- Patient capital is investment characterized by a long-term horizon and particularly motivated by positive social and environmental impacts.
- A distributed capital strategy allows companies to tap into external capital resources to which they would not otherwise have access.
- Project capital refers to the capital channeled towards financing the business itself. It can be either financial or non-financial capital.
- Raising partner capital involves securing the necessary funding for organizations that surround and support the SL business.
Doing business in low-income communities often requires grants or low-cost financing, at least at the outset. One vital message is that there is a lot of money and interest from many different quarters around this type of business. However, there are currently few clearly defined procedures for turning this strong interest into actual cash. Managers raising capital for SL businesses have many promising places to look but need to be creative and persistent in seeking this funding out.
Development agencies are becoming increasingly interested in working with companies and some private foundations are beginning to support for-profits whose goals mesh with their own program objectives. Many of these organizations have billions of dollars at their disposal. However to benefit from this public purpose money SL businesses need to demonstrate tangible social benefits. In addition, managers are probably going to need to learn the language and goals of non-business organizations.
Funding sources encompass:
- Multilateral financial institutions
- Bilateral development agencies
- Private foundations
- Social loan and venture funds
- Microfinance institutions
Creating sustainable livelihoods requires companies to explore different ways of doing business so this guide also underscores some of the potential pitfalls, risks and constraints involved. Many companies believe these ventures can indeed be profitable. Yet well documented success stories are still in short supply. Nevertheless, market pioneers have gained a foothold in fledgling markets and have created innovative financing strategies for doing business in poor communities.
This guide profiles financing strategies for ten different projects. Whilst each business initiative is location and industry specific, the lessons apply across multiple sectors. These profiles tap into key insights provided by companies actively involved in accessing patient capital resources and creating effective business partnerships around sustainable livelihoods.
Through Finding capital for sustainable livelihoods businesses, managers will gain a strong sense of the potential funding universe and an informed starting point for getting their own cutting-edge business initiative off the ground.
