Hong Kong’s Social Innovation Task Force Needs to Keep Sustainability In Mind When Funding Intermediary Organizations

Will HK's task force keep sustainability in mind when funding social innovation intermediaries?
Image: Mitch Altman/Flickr (CC)

 

When I first wrote about Hong Kong’s proposed HK$500 million Social Innovation & Entrepreneurship Development Fund (“SIE Fund”) in November 2012, I was hopeful because our city would finally have our own social innovation fund, just like the US and UK. But I also warned about the potential risk of “deploying the money solely on measures to directly alleviate poverty” because such a restriction would hinder innovation.

On February 28, 2014 the SIE Fund Task Force finally invited applications from “interested organizations to take up the role of intermediaries for ‘Capacity Building’ and/or ‘Innovative Programmes’ to help nurture social innovation and social entrepreneurship for poverty alleviation.” Included in its 54-page invitation brief are extensive sections on compliance and governance but precious little guidance on what exactly an intermediary is allowed to do to support innovation and social entrepreneurship for poverty alleviation, other than saying that the Hong Kong Government and the Task Force “share the view that a narrow definition of poverty alleviation should not be adopted.”

The closing date for applications was  April 11, 2014. It is unclear how many intermediaries applied for this first batch of HK$100 million grant funding and we won’t know how innovative their ideas would be until the grant winners are announced.

One risk that the SIE Fund Task Force faces is the temptation of funding a large number of intermediaries in the name of risk diversification. When it comes to funding intermediaries, allocating funding to more intermediaries runs a real risk of underfunding everyone.  Such a “spray and pray” approach will likely backfire if none of the funded intermediaries is able to achieve their intended scale and sustainability.

The Task Force members must also remember that one of its goals is to develop a vibrant ecosystem to support social innovation and entrepreneurship.  This means that it must either provide sufficient funding support to these intermediaries (and the reported maximum of HK$10 million per intermediary is nowhere close to sufficient) or allow these intermediaries the flexibility to earn revenue from its activities.

Revenue can come from two sources: grants from other foundations (both corporate and private family) or a more innovative manner – equity stakes in the social ventures that are being advised or incubated.  In reality, both approaches are required but the second seems more contentious – because it appears as if the government is allowing intermediaries to benefit from its grants.  Such a belief, however, is unfounded because of two reasons.  First, if the intermediary is a non-profit, any future revenue generated from the disposal of these equity stakes have to be used to fulfill its charitable objects; if it is not, the Task Force can simply insist on these funds be returned to the SIE Fund to be recycled for future use.  Second, such an approach, already common in many countries, (the UK for example) promotes best practices and sends the clearest signal yet that this SIE Fund cares about building sustainable companies – whether at the intermediary level or the companies they support.

It should be an interesting next couple of months as the Task Force invite short listed candidates to meet with them and share further details of their proposals.  We will be watching carefully and hope that enough Task Force members are prepared to make bold decisions. After all, the amount of funding involved is really rather tiny relative to the total amount of funding that Hong Kong spends to fund its social sector and the SIE Fund has previously announced that it should “seek innovation in the way the Fund itself is applied, to test out and help establish new methods for addressing social need.”

The alternative would be too painful to bear.

 

This post orginally appeared on the HK Social Investor blog under the title “The 2nd One on the $500 million Social Innovation and Entrepreneurship Fund.

 

About the Author

MWMing Wong is a former investment banker motivated to explore social/impact investing as a bridge between traditional philanthropy & investing. Based in Hong Kong, he is the co-founder of Asia Community Ventures.