The Brief

The Brief: Humanitarian relief through innovative finance

ImpactAlpha · July 18, 2024

Credit: IRC

Greetings Agents of Impact!

In today’s Brief:

New tools for refugee-lens investing
Digitalizing microlending in Peru
Low-carbon data centers
Leveraging “direct pay” to create wealth in underserved communities

Featured: Refugee-Lens Investing

New tools for humanitarian relief in crisis zones: blended finance, offtake contracts and debt swaps. In the northwest Jordanian city of Irbid, ground was broken early this year on a water project that will bring piped water for the first time to 120,000 people, including tens of thousands of refugees of Syria’s long civil war. Humanitarian organizations lack the know-how and financing to execute such desperately needed infrastructure projects. Development finance institutions and private investors excel at infrastructure but are often reluctant, for risk reasons, to invest in refugee communities. Worldwide, more than 117 million people have been displaced because of conflict and natural disasters. Humanitarian organizations must juggle immediate relief versus long-term community stabilization. In Irbid, humanitarian NGO the International Rescue Committee stepped in as an investment advisor to represent refugee interests in the water project design. “We’re trying to get people to cross over sectors and share complementary skills and capacities so that the outcome of an investment is greater than the sum of its parts,” says the IRC’s Ellen Brooks, a former banker who is leading the organization’s innovative finance team.

Innovative finance. The IRC’s advisory approach is different from UNICEF, Save the Children, MercyCorps and other humanitarian NGOs that have set up venture funds for social enterprises delivering access to finance, energy, healthcare, education and other essential products and services. Concessional capital and financial derisking instruments can “incentivize private capital at the scale it’s needed,” Brooks says. Acumen is one of a small number of investors that has developed a refugee-lens investment strategy. Developing World Markets, Kiva and the Danish Refugee Council have gone a step further with dedicated fund vehicles for refugees and displaced communities. In Somalia, the World Bank’s Multilateral Investment Guarantee Agency provided a $5.7 million political risk guarantee for investors in a hybrid solar power plant.
Assembling deals. The IRC’s portfolio includes a “procurement as investment” agreement with water startup AquaPoro Ventures to supply an IRC health clinic in Jordan. The NGO is also working to direct capital to refugee-led businesses through a partnership with Cairo-based venture capital firm Flat6Labs. Its newest tool: debt swaps to help low-income countries refinance sovereign loans while directing resources to community climate adaptation. “We’re not trying to say we have the answer. We’re saying we have an answer,” says Brooks. “So let’s work together, let’s iterate, let’s try new things.”
Keep reading, “New tools for humanitarian relief in crisis zones: blended finance, offtake contracts and debt swaps,” by Jessica Pothering on ImpactAlpha.

Dealflow: Financial Inclusion

Accion invests $10 million in Los Andes to digitalize micro-lending in Peru. Los Andes, based in the rural town of Puno on Lake Titicaca, has provided access to finance for households, farmers and businesses for more than a quarter-century. The company was acquired by former engineer and banker Rosanna Ramos-Velita 12 years ago; now a regulated bank, it reaches more than 85,000 borrowers and 227,000 savers through more than 100 rural branches. Nearly half of its customers are women. The pandemic made access to finance for rural businesses more urgent than ever, but disrupted Los Andes’ ability to serve customers through field agents. The company turned to technology, such as a loan underwriting app, to keep services flowing. “We have a strategic plan for the next three to five years to fully digitize our business,” Ramos-Velita told ImpactAlpha. Enter Accion. The impact investment firm invested in Los Andes via its $152 million Digital Transformation Fund, which helps inclusive financial services companies adopt technologies to better serve clients. Los Andes is the fund’s fourth investment.

Crisis response. Business digitalization is challenging and costly for a regulated lender like Los Andes. “Local bank regulation is extremely strict and very conservative, which is good, but because of that, it really slows down innovation,” said Ramos-Velita. “We have to be extremely creative to explore and innovate different solutions, and we also have to change our mindset. That doesn’t happen in a year.” Los Andes feels the urgency. Peru’s slow economic recovery from the pandemic has hampered small business growth. Rural businesses have been hit by the effects of climate change. “It’s a permanent crisis,” said Ramos-Velita. Los Andes partnered with Water.org, for example, on a loan product to help its customers access last-mile water connections. Added Ramos-Velita, “We’re very tuned in and always trying to develop or construct new products and services.”

Cloverleaf rakes in $300 million from Sandbrook and NGP for clean-powered digital infrastructure. Surging demand for electricity for cloud computing and artificial intelligence poses major climate risks if the power comes from fossil fuels rather than renewable energy. David Berry launched Cloverleaf Infrastructure earlier this year to develop low-carbon, electricity-powered digital infrastructure. The firm will use the private equity funding from energy investors Sandbrook Capital and NGP to develop large clean-powered data centers in the US. Cloverleaf plans to work with utilities and data center operators, and invest in grid interconnection, onsite power generation and electricity storage.

Clean tech. Sandbrook made the investment in Cloverleaf through its $1.5 billion climate infrastructure fund, which closed in December. Cloverleaf’s management team contributed to the investment round. “We believe the opportunity set for clean-powered digital infrastructure development is as compelling as anything we’ve seen before,” said NGP’s Sam Stoutner. Companies working on clean-powered data centers include Albany, NY-based Soluna Holdings and the UK’s Deep Green.

Check it out.

Dealflow overflow. Investment news crossing our desks:

Dutch development bank FMO made a $7 million investment in the LoftyInc Alpha Fund, a venture capital fund that invests in startups building tech solutions for Africa’s “everyday economy.” (FMO)

German startup VARM secured €5.7 million ($6.1 million) in seed funding led by Emerge and Pale Blue Dot to train new insulation installers and connect them with homeowners across Europe to reduce their carbon footprints. (EU-Startups)

Abu Dhabi-based Tau Capital led the Series B financing round of BlueGreen Water Technologies, a water-based carbon removal company headquartered in Israel that operates in the US, Africa and China. (BlueGreen)

Impact Voices: Deploy!

How the IRA’s “direct pay” option can create wealth and resilience in underserved communities. Communities across the country may soon get a green makeover, thanks to the Inflation Reduction Act’s $27 billion “green bank” program. The IRA’s “direct pay” provision is key to making sure the program is inclusive of local and Tribal governments, churches, schools and other community groups. Direct pay, also known as “elective pay,” enables non-taxed entities to receive cash payments from the Treasury Department in lieu of tax credits. Expanding the range of entities able to tap the IRA’s green tax incentives has opened opportunities for community wealth-building in places where such projects might not have penciled out in the past, write Joanna Smith-Ramani and Greg Gershuny of the Aspen Institute, which convened a roundtable on the topic at its Aspen Ideas: Climate conference in March.

Financial model. Community developers can apply for direct pay after their projects have been developed, creating a need for upfront financing. “That’s the emerging financial market gap right now,” Kristal Hansley of solar developer WeSolar told ImpactAlpha. Hansley partnered with nonprofit loan fund Rochdale Capital and the National Bankers Association, a trade group for minority-owned banks, to create a guide to help community groups access direct pay, create financial models, and line up additional funding.
Shared ownership. In Baltimore, the city’s Office of Sustainability, in partnership with Groundswell, the City of Refuge, the Maryland Energy Administration, and SunCatch Energy, opened a solar-powered resilience hub that will serve as an emergency shelter in the wake of severe weather events. Direct pay covered one-third of the cost. Madison, Wis., tapped the direct-pay provision for green workforce training for residents from underrepresented communities. “Creative, cross-sector collaboration and shared ownership in new clean energy infrastructure can help mitigate the increased costs of climate change and build wealth, especially for people and communities with the fewest assets,’ Smith-Ramani and Gershuny write.

Keep reading, “How the IRA’s “direct pay” option can create wealth and resilience in underserved communities,” by Aspen Institute’s Joanna Smith-Ramani and Greg Gershuny on ImpactAlpha.

Agents of Impact: Follow the Talent

Michael Rea will replace Chris Stark as Carbon Trust’s CEO… Jessica Buendia, formerly of Dream.Org, is named chief impact officer at the Coalition for Green Capital… Inclusive Prosperity Capital is recruiting a remote compliance manager and a program director… Autodesk Foundation is looking for an impact measurement and management associate in San Francisco… CultureWorks Greater Philadelphia has an opening for a development and community engagement manager… Today is the deadline to apply for New Profit’s Unlocked Futures Catalyze cohort, which will provide $100,000 each to 10 mission-aligned organizations led by social entrepreneurs impacted by the justice system.