The Brief: Building credit in informal markets, rooftop solar aesthetics, recycling in Kenya, small business financing in India, 10 sustainable investing trends



Greetings, Agents of Impact!

Signals: Ahead of the Curve

Building credit with blockchain at the base of the economic pyramid. Credit systems in mature markets are imperfect. In many developing economies they don’t exist at all, keeping billions of people from participating in the formal financial system. Much like with off-grid energy and mobile phones, low-income countries have the opportunity to leapfrog decades-old credit systems originally built for brick and mortar banks. Rather than centralized and vulnerable to data breaches, new credit infrastructure can be decentralized and resilient to privacy breaches.

To test the approach, crowdlending platform Kiva and the government of Sierra Leone on Wednesday launched Sierra Leone’s National Digital Identity Platform, which allows individuals to link their national identity numbers to digital transactions, including healthcare, social and financial services. The platform will enable all 5.3 million adults in the country to build a digital financial footprint by recording financial transactions that otherwise happen informally and offline. “You have rich financial lives way down in the economic pyramid. It’s just not being recorded anywhere,” Kiva CEO Nevill Crawley told ImpactAlpha (see, “Q&A: CEO Neville Crawley wants Kiva to change systems as well as lives”). “We’re not trying to make an alternative system, we’re trying to improve The System.”

  • Financial footprints. The platform is built on Kiva Protocol, Kiva’s new decentralized, blockchain-based financial data recording initiative intended to expand the nonprofit’s role in boosting financial inclusion. That data will eventually feed into a formal credit system, making it easier for financial institutions to underwrite products and extend services. By the end of the year, Kiva says all financial institutions in Sierra Leone will be linked, enabling them to electronically verify customers.
  • Consumer control. Transactions can be recorded and safely stored online and offline, ensuring the platform reaches individuals in remote areas. Kiva’s Matthew Davie says the platform gives consumers complete control over their data. And because it’s built on blockchain, it’s effectively hack proof. “The data is not warehoused on some server, so if I wanted to hack one million people, I have to do a million hacks,” Davie told ImpactAlpha. “If you’re building [financial infrastructure] today, you should build it in a resilient way.”
  • Impact philanthropy. Rippleworks, which provides capacity support to social enterprises, committed $5 million to help build the Kiva Protocol platform. “It’s not worthwhile for most organizations to do this. It’s not profitable and it’s too hard,” Davie says. Kiva’s trying to help end financial exclusion, he says ”We can use grants to put these solutions in place to do that.”
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Lower cost capital, better data and other emerging trends in sustainable investing. A corporate shift away from “shareholder primacy” towards an alignment with a broader set of “stakeholders” is number one on Anuj Shah’semerging trends in sustainable investingCheck. (See, “Stakeholder primacy). Also on the KKS advisor’s top 10: A market has developed for sustainability-linked loans. Environmental, social and governance, or ESG, engagement is making asset managers more valuable. Private equity sees the long-term value in sustainability. “It’s hard to know exactly how a tipping point is measured,” writes Shah. “But we boldly posit that we’re past it.” Among the trends:

  • Incentivizing sustainability. ING made one of the first loans tying a borrower’s interest rate to improvements in ESG targets in 2017. Last year, more than $38 billion in sustainability-linked loans were issued (see, “An incentive for companies that deliver on sustainability: lower-cost capital). With the lower-cost of capital thesis being proven in the market, says Shah, a rush is on among corporates to understand and improve their ESG scores.
  • Data helped the market tip. Investors are moving past simply consuming ESG data at face value and to better understanding the interplay between ESG data and other data sets, including econometric, political risk and social media. “The biggest driver of the changes we’ve experienced over the past decade is the availability of data,” says Shah.
  • From specific to general. Many sustainable and impact investing products have been focused on one or a few sectors or themes (microfinance, aquaculture, or green energy, for example). “We’ve recently noticed a shift to a broader or more macro view of impact, with funds emerging around central themes that are more focused on mega trends or reacting to the impacts of a world in flux,” says Shah. The challenge: impact measurement and management becomes more complex, but frameworks like the IFC operating principles are driving a common discipline (see, “Core characteristics and operating principles to help impact investing scale with integrity).
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Dealflow: Follow the Money

Sunly backs Estonia’s Solarstone to modernize rooftop solar. Most rooftop solar projects are installed on a building as a clean energy upgrade. Estonia-based Solarstone has developed a new kind of solar panel that can be built directly into a property. The company makes interlocking solar panels that snap into roof tiles and shingles, which the company says improves the building aesthetic over traditional mounted panels. This type of technology, known as building integrated photovoltaic, or BIPV, is on the rise in the solar sector. It has the potential to increase the building’s solar energy generating capacity (by designing them into facades as well as rooftops). The new aesthetic designs also allow for upgrading historic buildings, which typically have strict modification restrictions. Solarstone’s panels have been used on 100 properties in Estonia. Solar tech investor Sunly invested an undisclosed amount of capital in Solarstone to support the company’s expansion to other European markets. Check it out.

Mr Green Africa secures funding to boost Africa’s recycling and informal workforce. The Nairobi-based company contracts with 2,000 informal waste pickers, buying the recyclable materials they collect and recycling them into new products. Global Innovation Fund and impact investor DOB Africa invested in the company.

India’s small business financing institutions raise $15 million through pooled bond. ASA International India, Aye Finance, Kanakadurga Finance Limited and Thirumeni Finance raised the capital from Northern Arc Capital and Spanish impact fund Magallanes Impacto. The funds will be on-lent to small businesses across India.

Agents of Impact: Follow the Talent

Social Finance is hiring for five roles in Boston: director of social investment, director of advisor services, associate director of performance management and evaluation, associate director of investment management and an associate… Marketing, capital, impact and marketplaces are on the agenda at Social Enterprise Alliance’s 2019 summit September 9 to 11 in Chicago… U.S. social ventures are encouraged to apply to Acumen Civic Accelerator’sfuture of work program.

Thank you for reading. More all day at ImpactAlpha.com.

– Aug. 21, 2019

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