Greetings, Agents of Impact!
Featured: Refugee Lens
Migration surge spurs impact funds to target financial services for people on the move. The record number of people who have been displaced from their communities by conflict, climate change, crime and poverty is making lenders to the poor nervous. With borrowers on the move, loan repayment rates have fallen and hard-won social progress is being reversed. To adapt, longtime investors focused on financial inclusion are pivoting to back providers of financial services for migrants and refugees in Africa, Asia and Latin America. In Uganda, a motorcycle leasing company has opened a branch near refugee camps in the northwest part of the country. Commercial banks are setting up outposts in refugee hotspots. And financial services providers are underwriting cash transfers to displaced communities. “We needed to deal with it proactively and systematically,” says Aleem Remtula of Developing World Markets, which is standing up a Displaced Communities Fund with a target of $50 million.
Financial inclusion, in the form of microfinance and other financial services for lower-income customers, proved resilient in the Great Financial Crisis and again in the pandemic. Protecting and advancing such social progress in emerging markets increasingly requires investors to adapt their approaches for people on the move. Acumen, with $137 million invested in 139 companies, has partnered with the Refugee Investment Network to find ways to serve displaced populations in Ethiopia, Kenya and Uganda. Kiva Capital last April closed its $32.5 million Refugee Investment Fund to provide debt capital to microfinance institutions and other intermediaries. Developing World Markets’ fund has secured an anchor investment of €15 million ($17 million) from a German faith-based pension fund. Rebounding borrower demand means financial institutions that serve vulnerable populations need hundreds of millions of dollars in equity capital in the next 18 months. Catalytic first-loss guarantees can nudge institutional investors to step up to fill the capital gap, but the ultimate proof will be in the financial performance of refugee-ready services for an unfortunately growing market, Remtula says. “The nature of the assets that we’re investing in will be positive, well-performing and able to serve in a sustainable way some of the displaced communities that we’re talking about.”
Keep reading, “Migration surge spurs impact funds to target financial services for people on the move,” by Dennis Price on ImpactAlpha.
Dealflow: Growth Markets
Tul raises $181 million to digitalize independent hardware stores in Latin America. The Bogotá-based startup helps Colombia’s mom-and-pop hardware stores source products from large construction suppliers like ArcelorMittal and Cemex. Its Series B financing will support Tul’s expansion to Brazil, where the company says 600,000 locally-owned hardware stores account for half of all hardware sales. Tul’s $4 million raise in late 2020 signaled last year’s flood of small business digitalization deals. Its new round is the latest in a stream of big-ticket digitalization deals (see, “Riding the digital transformation to drive inclusive and sustainable growth“). 8VC and Avenir led the round, with participation from Monashees, Tiger Global and others.
- Community pillars. Tul launched in early 2020 to create localized versions of Home Depot or Lowe’s, said founder Enrique Villamarin, and “enable the smallest business in the most remote regions—who are serving as pillars in their community—to be able to order products, manage their inventory, and open up other streams of revenue.” Tul operates in five cities in Colombia and several cities in Ecuador and Mexico.
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Aqua-Spark backs Lake Harvest to expand sustainable aquaculture in Africa. The Dutch impact fund is launching a subsidiary to build up local and regional aquaculture supply chains in Africa. The investment in Lake Harvest, which distributes across East and Southern Africa, follows an Aqua-Spark report that found that tilapia can provide sustainable and affordable protein to help feed Africa’s fast-growing population. Aqua-Spark, alongside Norway’s NORFUND, invested $7 million in Lake Harvest’s tilapia operations in Zimbabwe, Zambia and Uganda.
- Fish farming. Aqua-Spark also backed eFishery’s $90 million Series C round to provide Indonesia’s fish and shrimp farmers with access to buyers, financing, feed and hardware. “We are focused on increasing farmers’ productivity,” said eFishery’s Gibran Huzaifah. Other investors include Temasek, Sequoia Capital India and Wavemaker Partners.
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Novo snags $90 million to provide banking services for U.S. small businesses. The Miami-based neobank provides bank accounts without fees or minimum balances for approximately 150,000 small business owners, entrepreneurs and freelancers in the U.S, and even refunds ATM fees. Novo says it has facilitated more than $5 billion in transactions since 2018, including more than $4 billion last year alone. “The pandemic was a catalyst for our growth,” said Novo’s Michel Rangel. Its next target: big banks. “They are the only ones we are concerned with because they own 99% of the market.”
- Inclusive economy. New York-based Stripes led the Series B round, with participation from Valar Ventures, Crosslink Capital, Rainfall Ventures and BoxGroup. “Despite being the heart of the U.S. economy, the more than 30 million small businesses in the U.S. have always struggled to access even basic financial services, as they are constantly overlooked by the big banks,” said Stripes’ Saagar Kulkarni.
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Dealflow overflow. Other investment news crossing our desks:
- Enterprise Community Partners’ Growth Fund, part of its Equitable Path Forward initiative, raises $350 million to invest in affordable housing developers of color (for context, see “An equitable path forward to redress racial injustice in real estate”).
- Canada’s Hydrostor secures $250 million from Goldman Sachs Asset Management to develop long-duration energy storage assets globally.
- Indonesian banking startup Brankas scores $20 million to provide financial and identity data for fintech partners targeting un- and underbanked populations.
- South Africa’s Isizwe secures $460,000 from Global Innovation Fund to de-risk the provision of low-cost Internet access in informal settlements.
Signals: Catalytic Capital
Jigar Shah on government’s role as a catalytic climate investor. The loan program office of the U.S. Energy Department has made its first loan commitment under the Biden administration. Jigar Shah, the head of the office, joined the Catalyst podcast with host Shayle Kann of Energy Impact Partners to flesh out details of the $1 billion conditional loan guarantee to Monolith Nebraska, which uses “methane pyrolysis” to convert natural gas into clean hydrogen and “black carbon” used in tires and other products. The loan will enable the decade-old company to build its first commercial-scale plant, a capital-intensive hurdle for many climate tech startups (for context, see “Deploying catalytic capital to bridge financing gaps for climate action”). “I don’t think there’s a single success story in hard tech, not one in the energy space, that didn’t involve massive government involvement,” said Shah.
- Catalytic loans. Exhibit A: Tesla. In 2010, when it was still an unproven startup, the loan program office provided Tesla with a loan of $465 million to build its first manufacturing plant. (Tesla had earlier received $75 million from Bay Area Equity Fund, an impact fund spun out of JPMorgan and backed by program-related investments from the Ford, MacArthur, Annie E. Casey and F.B. Heron foundations). Shah also pointed to fracking, modular nuclear reactors and fusion as technologies that have benefited from government research and support.
- Loan pipeline. The loan office has been reinvigorated under Shah, who has $40 billion to deploy across the office’s Innovative Energy Loan Guarantee, Advanced Technology Vehicles Manufacturing Loan, and Tribal Energy Loan Guarantee programs. The challenge, says Shah, is “getting CEOs who are on track to gigaton-scale technologies to actually have us in mind a year before they need us.”
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Agents of Impact: Follow the Talent
Margaret Peloso of Vinson & Elkins expands her responsibilities to become the law firm’s lead sustainability partner… American Century Investments appoints Sarah Bratton Hughes, ex- of Schroders, as senior vice president and head of ESG and sustainable investing… Azolla Ventures is looking for an investment associate in Boston.
Boston Consulting Group is hiring a project leader / principal for climate and sustainability in New York… Stanford University is looking for a climate risk sustainable finance fellow… Jobs for the Future is accepting applications for its 2022 summer internship program… ProFellow rounds up 18 climate-related fellowships.
Thank you for your impact.
– Jan. 12, 2022