The Brief: African capital for African infrastructure

Greetings Agents of Impact! No, we haven’t launched a specialized ImpactAlpha Africa newsletter – yet. But today’s full package of stories highlights the increasing variety of sustainable financing and impact investing across the continent. We are pleased to welcome senior reporter Lucy Ngige in Nairobi to the ImpactAlpha team to help senior editor Jessica Pothering spot the players and the trends. Got a story to tell? Let us know or submit a guest post of your own. – David Bank

In today’s Brief:

• Pooling African institutional capital for infrastructure
• First deals for Incofin’s Nutritious Food Financing Facility 
• MarketForce founders’ pivot to social commerce in Kenya
• Seven policy planks for the ownership economy

Featured: Catalytic Capital

Mobilizing African capital for African infrastructure – without concessional financing. Bridging Africa’s $100 billion annual infrastructure finance gap requires a massive mobilization of private capital. Africa’s local insurance companies, pension funds and other institutional investors, which collectively manage nearly $2 trillion in assets, invest a mere 3% of their portfolios in infrastructure and alternative assets. Pooling deals and capital can overcome lack of awareness of investable opportunities and misperceptions of investment risks. USAID has for the last seven years worked to break the capital logjam by catalyzing investments from African institutions to high-impact sustainable development opportunities, including infrastructure. In a guest post on ImpactAlpha, Natalie Alm and Dipika Chawla of the USAID Invest initiative detail the program’s technical advisory work that has helped mobilize nearly $400 million from institutional investors for African infrastructure projects that were otherwise deemed too small, unfamiliar or costly to underwrite to attract private financing. “Two strategic interventions stand out,” they write. Neither approach necessarily requires concessional financing.

• Bundling deals. In Nigeria, USAID Invest and Chapel Hill Denham advised the state government of Lagos on a $291 million bond issuance to finance more than 200 infrastructure projects, half of them small projects focused on water, sanitation and hygiene, or WASH. Bundling small deals with larger infrastructure projects “made it possible to raise funding for severely undercapitalized WASH projects,” Alm and Chawla explain. USAID Invest also helped off-grid solar provider d.light structure a $13 million debt securitization in Nigeria to finance small home solar installations. The program helped build the capacity of pension funds “to raise awareness of the infrastructure investment ecosystem in Nigeria and increase investors’ ability to deploy capital into priority sectors,” the authors write. 

• Investor consortia. Africa’s institutional investors have come together to share resources, risk and pipeline (see, “How Africa’s pension funds are financing the continent’s infrastructure gap“). USAID Invest, with MiDA Advisors and CrossBoundary, helped the Kenyan Pension Funds Investment Consortium grow to more than two dozen members and to develop a pipeline of 18 bankable projects. The group has so far invested $115 million in three infrastructure deals. USAID Invest has done similar work with the Asset Owners Forum of South Africa, which has invested $400 million in infrastructure and alternative assets. “Facilitating transactions, improving regulatory environments, and increasing awareness and capacity among investors are all part of a solution to make African savings work for the continent,” Alm and Chawla write.
  
• Keep reading, “Mobilizing African capital for African infrastructure – without concessional financing,” by USAID Invest’s Natalie Alm and Dipika Chawla on ImpactAlpha. 

Dealflow: Food Security

Incofin’s Nutritious Foods Financing Facility backs three social enterprises in Africa. One of every four people In Africa faces food insecurity. Incofin Investment Management, in partnership with Swiss foundation Global Alliance for Improved Nutrition, or GAIN, has made its first investments from the Nutritious Foods Financing Facility, or N3F, an impact-first debt fund launched this year. Incofin backed Good Nature Agro, which works with roughly 30,000 smallholder farmers in Zambia and Malawi to shift production from maize to legumes for higher margins and nutritional content; Shalem Investment, a Kenyan agri-processor and distributor of maize and wheat flour to rural communities; and Camino Ruiz, also based in Kenya, a distributor of tilapia fish. 

• Catalytic capital. Each company will receive debt capital of $500,000 to $1 million along with technical assistance. “We believe in the impact potential of these business models operating at different stages of nutritious value chains,” said GAIN’s Roberta Bove. The N3F, which seeks to raise $30 million, is backed with $11 million in first-loss capital from USAID and the Swiss Agency for Development and Cooperation. Over the next decade, the fund aims to generate more than 500 million additional servings of nutritious food for seven million low-income people.
  
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Kenya’s MarketForce founders help secure $1.2 million for new e-commerce venture. Kenyan startup Chpter integrates an AI-powered conversational tool with WhatsApp and Instagram to help consumers and entrepreneurs leverage social selling. The new venture raised $1.2 million in a pre-seed funding round to expand into Egypt and Nigeria. Investors include Ken Njoroge of Nairobi-based investment firm Pani, Techstars, Norrsken, Renew Capital and ViKtoria Ventures. Chpter was spun out of MarketForce, an e-commerce platform serving small and informal businesses that shut down in April amid competition and profit challenges. 

• Social commerce. Chpter enables WhatsApp payment services for businesses to list their products, engage with customers and complete sales online. The partnership makes social commerce “more inclusive and accessible to the underserved mass market, due to its low data and digital literacy requirements, as well as the over 95% usage rate in many emerging markets,” said Chpter’s Mark Kiarie. Sukhiba, also in Kenya, recently raised $1.6 million for software that helps small businesses transact through WhatsApp. By 2026, almost half of the African continent will have engaged in e-commerce transactions.

• Fresh start. Chpter was launched in 2022 by Kairie, Kuria Kevin and MarketForce founders Tesh Mbaabu and Mesongo Sibuti. Before shutting down, MarketForce supported more than 270,000 small retailers in Kenya, Nigeria, Uganda, Tanzania, and Rwanda. The company had set out to digitize supply chains for informal African merchants and raised $40 million. MarketForce deployed “an Uber-like model around aggressive expansion,” which failed because of the pandemic, difficult fundraising environment, and “razor-thin margins.”

• Read more.

Dealflow overflow. Investment news crossing our desks:

• Ada Ventures and Concept Ventures led a pre-seed investment round in “YIMBY” property technology startup Tract. The London-based firm uses AI to make it easier and cheaper to find land suitable for development. (Ada Ventures)
  
• A social investment bond issued by Catholic Relief Services and the Mexican state government of Nuevo Leon will support access to formal jobs for young adults. (Catholic Relief Services)

• Milestones: Fort Lauderdale, Fla.-based Community Capital Management crossed $6 billion in assets – on its 25th anniversary. (CCM)

Signals: Policy Corner

Seven public policies to mobilize private financing for the ownership economy. Even recent gains in real wages won’t bridge yawning racial wealth gaps or reverse income inequality. Ownership might. “The way people can really have a stable economic base is through ownership,” says Alison Lingane, founder of the new nonprofit Ownership Capital Lab. The lab’s “Ownership Economy Policy Brief” details practical reforms to the Community Reinvestment Act, the Small Business Administration, Opportunity Zones and New Markets Tax Credits. Uniting financing planks for the ownership economy could position the agenda as a bipartisan win. Ownership – where workers get stakes in the companies that employ them, residents get equity in the homes they live in, and low-income people build their balance sheets with retirement accounts – ducks hot-button issues by emphasizing “predistribution” rather than redistribution. The policy brief reflects contributions from a half-dozen Ashoka Fellows, including Parity Homes’ Bree Jones (see, “Parity buys back the block to drive community revival without displacement”), Coalfield Development’s Brandon Dennison (see, “Forging a path for Appalachia’s green economy”) and Lingane herself. Among their recommendations: 

• Employee ownership. Investments in Opportunity Zones, which defer and reduce capital gains taxes, have heavily tilted to real estate deals. Improvements under a bill introduced last year could incentivize equity investments in family- and employee-owned small businesses and financing for broad-based employee ownership. Another proposal would make low-cost matching capital from the Small Business Administration available to Employee Equity Investment Companies, or EEICs, building on the SBA’s program for Small Business Investment Companies, or SBICs (see, “Multiplying transitions to employee ownership”). Lingane is particularly passionate about dropping the personal guarantee requirement for loan guarantees under the SBA’s 7a program. Last year, the personal guarantee requirement was modified for Employee Stock Ownership Plans, but not for worker coops or employee ownership trusts. 

• Tax credits. A “Neighborhood Homes Tax Credit” could help rehabilitate housing in distressed neighborhoods. The existing Low-Income Housing Tax Credit, or LIHTC, helps finance low-income, multifamily rental housing but doesn’t cover buildings of four units or smaller or single-family homes. Likewise, an expansion of the New Markets Tax Credit could make more financing available to small businesses in distressed neighborhoods (see, “A community investment tool both parties can love”). And expanding the Community Reinvestment Act to cover non-bank financial institutions such as credit unions, mortgage companies and insurers, which now represent 75% of financial assets, could dramatically expand lending in low-income communities, according to a 2020 paper from Sorenson Impact Center. 

• Donor advised funds. DAFs are a big business, with more than $230 billion held in more than two million accounts. Though the tax benefits have been received, most of the money has not been dispersed to nonprofits. Fixes in the proposed “Accelerating Charitable Efforts Act” could incentivize impact investments from the funds’ corpuses. Separately, reducing the paperwork requirements for federal grants could also help organizations put more money to work in communities. “Streamlining administrative grant management may not be the sexiest issue, but it is an important and often overlooked aspect of how the ownership economy can expand,” the authors conclude.
  
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Agents of Impact: Follow the Talent

Andrew Garrett, previously with Sorenson Impact Institute, joins Impact Capital Managers as senior analyst of member experience… Viviana Alva Hart, who previously served as Inter-American Development Bank representative in Barbados, will be IADB’s representative in Argentina… Robert Cierny, previously with Ardian, joins Blue Earth Capital as operations manager. 

Tapestry Community Capital seeks an impact investment manager in Toronto… Transform Finance is hiring a lead researcher… Blue Like an Orange is looking for an investment analyst in Mexico… CVS Health is hiring a principal at CVS Health Ventures… Royal Bank of Canada is recruiting a senior manager of its sectoral climate strategy in Toronto.

AS/COA is hosting “Emerging models and perspectives of impact investing in Latin America,” with Lucía Montalvo of Salkantay Ventures and Gabriela Carrasco of Reciprocal, Wednesday, Sept. 11 in New York… Global Adaptation and Resilience Investment Working Group is hosting “From risk to resilience – investing in the unavoidable opportunity,” Thursday, Sept. 12… Michael Sheldrick will host a launch party for his new book, “From Ideas to Impact,” Friday, Sept. 20 in New York.

100 Women In Finance’s Impact Investing Symposium will host a conversation between Gina McCarthy, the former White House National Climate Advisor, and Harvard’s Emily Chien on “Turbocharging our clean energy future,” Tuesday, Oct. 1 in New York… CleanAI Initiative is hosting the CleanAI Summit, Friday, Oct. 4 in Toronto… ImpactAssets is accepting applications for its 2025 ImpactAssets50 impact fund manager showcase.

👉 View (or post) impact investing jobs on ImpactAlpha’s Career Hub.

Thank you for your impact!

– Sept. 4, 2024