The Brief | May 8, 2023

The Brief: Adapting social impact incentives, embedded lending in Latin America, energy access in Africa, rare earth recycling, impact unicorns

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Greetings, Agents of Impact!

Featured: Impact-Linked Finance

How impact incentives brought a dental care startup back to its roots in rural Ecuador. When Greg Krupa, a global health entrepreneur from the US, moved to Ecuador, he spotted an opportunity to build a for-profit social enterprise that provided affordable, basic dental services for low-income and rural families. Then came a pandemic. How his company Novulis survived, and thrived, illustrates the power—and challenges—of “social impact incentives,” a financing structure designed to ensure that growing social enterprises maintain their focus on vulnerable customers and measurable social impact. “There can always be tension and mission drift amid social enterprise growth models, but what we had here was a massively changing business baseline,” says Bjoern Struewer of Roots of Impact, the organization behind social impact incentives, or SIINCs (for background, see “How incentives can successfully steer capital toward impact”). “We learned we need to be more adaptive in impact-linked finance.”

  • Saved by SIINC. Krupa bootstrapped Novulis with revenues and grants. By early 2020, the company was operating two mobile dental clinics and had treated 14,000 mostly low-income patients at job sites outside of Quito. To finance Novulis’ expansion, Krupa signed a contract with Roots of Impact for a $280,000, three-year SIINC investment that would pay Novulis for hitting specified impact targets, such as the number of vulnerable patients treated. Ecuador went into Covid lockdown mere days later. The investment “saved the entire company,” Krupa tells ImpactAlpha. Novulis moved to treating wealthier urban customers to survive—exactly the kind of up-market strategy shift SIINCs strive to mitigate.
  • Back to impact. Novulis and Roots of Impact rehashed the SIINC metrics, identifying new targets that were attainable amid the pandemic but would keep Novulis’ focus on impact. The company now serves more than 24,000 patients, 70% of whom are from low-income and rural areas. Its redoubled impact efforts have ushered a raft of new funding partners to the table, including Kiva and humanitarian NGO SOS Children’s Villages. “Positioning ourselves as a high-impact social enterprise that is linked to solutions puts us in a better position to raise capital at a time when traditional fundraising is difficult,” Krupa says. Novulis has also spurred change in results-based impact finance. “Nowadays,” says Struewer, “it’s standard for us to renegotiate if the environment is changing.”
  • Keep reading, “How impact incentives brought a dental care startup back to its roots in rural Ecuador,” by Jessica Pothering on ImpactAlpha.

Dealflow: Financial Inclusion

Mexico-based fintech venture R2 secures $100 million line of credit from Community Investment Management. R2 provides back-end lending infrastructure and capital to companies like Colombian online farmers’ market Frubana so they can extend credit to their small business customers. The Mexico City-based venture has facilitated more than $20 million in loans to 6,000 businesses in Mexico, Colombia, Chile and Ecuador. “In Latin America, creditworthy small and medium businesses continue to be overlooked by traditional financial institutions because they can’t leverage granular enough data to properly assess SMB risk,” said Community Investment Management’s Elena Tchouvasheva Amato.

  • Inclusive lending. Embedded finance from logistics, e-commerce and software companies accelerated as a financial inclusion strategy during the pandemic, as millions of informal brick and mortar businesses shifted online out of necessity. Capital from R2 to such ventures supports entrepreneurs like Francisco Rodriguez, a mini market owner in Mexico who has secured more than $40,000 in loans and grown monthly sales 400% since 2021.
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Schmidt Family Foundation backs Nithio for clean energy access in Africa. A $3 million investment by the former Google executive’s foundation will support off-grid solar lending to borrowers in “the hardest-to-reach communities in Africa,” said Schmidt Family Foundation’s Aaron Mbati – “people who contribute little to climate change but bear the worst of it, and who deserve the benefits of clean energy most of all.” The capital will go to Nithio’s blended finance fund, which finances local solar product distributors serving households, businesses and farmers. Other investors in the fund include the DFC, FSD Africa Investments, EDFI-ElectriFI and Shell Foundation. Woman-led Nithio aims to invest $170 million by 2025 for clean energy access. Check it out.

Dealflow overflow. Other investment news crossing our desks:

  • India-based EV ride-hailing venture Blusmart Mobility raised $42 million in equity and debt funding to add 10,000 more EVs to its platform. (YourStory)
  • Canada-based Cyclic Materials secured $27 million in a Series A round led by Energy Impact Partners and BMW i Ventures to recycle rare earth elements. (Cyclic Materials)
  • Green-Got, a French green neobank that invests in environmental projects, raised €5 million ($5.6 million). (EU-Startups)

Six Short Signals: What We’re Reading

🏺Africa’s artisanal talent. Skilled craft workers are an overlooked source of small business and job creation on a continent grappling with high youth unemployment. Seth Mulli of Cape Town-based Allan Gray Makers discusses Africa’s creative economy with Frank Aswani of African Venture Philanthropy Alliance on Afropact, a new podcast series showcasing African solutions to Africa’s challenges. (Listen / subscribe to the podcast)

🦄 Impact unicorns. Acumen portfolio companies Easy Solar in Sierra Leone and Paga Group in Nigeria have been named to the Financial Times list of Africa’s 50 fastest-growing companies. M-Kopa, which Acumen exited earlier to Blue Haven Initiative, also made the list. (Acumen / Financial Times)

Redrawing the ESG map. Money market funds targeting Europeans have rebranded almost $1 trillion as ESG. The designation is known as “Article 8,” which under European Union rules means a financial product “promotes” environmental, social and good governance goals (“Article 9” funds meet a higher standard). (Bloomberg)

🍞 Food security funds. Phenix Capital identified 689 impact funds with €122 billion ($134 billion) in assets focused on access to food, foodtech, smallholder farming and fisheries, and sustainable agriculture and aquaculture. Nearly half are open for investment. (Phenix Capital)

🌱 Regeneration generation. Global regenerative agriculture revenues are valued at $9 billion and could reach $31.9 billion by 2031, a compound annual growth rate of 15.2%, according to Insight Ace Analytics. The research firm expects carbon sequestration will hold an increasingly significant share of the market. (Insight Ace Analytics)

☀️ De-risking heat waves. From heatstroke insurance for humans to policies that reimburse farmers for lower output, more financial products are addressing climate change-driven heat waves. (Bloomberg)

Agents of Impact: Follow the Talent

Andy Fyfe is leaving B Lab after 13 years to join 60 Decibels… Jack Ma, the billionaire founder of Chinese e-commerce giant Alibaba, joins University of Tokyo as a professor of sustainable agriculture and food production… REDF has an opening for a senior associate of capacity building in San Francisco or Los Angeles… The Community Foundation for Greater Atlanta seeks a senior program officer for its housing funds.

The London School of Economics is looking for an impact investing associate… Acre seeks a senior climate specialist in Edinburgh, Scotland… Citi has an opening for a net-zero analyst and assistant vice president in New York… Also in New York, New Level Resources is looking for an impact investment fall research intern… Climate Policy Initiative is on the hunt for a director of operations.

MassMutual seeks an impact investing analyst… TruFund Financial Services is recruiting a remote New Market Tax Credits impact investment officer… The Impact Investors Council is hiring a research associate in Mumbai… The Ford Foundation is hiring a regional director in Beijing… This year’s ANDE annual conference will take place in Accra, Ghana, Sept. 12-14.

Thank you for your impact.

– May 8, 2023