Conservation | March 2, 2018

Fallacies of impact investing, DC’s founders of color, sustainable rubber in Indonesia, impact…

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Greetings, ImpactAlpha readers!

#Featured: Impact Voices

Doing well by doing good is not doing enough to transform finance. The racial wealth gap is widening. At current trends, median wealth for African American households will fall to zero by 2053; the median Latino family will hit zero-wealth in 2073, according to a recent report. ImpactAlpha has been beating the drum that “racial equity is a growth market,” most recently in our New Revivalist series. But even that formulation is problematic, argues BALLE’s Rodney Foxworth in his provocative essay, “Wealth Inequality and the Fallacies of Impact Investing.” Foxworth takes on “mainstream” impact investing, which he says “not only continues to task the most privileged with improving the system, but in the pursuit of doing well by doing good, it maintains the established order of privilege, power, and wealth.”

Foxworth, who took the helm of the Business Alliance for Local Living Economies several months ago, aims much of his fire at philanthropic foundations. But also culpable, he argues, are impact investors who insist on “market-rate” returns even from investments in people and places that have been systematically disadvantaged. “How often do impact investors claim that prospective investees are simply ‘uninvestable’ or unprepared for investment?” Foxworth asks. “That’s conventional thinking rooted in traditional paradigms, power and privilege.”

Read the essay to the end and an alternative path emerges. The elements, Foxworth says, include “innovations like worker ownership to preserve quality jobs in low-wealth communities, community-controlled capital, and investment vehicles that directly address the racial wealth gap ” (all of which, he notes, receive too little traditional, philanthropic or impact investment). The community foundation in Wisconsin Rapids, Wisc., Foxworth reports, has become a catalyst for building a thriving local economy. The Boston Impact Initiative, along with the Ujima Project, is organizing local residents, workers, business owners, and investors around a community-controlled local economy. He cites Dana Bezzera, the new head of the Heron Foundation, who counseled a recent BALLE gathering to both tinker at the edges of our broken economic system and lean into an emergent future economy that works for all (disclosure: the Heron Foundation is a backer of ImpactAlpha). “Through this lens,” Foxworth concludes, “impact investing is a necessary and commendable stopgap to a new paradigm.”

Read Rodney Foxworth’s essay, “Wealth Inequality and The Fallacies of Impact Investing,” and let us know what you think.

Wealth Inequality and The Fallacies of Impact Investing

#Series: New Revivalists

Melissa Bradley: Boosting the success of Washington D.C.’s founders of color. Melissa Bradley wants entrepreneurship to work for people of color in Washington D.C. the way it does for white kids from Stanford. Bradley’s Project 500 is recruiting, training and connecting 500 black and Latino founders east of the river that divides Washington D.C. Making entrepreneurship more accessible to people of color is more than an ethical imperative. “It’s an economic one,” Bradley told ImpactAlpha. Project 500 has worked with 480 entrepreneurs, more than half of whom live in high-poverty areas. Profits have increased at least 60% cohort after cohort, she reports. Bradley worked in the Obama Administration but says political power alone won’t help America reach post-racial equality. Communities of color, says Bradley, need to realize their economic power too. “We have arrived at the point of participation,” says Bradley. “Moving forward will be our chance for ownership.” Read, “Melissa Bradley: Empowering D.C’s founders of color,” by Dennis Price on ImpactAlpha.

Melissa Bradley: Boosting the success of Washington D.C.’s founders of color

New Revivalists is a series from ImpactAlpha and Village Capital profiling the people, places and policies reviving entrepreneurship — and the American Dream.

#Dealflow: Follow the Money

Grassroots Business Fund eyes regional fund strategies. Grassroots Business Fund is developing two funds for Africa and Latin America based on lessons learned from its first $49 million fund. The global impact investment firm invests — mostly through mezzanine debt — in businesses generating income and cost savings for underserved communities. It focuses on agribusinesses, artisans and tech ventures in Asia, Africa and Latin America (see, “Building Businesses With More Than Money”). The new funds will be tailored regionally, with financial and impact targets based on lessons and results of its global fund, says GBF’s Jaime Ramirez. GBF fully deployed its first fund late last year, investing in 36 businesses. Recent investments include a $2.5 million loan to agricultural firm Shared-X, which is developing an organic pineapple project in the Dominican Republic; a $500,000 line of credit to Lafaza, an agribusiness for Madagascar’s vanilla market; and a $500,000 new line of credit to SOKO, a handcrafted jewelry maker in Kenya.

Tropical Landscapes Finance Facility issues $95 million bond for sustainable rubber in Indonesia. The bond will pay for wildlife-friendly, socially inclusive and climate-sensitive rubber production in two Indonesian provinces. The financing, arranged by BNP Paribas, will fund PT Royal Lestari Utama, a joint venture between Michelin and Indonesia’s Barito Pacific Group. Working with the World Wildlife Fund, the venture has preserved high-carbon forest, along with wildlife and riparian zones and expects to support 16,000 jobs. About half of the 88,000 hectares are to be preserved for community development. The bond was the first transaction for the Tropical Landscapes facility, a partnership between UN Environment, the World Agroforestry Centre, ADM Capital and BNP Paribas, supports long-term finance for rural development in Indonesia. A lending platform is run by ADM Capital and BNP Paribas and a grant fund is managed by the UN. The complex structure “demonstrates that our institutional investor clients have the appetite to invest in projects and companies that combine commercial and financial performance with clear environmental and social purpose and impact,” BNP Paribas’ Eric Raynaud said in a statement.

See all of ImpactAlpha’s recent #dealflow. Send deal tips and news to [email protected].

#Signals: Ahead of the Curve

There’s nothing like a deadline for delivering impact. Sistema Biobolsa sells small-scale biodigesters to Mexican farmers to turn agricultural waste into clean energy and fertilizer. In seven years, it has sold 5,000 of its biodigester systems in Mexico, Colombia and Kenya. If it sells 50,000 new systems in the next five years, it gets to skip the final payment of a five-year loan.

The $75,000 working-capital loan comes from Beneficial Returns, which launched last year to help social enterprises gain access to debt and credit, rather than equity. Beneficial Returns’ Ted Levinson works with borrowers to set targets, and waives the final payment if the targets are met. “Even though that’s lost income for us, Beneficial Returns would be thrilled if they met that target,” Levinson told ImpactAlpha. “I don’t know why more lenders don’t do that.” Last year, Beneficial Returns agreed to waive the last payment of a five-year loan to Mexican solar installer Iluméxico if the enterprise hits its goal of adding 20,000 solar installations over the next five years.

Read more about Sistema Biobolsa and Beneficial Returns in “Sistema Biobolsa gets working capital to bring biodigesters to smallholder farmers,” by Jessica Pothering on ImpactAlpha.

Sistema Biobolsa gets working capital to bring biodigesters to smallholder farmers

Thank you for reading. Onward! Please send news and comments to [email protected]