africa | February 9, 2018

Opportunity zones, Big Society’s community fund, credit in Brazil, Kenya’s impact glut

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Greetings, ImpactAlpha readers!

#Featured: The New Revivalists

Turning capital gains into community investments. The Investing in Opportunities Act tucked into the recent US tax bill could draw billions of dollars in private capital to low-income communities in every state. Meet the policy wonks who made it happen.

John Lettieri, a Republican, and Steve Glickman, a Democrat, founded the Economic Innovation Group to bring fresh thinking to the challenge of mobilizing private capital to rebuild American cities and rural communities. “The herd is working against these places,” Lettieri and Glickman told ImpactAlpha. “What this program can help create is a herd effect that benefits low-income areas rather than works against them.”

Under the plan, investors can temporarily defer taxes by investing capital gains in low-income areas designated as “Opportunity Zones.” (Governors must nominate such areas by March 21). The capital will flow through “Opportunity Funds,” which are required to invest 90% of their assets in economically distressed communities. Because there are no tax credits to be distributed, the plan allows an unlimited amount of capital flow.

Even with this week’s stock-market tumble, investors have as much as $2.3 trillion in unrealized capital gains in US stocks and mutual funds. The approach, the duo say, appealed to a “geographically and politically diverse, progressive to conservative spectrum from all over the country.” Read, “John Lettieri and Steve Glickman: Turning capital gains into community investments,” by Dennis Price, on ImpactAlpha.

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

John Lettieri and Steve Glickman: Turning capital gains into community investments

#Dealflow: Follow the Money

Big Society Capital unveils £30 million fund for community finance. The UK-social investment firm’s Community Investment Enterprise Facility will be used to capitalize lenders so they can make loans to individuals and businesses in underserved UK communities. Social Investment Scotland, one of the largest community development finance institutions (CDFI) in the UK, will manage the fund, which will invest in five CDFIs. Big Society Capital is looking to raise £30 million ($41.7 million) in match funding in the next three years. The investor has helped mobilize £1 billion in investment capital to charities and social enterprises across the UK, committing over £350 million itself.

Endeavor Catalyst backs Brazilian lending platform Creditas. Creditas launched in 2012 to improve Brazilians’ access to credit. Borrowers put homes and cars up as collateral for access to the lending platform’s low-interest loans. Creditas has originated $100 million in loans to date. Endeavor Catalyst backed the company’s $50 million Series C round alongside Kaszek Ventures, Quona Capital, QED Investors, International Finance Corporation and Naspers. Endeavor is a global entrepreneurship network. Its Catalyst fund invests in entrepreneurs who then become part of the network and commit to donating 2% of their cash to Endeavor in the event their startup is acquired. Endeavor just closed its second Catalyst fund with $85 million in commitments.

South Korea plans $276 million social impact fund. Several private initiatives from SK Group and Impact Finance Korea have launched in South Korea in the past year to kickstart more proactive social investing. Now the government plans to launch a 300 billion won ($275.9 million) fund aimed at social enterprises and socially-focused cooperatives. South Korea’s Financial Services Commission wants to raise a third of the capital for the five-year fund by the end of 2018. One of its funding sources will be dormant bank accounts. Japan launched a similar initiative last year.

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

#Featured event: Briefing on Investing for Racial Justice

Boosting racial justice through your portfolio. Learn how to fight racial inequality through your investments. Zevin Asset Management’s webinar on Monday, Feb. 12 at 2pm ET can help you push companies to reverse the dynamics that continue to exclude people of color from wealth and opportunity. Click here to register.

#Signals: Ahead of the Curve

Too much of a good thing in Kenya? A new report on “The State of Social Impact Investing in Kenya” suggests that a growing number of impact investors, many of them pursuing bigger deals, may be driving up valuations and distorting the market. The perception that social impact investors, in Kenya and elsewhere, may overpay for stakes in startups is not new. As Jonathan Kalan reported for ImpactAlpha way back in 2012, “That has led to some trash-talking between the impact crowd and funds looking for straight-up technology plays — who sometimes vie for the same deals.” Even more money may be chasing those deals in the future. The report out of the University of Virginia Business School reports that social impact funds could invest $650 million in the next five years in Kenya, about the same amount as was committed in the past decade. “Competition between social impact investors and private-equity funds had driven valuations by two to three times over the last five years,” the report said, which was based on case studies of 14 businesses and a poll of investment firms, according to Business Times in Nairobi. Social impact advisors are expanding beyond early-stage companies into deals of $3 to $5 million in renewable energy, healthcare, sanitation, fintech, ecotourism and other sectors.

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