Greetings, Agent of Impact!
Featured: ImpactAlpha Original
Investors called to account for fintech lending practices as debt traps emerge. “Proceed with caution” in fintech investing was the conclusion of our preview last month of 2020 impact investing trends in Africa. In Kenya, we wrote, alternative credit-scoring services that provide first-time borrowers with near-instant access to mobile credit are proliferating at the same time usage of gambling apps is soaring (see, “Where to hunt for impact investments in Africa this year“). Now, Bloomberg Businessweek paints a fuller picture that recalls the 2010 crisis of microfinance in the Indian state of Andhra Pradesh: “About 2.5 million Kenyans—1 in 10 adults—have defaulted on a digital loan,” the magazine reports. “Others are trapped in a debt cycle, borrowing from one app to pay off another.” Last summer, local papers reported that a 25-year-old man from a tea farming village hanged himself after defaulting on a $30 loan from an unspecified app.
Businessweek’s takedown of Tala, a digital-lending app that has raised more than $200 million, raises challenging questions about financial services that may be enabling predation, a debt bubble and the impoverishment of many customers. Few of Tala’s investors self-identify as “impact funds,” but the company has sought, and received, the imprimatur of “financial inclusion”; ImpactAlpha featured Tala’s Shivani Siroya as an “Agent of Impact” in August. The enhanced accountability of longtime impact investors could represent risk-mitigating best practices for the new wave of fintech investors. Practices like avoiding over-indebtedness, designing appropriate products, and responsible collecting practices not only protect consumers, but mitigate risk to investors. “Impact investors need to be careful” to scrutinize the fintechs’ underwriting models,” says Goodwell’s Wim van der Beek. “The price has to make sense for the customer, and we want to see that they’re offering lower prices over time, not just bigger loans,” Accion’s Vikas Raj tells ImpactAlpha. Monica Brand Engel of Quona Capital says she sees in Kenya echoes of India’s microfinance crisis, which also included overaggressive lending and collecting, and reports of farmer suicides. “It was partly investor-driven, unsustainable acceleration that drove that disaster,” she says.
Keep reading, “Investors called to account for fintech lending practices as debt-traps emerge,” by Jessica Pothering on ImpactAlpha.
Dealflow: Follow the Money
KKR raises $1.3 billion for Global Impact Fund. The private equity giant launched the fund just under two years ago as an early entrant into the club of private equity firms seeking to raise 10-figure impact funds (see, “For private equity giants, $1 billion is table stakes for entry into impact investing”). KKR hit the billion-dollar mark last summer. Among its investors is KKR itself, which invested $130 million from its balance sheet and employee commitments. KKR Impact’s Robert Antablin declined to comment on how much of the fund has been deployed. The fund has announced four investments and launched a wastewater treatment platform (see Antablin’s post, “Why KKR is investing in wastewater treatment to manage ‘nutrients’,” on ImpactAlpha)
Brazil’s Zetra raises $4.5 million for employer lending and financial health app. Zetra partners with employers to enable employees to tap wages early, instead of taking out loans, and helps employers and employees keep tabs on financial health. Zetra operates in its native Brazil, as well as India, Italy, the U.K. and Portugal (as SalaryFits) and Mexico (as eNomina). Funding from Brazilian tech investor Confrapar will help the company expand SalaryFits into Colombia, Spain and the U.S.
Freight Farms raises $15 million for stackable vertical farms. The Boston-based company repurposes shipping containers for high-tech vertical farming. Freight Farms works with education, hospitality, retail, corporate, and nonprofit customers in 44 states and 25 countries. Freight Farm’s Series B round was backed by sustainable agtech investor Ospraie Ag Science and Spark Capital.
Signals: Ahead of the Curve
Net-zero pledges by BP’s new chief raise the stakes for oil majors. New CEO Bernard Looney kicked off his tenure with bold promises to “reimagine energy” and remake the oil giant for a low-carbon future. “The world does have a carbon budget, it is finite, and we need a rapid transition to net zero,” he said in a live-streamed inaugural address. Looney’s core commitment: Net-zero greenhouse gas emissions by 2050 or sooner from BP’s operations and from the oil and gas it sells – the equivalent of the U.K.’s total emissions. BP is the first oil “major” to adopt such “Scope 3” goals (much smaller Repsol did so last year), and the embrace by one of the world’s oldest and largest energy producers represents a major shift: BP’s former CEO Bob Dudley warned against moving “too fast” on climate change (see, “Decision time for BP as new CEO takes the helm”). “Every time a company sets a precedent, it sets the bar higher for others to match it,” says Carbon Tracker’s Andrew Grant. Not all critics were charmed. “There is nothing in this statement to suggest BP will move away from previous plans to increase oil and gas production by 20% over the next 10 years,” tweeted Greta Thunberg. (BP’s existing strategy calls for 5% annual production increases through at least 2021; the company will disclose updated goals in September).
- Shrinking oil. BP will increase investment in clean energy as it shrinks oil and gas production, but fossil fuels will remain in the mix. They will be decarbonized through sequestration or carbon-capture technology, a strategy that is still not mature. A key litmus test is whether executive pay will be linked to climate goals. Looney said BP would increase the share of its global pay linked to emissions reductions, without details.
- Transparency and trust. BP’s event coincided with a report that the 2010 Deepwater Horizon spill – which spewed 210 million gallons of oil in the Gulf of Mexico – was 30% larger than previously estimated. Looney said BP will curtail lobbying and “reputational” ads and instead advocate for policies, such as carbon pricing, that support a clean energy transition. It will support the Task Force on Climate-related Financial Disclosures, and press its new views in trade groups – and leave if necessary. “If you see an example where we say one thing and do another, call us out.” No doubt his critics will.
- Productive engagement. Looney said his strategy was shaped by a four-month global listening tour. “Everywhere I’ve been, I’ve come away with the inescapable conclusion that we’ve got to change,” and that the needs of investors, employees, NGOs and other stakeholders are converging. “It’s not the pressures in London that has brought this about,” he said, a week after he was blocked from BP’s offices by Greenpeace protesters. “It is the dialogue.”
- Dig in.
Agents of Impact: Follow the Talent
Randall Kempner is stepping down as executive director of the Aspen Network of Development Entrepreneurs in May to head the Cynthia and George Mitchell Foundation in his home state of Texas… Elizabeth Littlefield, ex- of OPIC, will lead Albright Stonebridge Group’s new sustainability practice… Oikocredit is hiring in Accra (Ghana), Lima (Peru), San Jose (Costa Rica) and Amersfoort (Netherlands)… Mercy Corps Ventures is hiring a principal and an associate Washington D.C., London, The Hague, Lagos or Nairobi… The Guyana Economic Development Trust is hosting the Caribbean Startup Investing Summit in New York on Apr. 17.
Thank you for reading.
–Feb. 13, 2020