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April 19, 2012
Shared Interest to Reach More Low-Income South Africans
    by Robert Kropp

The investment fund's Campaign for the Next Generation seeks to provide opportunities for an additional 500,000 low-income South Africans, while reforming the practice of mainstream banking.


There are many compelling reasons for sustainable investment in South Africa. From a perspective of financial returns, sustainable investment in South Africa exceeded $100 billion by December 2010, largely due to the influence of the Government Employees Pension Fund (GEPF). And the Johannesburg Stock Exchange's (JSE) mandate that large companies issue integrated reports helps development in the country leapfrog the short-term horizons typical of mainstream investment practices.

Under such conditions, community investment in South Africa by sustainable investors can lead to long-term financial returns. But the history of action by sustainable investors in South Africa is not just a story of seeking financial advantage. As Donna Katzin, Executive Director of Shared Interest, told SocialFunds.com, "South Africa has been a lightning rod for the socially responsible investing (SRI) community, starting when international investors rallied to put their shoulders to the wheel to accelerate the end of apartheid."

Shared Interest is a US-based investment fund that raises capital from a range of investors, to mobilize resources for economically disadvantaged communities in South Africa. Since its formation in 1994, the $12 million fund has leveraged almost $100 million for projects in developmental microfinance, housing, small business, and agricultural cooperatives.

"We've never lost a cent of anybody's principal or interest," Katzen said. "To date we have benefited more than two million low-income black South Africans."

"About half of our investors are faith-based institutions," Katzen, herself a former Director for the Interfaith Center on Corporate Responsibility (ICCR), said. "Many of them were very active in the anti-apartheid movement, and when the time came in 1994 to build a new South Africa, they wanted a way to reinvest to improve the lives of people in grassroots communities. That's how Shared Interest was formed, at that moment."

However, investment in Shared Interest is not limited to institutional investors. Individual investors can invest directly in the fund, or invest small amounts via the online resource MicroPlace.

"The loans range from $20 on MicroPlace to millions in terms of institutional investment," Katzen said.

The manner in which Shared Interest invests its funds is unique, in that it does not directly invest the capital entrusted to them by investors. Instead, the funds are used as collateral to back South African bank loans to low-income black communities. In its transactions with mainstream banks, Shared Interest insists that the size of the loan exceeds the amount of collateral.

"Mainstream banks have certainly been responsive to the idea and to the vision," Katzen said. "But when you're talking about structural change, that's challenging. After 18 years we're still looking for ways to unlock the finance in those banks as well as the potential for the businesses and communities that they're coming to serve."

"There are always questions about how to structure a commercial financial tool to meet the needs of a community that has been unbankable," she continued. "That's a challenge everywhere, but a particular challenge in South Africa because apartheid made it illegal for most South African blacks to own land and to secure decent jobs."

Based in New York City, Shared Interest has benefited from its partnership with the South Africa-based Thembani International Guarantee Fund. "Thembani not only places and negotiates guarantees in South Africa, but also provides support to both beneficiaries and banks so that they can work together, not only over the life of the loan but after the life of the loan," Katzen said.

Yet much work remains to be done in order that the political transformation of South Africa evolve to include the social and economic realms as well. "The stark reality is that apartheid is over, but its legacy is not," Katzen said. "South Africa's transformation will take another generation. Political power has changed hands in the last 18 years, but economic power is only beginning to change hands."

To that end, Shared Interest recently launched its Campaign for the Next Generation. The ambitious initiative seeks to triple the size of its guarantee fund, and quadruple the size of its guaranteed loss reserve, by 2016.

The scope of the Campaign reflects "Not only what it would take to reach the next 500,000 low-income South Africans, but what it would take to transform the way banking is done in South Africa," Katzen said.

Another important goal of the campaign is to build a model that can be replicated in other Southern African countries. "South Africa cannot exist as an island of wealth in a sea of poverty," Katzen said. "The success of the country rises and falls with the success of the region. Through the Campaign we're already beginning to extend our work into other countries, beginning with Mozambique."

"Apartheid is over, but its legacy is not," Katzen said. "We're very much in the business of transforming South Africa's hard won economic and social rights into a reality. It's a task that international investors can participate in."

Referring to the role played by sustainable investors in contributing to the end of apartheid, Katzen said, "That same commitment is important now, because South Africa itself is not completely transformed. Despite the country's stable growth rate, there's still a herculean effort needed to right the country's wrongs."

"South Africa's people would like to see the fruits of the political transformation in their jobs, homes, and communities, in their lifetimes."

 

 
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