Risk, return and the development dynamic

 

Julian Gore-Booth

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Julian Gore-Booth

Anyone putting their savings into an ISA or a pension will be familiar with the disclaimer stating that ‘past performance is not a guarantee of future results’. The dull reminder that the value of your investment can go down as well as up is perhaps one that many of today’s retirees will be wishing they’d paid more attention to. But what guidance exists for the social investor and do the same rules apply?

International development has tended to foster a compliance model in which cash-poor southern organisations implement projects on behalf of cash-rich northern partners and then, desperate to secure the next grant, spend as much time filling out donor reporting frameworks, dreaming up indicators and writing proposals as they do delivering change in the lives of the worlds’ poorest people. Philanthropists can and should help to remove the strait-jacket that is so often created by short-term project funding and empower local organisations by making different kinds of investments in different ways. One example is the move towards venture philanthropy (which usually involves a deeper partnering or mentoring role with grantees); another suggestion is to focus on the development of trust-based models for funding rather than put the emphasis on compliance, with its attendant ball and chain.

Trust based does not mean naïve. The organisation I work for seeks out the best local organisations in the world’s poorest countries and rewards them with a package of unrestricted funding, capacity building and profiling. By carrying out a due diligence process worthy of the best stock pickers we aim to minimise the investment risk without diluting the expected return. We of course monitor and evaluate the impact of these awards, but we leave the planning and the allocation of the funds to the organisations themselves. With over half the hundreds of local NGOs applying to us from Africa and Asia indicating that they have no unrestricted funding (ie no choice, no responsiveness) at all, we know that this model encourages activity beyond the limited sphere of the project or programme that is driven by the typical donor. At last these implementing partners can address issues around strengthening and profile, which are essential to the function of any healthy organisation. They then get even better at delivery and become more resilient – good news for the investor, good news for the communities served.

Philanthropists can and should be risk-takers, but they must also be savvy about how and where to allocate their resources. Borrowing not only the vocabulary but also, and more importantly, the practices of the for-profit world is a welcome trend in international development and is why I increasingly consider my most useful contribution towards changing lives to be that of north/south broker with a portfolio of investible organisations. As social investors seek to apply the strategies that worked for them in the marketplace to wider challenges, we encourage them to consider trust-based models and heed the advice that while past performance may not guarantee results in the financial markets, it is an excellent measure when the returns you seek are social.

Julian Gore-Booth is interim CEO of the STARS Foundation, a UK registered charity that finds and rewards the best local organisations working in child health, education and protection in the world’s poorest countries

Tagged in: Due diligence global development Risk Social investment


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