Opportunities for social investing in Turkey
ANJA KOENIGA few months ago the Istanbul Policy Center at Sabancı University co-hosted the “Emerging Europe Impact Day,” a conference that brought together a range of individuals from civil society, financial institutions, development institutions, private equity investors, the government, as well as entrepreneurs. It was the first time that a major event was held around the topic of social investment in Turkey. The event was a good start but what comes next?
Why do we need social investing in Turkey?
In Turkey, many social problems have persisted for years. They are as diverse as the quality and affordability of education, youth unemployment, gender inequality, poor social cohesion or environmental degradation. In recent years, social entrepreneurs have emerged to address some of these problems in an entrepreneurial and innovative ways. Research carried out at Sabancı University shows, however, that many of these organizations fail to grow and take their ideas to the next level.
They fall through existing support systems, experience human resource constraints and face significant challenges when it comes to accessing finance. Due to their hybrid nature they often do not satisfy the requirements of more risk adverse commercial banks nor meet the expectation of the business angel or venture capital investors – who in Turkey almost exclusively focus on technology, e-commerce and the ICT sector. One would expect that with a pursuit of a social mission social entrepreneurs should be targeted by one of the large (corporate) foundations. However, in practice grant-making and long term engagement with a social organization is still the exception rather than rule amongst Turkish foundations.
What is social investing?
Social investors provide capital in organizations and funds that generate both social and/or environmental benefits and financial returns. Therefore, social investors generally expect a repayment of some or all of the capital provided. Still, the intention to actively create a measurable social and environmental impact remains at the core of social investing.
Social investors are engaging in difficult markets where traditional investors are not prepared to go due to high risks, limited information, small deal size or lack of exit strategies. They typically include impact investing funds such as LGT Venture Philanthropy or the Omidyar Network, social investor networks such as Toniic or Pymwymic, wealth managers and financial institutions such as UBS or JP Morgan Social Finance, or foundations such as the KL Felicitas Foundation.
In Turkey, despite growing interest social investing is still in its infancy. Furthermore, the international impact investing community has so far been practically absent. In my conversation with many impact investors I was told that this was mainly because Turkey was not on their radar screen and they lacked local partners to help them navigate and potentially co-invest.
Social impact and financial returns – a contradiction?
The social investment field appeals to many professionals and wealthy individuals. As a businessman turned social investor from the U.S. recently told me: “Finally I don’t have to separate myself in two personalities - business and personal - and give a tiny part of my business profits to some social organizations. Instead, I can use my business skills and my network and engage with great social innovators. I make a decent return with a significant social impact of which I am proud! And I can again reinvest to help others address social challenges. If I just wrote a check for a social cause, I could only spend my money once!”
To many, investing in an organization driven by a social mission and expecting repayment or even a financial return may sound contradictory. It is not, in my view. While I believe that many civil society initiatives deserve support via traditional grant funding and donations, and that a market based approach would not work, I am also convinced that there are certain social challenges that are best resolved with entrepreneurial acumen and a creative, hybrid mix of philanthropic, public and private capital.
However, philanthropy and grant-making has an important role to play as well – in particular in the early stage social impact eco-systems such as Turkey. The demand for finance and support are diverse and depend on the organization’ individual philosophy, their business model and the stage in their life-cycle. In fact, in social investing one investor’s exit often prepares another’s investors entry – each matching their individual grant making or social investment strategy with the changing needs of the organization. So, for social impact markets in Turkey to work we need them all!
*Anja Koenig is a 2012/13 Mercator-IPC fellow at the Istanbul Policy Centre of Sabancı University and a fellow of the IIPC/Rockefeller Foundation. She is also program director of the Social Investment Program at Sabancı University.