The Lean Systems Approach to Impact Investment
Aid can't do everything. Many emerging economies are capital constrained and the liquidity in the economy is logically directed towards low-risk, high-return projects. Impact investors and philanthropic investors can play a role of providing capital but, in doing so, they are able to shape the type an scale of the social impact that the investment has. Agora's in-depth knowledge of both emerging markets and of how to generate social impact gives us a unique position in helping investors and funds in emerging markets to get what they need from a deal.
How we work to improve returns from investment in emerging markets
Agora developed the Lean Systems Approach to Impact Investment in 2019. Using decades of learning about how financial and real economy systems work, we conceptualised and began to implement a low-cost, incentive driven approach where we could use firms as an entry point to influence wider systems change.
Lean systems works across the investment lifecycle:
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Helping to decide identify profitable and impactful investments
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Identifying constraints to financial and social return - for investees, their competitors, suppliers, and customers
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Working with investees and other stakeholders in their sectors to develop activities that can increase economic and social returns by addressing systemic constraints in their market
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Helping investors and funds to capture their net impact within the broader systems in which they are operating
In terms of how we work, we play many different roles using a number of different partnership models.
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Operating technical assistance facilities on behalf of impact funds
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Working with DFIs to shape their fund investments
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Partnering with incubators and accelerators to shape their portfolio and support their investees
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Conducting evaluations of funds and their performance on behalf of investors
Incentives are key to our approach to sustainability. In our investment facilitation work, we want to 'put our money where our mouth is', so here in addition to our usual models of management charges and day-rate work, we work on the basis of either success fees or to take sweat equity in investments; if the investments don't pay off or if they don't deliver a projected social return, then we don't get paid.