Financial Inclusion | March 17, 2018

The Brief’s Big Ten: Perils and promise of impact investing

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Greetings, ImpactAlpha readers!

#Featured: The Brief’s Big Ten

1. The continuing fallout from the dispute over the Abraaj Group’s finances. It started with questions from investors, including the Gates Foundation, about accounting in the Dubai-based firm’s $1 billion Growth Markets Health Fund. Now, the controversy has engulfed the $13 billion firm and the fallout continues. Among the developments since ImpactAlpha’s storyon the health fund and the original dispute:

  • KPMG, the auditor Abraaj brought in to inspect its books, said it has verified all payments and receipts. Ankura Consulting, another auditor enlisted by the Gates Foundation, the International Finance Corp., Proparco and CDC Group, has not released a statement.
  • Abraaj’s founder, Arif Naqvi, stepped aside from the firm’s fund-management business. Ashish Dave, Abraaj’s chief financial officer, has left the firm. Mustafa Abdel-Wadood, the global head of private equity at Abraaj, also is leaving.
  • Abraaj paused investments and halted fundraising on its new $6 billion SDG fund, Private Equity Fund VI. Abraaj closed on the fund’s first $3 billion last year. Washington State Investment Board and the Teachers’ Retirement System of Louisiana withdrew a combined $300 million that had been committed to the new fund.

What we know about Abraaj’s $1 billion health fund — and its dispute with the Gates Foundation and…

2. Pay-as-you-go solar leader M-KOPA lays off 18% of its staff. The Nairobi-based off-grid solar venture has raised more than $100 million in equity, debt and grants from impact investors, development banks, foundations and local banks, including an $80 million commercial debt financing in October. CEO Jesse Moore says a restructuring was completed in December, though it just became public in the Kenyan press. “We are outsourcing more of our technology work, maintaining a smaller in-house team to work directly with outsourcing partners in Kenya and overseas,” Moore said in statement. At least 78 Kenyan developers were reportedly let go; some operations are being outsourced to Applicita, a British company founded by M-KOPA’s acting chief technology officer John Kattenhorn. M-KOPA is taking some lumps online.

3. The economics of mobile money. The business case for financial inclusion is clear. How to capture the opportunity, while delivering benefits to the unbanked is less so. A new report from McKinsey takes a systematic look at the economics of mobile money. Researchers pegged the break-even point for individual digital-finance providers at between $2 billion and $3 billion in annual transactions, or $20 million in revenues. Scale is key.

The economics of mobile money

4. New financing facilities blend public, private and philanthropic capital to meet the 2030 Global Goals. To get to the trillions needed to bridge funding gaps for the Sustainable Development Goals, first get to the billions. A tally last year put total funds mobilized by 187 blended finance deals since the early 1980s at $51 billion. New innovative finance schemes are also notching impressive tallies. Three blended-finance vehicles aimed at the Sustainable Development Goals that were funded by design grants from Toronto-based Convergence have mobilized more than $100 million. Moving from pilot to scale.

New financing facilities blend capital to meet the 2030 Global Goals

5. The surprising leader in the $36 billion global market for ‘payments for ecosystem services.’ Environmentalists have talked for decades about the value of the clean air, clean water, biodiversity and other “services” provided by nature. A new report estimates between $36 billion and $42 billion per year is paid annually, in more than 550 “payment for ecosystem services” programs worldwide. This is real money.

  • China’s market-based system to reduce deforestation is the largest ‘eco-compensation’ program in the world. Genevieve Bennett at Forest Trends updated the numbers: “China’s eco-compensation programs have absolutely continued post-2010 and in our most recent tracking we have observed increased budgets for subsidy payments for watershed protection and restoration. As of 2015, Chinese eco-compensation payments totaled about $15 billion each year.

The surprising leader in the $36 billion global market for ‘payments for ecosystem services’

6. Global corporations look to impact entrepreneurs for innovation. The hunt for new customers and new approaches is drawing corporate multinationals toward entrepreneurs in banking services, farm technology, mobile clinics and off-grid energy sources for the billions of people around the world that still lack those services. “If you’re a corporation wanting to plug into the sheer power of economic activity of small businesses in emerging markets, or a foundation looking to how problems are being solved, you need to connect with entrepreneurship,” says Rob Tashima of Village Capital Innovations, which was launched this week. Corporate innovation and impact.

Global corporations seek innovation by supporting impact entrepreneurs

7. Doodhwala cuts out middlemen to boost incomes of India’s small dairy producers. Every morning in India, local milkmen deliver fresh milk to millions of household doorways. Delivery service Doodhwala is using the morning routine to help small dairy farmers sell their milk at a better price. That caught the attention of Omnivore Capital, a Mumbai-based agriculture impact investment firm, which invested $2.2 million in Doodhwala, the first investment from its second fund. The model help makes farm businesses viable.

Doodhwala cuts out middlemen to boost incomes of India’s small dairy producers

8. Another foundation moves to align endowment with mission. This is no time for business as usual, Sharon Alpert, president of the Nathan Cummings Foundation, made clear in a note last year when the foundation boosted its grant-making to challenge xenophobia, racism and attacks on democratic institutions and the legitimacy of the press. Now, the 70-year-old foundation is taking another business-not-usual step — for philanthropy — by pledging to align its entire $443 million endowment with its mission, including fighting climate change and income inequality. Philanthropy’s business model is changing.

With new pledge, another foundation moves to align endowment with mission

9. Demystifying impact investing for newcomers — and the rest of us.There’s a lot of confusion around the term “impact investing.” Three impact fund managers joined a panel discussion in New York, hosted by fintech company Liquidnet and moderated by ImpactAlpha’s David Bank, to try to clear it up. (Full disclosure: the Liquidnet Impact Fund is an investor in ImpactAlpha). Listen in.

Demystifying impact investing for newcomers — and the rest of us (podcast)

10. Donor-advised funds move to provide an onramp to impact for smaller investors. Donor-advised funds have long been seen as effective philanthropic vehicles administered by public charities. Here’s another way to look at these tax-preferred investment products that are designed to do good: an untapped pool of assets that is naturally aligned with the impact investing approach. ImpactAssets has cut the minimum investment for its roster of private debt and equity impact funds to $10,000 for donors within the ImpactAssets Giving Fund, its donor advised fund. Those kind of impact funds typically require minimum commitments of $250,000 to $500,000. More can be done.

Donor-advised funds move to provide an onramp to impact for smaller investors

Onward! Please send news and comments to [email protected].