The Brief | September 25, 2019

The Brief: Faith-based and place-based, Indonesia’s inclusive fintech, reef insurance, tech philanthropy, blending billions

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Faith-based institutions fit local investments into global portfolios. Where politicians squabble, Bon Secours Mercy Health Systems sees investment opportunities. The Catholic health provider has been a pillar of West Baltimore pillar since its hospital doors opened a century ago. The neighborhood is far from the “disgusting, rat and rodent infested mess” of presidential tweets. Bons Secours operates 800 affordable housing units, health and social services for women, a mobile food market, and a Community Works career and entrepreneurship center. This year, Bons Secours is among a half-dozen hospital systems in Accelerating Investments for Healthy Communities, a program to channel more funding and resources to local communities. Bons Secours has committed to invest 5% of its $1 billion-plus long-term investment portfolio to such local investments in affordable housing, economic development and community finance, primarily in Baltimore and Cincinnati, where it also runs a large health system.

In the latest edition of “Faith and Investing,” an ImpactAlpha series with the Global Impact Investing Network, we look at the faith-based turn toward place-based impact investing. The shift is an extension of the kinds of congregation-based activities churches, synagogues and mosques have been engaged in for centuries. What is new, especially in the U.S., are an expanded range of structures and vehicles for driving improved outcomes in education, health and livelihoods in local communities. Sticking close to home lets faith-based institutions overcome skepticism about impact investing – from investment committees that question the risks and returns, and from social advocates wary about impact. “Faith-based investors are not check-the-box impact investors. They do some of the deeper dives in due diligence,” says Justin Conway of Calvert Impact Capital, which worked with Bons Secours to launch its community impact investing program. “You really have to prove the social and environmental piece.”

Keep reading, “Faith-based institutions fit local investments into global portfolios,” by Jessica Pothering on ImpactAlpha.

  • Faith and investing. Join Mercy Investment Services’ Bryan Pini, Skopos Impact Fund’s Luka Skorochod, Catholic Relief Services’ Beth Collins and other faith-based impact investors at the Global Impact Investing Network’s annual investor forum in Amsterdam, Oct. 2-3. Register now with code ImpactAlpha10 for a 10% discount.

Dealflow: Follow the Money

Indonesian peer-to-peer lender Julo adds $10M to its Series A. The Jakarta-based company has developed credit-scoring technology to make affordable, unsecured consumer loans to Indonesians. The loans average $300 with monthly interest of 3% to 5% for up to six months. “Access to affordable personal loans on a short-term basis is often the difference between a family being able to pay for its daily needs like education, or not,” Julo’s Adrianus Hitijahubessy said. The extension round was led by Quona Capital, which focuses on inclusive fintech in emerging markets, and included existing investors Skystar, East VenturesProvident, Gobi Partners and Convergence. Check it out.

The Nature Conservancy wants to bring reef insurance to the U.S. Coral reefs are critical for coastal economies and the first line of defense in storms. But rebuilding damaged reefs after a storm is costly. That’s why the idea of coral reef insurance is catching on. In Mexico, The Nature Conservancy worked with the state of Quintana Roo and local partners on an insurance policy to protect the Mesoamerican Reef (see, “A reef off of Mexico is getting its own insurance policy). The policy ensures quick funding to repair reef damage after hurricanes. Bank of America, which backed TNC’s initial reef insurance work, put up $1 million to bring reef insurance to Florida and Hawaii, and aims to have policies in place by 2022. “We are ready to scale this work,” said TNC’s Mark WayDive in.

Schox Philanthropy’s “philanthropic circle” helps tech founders give back early. The Silicon Valley model has been: get rich first, give away money later. Jeff and Kate Schox, co-founders of Trucks Venture Capital, want founders to give earlier. The couple launched Schox Philanthropy, a “philanthropic circle” for startup founders. Founders put 1% of their stock into a pooled fund. When the startups exits, the proceeds are divvied up among the founders to make donations to nonprofits curated by Schox. The fund has provided $250,000 in grants to early stage Bay Area nonprofits, including AnnieCannons, which trains human trafficking survivors as software engineers, and FUSE Corps, which matches executives with local governments. Schox plans to give away another $250,000 this year, according to Inside Philanthropy. Dig in.

Modern Times Group backs Mightier Games to help kids cope with anxiety. The Stockholm-based digital entertainment company backed the Boston-based game maker to improve children’s emotional regulation skills through gaming. More.

Signals: Ahead of the Curve

Blended finance is mobilizing billions, not trillions, for the global goals. Proponents of the use of philanthropic and public capital to mobilize private capital for public goods have touted blended finance as a way to grow annual investments in sustainable development from billions to the trillions needed to deliver on the U.N. Sustainable Development Goals. The result so far: billions to…billions. Commitments to blended finance transactions have ebbed and flowed, but amount to only about $15 billion annually and a total of just $140 billion since 2006, according to Convergence. The blended finance network’s latest report offers a sober reflection on the State of Blended Finance. “The status quo of blended finance will not result in material improvements for people living in developing countries,” it warns. Convergence chief Joan Larrea told ImpactAlpha, “We see lots of good things happening. What we would love to see is billions to trillions and that’s what is not happening.”

  • Leverage ratio. The magic of blended finance is in leveraging concessional capital that is able to take greater risks or lower returns, in order to attract multiples of that amount in commercial capital. For every $1 of such catalytic capital, blended finance deals have attracted about $4 of commercial capital. To scale blended finance, practitioners need to grow the $1 or multiply by more than four.
  • Expanding the pool. Most investors in blended finance seek commercial returns. That includes not only commercial investors (97%), but also impact investors (86%) and development finance institutions and multilateral development banks (62%). That leaves development agencies such as USAID and DFID, and foundations such as RockefellerShell and Gates to absorb the concessions.
  • Multiplying the impact. Larrea says blended transactions need greater standardization to simplify deals for pension funds and big money investors with strict investment profiles. A bright spot: the Teachers Insurance and Annuity Association, or TIAA, has participated in five blended deals since 2013, making them one of the most active commercial investors.
  • Risk transfer. Structures that have reached scale, including International Finance Corp.’s Managed Co-Lending Portfolio Program and Climate Investors One, both aggregate assets and blend capital to transfer and reduce risk. “The really giant transactions happen when you put those two principles into the same deal,” says Larrea.
  • Corporate action. Corporations have participated in 29% of blended deals over the last three years. Pfizer took a first-loss position in the Medical Credit Fund. Johnson & Johnson’s Corporate Citizenship Trust is in WaterEquity’s WaterCredit Investment Fund 3Clarmondial’s agriculture working capital fund has attracted the attention of agriculture corporates. “This is corporates stepping up and taking ownership of this agenda,” says Larrea.
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Agents of Impact: Follow the Talent

Humanity United’s Working Capital investment fund seeks a managing director in San Francisco… Also in San Francisco, the Jewish Community Federation and Endowment Fund is looking for a chief impact officer… American Sustainable Business Council will hold “Making Capitalism Work for All” in Washington D.C. Dec. 10 and 11… High Water Women’s 7th Investing for Impact Symposium is Oct. 29 in New York. ImpactAlpha subscribers get 10% off with the code ImpactAlpha10.

Thank you for reading. 

– Sept. 25, 2019