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    Impact Investing in Sustainable Business: Next Step for Growth in Bangladesh?

    Bijon Islam

    From an allegedly portrayed “bottomless basket-case” to entering the lower-rungs of middle income economy by World Bank, Bangladesh is often showcased as a success story of development. With sustained 6 percent+ GDP growth rate over a decade, strong infrastructure projects in both power and communication, technology adaptable demographic bulge, density dividend, credit line facilities from China, India, Multilateral Development Agencies and growing RMG exports – Bangladesh seems to possess all the right ingredients. Building on the economic momentum, the middle and affluent consumer (MAC) population of Bangladesh currently estimated at approximately 12 million is expected to triple over the next decade. MAC cities – currently 10 will increase to 33 in 10 years.

    However, at the same time, sub-optimal private sector growth, financial sector hindered by non-performing loans (currently 10 percent+ of all banking assets), overreliance on RMG exports (~80 percent of our total exports) and worker remittance for forex earnings, rising income inequality and deteriorating doing-business index – show that Bangladesh still has a long way to go. In her path to become an advanced economy, Bangladesh must find new ways to develop, invest and grow.

    Case for Prioritizing Sustainable Businesses

    Home to the worlds’ largest NGO, BRAC, which is again 75 percent+ self-financed by its commercial ventures, birthplace of microfinance from Grameen Bank and fastest growing mobile financial services bKash – Bangladesh is often known as the “Silicon Valley for social innovation.” While private sector growth led the way towards economic development – social enterprises have led the way to Bangladesh’s climb out of poverty into better living standards for all. Indeed, besides the government the development organizations have done fantastic work in health, education, WASH, agriculture and energy.

    However, now Bangladesh faces a unique conundrum. On one hand as Bangladesh becomes a middle income country, development funds, which have rendered a several social enterprises possible, will shift to other emerging economies and rightfully so. However, our social problems are far from over as the growth that we have achieved, especially from our private sector and government led investments, often has not been inclusive, has been highly centralized to key cities and has not created enough employment. In fact, according to HIES 2016, income inequality in urban areas has risen faster than in rural areas. This can be attributed to asymmetrical jobs growth in the services sector and concurrent drop in blue collar work. Hence at this point, to maintain the growth momentum, Bangladesh needs to prioritize sustainable growth and one way to do that is by doing what we have done so well before – prioritizing growth of social enterprises, especially the inclusive business sub-set.

    Promoting Impact Capital as a Way to Promote Sustainable Businesses or Inclusive Ventures

    So how do you prioritize sustainable businesses over the rest? One way would be to build market mechanisms and systems in supporting ventures that are inclusive –business cases for both financial and social returns. In fact, the world as connected it is now – consumers are willing to pay premiums for mission-driven causes and ventures. That is why fair trade organizations are being promoted and tech giants like Facebook operate zero-rated applications like internet.org. However, Bangladesh is still not there yet and one way to incentivize that is to make impact investments available.

    While impact investments have become widely popular all over the world especially in African countries and even India – Bangladesh is still scratching the surface. Though there have been a few cases such as the Bill and Melinda Gates Foundation investing in bKash – which works heavily in financial inclusion and payment digitization or IFC investing in the country’s leading online grocery aggregator Chaldal.com – the financial instrument remains largely untapped.

    However, if lubricated properly, impact capital can provide incentives to mainstream private organizations to build inclusive ventures. This would benefit Bangladesh in two direct ways, a) with more mission-driven/inclusive ventures, we can use business solutions and innovations to solve complex problems in health, education, financial inclusion, climate among others and b) tap into the growing impact capital that are made available all over the world by corporate foundations, philanthropic capital and social impact funds.

    So how do you promote impact capital in Bangladesh? What should be the role of the government? What should be the role of the organizations? Can mainstream financial institutions have a role to play here? These are difficult questions to find answers to. However, let me try to give my thoughts of the roles we need to play.

    1. Role of the Government:

    SEC has already released guidelines for alternative investments back in 2015 that includes impact capital. More recently the government is experimenting with a government backed venture fund under the ICT ministry to jumpstart tech ventures. One possible way would be the government to launch a fund of funds i.e. becoming limited partners in floated impact funds in the market. By committing to provide matching funds – availability of impact capital can be increased. Additionally, government can also provide incentives to inclusive ventures; for example, providing tax benefits to green businesses.

    2. Role of Financial Institutions:

    Bangladesh Bank has introduced circular for banks to invest in alternative financing products outside of the capital markets. This opens up opportunities for both banks/NBFIs and alternative investment license holders in the market. Banks can become limited partners in impact funds. This would serve as a win-win – banks get to diversify their investments into a sector, where they can build a portfolio and impact funds can get access to much-need capital to kick-start operations.

    3. Role of Private Sector:

    The private sector has to the play the role of the crux. Without innovation and business solutions to our problems, the impact capital would be meaningless. However, Bangladesh have strong cases to build on – innovative nutritious milk products by G r a m e e n – D a n o n e , Grameenphone originally starting off as an income augmenter for village-women, Aarong creating market linkage for rural artisans are all successful business solutions to social problems. With the right incentives and now with increased technology adaptability, the private sector needs to continue to weave out future innovation.

    Summing Up and Way Forward

    Resilience and entrepreneurship are key cultural attributes in Bangladesh – you cannot even ride a bus in a city without meeting multiple business professionals or with the advent of digital service marketplaces like “Pathao” or “Sheba.xyz.” We are seeing how the population pick up opportunities to jump in and disrupting traditional transport or home-service models. With impact capital flowing in, innovation can become more widespread and the growth story of Bangladesh would become more inclusive.

    This has been published as part of LightCastle’s 6th year anniversary publication, “LightCastle Featured Insights 2019“.

    Bijon Islam is specialized in business model development, financial structuring and inclusive business design with 10+ years of experience in corporate/ investment banking (with Citibank, N.A.), private, development and public sector consulting. Co-founder and CEO of LightCastle, one of the country’s fastest growing consulting firm with 100+ projects in 3 years and social ventures like www.pujeebd.org and www.thepitchperfect.com