Greetings, Agents of Impact!
Featured: Reimagining Slums
The business case for infrastructure investments in informal settlements. Variously known as favelas, shantytowns, encampments, aashwa’i, campamentos and other terms, informal settlements in urban areas around the world are home to more than one billion people, a number the UN estimates could triple by 2050. “The growth rate of people living in slums has outpaced the public sector’s ability to generate solutions,” Sebastian Welisiejko, chief policy officer of the Global Steering Group for Impact Investing and a former official in Argentina’s Ministry of Health and Social Development, writes in a guest post on ImpactAlpha. “There is a clear case for public-private sector partnerships to invest in the rehabilitation of informal urban areas.”
Welisiejko proposes that governments issue “thematic place-based sustainable debt instruments” to mobilize private capital to upgrade slums in the public markets. He cites Argentina’s 2018 law that established a process for titling land in informal settlements, along with a dedicated public-private trust fund. The 15- to 20-year fund is designed to provide debt capital for provinces and municipalities aiming to regularize informal settlements, guaranteed by tax receipts. The first $300 million in public capital was secured in 2020 and 2021. “Though there have been challenges in its deployment, Argentina’s first-of-its-kind impact fund aims to pool public resources with private and institutional investment to address an investment gap estimated at $26 billion – almost 400 times the historic annual public investment in this area,” Welisiejko says. “To transform the perception of informal settlements as urban liabilities, we need to quantify and communicate the potential of these areas to drive societal value creation.”
- Keep reading, “Reimagining Slums: The business case for infrastructure investments in informal settlements,” by GSG’s Sebastian Welisiejko on ImpactAlpha. Catch up on all of our impact policy coverage at Policy Corner, sponsored by the U.S. Impact Investing Alliance.
- ICYMI. Read, “India’s urban slums have become a testbed for climate solutions,” by Shefali Anand on ImpactAlpha.
Dealflow: Return on Inclusion
Illumen Capital raises $168 million second fund to fight bias in asset management. Recent economic volatility has pushed the share of global assets managed by women and people of color back below an already low 3%. “People revert to what they are familiar with, rather than what they’ve been trained to do as investment professionals, which is finding value,” Illumen Capital’s Daryn Dodson told ImpactAlpha. “Our skills now are even more important.” Oakland-based Illumen invests in fund managers and provides them with 10 years of training to identify and flush out explicit and implicit bias in their and their portfolio companies’ investment and human resource processes (for background, see, “Overcoming racial bias to optimize asset management for returns – and impact“). Doing so, the firm argues, uncovers and delivers untapped financial and economic value. Illumen has raised a $168 million second fund to double-down on the thesis. “There’s massive pent-up latent value within markets that can be unlocked.”
- Delivering impact. Illumen closed its first fund in 2020. It has invested in more than 10 managers and 16 funds, which now have stakes in more than 350 companies. Just over one-quarter of the management firms are women-led. More than half are led by people of color. Illumen’s training shows up in fund managers’ term sheets, says Dodson. “We’ve seen some of the lessons get codified in the term sheets of underlying portfolio companies in order to [advance] more equitable hiring.” A growing focus: generative AI and its potential to accelerate or reduce systemic bias.
- Doubling up. Illumen’s second fund raised $20 million more than its target and is nearly double the size of its first fund. The Ford and Kellogg foundations, lead investors in Illumen’s first fund, also anchored its second, which included more than 100 investors. “There are 100-plus investors learning alongside us and applying [these strategies] to their respective portfolios,” said Dodson. Illumen’s investor base includes mainstream investors “interested in gaining insights on the economic value-creation part,” he added. “That’s really exciting for us.”
- Read on.
M-KOPA lands $255 million in equity and impact-linked debt for financial and gender inclusion. The Nairobi-based company helped build Africa’s off-grid, pay-as-you-go solar market. M-KOPA now calls itself a fintech company, offering digital financial services that support livelihoods and income generation for underserved borrowers. It provides mobile phone, vehicle and rooftop solar financing, health insurance, and other types of loans and credit to three million people across East and West Africa. The company raised $55 million in an equity round led by Sumitomo Corp. Blue Haven Initiative, Lightrock and others participated. M-KOPA also secured $200 million in debt, led by Standard Bank, with participation from Mirova SunFunder, the IFC, FMO, BII and other international development banks. The repayment terms reward M-KOPA for expanding its reach and lending to women borrowers and for electric mobility and clean energy access.
- Strategy pivot. Early movers in Africa’s off-grid solar market have shifted their strategies as the sector and technologies have evolved (for context, see, “Off-grid solar pioneer Bboxx is following the data to down-market growth“). In 2019, M-KOPA began moving into tech-enabled financial services, primarily for low-income and unbanked Africans. M-KOPA now only offers solar financing in Kenya. It has retained its focus on underserved customers, unlike some other providers that have moved upmarket.
- Financial inclusion. M-KOPA’s basic credit product allows customers to buy “productive use” assets, including cell phones, by making a small deposit, then making mobile payments. It offers larger loans, health insurance and other services to repeat borrowers. Its outreach model relies on a network of more than 10,000 in-person agents. It has provided more than $1 billion in credit since launching in 2011. Lendable has been appointed to verify M-KOPA’s impact progress for the latest round of debt.
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Dealflow overflow. Other news crossing our desks:
- Grotech Ventures, Impact Engine, New Climate Ventures and others invested $19 million in Cloverly, which connects companies to carbon credit initiatives. (FinSMEs)
- South Africa’s DigsConnect secured Series A funding to help African students in the US and UK secure safe and affordable housing.
- Noodle raised $3.4 million to help Brazil’s content creators set up international payments, negotiate royalties and access credit.
- Germany’s Voltfang raised €5 million to recycle used EV batteries for grid-connected energy storage. (EU-Startups)
Six Short Signals: What We’re Reading
✌🏾 Gun violence reduction. Screening out gun companies from investment portfolios can lead to a higher cost of debt for firearm companies, argues Bhakti Mirchandani of Trinity Church Wall Street in the first in a series of posts that explore how investors can end the age of mass shootings. (Forbes)
📈 ESG could have saved Silicon Valley Bank. Recent bank failures shine an oft-neglected light on the “G” in ESG and present a sobering warning for how consequential ESG factors can be for assessing risks. (Investment News)
🌱 Clamping down on carbon-neutral claims. The European Parliament voted last week to support new rules to improve product durability by combatting greenwashing and misleading claims on consumer labels, such as ‘CO2 neutral’ or ‘carbon neutral.’ (Euractiv)
☀️ Catalyzing climate finance. Risk-sharing instruments that catalyze private capital are among the products and processes that need to be scaled at development banks to effectively deploy volumes of climate finance in emerging markets. (Climate Policy Initiative)
💨 UK’s windy transition. One-third of the UK’s electricity came from wind farms in the first three months of 2023, marking the first time that wind turbines in the country have generated more electricity than gas. (BBC)
👷🏾♀️ Rust Belt’s green future. Steel built the US Rust Belt. Green steel could help rebuild it. Steel manufactured using hydrogen and powered by renewable energy could drastically reduce carbon emissions and employ a well-paid, industrial workforce. (Grist)
Agents of Impact: Follow the Talent
Don’t miss these upcoming impact investing events:
- June 20-22: Asian Venture Philanthropy Network Global Conference 2023 (Kuala Lumpur)
- July 13-14: Africa Impact Summit, hosted by GSG, African national advisory boards for impact investing, and the University of Cape Town’s Bertha Center (Cape Town)
- August 27-30: Latimpacto’s 2023 Conference (Rio de Janeiro)
Builders Vision is looking for an impact investing associate in Chicago… Accion Impact Management is hiring an operations fund manager in Washington DC… Social and Sustainable Capital seeks a portfolio manager analyst in London… The London School of Economics and Political Science is recruiting an impact investing associate… ResponsAbility has an opening for a fund of funds product controller in Zurich… Upstart Co-Lab is on the hunt for a communications and operations manager.
Omidyar Network’s Reporters in Residence program will award $50,000 each to three freelance journalists for reporting on big-picture economic ideas… SIMA Funds launches the SIMA Impact Foundation to create scholarships and internships for local university students in emerging markets to explore a career in impact investing… Today is the last day for global climate tech startups to apply for grants from the GSMA Innovation Fund for Climate Resilience and Adaptation 2.0.
Thank you for your impact.
– May 16, 2023