Part 1 of this blog post highlighted some difficulties faced by social entrepreneurs in Asia; Part 2 profiles Synergy Social Ventures, which supports social enterprise, and ties in lessons for the broader world of social finance.

Synergy Social Ventures is a not-for-profit organization that was created in response to the challenges we saw preventing social enterprises from accelerating in Southeast Asia and China. In our work with entrepreneurs throughout the region, we identified a number of commonalities.

Firstly, the vast majority of ventures are in their early stages, in need of support to navigate the new sector they are entering. They need access to knowledge and to learn about best practices related to building social enterprise models. Secondly, there is a lack of appropriate financing for their impact-focused ventures - financing that is aligned with their impact-focused strategies.

One particular gap we’ve identified in our region is a deficiency in capital available to impact-focused enterprises who cannot meet a hurdle financial rate of return for investors. Financial returns are a significant consideration for funders - even those that self identify as “impact” focused investors usually seek a return of 3-5% in addition to social return. There is a lot of buzz and hype about impact investing, in particular “financial-first impact investing” - the idea of achieving both a social impact and a competitive financial return through an investment.

While it is great that financial investors are looking at the effects that their investment activity has on society and the environment, the excitement about the possibility of “having it all” - solving problems while generating strong financial returns - is creating a gap, through which many social ventures with high potential to generate significant social returns are falling.

At Synergy Social Ventures, we work with small and early stage ventures tackling difficult problems in some of the poorest areas of the world. Most are addressing issues that, until recently, have only been supported through direct and ongoing grants and donations. These new entrepreneurs, however, are working toward more effective solutions that are also sustainable, in that they will not need to rely on ongoing donations in the long-term.

This step alone has had a significant effect on the social returns on a financial “investment”, even when the investment is a grant that will set in motion impact that will continue to be generated in the future. Taking this to the next level, if the venture is able to return the original grant, or even a portion of it, and the funds are used to seed another venture, the social return generated by the funds increases further.

Social finance encompasses a broad spectrum of means of using financial capital to create social impact. What’s happening in our region reminds us that to fully benefit from the opportunities afforded by different models of social finance, we must not get caught up in one aspect that happens to be the “model du jour”.

Instead, we must assess situations within their own contexts to determine how financial capital can best be used to catalyze social impact. This could be through investment capital that generates social in addition to financial returns, but it could also be through philanthropic capital that is stretched further than the traditional 100% loss. Or it could fall somewhere in between.

The question to ask is not what financial return was generated, rather, was financial capital utilized in the most effective way possible to address a particular need? Looking at social finance models from this perspective will open up a wider range of possibilities to effectively use capital to create social impact.

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