The Brief: Linchpin of Covid relief and green lending, CDFIs confront what’s next

Greetings Agents of Impact!

In today’s Brief:

• At 30, community development financial institutions seek bipartisan support
• Catalytic climate finance for emerging markets
• Egypt’s green transition
• Institutional capital for affordable housing

Featured: Community Development Finance

Can their track record of success help CDFIs navigate choppy waters ahead? This week’s celebration of the 30th anniversary of the Treasury Department’s fund for community development financial institutions, or CDFIs, was muted by a looming concern: President-elect Donald Trump and his allies have vowed to take a buzz saw to federal agencies and spending. Since 1994, the CDFI Fund has injected more than $7.8 billion into economically distressed communities across the country via a network of community-based lenders. In every state, these certified community development financial institutions finance affordable housing, commercial real estate and community facilities that deliver healthcare, education and childcare. Such community lenders have punched far above their weight, attracting $8 of private capital for every $1 of public investment via the CDFI Fund. Will that track record help the CDFI Fund withstand the cost-slashing to come? “We’re going to be in a much more challenging environment when it comes to discretionary spending,” Dafina Williams of the Opportunity Finance Network said in a policy discussion convened by Mission Investors Exchange. 

• Agency of Impact. CFDIs “bring together public, private, philanthropic and community actors for the purpose of investing in economic mobility and more broadly shared prosperity,” write Annie Donovan of Raza Development Fund and Donna Gambrell of Appalachian Community Capital in a guest post on ImpactAlpha for the CDFI Fund’s 30th anniversary. “The CDFI Fund has been a protagonist in this story.” The pair should know: both are former directors of the CDFI Fund. “In this time of deep political division, we need stories to remind us that we can work together across differences to achieve common goals,” they write.
  
• Leaner days. Like its core program, the fund’s New Markets Tax Credit Program, or NMTC, Bond Guarantee Program and the Capital Magnet Fund, have demonstrated impressive private-capital leverage. CDFIs have shown that historically disinvested places are creditworthy. And, with support from the CDFI Fund, they have served as lifelines during the financial crisis and Covid pandemic, say Donovan and Gambrell. Community finance leaders are bracing for cuts to the core financial assistance program, but the NMTCs, bond guarantees and Capital Magnet Fund may be more resilient. As Treasury Secretary Janet Yellen said at the anniversary celebration, “CDFIs have helped reach and strengthen communities across the country to the benefit of all of us.”
  
• Keep reading, “Agency of Impact: Treasury’s CDFI Fund turns 30,” by Annie Donovan and Donna Gambrell on ImpactAlpha. 

Ellis Carr on Momentus Capital’s toolkit for financing social determinants of health. It took more than 40 years for Capital Impact Partners to lend its first $3 billion in support of equitable health and wealth-building in overlooked US communities. Now, as the anchor of Momentus Capital, the Arlington, Va.-based community lender is aiming to originate $1 billion in loans annually to expand equitable capital access for “social determinants of health,” including affordable housing, healthy food and healthcare. “We’re trying to create what we believe to be the next generation mission-driven financial services organization that puts purpose ahead of profit,” Ellis Carr, who heads both Momentus and Capital Impact Partners, tells ImpactAlpha. “We want to prove that we can be a connector between communities and the broader capital markets in a way that’s all built around underestimated people.”

• Access to capital. Capital Impact Partners has raised hundreds of millions of dollars in low-cost capital from foundations, insurance companies, mutual funds and retail investors through its rated Capital Impact Notes. Momentus Capital in May raised $171 million for its first impact fund to provide non-dilutive capital that helps founders maintain control of their companies. Momentus Securities, a registered broker-dealer, securitizes small-business loans for sale to institutional investors. Since its 2021 merger with CDC Small Business Finance, Momentus has originated $2 billion in loans with a focus on six metro areas with large underserved communities.
  
• Supply chains. Momentus has partnered with Macy’s to provide financing for its suppliers and potential suppliers. Through a separate partnership with Lenders Cooperative, Momentus has expanded access to capital for nearly 100,000 restaurants that are part of the Toast network. Momentus also has a focus on financing healthcare facilities, which in turn provide training for local healthcare workers. “Those who are providing the capital make the rules,” says Carr (see, “Ellis Carr: Agent of Impact”). “We believe that by creating a mission-oriented organization that could serve as an intermediary to the broader capital markets, we will be able to channel more capital into communities in concert with the community’s needs.”
  
• Keep reading, “Ellis Carr on Momentus Capital’s toolkit for financing social determinants of health,” by Roodgally Senatus on ImpactAlpha. 

Dealflow: Catalytic Climate Capital

Five funds split $2 million for solutions to tough challenges in climate finance. In the wake of an agreement at the COP29 climate summit that was derided as woefully inadequate, mobilizing private climate capital is more essential than ever. Climate Policy Initiative and Convergence are supporting novel funding mechanisms with a combined $2 million in grants from their Catalytic Climate Finance Facility. The five funds will test solutions to some of the stickiest and least-invested climate challenges, including energy access in conflict zones, biodiversity protection and the blue economy. London-based Ponterra, for example, is working to restore native species and protect biodiversity through reforestation projects with farmers and landowners in Latin America. Also supporting farmers is Nairobi-based ADAPTA, which is looking to pair its climate risk farm management software with loans to help African farmers transition to regenerative practices. 

• Climate resilience. Blue Alliance works with governments in Africa and Southeast Asia to manage designated marine protected areas, or MPAs, to meet restoration and conservation goals. Energy Peace Partners and Cameo designed “Peace Renewable Energy Credits” to help solar and hydro project developers raise the upfront capital they need for projects in Africa’s conflict zones (see, The Liist). BFA Global’s Catalyst Fund is raising a $40 million venture fund for early stage startups supporting climate adaptation in Africa.
  
• Check it out. 

Arab African International Bank bond raises $500 million for Egypt’s green transition. The AAIB, secured $300 million from the International Finance Corp. and $100 million each from EBRD and British International Investment to invest in industrial energy efficiency, small renewable energy projects and green buildings in Egypt. Almost 90% of Egypt’s electricity comes from fossil fuels; most of its carbon emissions are caused by electricity generation and fossil-fuel intensive transportation and industry. The country wants to slash electricity-related emissions by 37% by 2030. AAIB’s bond issuance is among the largest sustainable bonds from an African bank. EBRD’s Francis Malige said the “landmark deal” could lead to more such bonds, while boosting Egypt’s economy with long-term, hard currency funding. In 2020, Egypt listed a $750 million sovereign green bond on the London Stock Exchange. That bond attracted so much demand from investors that it secured the lowest ever rate for a five-year bond in the country.

• Social goals. AAIB is committing 25% of the bond’s proceeds to financing Egypt’s small and mid-sized businesses. Other issuers in Africa have blended social and climate objectives in sustainable bond issuances, including Tanzania-based NMB Bank’s $150 million “Jamii” sustainability bond. 

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Dealflow overflow. Investment news crossing our desks:

• Swedish battery maker Northvolt filed for bankruptcy after raising more than $15 billion from investors and struggling with production delays, lost contracts and safety issues. Its CEO Peter Carlsson resigned. (CTVC)

• Delhi-based Ukhi, which makes biodegradable packaging, raised $1.2 million in a pre-seed round to support materials research. (Entrackr)
  
• Dutch startup Meatable has secured funding from Betagro Ventures, the venture arm of Thai food company Betagro, to produce cultivated meat for the Asian market. (EU-Startups)

Impact Voices: Affordable Housing

To harness institutional capital for affordable housing, build the right guardrails. Over the past two decades, affordable housing has rapidly grown as an asset class, attracting institutional investors who recognize its long-term value. With its relative stability in times of economic downturn, affordable housing can act as a “recession-proof” asset, providing reliable returns for investors while addressing a critical societal need. The entrance of institutional investors has raised concerns: Will affordable housing become just another asset class where profits are prioritized over people? Could the influx of institutional capital lead to higher rents and displacement of vulnerable communities? “The reality is more nuanced,” writes Jason Bordainick of Hudson Valley Property Group in a guest post.

• Expanding supply. When properly regulated and executed, large-scale investments in affordable housing “can deliver a range of benefits that small, local owners may not be able to achieve,” argues Bordainick. “Institutional investors bring long-term capital, economies of scale, and a commitment to higher standards, all of which can help drive the sector toward a more sustainable future” (for additional background, listen to the podcast, “Building institutional-grade strategies to create and preserve affordable housing“). While many cite institutional investing as a driver of the affordable housing crisis, the primary cause of rising rents is the supply-demand imbalance, he says. “Institutional capital can help close the supply gap by funding new developments and preserving existing affordable housing.”

• Keep reading, “To harness institutional capital for affordable housing, build the right guardrails,” by Jason Bordainick on ImpactAlpha.

Agents of Impact: Follow the Talent

Edouard Felenbok, previously with Bain & Company, joins Ownership Works as client advisory services director… Tiffany Durr, who has held the role of president of LISC Fund Management since the departure of George Ashton in May, fully steps into the role… Chemonics International is looking for a carbon markets senior specialist. 

Finance in Motion has an opening for a private equity investment manager… Bamboo Capital Partners is recruiting a solar energy and clean cooking investment analyst… Nia Impact Capital is seeking a managing director… Enterprise Community Loan Fund has several open positions, including credit and compliance director, data program officer and senior loan officer. 

Morgan Stanley opens applications for next year’s sustainable investing fellowship, a 10-week training program for graduate students in sustainability and impact investing… The NYU Stern Center for Sustainable Business is hosting its second annual Private Equity Sustainability Practicum, Tuesday, Dec. 10 in New York. The first 20 Agents of Impact to register receive 30% off with code “PE24CSBThankyouImpactAlpha”. 

👉 View (or post) impact investing jobs on ImpactAlpha’s Career Hub.

Thank you for your impact!

– Nov. 26, 2024