The Brief | October 18, 2018

Inclusive fintech investors, Brazil in the spotlight, Cargill’s Borneo forest financing, Omidyar spins off Luminate

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Greetings, ImpactAlpha readers!

Featured: ImpactAlpha Original

Investors are backing fintech ventures to crack a huge market: the global poor. 500 Startups is doing it. So is TPG Growth’s $2 billion Rise Fund. Even the Chinese tech conglomerate Tencent is getting in (see below). Investors are clamoring to put money behind financial technology firms able to successfully serve the global poor and emerging middle class. The big checks for growth-stage fintech companies recognize the burgeoning spending power of the world’s emerging middle class.

In the race for the next billion financial customers, impact investors may have an edge. The Catalyst Fund, backed by the Bill & Melinda Gates Foundation and JPMorgan Chase Foundation, has backed 20 companies using technology to extend financial services to underserved customers in Africa, Latin America, India and Southeast Asia. A dozen of those companies have raised an average of $1.5 million each after graduating. LeapFrog Investments, a leading impact investor, has built a billion-dollar portfolio around fintech-powered companies in insurance, healthcare and financial services. Washington D.C.-based Quona Capital, a spinoff of Accion International, has three funds investing in fintech for inclusion in sub-Saharan Africa, Latin America, and Asia (see below). “You can’t get the type of returns we get in Western markets,” Quona’s Monica Brand Engel tells ImpactAlpha. “We’re investing in enormous markets where the penetration is low.”

Read, “Investors are backing fintech ventures to crack a huge market: the global poor,” by Dennis Price on ImpactAlpha.

  • MEETUP: ‘Inclusive fintech’ investors are gathering Wednesday Oct 24, on the side of SOCAP18 in San Francisco.

Dealflow: Follow the Money (Brazil edition)

All eyes are on Brazil as the country’s contentious presidential election heads to a climax. The frontrunner, Jair Bolsonaro, has suggested pulling out of the Paris climate agreement, withdrawing land rights for indigenous communities and ending other protections for the Amazon.

Another Brazil storyline gets less attention. In 2016 and 2017, impact investors invested a total of $131 million in Brazil through 69 deals, according to ANDE and LAVCA. Underserved consumer and small-business markets and a robust venture capital and IPO scene have created “compelling” market fundamentals, Quona Capital’s Jonathan Whittle told ImpactAlpha. “Emerging markets go up and down,” he says. “We take the long view.”

– Jessica Pothering, dealflow editor

China’s Tencent invests $180 million in Brazilian credit unicorn Nubank. Sao Paolo-based Nubank launched in 2014 to provide underserved Brazilians with access to no-fee, low-interest digital credit cards they could manage on their smartphones. The company has disrupted Brazilian financial services, growing to more than four million credit card customers and expanding into high-yield savings accounts. The 30% of Brazilians without a bank account represent an attractive market: Chinese internet giant Tencent took a $180 million stake that valued Nubank at about $4 billion. Here’s more.

Quona Capital leads $5 million round for Brazilian small business lender BizCapital. BizCapital launched operations in January to help Brazil’s small business owners secure capital necessary for the day-to-day and growth needs of their businesses. Roughly 70% of Brazil’s micro and small business owners are shut out of mainstream bank lending. They’ve been largely ignored by fintech ventures, which have targeted consumers. Quona Capital led BizCapital’s R$20 million ($5 million) investment round. Says Quona’s Jonathan Whittle, “The relationship you build with small businesses leads to repeat business with better and better underwriting.” Read on.

Factory loan to Guayaki will support jobs and preserve rainforest in Brazil. California-based beverage company Guayaki specializes in products made from organically grown yerba mate, a caffeinated plant grown in the South American rainforest. Rather than sourcing from plantation yerba mate growers, the social enterprise works with cooperatives in Brazil, Paraguay and Argentina that harvest yerba mate from the rainforest. That incentivizes forest protection and Guayaki says it has helped preserve and restore 130,000 acres of Atlantic rainforest. RSF Social Finance and Beneficial Returns are helping the company build its first factory in Brazil with an $800,000 loan. Dive in.

Please send deal news and tips to [email protected].

Signal: Ahead of the Curve

Financing forest restoration by enforcing supply-chain standards. For global commodity producers, certification under standards such as the Roundtable on Sustainable Palm Oil has become a business necessity. Lestari Capital, based in Jakarta and Singapore, is turning such leverage into financing for large-scale forest conservation. Last week, Lestari announced the first ecosystem-service deal under its new Sustainable Commodities Conservation Mechanism. Cargill, the world’s largest private company, will finance a 25-year conservation project run by the Nanga Lauk community in Indonesia’s Heart of Borneo region to protect the forest and develop ecotourism and wild forest products. “For the first time, the people doing this work can earn a wage to support their families,” Ibu Rusliyani, who serves on the Nanga Lauk community forest board, said in a statement.

Support for the conservation project will help Cargill’s plantation in West Kalimantan meet the RSPO requirements, writes Lestari’s Gabriel Eickhoff. He said the Sustainable Commodities Conservation Mechanism addresses the lack of investor demand for high-quality conservation projects and the undervaluing of “natural capital” by global commodities markets. “We address this missing link by connecting corporate demand for durable conservation outcomes with projects that need long-term operating capital on the ground,” he said. (Returns on Investment listeners heard about the mechanism on ImpactAlpha’s podcast, “Nature reduces risk.”) The David and Lucile Packard Foundation provided early support for Lestari, as did the  Partnerships for Forests incubator backed by the UK’s Department for International Development. “We deliver private sector efficiency to a traditionally donor-driven space by reducing overheads and pushing for greater scale,” Eickhoff says. “Every day we strive to incorporate conservation into supply chain and other corporate costs, as we have done with Cargill.” Share this post.

Agents of Impact: Follow the Talent

Omidyar Network has spun off its governance and citizen engagement initiative as Luminate. Omidyar Network’s Mike Kubzansky details the reorganization underway at the philanthropic investment firm of Pam and Pierre Omidyar… Morningstar acquired proxy voting data firm Fund VotesTerri Ludwig, ex-CEO of Enterprise Community Partners, is the new president of philanthropy at Ballmer Group… Dominic Barton and Henri de Castries joined LeapFrog Investments’ new global leadership council.

October 18, 2018.