The Pope and the CEO > Investment
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Making Ethical Investments
Crisis Magazine’s online edition had this article recently about how to make ethical or moral investments. Making sure that where we put our money conforms to our beliefs and values is a topic that has begun to receive more attention recently. The article in Crisis Magazine makes the point that for Catholics, a different set of rules needs to be taken into account. There are groups that promote and rate socially responsible investments, but Catholics need to go a little bit further. Many of these other groups do not take into account Catholic Social Teaching. What’s more, key issues, such as the commercialization of pornography or contributions to groups that support abortion, are not discussed when determining whether an investment is socially responsible. The article suggests that a Catholic approach needs to be developed. Check it out to see what thoughts and suggestions it had on this topic!
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Social Entrepreneurship Guide
The rise of social entrepreneurship in recent years has been nothing short of remarkable, and it really is great seeing people desire to serve their community through their business ideas. Wondering what social entrepreneurship is all about and how a business can have a positive impact on its community? Inc.com has this guide that is packed full of materials. In it, they profile different social entrepreneurs and also give valuable information on the different models that people follow – for-profit models, hybrid models, and even nonprofits with earned income. We highly recommend that you check this out!
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Fourth Door Financing, Part III
This is the third and final installment on Fourth Door Financing. The purpose behind a Shareholder Loan Fund is to reduce the gap between risk-adjusted return expectations (which are typically astronomical in developing nations) and realistic expectations for returns on investments to SMEs in frontier economies. These funds target SMEs in developing nations that have significant opportunities for expansion but lack collateral for traditional sources of financing. They have been called “Fourth Door Funds,” representing a door that can be knocked upon after the expansion minded entrepreneur has been unsuccessful at banks, leasing companies and VC Funds. A Shareholder Loan Fund investment for an SME may look like this: An SME needs $500,000 for expansion, but has only $200,000 in equity. The Fund makes an equity contribution of $100,000 and offers a loan for the remaining $400,000. The interest rate on the loan is local prime minus one point, and the term is five years. However, the Fund also collects 5% royalty on gross sales. From the perspective of the Fund: Through this arrangement the Fund owns 33% of the company, but only has 20% of its own money exposed in equity ($100K out of a total of $500K; total… Read more
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Fourth Door Financing, Part II
This is the second of three installments on Fourth Door Financing. Check back on Monday for the third and final installment. Previously I listed three typical “doors” an entrepreneur might knock on to gain expansion financing: commercial banks, leasing companies, and venture capital funds. However, there is an emerging fourth door, called a Shareholder Loan Fund. These funds are most closely related to Venture Capital funds, but have several important distinctions which make them a better option for developing markets. Venture Capital funds take on an equity share in a collection of enterprises. The funds cover losses from most of these through a few “star performers” which they liquidate at huge profit. Fourth door funds “establish more even portfolios with fewer failures and fewer stars,” according to the report. Additionally, they leave less money exposed in an equity share (if any at all), and more in a loan, paid back with a combination of interest and royalty. Shareholder loan funds rely on cash flows of the SME for profitability. While VC Funds look to sell a share of businesses within the Fund at a large profit, Shareholder Funds participate in the sales of the growing firm (and do not necessarily… Read more
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Fourth Door Financing, Part I
This is the first of three installments on Fourth Door Financing. Please check back on Thursday for Part II. It has been a regular theme on this blog that SMEs in developing countries have difficulty finding capital for growth. While some SMEs have been successful in accessing funds, they are usually restricted by available collateral, current annual sales, or net worth of the borrower. When the capital required exceeds one of these amounts, financing is exceedingly rare. With these restrictions like these in place, entrepreneurs are seldom able to expand their enterprise. What dynamic entrepreneurs need is a way to access expansion financing in amounts beyond what they already have. The following lists three “doors” at which SME owners might typically look for their expansion needs. However, entrepreneurs are typically turned away at each, for the reasons mentioned. Commercial banks tend to service government and large firm debt, both very low risk ventures. Furthermore, bank depositors are still small in number and often view their accounts as short-term savings – they do not keep a lot of money in the bank. The result is that banks are short on resources and have limited incentives to lend. Leasing companies are sometimes… Read more
