Thursday, June 20, 2024
Thursday, June 20, 2024
Home » Social investment tools can fill developing Asia’s finance gaps

Social investment tools can fill developing Asia’s finance gaps

by Harley Bennett
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Structures allow governments to tap companies, diaspora communities for support

Kithmina V. Hewage is senior adviser at the Centre for Asian Philanthropy and Society in Hong Kong.

Developing Asian economies including Bangladesh, Pakistan and Sri Lanka are facing severe fiscal constraints and struggling to fund even basic government services.

With dwindling resources and limited policy options available, governments in the region need to think beyond traditional means of development finance and find viable ways to bring together financial and experiential capital to help alleviate suffering on the ground.

Even at times of rapid economic growth, demand for social services in Asia has remained high. This is primarily due to the increased income inequality that has accompanied economic growth.

As inequality has grown, low-income earners have been crowded out of resources and have found it increasingly difficult to access basic services. Moreover, a vast segment of those who have been lifted out of absolute poverty by economic growth unfortunately remain on the margins of poverty.

As a result, these households have remained vulnerable to being pulled back into poverty when faced with economic shocks such as the pandemic. For example, a study by the Asian Development Bank found that 75 million to 80 million people were pushed into extreme poverty in 2020 in the early months of COVID-19.

These pressures have been exacerbated by fiscal and debt crises in several developing economies in Asia. But there are a number of innovative tools by which their governments can utilize cross-sectoral resources to address social needs.

Public-private partnerships (PPPs) are one of the most prominent and effective tools for governments and the corporate sector to collaborate on delivering social services, and come in many varieties. In 2021, a Centre for Asian Philanthropy and Society report profiled successful PPPs for social good spanning the categories of service delivery, economic development, behavioral change and policy, infrastructure, the environment and capacity-building.

These PPPs had been set up by governments linking with companies’ corporate social responsibility arms as well as through direct engagement with management. Unlike traditional investment-focused PPPs, where negotiations can falter over the sharing of risks and rewards, PPPs that are focused on delivering social goods tend to be more synergistic.

Importantly, advocacy for social good PPPs can act as a steppingstone to building trust between the government and the corporate sector, which can then create a more enabling ecosystem for wider investment. This can also help to resolve issues around the duplication of work by governments, companies and social-sector organizations.

Overall, the promotion of PPPs can provide a resource-efficient solution for governments with limited resources and companies incentivized by both investment and philanthropic motives.

As social delivery organizations look to improve their domestic funding sources, social enterprises can provide a range of benefits that could provide win-win solutions to these organizations as well as the government.

Social enterprises offer a unique set of services using business practices to address social needs. Similar to PPPs for social good, the right alignment of incentives can catalyze a spectrum of benefits.

The social enterprise ecosystem in Asia is still young but prospering. As such, there is a high ceiling for potential benefits, and governments have a crucial role in facilitating or disrupting this potential.

Toward this end, governments should look at targeted policies such as introducing procurement policies that prioritize social enterprises, improving access to credit and facilitating measures that increase recognition. Such policies should be complemented by wider investment ecosystem reforms that improve the ease of doing business for small and medium-size enterprises and help them integrate into larger local and global value chains.

When successful, social enterprises can create more sustainable means of financing for organizations looking to do good in their communities.

Asian diaspora communities have grown significantly over the past few decades in the West, and philanthropic giving by migrant communities for causes in their home country is strong for many economies.

The World Bank has estimated that annual remittance levels have reached $233 billion a year, exceeding official development aid and not much less than total foreign direct investment. A portion of these remittances are frequently directed toward philanthropic initiatives. However, the direction of diaspora philanthropy through foundations and other organized initiatives is still at a nascent stage in Asia.

Research shows that often these initiatives tend to be ad hoc and individualistic. By creating better structures, developing Asian economies could easily leverage diaspora giving to fill a portion of their development financing gaps.

Diaspora giving depends heavily on those overseas being able to identify with an issue in their homeland and to trust those handling the funds. Historically, migrants often have severe misgivings about their home governments in terms of effective regulation, accountability and transparency.

In contrast, trust levels are much higher at the community level and with specific social delivery organizations with many years of service. As a result, governments should play a role in building structures that connect their diaspora communities with initiatives that target needs at the local level.

Moreover, identifying priority areas for giving, such as health care, education or the environment, can provide better clarity and direction for diaspora members looking to do good in their homeland. In parallel, social delivery organizations can form alliances to appeal together to diaspora communities, in the mold of the India Philanthropy Alliance’s India Giving Day.

 

Such structures can be especially beneficial as younger members of the diaspora appear to be increasingly interested in strategic giving.

Diaspora philanthropy engagement strategies, however, depend heavily on broader financial regulatory ecosystems. Since the funds will be sourced from outside the country, it is vital that an enabling regulatory environment for such fund transfers are created.

The current economic challenges faced by Asian economies are multidimensional. As governments around the world seek financing for development purposes, those in crisis should not lose sight of nontraditional opportunities.

Individual and corporate giving can play a vital role in Asia’s development trajectory if the correct ecosystems are created. Therefore, as developing economies in the region struggle with the use of traditional tools to incentivize giving, they can look at structures such as PPPs for social good, social enterprises and diaspora philanthropy to mitigate the harms of the crises for their citizens.

The vibrant ecosystem of giving and social investment can help align government, individual and business interests in a manner that supports addressing short-term needs while also creating systems that facilitate more sustainable forms of long-term development.

Source: Nikkei Asia

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