The S3IDF social merchant bank model has been verified in its early stage operation in its existing market-shed (Karnataka and parts of the adjacent states of Kerala, Andhra Pradesh, and Tamil Nadu). From its revolving fund it provides flexible (e.g., debt, equity, partial guarantees) “gap-filling” finance, business development assistance, project integration and other value-added services to catalyze small and fledgling entrepreneurs and community NGOs seeking to sell infrastructural services (water, energy, sanitation, transport, information) to India’s urban and rural poor with incomes below $2 per day, and to induce local banks to participate in viable but otherwise (without S3IDF involvement) non-bankable investments. Since full field operations started in mid 2004, employing its planning and prioritization procedures, S3IDF has built a portfolio (investments in implementation or operation) of now almost 40 transactions and has a pipeline of 100+ projects under development. Initial transactions (with investment costs from under $1,000 to $10,000) have had more than 2,000 direct and 10,000 indirect beneficiaries in terms of owner/operators, employees and customers with incomes less than $2 per day. And thus far there have been no project failures.

Some pipeline transactions are much larger (investment costs $50,000 and more) but still small by conventional infrastructure project norms. However, for these larger projects and in general, financial resource constraints limit expansion of the S3IDF model’s application. S3IDF and the Shell Foundation believe that based on its multi-year business plan (BP) it is now appropriate for S3IDF to scale up its operations in its Indian operations targeting a more than six-fold increase in transactions, portfolio optimization, development of additional strategic partnerships to minimize costs and portfolio risk, increased RF investment yield and the setting of a sustainable financing model that will fund the long term future growth of S3IDF India and the pro-poor infrastructure sector that it services. In addition, resources permitting, expansion/application of model elsewhere in South Asia and other developing countries is under consideration – see below. Underwriting the BP will require considerable funding; the Shell Foundation is committed to providing a significant amount of these funds and to taking the lead in securing other co-financing partners for the BP implementation.

Fulfillment of BFSD Members’ Project criteria:

International or scalable on an international level:
The S3IDF approach was designed to be widely, if not universally, applicable in South Asia (e.g., other states in India, Bangladesh, Nepal and Pakistan) and other developing countries where the founders prior consulting experience suggests necessary conditions exist. In addition to financial resources, implementation of the S3IDF approach in a particular situation requires a local organization with necessary skills and experience (including local language skills), technology/know-how partnerships and certain minimum conditions - a regulatory environment allowing such investments, some SME-relevant experience (not necessarily with infrastructure), banks open to if not experienced in co-financing such projects, and some relevant technology and know-how suppliers. Preferable, but not necessary are pro-active community entities.

S3IDF founders began by providing the start-up resources themselves and created the collaborations based on their prior professional work. Scaling-up within India is happening under the BP noted above including a spreading footprint. Entities from other states have visited S3IDF projects and dialogues on collaboration are continuing. Application elsewhere with the aforementioned conditions present is dependent on the necessary start-up resources and creation of local teams.

Multi-cultural or adaptable for different cultures:
The existing portfolio already exhibits this adaptability as it encompasses beneficiaries from varying social and ethnic groups. And of course people in all cultures require infrastructure service. The adaptation that may be required is the owner/operator business model that takes into consideration local community concerns and preferences. It warrants underscoring that S3IDF has its conceptual origins in the professional work of its founders and a core group of like-minded friends. Much of this work was as consultants to major development entities including the World Bank Group and the Asian Development bank. Their experiences encompass more than 60 countries, and their judgment is that in most of these countries the minimum conditions needed for the S3IDF approach to be applicable are present.

Contribution to humanity/natural heritage:
S3IDF contributes to humanity in addressing the critical economic development challenge noted above. S3IDF’s criteria (for catalyzing an investment) require that the poor benefit in one or more of four ways. First they benefit as users of electricity, water and other infrastructure services and/or as users of the services provided by linked income-generating (i.e., productive) investments, such as grain milling. Second, they may benefit through employment in the new small enterprises operating the investments. Third, under some of the ownership arrangements the poor become owners of the investments. And finally they can be beneficiaries when other non-profits (e.g., orphanages, schools) are helped by new/lower-cost energy or other infrastructure services.

Thus far S3IDF has not worked on an investment site that is explicitly designated a natural heritage. But in the event of such a possibility its emphasis on environmental and socially responsible approaches would dictate finding site-specific investment options to protect natural heritages while meeting the infrastructure requirements of any poor community inhabiting this site.

Sustainable Development Aspect:
S3IDF investment participation criteria explicitly emphasize both financial and environmental sustainability. S3IDF’s founders understand that small-scale renewable energy (RE), energy efficiency (EE) and other pro-environment infrastructure investments can serve both environment objectives and often help solve the development problem underscored in the Project statement above. S3IDF’s approach reflects the understanding that such RE/EE investments and associated SME owner/operator business models that are appropriately structured are increasingly competitive in terms of costs and can help in achieving the other development linkages that S3IDF emphasizes. As a result well more than half of its existing portfolio are ones that utilize RE and/or EE technologies. As it builds the water projects in its portfolio, more efficient use of waters is a key focus of these investments. This is because in S3IDF’s market-shed, both quantity (water scarcity) and/or quality (potable water) are increasingly important development constraints and disproportionately affect the poor.