Social Stock Exchange Profile: Symbiotics
Orwell partner Gary Mead on Symbiotics, the Geneva-based investment firm issuing bonds to finance the developing world’s small and medium sized enterprises.
Symbiotics, the Geneva-based investment firm dedicated to sustainable finance in emerging markets, with its own impact bond programme, has recently joined the Social Stock Exchange. Domiciled in Luxembourg and subject to the local regulator, this Bond programme is, according to Symbiotics, “designed for fixed income managers seeking direct exposure to impact finance in emerging and frontier countries”.
Symbiotics has a relatively long history of involvement in the impact investing world. Established in 2004, it prides itself on being a gateway to sustainable investing in emerging markets. As of now it has originated more than $3.3 billion impact investments in more than 71 countries. It clearly sets out its investing principles on its website: “Each investment made by Symbiotics needs to comply with the following criteria: target domestic markets in emerging and frontier economies; invest in the real economy, promoting the social function of finance; pass a social responsibility rating, using ESG norms, and seek long term value creation; positively impact low & middle income households and/or micro, small and medium enterprises [MSMEs]; foster job creation and access to primary goods, such as to homes, food and energy.”
As an impact investment list this couldn’t be bettered. The Bond programme explicitly states that its main purpose is (my italics): “to contribute to sustainable development by providing access to capital in underserved markets for the ultimate benefit of MSMEs and low and middle income households.”
We tend to forget just how important MSMEs are in building and sustaining an economy, particularly those in in emerging markets. At least 95% of the world’s registered businesses are classified as micro, small or medium – i.e. with fewer than 250 employees; and more than two-thirds of the world’s GDP is generated by emerging and frontier markets. As the world population grows to around 9 billion by 2050 – a net increase of about 150,000 people every day, the bulk of which is happening in low and middle income economies – then the need for a massive expansion of the jobs’ market becomes obvious. That’s a huge pressure.
But equally, it’s a huge investment opportunity. The fundamental reason why it’s an opportunity – and an impact investment opportunity – is that access to finance is still the largest obstacle to growth for MSMEs in frontier and emerging markets. They largely depend on self-financing solutions, as mainstream commercial banks and financial institutions continue to under-serve their needs. MSMEs benefit from more specialised financing intermediaries, and investors benefit from supporting this underserved market segment.
How big is this funding gap for the world’s MSMEs? The unmet debt financing demand is probably as much as $2.6 trillion in developing economies, $3.9 trillion globally. The total number of MSMEs is estimated to be 360 to 440 million in developing countries; as many as 44% don’t have access to a loan or overdraft facility, even though they need one. So the growth of as many as 194 million MSMEs is currently thwarted, simply by the lack of finance. This is not only an economic loss to the companies and their countries – it’s also a social burden, as the job potential goes unrealised.
In a nutshell, the Symbiotics Bond Programme is purposely designed to bring together socially responsible investors and financial institutions, to help plug this funding gap.
Since inception, the company’s Bond Programme has issued more than 64 bonds with an aggregate notional amount in excess of $569 million. It has invested in 50 different financial institutions (an average investment of $11.4 million per institution), in 23 different developing countries, that on-lend to more than 700,000 end-clients (90% of them being women, 68% living in rural areas) and an average exposure per end-client below $800.
Diligent bond investors naturally always look to the underlying strength of the bond issuer. On this score, Symbiotics’ Bond Programme has solid backing: the six-person Board of Symbiotics (three men, three women) is highly experienced, in addition to the three-person general management team. In addition, its social responsibility ratings’ policy is impressively thorough and includes “60 indicators covering 7 dimensions – social governance, labour, climate, financial inclusion, client protection, product quality, community engagement and environmental policy. The rating compiles all 60 qualitative and quantitative indicators into a weighted aggregated score, which grades the institution from 0 stars (lowest) to 5 stars (highest). Two-thirds of the institutions the company has financed have a grade of 3.5 to 4.0 stars, signalling a very high commitment to sustainable finance practices in client portfolios.” A thorough overview of the diversity of Symbiotics’ operations is available here.
From my perspective, it’s clear that governments and states are increasingly unable, unwilling, or maybe just indifferent to meeting the funding needs that the massive population growth over the next 30 years will demand. Without bond programmes such as Symbiotics’, mobilising capital on behalf of developing countries might not happen. And the consequences of that failure hardly bear thinking about, not just for these countries, but for the developed ones, too.