When Saeid Binzagr began to question income inequality in his home country of Saudi Arabia, everyone in the kingdom’s wealthy upper echelons he spoke with told him the same thing: That is simply the way the world works. But this explanation didn’t feel right to the 45-year-old executive, who holds a number of positions at Beit Binzagr, his family’s 115-year-old importation and distribution empire. After much study and reflection, and a bit of philosophical seesawing that included dabbling in Ayn Rand, he determined that he didn’t buy it. And two years ago, he founded the Binzagr Institute for Sustainable Prosperity.
“This is my way to contribute, to express my belief that there is no reason for poverty to continue and grow,” Binzagr told the audience at the institute’s first conference last year. “Jobs are the answer, and every person has something to contribute … and should be able to do so in a dignified way.”
To that end, the Binzagr Institute, which calls itself an independent public policy think tank, has begun promoting the idea of a social venture partnership (SVP) that would provide a job guarantee program for Saudi Arabia’s young workforce. Something of a public-private partnership, the funding would come from a combination of government grants and philanthropic donations from banks, businesses and individuals. However, the end goal is not simply charity. Participants in the program would take part in internships and other professional career exploration during high school and college, then have up to four years of guaranteed employment in certain industries, such as sustainable construction, sustainable agriculture, solar energy, health and wellness, education and cultural heritage. What Binzagr hopes to do is create a generation of Saudis who not only have jobs but good-paying careers, working toward social and environmental change, perhaps even as entrepreneurs themselves.
“We don’t see this as a permanent job guarantee program,” says Fadhel Kaboub, an associate professor of economics at Ohio’s Denison University who serves as the institute’s president. “We see it as an incubator for building skills and building capacity while addressing social problems and helping young people transition into the private sector with strong transferable skills.”
Whether or not Binzagr’s dream becomes a reality—and there are challenges still to be tackled, more on that in a bit—it serves as an example of a slow but steady transition taking place in the Middle East, where wealthy families and other business owners have begun to see impact investment as an effective tool for addressing social and environmental problems. In a recent worldwide survey of 525 family business owners and managers, the Ernst & Young Global Family Business Center of Excellence found that family businesses invest, on average, 3.1% of their wealth for social impact, with the Middle East leading other regions at 3.5%.
While the percentage sits slightly higher, the impact investment trend is still in its early stages in the Middle East, people who work in the region say, and these business owners may look at “investment” differently from many westerners and not necessarily expect a financial return. That said, instead of simply writing a check to support the local orphanage or school, they are taking more control, getting more deeply involved in addressing root causes. Some impact investment advocates see potential in the Middle East for everything from fighting climate change to women’s empowerment—to possibly even promoting peace somewhat with the stability brought by jobs, financial inclusion and basic services.
“There are a lot of families now thinking of changing the way they spend their money,” says Adib Rashid, a Dubai-based family business advisor at the E&Y Global Family Business Center. “Instead of calling it charity, they now want to focus more on projects where they can see the impact of their money and how it is helping the communities and families they’re investing in.
“In Saudi Arabia, a lot of families are interested in developing projects for renewable energy and social projects such as microfinancing.”
Peter Englisch, the global family business leader at E&Y Global who conducted the survey, attributes the region’s lead in social impact investment to a culture of charitable giving. “When talking about the Middle East, you also have to take into consideration the religious background,” Englisch says. “In the western world, shari’a law is heavily misunderstood. One of the basic principles of shari’a law is caretaking of others and social giving back.”
This includes the concept of “zakat,” one of the five pillars of Islam, which is a charitable tax, customarily 2.5%, and religious obligation for all Muslims who meet the necessary criteria of wealth. The collected amount is paid first to zakat collectors, and then it’s used to help poor Muslims and support other social and religious causes. Today, in most Muslim-majority countries zakat contributions are voluntary, while in a handful, including Saudi Arabia, zakat is mandated and collected by the state.
This brings us back to Binzagr. Nonprofits don’t exist as we know them in Saudi Arabia—charities tend to be religious in origin and chartered under the Ministry of Labor and Social Development. Earlier this year, the Saudi government passed a law allowing for the creation of “civil society organizations.” For the first time in the kingdom’s history, the law and its implementing regulations provide a comprehensive legal framework for establishing and running associations and foundations. However, the requirements new nonprofits must meet are many, including compliance with the Saudi government’s interpretation of shari’a law and public morals. So the Binzagr Institute has its work cut out for it in creating its SVP program in accordance with strict government regulations. Still, its leaders remain optimistic.
“We are building this infrastructure from scratch,” Kaboub says. “But we’ve met a lot of people in the business community who believe in this and are willing to put money on the table. On the government side as well, they’re supportive of anyone who wants to create jobs.”
The conversation always comes back to jobs, specifically unemployed young people.
While the global youth unemployment rate has stabilized at 13%, the Middle East and North Africa (MENA) region continues to have the highest rate by far—right around 30% in 2014—a situation that has worsened since 2012, particularly for young women, according to the International Labour Organization’s most recent report, “Global Employment Trends for Youth 2015.”
Still, for a variety of obvious reasons—from the instability brought on by continuous conflicts to terrorism to the perception of the Middle East as an oil-rich region that can take care of itself—MENA doesn’t necessarily top the list of most private impact investors from outside that part of the world. In the latest survey conducted by the Global Impact Investing Network (GIIN) of the more than 150 largely European and North American investors who participated, private debt investors allocated 3.6% to the MENA region while private equity investors allocated 3.3%.
One private equity firm working in the region is TVM HealthCare Partners, an affiliate of Munich-based TVM Capital Group, which specializes in growth capital and small buyout investments in health-care companies in the Middle East and India. While the company didn’t start out calling itself an “impact investor,” it soon realized that its investment criteria, calling for such things as the improved quality of life for its patients, made it one, says Hoda Abou-Jamra, TVM HealthCare founding partner. For those wishing to invest with TVM, the minimum is generally around $5 million, though that is not fixed, and the average internal rate of return is typically 25%, a company spokeswoman said.
Since its inception in 2009, the Dubai-based firm has made four portfolio investments in specialized services that had been either nonexistent or drastically undersupplied before—long-term care, rehabilitation, home care and fertility treatment. The first company was ProVita, a long-term care provider in the United Arab Emirates, with facilities in Abu Dhabi and Al Ain.
While the government in the United Arab Emirates has been expanding public medical services and encouraging private investment, when TVM started its research roughly a decade ago, medical care there, and in the Middle East in general, tended to be centered in hospitals, Abou-Jamra says. This left patients with chronic health issues with few options. “The area that we created didn’t exist; there was nowhere for long-term care patients to go,” she says. “They were stuck in hospitals, taking up beds. We improved the quality of life of the patients—we took them to school and to the park.”
Ironically, despite the aforementioned desperate need for jobs, TVM ran into difficulties finding qualified staff. School enrollment rates are high in the MENA region, with an average of 70% of teenagers enrolled in secondary school in 2010, the latest numbers available from the World Bank. However, education systems in the region tend to be academically rigid, and many students graduate high school and even university without the skills required—both technical and soft—for the job market, according to a World Bank brief on the region from 2014. Employers surveyed by the bank report that only about one-third of new graduates are ready for the workplace, and the region invests little in real world training such as internships.
This is exactly the problem Binzagr hopes to tackle with his job guarantee program. But while he spoke of jobs only in a general sense during his talk at the conference, looking at the list of industries the institute hopes to work within—sustainable agriculture, solar energy, health and wellness—I began to think about not only jobs, but purpose, which brings us back to peace.
The conventional wisdom of the past said terrorist groups preyed on disaffected youth, the poor and the uneducated with little hope for the future. But more recent research has shown that many employed college graduates from various countries have also left home to join ISIS, and not always for religious reasons (though that is the case for some and an entirely different conversation). What researchers have found is that these young people are bored; they long for adventure, to feel part of something. Of course, every article written, every talk given, runs the risk of oversimplifying what are infinitely complex issues.
But perhaps what might lead at least some young people down a more peaceful path is being given purpose—so instead of running off to fight in Syria they would head off to other parts of the world, to join the war against the plethora of crises threatening humanity and the planet we share.
Financing Entrepreneurs In A Chaotic Region
When impact investors think of microfinance, for the most part they imagine helping a coffee farmer in Bolivia or a shop owner in India. But a tailor and father of four in the Palestinian West Bank?
For obvious reasons, many Western investors tend to steer clear of the Middle East in general, and the microfinance sector—the loans and other financial services that help entrepreneurs and small businesses without access to regular banks—is no exception. With the need for financial inclusion stretching across the globe, social impact investors have plenty of places far less chaotic than the Middle East to choose from. The global microfinance market—largely centered in Asia and Latin America—is expected to grow by 10% to 15% this year, according to the 2016 “Microfinance Market Outlook Report” from Zürich-based asset manager responsAbility Investments AG.
What investors might find surprising is that people like Sobhi Abo Za’roor, the tailor from the town of Nablus in the West Bank, are not any riskier a gamble than microcredit recipients in other parts of the world. Za’roor had only three sewing machines and two full-time employees in 2003, when he received his first loan of $3,250 from Vitas Palestine, a subsidiary of microfinance company Vitas Group. He now employs 15 full-time tailors and has sent all four of his children to university.
Vitas Group is a commercial holding company created by Global Communities, a Silver Spring, Md.-based nonprofit global development organization. The company provides microfinance and small- and medium-enterprise finance, focusing largely on the MENA region. Through a network of lenders in Palestine, Jordan and Lebanon, and an affiliate in Iraq, Vitas has disbursed more than $1.4 billion in loans (averaging $2,000 in size) to more than 535,000 customers in the region over the last 10 years. The average default rate over that same period has been less than 1% annually, according to the company. This compares with average microfinance default rates of 2% to 3% (annual loan losses) globally.
“Obviously there’s been a lot of volatility in the region, and recent events have limited foreign investment,” says Elissa McCarter LaBorde, chief executive officer of Vitas. “But when we look at our customer base, the small business owners, the carpenters or shops, they’re there through good and bad. It’s a customer base that’s very entrepreneurial that has a high degree of ethical responsibility to repay their debt.”
As it looks to expand in the region, Vitas is actively trying to grow its investor base and raise more capital at the holding company level. Global Communities continues to be the largest shareholder in the company, while the Geneva-based Bamboo Financial Inclusion Fund holds a 29% minority share. Vitas’s return on equity over the last three years has averaged 12%, and the company is targeting 15% to 17% over the next five years.
The company sees both a great need and opportunity for growth in the Middle East, LaBorde says. When it comes to banking, the region is the least financially inclusive part of the world, with only 14% of adults with a bank account in 2014, up from 11% in 2011, according to the World Bank’s Global Findex.
“You have a banking tradition that’s very conservative in these countries,” LaBorde says. “Commercial banks haven’t reached down to the low-income customer.”
