Features | April 6, 2020

We are lenders, not heroes: Ceniarth’s three-part response to COVID-19

Diane Isenberg and Greg Neichin

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Guest Author

Diane Isenberg

Guest Author

Greg Neichin

There are real heroes in this historic, global healthcare crisis filled with fear and uncertainty.

Doctors and nurses working overtime in hellish conditions, faced with life or death choices. First responders continuing to protect our cities and towns. Scientists working around the clock in search of vaccines and treatments. Even postal and delivery drivers and other essential workers who are ensuring that those of us that cannot leave our homes can sustain ourselves.

They deserve our respect, our praise, and admiration.  They deserve the applause they are getting from balconies in London, New York, Madrid, and Milan.

Then, there are those of us engaged in the business of impact investing.  Many of us entered this field, as stewards of capital or investment professionals, wanting our work to have purpose and meaning.  At a time of global crisis, it is understandable that well-intentioned people feel a passionate call to action. Unfortunately, the moment calls for heroes with MDs, not MBAs.  

This is not to say that our community does not have a vital purpose during this period of massive economic disruption. It most certainly does. It is heartening to see so many in the sector doing all that we can – making rapid changes to loan terms, following through on existing commitments, and identifying new sources of flexible capital.  We should be doing all of this and more while remaining realistic and measured about the limitations of our capacities during this crisis.  

At Ceniarth, wading through inboxes full of contingency plans, field updates, requests for assistance, and other COVID-19 analysis, we have come up with a few principles to guide our actions.  We present these not as a playbook for others, but as a datapoint for how one impact-first investor is choosing to use limited resources.

For Ceniarth’s impact-first portfolio, ‘catalytic’ just means reasonable

No. 1: Stay in our lane: In a time when it seems as if almost every form of capital is simultaneously needed – from grants to loans to guarantees to equity – it might be tempting to start thinking outside of our lane. As a family office, we do have the flexibility to entertain all of these ideas. That said, we know very little about how to best deploy all those other forms of capital. We know how to lend patient, impact-first capital. It did not take a crisis for us to realize that vulnerable communities need deeply concessionary capital to survive. They only need it more now.  This is why we are committed to staying in our lane.

We are grateful for the work of firms such as Open Road Alliance, expert practitioners in emergency, bridging loans. Or aid organizations such as Direct Relief, Partners in Health, or GiveDirectly (if you want your money going directly to individuals!), all skilled in making sure that relief is equitably and efficiently delivered around the world.  

On a local scale, our food banks, community health centers, homeless services, and countless other charitable organizations are working around the clock.  From the Gates Foundation to Google, philanthropic support is pouring in.  It is truly charity’s time to shine. If you are an impact investor inspired to leave your lane, give money to groups like this as opposed to making it up as you go.

This is also a time when closer collaboration with those in adjacent lanes could be more useful than ever. We are working on a number of active opportunities, particularly in emerging markets, where limited loan guarantees are urgently needed to help us and others keep liquidity flowing to enterprises.  These transactions do not require reinventing the wheel during a stressful time and do not require outright grants. We would be eager to collaborate with guarantee providers interested in achieving greater leverage during the crisis.

No. 2: Build bridges to somewhere: We see enterprises and customers in increasing need and we all want to help. That said, there is a cold, hard truth that some businesses and funds will not survive this. Our work in deploying higher risk, pilot debt as program-related investments (PRIs) from our foundation acknowledges the reality that even in more “normal” times, unforeseen shocks can mean the end of a promising enterprise. Just because we are operating in a crisis environment does not mean that we are throwing prudence to the wind.

We are still relying on careful sensitivity modeling for our loans. However, our previous worst case scenarios are now our base cases, and our worst cases are downright apocalyptic. If we do not see a plausible path for an enterprise or a fund to survive a major business downturn for six to 12 months, and come out the other side able to eventually pay us back, we cannot responsibly make the investment.  A loan, even a PRI, without any investor prudence is not a loan, it is aid. Thankfully, there are organizations better than us at deciding who is worthy of those grants.

Making Nature Pay: Bankers Work to Finance Conservation at Scale

We know that we, and other impact-first lenders, will lose money in the months ahead. That is to be expected.  However, the more money we can avoid chewing up in situations where the survival of businesses is unlikely, the more capital we can preserve to assist in post-crisis recovery and growth.

We are seeing survival strategies vary widely by sector and geography. In the last week we have spoken to funds and enterprises that are still aiming for growth during this period; those shuttering completely in an effort to preserve cash and restart on the other side of the crisis; and those threading the needle. There are compelling cases to be made for a range of different approaches, so long as management is clear-headed, decisive, and impact-focused. 

Our prudence does not mean that we are not restructuring loans, approving interest deferments and/or lowering rates, extending investment periods to give funds more runway, and entertaining other creative options to ensure that we are continuing to move money. We are doing all of these things every single day, just as we had been doing many of these things prior to the crisis.  The work of impact-first investing has always required flexibility – and even more so now.    

No. 3: When this ends, the world will still be unfair and unequal: Those of you familiar with us know that we thrive as contrarians and pragmatists.  This is not to say that we do not appreciate optimists. We are heartened to see friends like Cynthia Muller at Kellogg Foundation call the crisis a “complete economic reset opportunity,” and passionate pleas for “making this s**tstorm matter” from ImpactAlpha’s David Bank.  We may be the yin to their yang, but we have deep respect.

Local, inclusive and entrepreneurial: How stakeholders are taking back capitalism in 2020

While we do think that there will be aspects of life that are different on the other side of this pandemic, we do not think things will look much different for the lives of poor people around the planet. As in all crises, they will bear the brunt of economic disruption, social unrest, and illness.  As in all crises, those living in the least developed economies will have the least available from social safety nets and stimulus. As in all crises, their plight will be highlighted, aid will be secured, and then the world will move on, as will most impact investors.

The double bottom line will rise again and we will return to a world where sacrifice is deemed no longer necessary.  We are not waiting for a revolution or mass-scale systems change. If this crisis results in just a handful of new impact-first investors committed to long-term sustained investment in marginalized communities that, by our standards, would be a silver lining.

Ceniarth is a single-family office focused on funding market-based solutions that benefit underserved communities. Diane Isenberg and Greg Neichin are co-directors.