The Brief | October 13, 2021

The Brief: Catalytic capital case studies, AXA’s stake in Blue Like an Orange, inclusive fintech lending, affordable housing, reinventing community reinvestment

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Greetings, Agents of Impact! 

Featured: Catalytic Capital

Researchers ready a dozen-plus deep dives into the complexities of catalytic capital. Aceli Africa provides a first-loss cushion of up to 8% to lenders as a way to spur them to back high-impact, and possibly higher risk, agri-businesses that prioritize gender inclusion, food security and climate resilience. With the consultancy Dalberg Advisors, Aceli will glean insights from 360 loans from 20 lenders to identify financing solutions for Africa’s millions of smallholder farmers, the backbone of the continent’s economy and food security. The research project is among 14 deep dives into the complexities of using such risk-tolerant, flexible, patient or concessionary capital that were green-lighted by the Catalytic Capital Consortium, or C3. The consortium was created by the MacArthur and Rockefeller foundations and Omidyar Network to expand the use of catalytic capital to achieve the U.N. Sustainable Development Goals and other impact objectives. (Disclosure: C3 sponsors ImpactAlpha’s coverage of catalytic capital). 

“Concrete information and evidence on capital gaps, intervention models and tangible results can influence significant action by investors,” MacArthur’s Urmi Sengupta, Omidyar Network’s Chris Jurgens and Rockefeller’s Adam Connaker write in a guest post on ImpactAlpha announcing the grant awards (see below). Prime Coalition, another awardee, will develop professional education that will share its own lessons learned with other catalytic asset owners and intermediaries in deploying early, risk-tolerant capital into high-impact climate startups deemed too early or too risky for conventional investors. The Center for Financial Inclusion will explore how catalytic capital spurred the development of a thriving fintech credit industry, as well as unintended consequences that may exacerbate inequities for low-income populations. Ashesi University and Impact Investing Ghana will explore strategies for mobilizing capital from domestic pension funds for small business lending.

Keep reading, “Researchers ready a dozen-plus deep dives into the complexities of catalytic capital” by Amy Cortese on ImpactAlpha. 

  • Evidence-based. Lessons from how patient, flexible, risk-taking financing helped grow community development finance in the U.S. and smallholder agriculture and entrepreneurship in emerging markets can help build new markets. “The challenge now is leveraging and transferring existing experience to sectors where catalytic capital has not been widely available,” Sengupta, Jurgens and Connaker write. “We urge investors to incorporate the evidence and insights that these projects generate into their investment strategies and deployment, and to act in ways that accelerate impact.” Keep reading, “Gathering evidence to put catalytic capital to its highest and best use.”

Sponsored by Hamilton Lane

Demand for impact investing strategies is growing. Hamilton Lane’s experienced teams leverage access and analytics to identify growing businesses delivering sustainable solutions to the world’s problems. The Hamilton Lane approach provides investors with a diversified private markets solution that seeks to generate optimal outcomes through compelling performance and meaningful, measurable impact. Learn more.

Dealflow: Growth Markets

AXA takes a minority stake in Blue Like an Orange sustainable investment firm. Blue Like an Orange was launched in 2017 by former World Bank officials Bertrand Badré, Amer Baig and Suprotik Basu to unlock mezzanine debt for Latin American businesses advancing the Sustainable Development Goals (for context, see “Former World Bank officials launch BlueOrange Fund”). The firm raised $200 million for its first fund, which secured early backing from global insurance giant AXA, as well as HSBC, CNP Assurances, BNP Paribas Cardif, SG Insurance, MACSF and the family offices of Sir Ronald Cohen and Wesray Capital founder Ray Chambers. AXA’s new equity stake in the firm signals a “long-term and strategic commitment” to Blue Like an Orange, AXA said in a statement. It is also anchoring Blue Like an Orange’s second fund.

Lendable taps European fund structure for $100 million emerging markets fund. Lendable provides debt financing for fintechs that help mostly low-income and women borrowers increase their incomes or reduce their costs (for context, see “How Lendable parses risks and returns to mobilize capital for inclusive fintech in emerging markets”). Lendable is using a European fund structure called a Reserved Alternative Investment Fund to raise the Lendable MSME Fintech Credit Fund to invest in fintechs in emerging and frontier markets. Lendable, which recently backed Singapore’s Finclusion Group, says it is aiming to create access to fair credit and financial services for over 150,000 underserved small and medium-sized businesses.

  • Catalytic capital. The Emerging Markets Impact Investment Fund and FSD Africa provided first-loss capital for the five-year blended finance fund. Lendable has received $50 million in commitments from the U.S. International Development Finance Corp., Calvert Impact Capital, family office Ceniarth, FMO and the Belgian Investment Company for Developing Countries.
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Center Creek impact fund raises $30 million to invest in affordable single-family homes. The Washington, D.C.-based fund received equity commitments from Capricorn Investment Group’s Sustainable Investors Fund, Truist Bank, Regions Foundation and family offices. Single-family properties represent more than half of all rental housing in the country. Nearly two-thirds of Black and Latinx renters are facing housing insecurity, compared to just 17% of white renters. Center Creek’s third housing fund will acquire 3,000 distressed single-family properties to renovate into energy-efficient homes in North Carolina, South Carolina and Florida. The fund is looking to raise $150 million. Big Path Capital is Center Creek’s placement agent.

  • Market-rate returns. Center Creek’s third fund has a targeted net IRR of 15%. Its first single-family homes fund provided a 14.2% net IRR to investors, showing that “investors don’t have to choose between achieving financial returns and driving social impact,” said Center Creek’s Dan Magder.
  • Racial equity. At least 90% of Center Creek’s residents are Black and Latinx renters, Magder told ImpactAlpha. Before the pandemic, the firm launched its Pathway 2 Homeownership initiative to help residents become homeowners. “Our first cohort is expected to start being mortgage-ready and complete their pathways to homeownership by early next year,” he said.
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Dealflow overflow. Other investment news crossing our desks:

  • Agua Bonita scores $2 million from Convivialite Ventures, Cedar Capital and Supply Change Capital to make beverages from produce that would otherwise be wasted.
  • Nigeria’s Mono secures $15 million to roll out Plaid-like digital financial services, tied directly to consumer bank accounts, in Africa.
  • Emissions accounting engine Normative raises €10 million ($11.5 million) from climate tech funds, including Lowercarbon Capital.
  • Colombia-based fintech Sempli raises $10 million from IDB LAB, Oikocredit, Incofin, Enabling Capital and Symbiotics to accelerate lending to small businesses.

Impact Voices: The Reconstruction

Racial equity planks in a new Community Reinvestment Act can expand the American Dream. The Comptroller of the Currency earlier this year rescinded Trump-era rules that would have gutted anti-discriminatory lending protections in the Community Reinvestment Act. A joint proposal by the office, the Federal Reserve Board and the Federal Deposit Insurance Corp. to update and modernize the CRA could fix a glaring hole – racial equity. “The inclusion of explicit recognition of race is non-negotiable if we are to have a more equitable CRA,” writes Karim Hutson of Genesis Companies, a Black-owned real estate development firm in New York.

  • Color blind. The Community Reinvestment Act, passed in 1977 compels banks to operate and lend in lower-income neighborhoods. But by remaining ‘color-blind’ and neglecting discriminatory lending practices, Hutson says, “the CRA never went far enough to specifically ensure Black and Brown Americans weren’t shut out from the promise of real estate equity, whether as owners or as entrepreneurs.”
  • Modernizing CRA. Hutson argues for an updated CRA that acknowledges race more explicitly. One step: Mandate that public housing agencies and banks actively diversify the pool of real estate developers to which they allocate public affordable housing resources (listen in to The Reconstruction podcast, “An equitable path forward to redress racial injustice in real estate”). “We as Americans must keep the pressure on to bring about the common-sense reforms that will finally offer all of us a fair shake at the American Dream,” Hutson writes.
  • Keep reading, “Racial equity planks in a new Community Reinvestment Act can expand the American Dream,” by Karim Hutson on ImpactAlpha.

Agents of Impact: Follow the Talent

Prince Harry and his wife Meghan Markle, Duchess of Sussex, join sustainable investing platform Ethic as impact partners. “We were introduced to the Duke and Duchess by a mutual friend in the impact community and it became clear that we share many of the same values,” Ethic’s Jay Lipman told ImpactAlpha. The couple will help “to educate and rally our impact community around the issues that matter most,” Lipman says (for background, see “Ethic raises $29 million to grow customized sustainable portfolios for wealth advisors”). 

Amisha Parekh, ex-of Bloomberg, joins Blackstone as global head of ESG for private equity… The Catholic Impact Investing Collaborative’s Maggie Stohler is promoted to associate director. The collaborative is looking for a director of membership and partnerships to replace Victoria CarrionRSF Social Finance spins out its Just Economy Institute, formerly the Integrated Capital Institute, with a new cohort of financial activists… TPG’s Y Analytics team is hiring for several positions… Closed Loop Partners is also looking to fill multiple positions.

Morgan Stanley is recruiting a global sustainable finance products and solutions director in New York… Gary Community Ventures is hiring a portfolio manager for impact investing in Denver… Open Source Breakthrough for Climate-Smart Investing is hosting a discussion on the transition to net zero with the Principles for Responsible Investing’s Fiona Reynolds, Generation’s David Blood and others, Monday, Nov. 8.

Thank you for your impact.

– Oct. 13, 2021