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#Dealflow: Follow the Money
Impact Finance Korea to bring private capital to social spending gap. South Korea is getting its first big taste of impact investing. Former deputy prime minister and finance minister Lee Hun Jai is launching a private impact investing firm to raise 200 billion won ($179 million) to focus on small businesses and low-income entrepreneurs. Impact Finance Korea aims to raise $63 million this year. Lee, who resigned from government in 2005, says this year’s public budget of $115 billion for healthcare, employment and other social issues does not fully address the country’s needs. Private finance in South Korea continues to be strictly profit-driven. Lee’s goal is to “prove that the economy and society can become more stable through pioneering [a] new financial sector that funds work for the society.”
Michigan Good Food Fund has deployed $10.5 million to food startups in the state. Six Michigan businesses dedicated to healthy eating have received a total of $10.5 million in loans from the $30 million Michigan Good Food Fund since it launched in 2015. Two initiatives received the bulk of the financing: Grand Rapids-based Diamond Place, a $42 million mixed-use development that includes 100 affordable housing units and a grocery store; and Kalamazoo-based Park Street Market, which is building its second fresh food market. The Good Food Fund cultivates entrepreneurship and economic opportunity in underserved communities. It’s backed by Capital Impact Partners, Fair Food Network, Michigan State University Center for Regional Food Systems, and the W.K. Kellogg Foundation. The state of Michigan, and particularly Detroit, has actively combined food and entrepreneurship. Detroit has repurposed vacant and underused spaces for urban farming and communal kitchens.
Aye Finance secures $8 million from Blue Orchard for small business lending. The microfinance institution in Gurgaon, India, secured the five-year loan after getting $3 million in debt finance from the State Bank of India. Aye Finance offers low-cost loans of $750 to $4,000 to micro and small businesses via 39 branches in India. The company has 18,000 customers and says it has reached 100,000 families. The three-year old microfinance firm recently closed its $10 million Series B financing, backed by LGT Impact Ventures, SAIF Partners and Accion.
Corporate bond fund from Columbia Threadneedle targets Sustainable Development Goals. Columbia Threadneedle’s new European bond fund will align with the 17 global goals. The fund will invest in corporate bonds focused on health, education and affordable housing. More than 80 percent of global companies have sustainability initiatives, but only a quarter cite the SDGs as a motivator. Identifying explicit SDG alignment in the fund could therefore be difficult. Columbia Threadneedle’s Simon Bond says 45 percent of the 4,000 European corporate bonds in the market are “social in nature.” Columbia Threadneedle, the asset management group of Ameriprise Financial, earlier launched a U.K. Social Bond fund (2013) and a U.S. Social Bond fund (2015.)
See all of ImpactAlpha’s recent #dealflow.
#Signals: Ahead of the Curve
Small can be beautiful in East African impact investments. To cover the high costs of finding, making and managing impact investments in East Africa, impact investors are increasingly looking for larger, later-stage and scalable solutions. That leaves behind smaller and earlier-stage social enterprises with viable business models and potential for meaningful impact, writes Joris de Vries of Hooge Raedt Social Venture in Tanzania (his post is worth reading in full). Impact investing in East Africa, he says, “has partially been sold on a fallacy that it is easy to earn a buck while changing the world for the better.” Now, investors are insisting businesses scale up “in an environment where high-margin businesses — especially that of the brick-and-mortar type — are few and far between.” Philanthropists keen for market-based models need to subsidize some investment-management costs, says de Vries. Smart subsidies would not only attract investors, but enable local fund managers to place capital “with highly impactful businesses, large and small, risky and less risky, scalable and less so,” and relieve those managers of the expectation to “realize double-digit financials returns within five to 10 years or even cover all their management costs out of the returns.”
Achieving the 2030 Global Goals begins at home. Sustainable development is not just for developing countries anymore. Unlike the earlier Millennium Development Goals, the 17 goals adopted in 2015 are applicable to developed countries, which also struggle with sluggish growth, chronic underemployment and uneven access to basic services. But a new report by a parliamentary select committee, accuses the U.K. government of failing to lay out a clear SDG plan and doing little to promote the goals at home.
“The Government’s doughnut-shaped approach — which is to see the Goals as something for the UK to help other countries do, rather than drawing on other countries’ experiences in implementing the goals here at home — suggests that it has little interest in, or enthusiasm for, maximising the opportunities and benefits presented by the Goals,” the report states. “Successful implementation would not only encourage greater cross-departmental collaboration and policy coherence in Government, it would bring economic, social and environmental benefits to the UK.”
Reducing poverty, improving education, creating cleaner energy and jobs — and the economic gains that come with these things — aren’t only for faraway lands. In the Netherlands and Sweden, national-level SDG frameworks are uniting pension funds, insurance firms and banks. Major brands and corporations are looking to the 17 SDGs to develop new products that solve fundamental problems for customers, like clean water and healthy food. Delivering on the 17 U.N. Sustainable Development Goals, we reported in January, could generate $12 trillion in annual cost savings and new revenues for global companies, and create 380 million jobs worldwide by 2030.
Onward! Please send any news and comments to [email protected].