The introduction of the United Nations’ (UN) 2030 Agenda for Sustainable Development in 2015 has indelibly changed our global understanding of development. The 2030 Agenda, also known as the UN Sustainable Development Goals, is a shared blueprint that aspires to promote peace and prosperity for people and the planet through 17 global goals. This new global mission has introduced and popularized various concepts in the development sphere, but none is more interesting than the concept of impact investment.
What is impact investment?
“Impact investments are investments made with the intention to generate positive, measurable social, and environmental impact alongside a financial return.”
“Impact investments are investments made with the intention to generate positive, measurable social, and environmental impact alongside a financial return,” according to the Global Investing Impact Network (GIIN). In an impact investment portfolio, a company’s “business model is equally responsible for sustaining and growing the company as well as delivering a tangible, measurable impact on their society and economy,” Jamil Wyne, an adviser to impact investment funds and social enterprises, wrote in Wamda.
However, some argue that “impact investment” is not the correct term for this emerging investment domain: “I don’t like this nomenclature as it’s ambiguous since everything has an impact these days. You can invest in a company that is not climate-friendly but has measurable ‘social impact’ because it leads to job creation. Is that an ‘impact investment?’ I personally prefer to use ‘conscious investing.’ I choose to be a conscious investor when it comes to my own personal investment thesis,” Sonia Weymuller, founding partner of Venturesouq, a GCC-based venture investing platform that strives to democratize capital by enabling individuals to invest into high-growth technology companies globally, told Inside Arabia.
One of the biggest challenges facing the growth of the impact investment domain in the region is the fact that it takes more time for investors to see a return.
One of the biggest challenges facing the growth of the impact investment domain in the region is the fact that it takes more time for investors to see a return. “Whereas most angel investors look for a five to seven year return across their portfolio, for investors in companies in the ‘impact’ sector it’s more of a seven to ten year horizon. This is why it’s called ‘patient capital,’” Weymuller added. While it may take longer for investors to see a financial return, they can often see the environmental and social return on their investment (ROI) sooner because these are the values that the companies are built on.
The world of impact investment is complex because there are various approaches and methodologies that can be used to measure a business’ ROI. Therefore, many investors are reluctant to enter this investment domain—especially in the MENA region. In GIIN’s most recent annual report, the region ranked second to last globally in terms of impact investment activity. In fact, impact investment only figured into 15 percent of surveyed investor portfolios. Other than Oceania, a geographical term used to denote a continent that is comprised of Australia and the nearby islands in the Pacific Ocean, no region in the world has a smaller degree of impact investment activity than the MENA region.
“The impact investing scene in the MENA region is very nascent, and although there are many investors that look for impact or sustainability as one feature of an investment deal, it is rarely sought out as the primary feature,” according to Christina Andreassen, business development and education manager at Womena, a Dubai-based platform dedicated to encouraging gender diversity and inclusion in the MENA region’s entrepreneurial ecosystem.
The region also performs poorly on other development indicators, particularly when it comes to women. The rate of labor force participation of females between the ages of 15 and 64 in the MENA region was only 22 percent in 2017, according to the International Labor Organization. Some factors that prevent Arab women from entering the workforce include low salaries, unsatisfactory job benefits, difficulty securing seed capital for entrepreneurial ventures, and harassment in public spaces.
Arab women are also frequently excluded from the region’s financial systems and institutions.“[O]nly 35 percent of women, compared with 52 percent of men, have a financial account of some sort in the MENA region,” according to the World Bank. This disparity in bank account ownership is the widest disparity between men and women in any region
Challenges for Female Entrepreneurs in the MENA Region
Not only is gender inequality in the Arab world unfair it is also impractical because it hinders the economic growth of the region. According to a 2015 McKinsey report, if MENA countries could close the gender gap in the labor force, it is estimated that the region could see an additional $2.7 trillion added to its GDP by 2025. It is also estimated that more than 70 percent of female-led, small and medium enterprises (SMEs) across every region are either unserved or underserved financially, according to the International Financial Corporation.
This foregone financing opportunity alone amounts to approximately $285 billion, according to a 2014 Goldman Sachs study. “If [this] credit gap is closed by 2020 in just 15 countries, including the BRIC countries, per capita incomes could on average be 12 percent higher by 2030,” according to the same report. Therefore closing the financial gap for SMEs, particularly female-led SMEs, needs to become a policy priority in the region.
While ending the cultures of inequality that exclude women from social, economic, and political institutions in the Arab world is difficult, it is not impossible. The MENA region’s burgeoning impact investment domain could play an important role in overcoming the factors that inhibit women from succeeding, thus unleashing the untapped potential of Arab female entrepreneurs.
There are currently many developments taking place in the field of impact investment in the MENA region. One of the most exciting trends is the increasing number of women who are becoming active impact investors. However, just as in the world of entrepreneurship, many women in the region face challenges entering the world of investment.
Increasing Female Representation in the MENA Impact Investment Scene
Jessica Robinson, founder and managing director of Moxie Future, the first insights community that empowers female investors by growing their wealth through impact investing, told Inside Arabia that three things need to happen in order to increase the number of women in the impact investment sector in the MENA region.
First, key stakeholders in the region’s entrepreneurial ecosystem need to educate female investors about what impact investing is and how they can get involved. These educational programs must focus on dispelling the many market myths that surround the field of impact investment, such as the erroneous belief that responsible investment leads to lower financial returns. Male or female, more investors in the region need to understand how responsible investment can create a cleaner, fairer, and more sustainable future, while also giving investors a good return on their investment.
Second, the MENA region’s financial and entrepreneurial ecosystems need to make it easier and more accessible for women to invest responsibly. This is where technology could play a transformational role for all investors and entrepreneurs in the region, regardless of their gender. Leveraging new technology platforms is likely to provide more accessibility and transparency in the impact investment domain, which could further unlock the potential of the Arab world’s financial and human capital in the long-term.
Finally, the region’s community leaders, educational institutions, and government entities need to work together to build a strong pipeline that will produce more female investors in the future. Traditionally, finance and investment have been perceived as male domains. However, this needs to change so more women can participate and become decision-makers.
Building the confidence of women, not only as investors but also as agents of change, can no longer be an afterthought.
Building the confidence of women, not only as investors but also as agents of change, can no longer be an afterthought. It must be a priority at every stage of a woman’s life in the MENA region because research proves that when women win, their communities win too.
Moving Towards a Future of Impactful Change in the Arab World
Impact investment is an ideal way to empower female investors and entrepreneurs because it is a finance sector that does not divorce the idea of positive change from a company’s day-to-day operations. The impact element is not a public relations stunt or an afterthought that is considered only when a company makes profit. Impact is what drives the decision-making process; therefore, it is a part of the DNA of every action that investors and entrepreneurs take.
“Our deal flow of female founders in MENA shows us that female founders tend to build companies that solve problems in their local communities or have an impact focus,” Andreassen said. “So an increase in impact investing should inevitably have a positive result in more capital going to female startup founders. To encourage more investment in this space, we need a strong exit of a MENA-based impact company to set a precedent that impact investing can be profitable. Luckily, the MENA region has several great impact startups in the healthcare, energy, and agricultural space that have the potential to be the region’s first big impact win.”
Individual investors are not the only ones who are entering the domain of impact investment. Corporations are also exploring the world of entrepreneurship and investment. “I am increasingly seeing more companies that understand that instead of having a thematic corporate social responsibility budget that changes every year, they can instead use that money to invest in impactful and financially sustainable startups and get equity. This incentivizes companies to have skin in the game and be involved in startups’ journey in the long-run,” Weymuller said.
While expanding the field of impact investment in the Arab world might take time, this time should be used to ensure that more investors and entrepreneurs in the region are educated about this new investment domain. This time should also be used to include more female investors and entrepreneurs in the emerging finance domain. The organic mainstreaming of female voices into the MENA region’s various institutions is a key step to encouraging more Arab women to participate in activities that add economic value, create positive social change, and promote long-term stability.