Asia | June 13, 2017

A social investment ecosystem emerges in Vietnam, Cambodia and Myanmar

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By Michael Standaert

The social-impact economy in growth markets in Asia has grabbed the attention of governments in the region, according to a new report from the Asian Venture Philanthropy Network. Impact investment funds are launching or expanding, even in Cambodia and Myanmar, as well as in Indonesia and the Phillippines, and a new law is enabling social enterprises in Vietnam.

Education remains a hot investment sector in China. Environmental investments lag across the region. Human rights, democracy promotion and political freedom remain tough issues, but organizations focused on healthcare, education and livelihoods have increased room to operate.

“In various countries, government support has been limited but there has been a change in mindset now, since they have seen how much activity is going on in their own social economy,” Anh Nguyen of the Asian Venture Philanthropy Network told ImpactAlpha. “That has led them to take more steps to support it, to promote it, because they realize that this movement has the potential to facilitate inclusive growth, which is their agenda as well.”

ImpactAlpha caught up with Nguyen and Aarti Mohan of Sattva Consulting at last week’s AVPN conference in Bangkok to talk about “Social Investment Landscape in Asia,” an in-depth, two-book report covering the landscape for impact investing in 14 Asian countries. The report includes a Sustainable Development Goals [SDGs] dashboard that ranks how each country is doing in meeting the global goals.

ImpactAlpha: What jumped out at you during the research on this report? What is new or different, or a signal of some kind of change?

Nguyen: You may think the development of the different social economies in Asia is a function of the different levels of economic development, right? That you have more capacity and resources to do philanthropy, to do impact investing, to think about social enterprises and how to promote them. But in fact we see pockets of innovation, pockets of champions of the social economy everywhere:

In Vietnam, the government recently passed a definition of social enterprise as part of the Enterprise Law. You’d be surprised, for a lower middle-income country like Vietnam, they have actually taken steps to recognize social enterprises, even if it is a basic step.

In the Philippines, there’s a similar bill in the Senate, the Poverty Alleviation Bill. In Indonesia, you’re seeing a lot of impact investors, local and international, growing their footprints in the country. In the developed regions, like Hong Kong, Taiwan, South Korea, Singapore, the governments have been active as well.

In all 14 countries in Asia, governments have become conscious about and are trying to promote the social economy.

It is estimated that 90 percent of funds that go into social investment in China go into education. — Aarti Mohan

Q. Let’s take Vietnam. How will the changes in the law help facilitate the building of social enterprise and impact investing there?

Nguyen: This was part of the revision of the Enterprise Law in 2015, so it is pretty recent. A lot of the social enterprises themselves were registered as normal enterprises or nonprofits before, or they went unregistered, and there was very little recognition or awareness of them. Ever since the legal definition was put out, there is an increased awareness about how businesses can incorporate social enterprises as part of their core business. Now, it is not just about handing out checks to charity, it is not just about volunteering on an ad hoc basis.

From what I’ve heard from the Center for Social Initiatives Promotion, a very active social organization in Vietnam, the enterprises that have been in operation for many years that have been working with ethnic minorities and marginalized segments of the population and they’ve started to think about creating social impact.

Other than the legal definition there are not any tax incentives.

Q. How about registration for nonprofits in Vietnam, I’d heard that was quite difficult?

Mohan: The government does have a lot of restriction [in Vietnam]. The bureaucracy is quite high in terms of just being able to register, but there is legal recognition.

Nguyen: There are legal structures for social charity and social enterprises and funds, but it is still difficult since the government is skeptical about NGOs. But they also recognize increasingly that the government’s role has to shift from providing services directly to outsourcing it to non-state actors. They recognize that the private sector may be in a better position to provide some of those basic services, so they are starting to talk about promoting social enterprise in education sector for instance.

There has been a bottom-up movement across Asia with the emergence of a lot of impact funds, social investors. — Anh Nguyen

Q. How big of a barrier is it for these social enterprises to go through these processes in Vietnam? In China, new laws on domestic and foreign NGOs have come out recently, supposedly that would help clarify and make certain processes more simple. But it has actually put registrations under public security and scrutiny. What’s the impact on these groups as they establish themselves in Vietnam or China or elsewhere?

Nguyen: I think it depends on the causes that you are trying to promote. If it is about human rights, democracy, political rights, it is tough. If you focus on healthcare, education, employability, there is still a lot of room for these organizations to operate in Vietnam, and probably the case for China. Of course you have to be aware of the political contexts in the countries.

When we spoke to people in Vietnam, there is a difference between South Vietnam, which has more of a non-profit or social enterprise culture, which is not the case in North Vietnam. Most of the organizations and intermediaries we spoke to operate out of South Vietnam.

Although it is very uncoordinated and haphazard, they do say things are coming together and there are people working with corporates to help them understand what it is to work with the community, there are nonprofits that can help. Of course the capacity building is a huge issue because the NGOs had all been used to international aid and it had been that kind of mindset, similar to Cambodia. But slowly, slowly they are figuring out how they can sustain their models as well as their revenues.

Q. Are you seeing more domestic actors as these countries grow wealth, compared to foreign aid?

Mohan: There are starting to be these local funds that are coming into the picture.

Nguyen: Vinamilk. TH Milk. They are starting to look into creating social investment impact funds that invest in youth initiatives.

Mohan: Lotus Impact Fund is there. That is the first local one.

Nguyen: Evergreen Labs is another. Others are looking into impact funds as part of CSR strategies.

Q. What other themes came through in the research?

Mohan: When we look at the advanced economies, the governments in places like South Korea, plays a significant role. It has moved the social economy in a much more accelerated way.

In India, the government doesn’t stand in the way of the social economy, but it doesn’t do much to support it either. There, the civil society has grown to be very strong.

In places like Myanmar, Cambodia, and to an extent places like Vietnam, even though they are all in the early stages, there is already a lot of investment interest. The number of funds that are there in Myanmar, the number of funds set up in Cambodia, there’s a lot of interest and they are also playing a role at this early stage as intermediaries, capacity building in things before they can become investable.

Evergreen Labs set up and runs its own NGOs, because it felt there were areas that needed to be addressed. In some places it is driven by government but in other places it is driven by private sector and often local private sector actors.

Nguyen: There has been a bottom-up movement across Asia with the emergence of a lot of impact funds, social investors. In various countries, government support has been limited but there has been a change in mindset now, since they have seen how much activity is going on in their own social economy. That has led them to take more steps to support it, to promote it, because they realize that this movement has the potential to facilitate inclusive growth, which is their agenda as well.

Mohan: In India most of the activity has been focused on urban and semi-urban centers, even though it is advanced. In China, we saw a lot in places like Guangzhou, Shanghai, where investments are only in a 10-kilometer radius from their headquarters. So corporates also probably need to widen their perspective and not to have so much control. It is all about monitoring, if I am closer to where my projects are, I can monitor. This has been reported in quite a few studies in China, and with people we spoke with on the ground, they said this is true.

Q. How did you go about gathering the information for the report?

Mohan: We wanted to look at the legislative environment as a starting point. How is the legal structure working? Then look at the key trends and which key actors were funding charities and social enterprises in their early stages. Who funds mainstream businesses through ESG funds? where does mainstream capital come in. Then we started to plot trends. We took into account typical factors investors look into in a country before investing, but also some others like digital and financial access, which are important points for impact investors. It seems to be the foundation, it would be too costly for them to invest in digital and financial access. So is the government doing that? The Sustainable Development Goal [SDG] framework allowed us to look at the gaps. Although it is a bit of a pessimistic framework.

Q. I see a lot of red. That means there is room for improvement.

Mohan: In both developing and developed countries, environmental areas across the board pop up as where there is not enough investment — whether it is Indonesia and palm oil, Japan, China, South Korea, Taiwan — it is a huge focus area. We didn’t see much environmental activity in China.

Q. That’s such a pressing issue all over. I know the government in China spends a lot and has been beefing up environmental regulation, but why has the impact investing activity not followed that?

Nguyen: We actually see some activity in renewable and clean energy, but I think environment is such a complex and macro issue that no one single investor can address it on an appropriate scale. I think the governments need to play a major role here in terms of reducing greenhouse gases, and other environmental issues. Where investors could come in is where they could promote innovative uses of renewable energy, clean energy. Of course that takes time.

Q. In China, the government has been pushing green finance — green bonds and other products. Do you see much interest in that within the impact investment community?

Mohan: There are two types of investors there, corporate and impact investors. There are not a lot of impact investors there. It is very nascent.

In terms of corporates, education trumps everything in terms of interest [in China]. It is estimated that 90 percent of funds that go into social investment in China go into education. The second area seems to be environment, when we talk to corporates. We’ve talked to companies, to incubators, impact investors, they say it is a growing focus, but it is not where the large money goes at all.

Q. You used the SDGs as criteria for looking at a lot of this, how much do you think the impact investors and corporates in Asia are using the SDGs for themselves to evaluate?

Nguyen: We tried to pin the framework to the SDGs, though we are aware that investors and corporates may use different terminology. This is why in the government focus areas we try to map the SDGs along with the Toniic framework to actually look at the recommendations where there are huge gaps where investors can come in and make an impact.

Mohan: Among international investors, yes [SDGs and ESG frameworks are important], and among domestic investors, it is growing. When we speak with them, yes, it is a focus. Local investors, it is also coming from the intent — why am I investing? Education, or poverty, some of these themes within the SDGs.

They look at it as a way of reporting, and not really as a way of making decisions right now. In India for example, the government took every single government program and mapped them to the SDGs. So now that has become the lens. Philippines, the same thing happened. Thailand, it is increasingly happening. From the government side it is happening and investors are seeing that it is a good thing. But it is not actively a decision-making framework yet. I don’t think that transformation has evolved yet.