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Lebanon is a beautiful country, with picture-perfect coastlines, lively cities, and, unfortunately, abject poverty in many regions. It was there, in Beirut, that my venture into impact investing began. I was conducting a pro-bono workshop on credit risk, for local microfinance analysts that were supported by the charity Relief International. On the Israeli border towns I took my first onsite visits to clients who received loans and observed how they utilized the funding to operate and expand their businesses. I was truly impressed with the effect the funding had, as I was able to see real businesses in expansion.

At that time in my career, I had just left banking at Citigroup and was still primarily engaged in private-sector finance. I thought critically about that trip, though, and questioned whether I should make impact investing my full-time effort. I hesitated because of prior experience with nonprofit entities that operated very inefficiently. I also struggled with finding clarity on whether my experience and skill set were best utilized in existing impact investing organizations. For years, I maintained my private-sector focus, but furthered my work with Relief International, consulting on microfinance capital market's issuances, and eventually joining its board of directors.

I persisted with traditional finance and combined my prior securitization experience with early-stage company analysis to work on venture debt transactions. As I learned more about venture company drivers and private equity fund operations, I couldn't get the thought of impact investing out of my head. And as fate would have it, right around that time a former Citigroup colleague informed me about a new private equity fund that had spun off of a large commercial microfinance debt investor. The Oasis Fund, managed by Bamboo Finance, was created to invest for profit, in early-stage, private companies that also had significant social impact. When I researched its investment criteria and the impact it sought, I was enthralled.

I decided then that I would give impact investing my full attention and moved to Switzerland to work for the Oasis Fund, where I became an investment manager tasked with sourcing, structuring, and managing for-profit, impact investments. My first year at the fund was mainly getting oriented with the fund's existing investments and simultaneously building my network for new investment opportunities. I also started learning more on topics foreign to me, such as what defines social impact and how to source investments within a social criteria.

By my second year, I had become heavily integrated into the impact investing industry. I was in the field every few weeks, combining trips to work with the Oasis Fund's portfolio companies, meeting with new companies for potential investment, and conducting due diligences for companies that had progressed through the investment process. I regularly attended and sometimes hosted industry events such as general and sector-specific conferences, dinners, and talks. The second year culminated with successfully sourcing and closing two investments for the Oasis Fund and joining the board of directors for two of its existing portfolio companies.

In what would be my final year with the Oasis Fund, I was promoted to senior investment manager and started working on new fund strategy and fundraising. Those tasks and responsibilities provided a more encompassing perspective on the industry. However, over the course of that last year, I encountered undercurrents of problems that I felt were systemic in nature. Difficulty sourcing investments that met most investors' social criteria was a theme that echoed across my peers. This led to very competitive situations where some nontraditional investors took approaches that lacked rigor and led to inflated valuations. With costs of capital near zero for these entities, the problems could be sustained, but ultimately, it was no longer commercial investing at that point, but a charitable intermediary.

There is efficacy in the models in between commercial investing and pure charity, but the scale is restricted by the sources of capital. Unlocking consistent sources of capital from pension funds, insurance companies, and traditional investors requires a meticulously designed investment thesis that is executed professionally, from sourcing to exit, and provides reliable, measurable financial and social returns. I believe that in order to build the desired volumes for a replicable, scalable investment model, there will have to be different social criteria for varying financial return expectations.

Creating investment portfolios that deliver such financial returns and demonstrate that a specific social impact has been generated is what will define entities in impact investing. This is why the brunt of this book and the electronic files accompanying it focus on the investment process and social impact measurement. There are many publications available that have striking images of rural villagers using innovative technologies and compelling stories of impact-oriented companies, but these are largely motivational and show basic causality. It's the day-to-day tasks of impact investors – which involve accounting, corporate finance, valuation, statistical measurement, and social metric analysis – that are the most difficult, but the most important.

Although I left impact investing as a full-time endeavor because of some of these issues, I remain committed through select investments in solar and energy efficiency that my current position allows for and pro-bono work with impact investing entities. I anticipate a full-time return at some point. In the interim, I can offer this book that tries to address proper investment execution and social impact measurement. As with any of my books, I stand behind the learning process and offer my email directly if you have questions: keith.allman@enstructcorp.com.

Keith A. Allman

New York 2014

I have had the privilege of walking the narrow streets of Mumbai slums and speaking with micro-entrepreneur women whose endurance and creativity merit recognition and respect. I have also heard businesspeople in luxurious offices in Geneva argue that it is not possible to build an ethical gold supply chain. Impact investing builds a bridge between apparently disconnected realities. Impact investing is the promise of channeling private capital to solve intractable social problems while delivering impact, inclusion, and sustainability.

But, is impact investing delivering on its promise? Keith Allman's kind invitation to be a contributing author of this book sparked a desire to share the lessons learned by Bamboo Finance on the importance of adding rigor and accountability in defining, measuring, and assessing impact. Even if we are only at the beginning of the learning journey, we follow from due diligence to exit a responsible investment process aimed at delivering impact.

The impact promise begs for more accountability. Too much money has been deployed with little analysis on effectiveness. Impact investing marries the rigor of the industry of investing with the (nascent) rigor of impact measurement. If impact investing wishes to deserve its name, it needs to be evidence-based investing. Building evidence on what works and what doesn't requires a collective effort. The broader the participation is, the richer the learning will be. The voices of customers at the base of the pyramid, on whose behalf we too often speak, are central to our learning. Also, the entrepreneurs, investors, and academia need to join the conversation. This book seeks to contribute to that learning. I am grateful for the opportunity and excited to read your reactions. ximena.escobardenogales@gmail.com

Ximena Escobar de Nogales

Geneva 2014

A NOTE ABOUT THE WEBSITE

Readers will find professional-level investment material on this book's website: www.wiley.com/go/impactinvestment. See the appendix for more details.