For social enterprises too big for a microfinance loan and too small and risky for commercial lenders, impact investment funds fill the gap by channeling debt or equity capital into growing the business.
Though it’s not uncommon to see impact investments made in developed markets, impact investments generally refer to those made to social enterprises that operate at the bottom of the pyramid, a term used to describe those living under $2.50 a day. In other words, these businesses serve the world’s poorest by providing access to healthcare, water, sanitation, housing, food, among other necessities. And because they work in much tougher environments, impact investment funds typically help with management support to nurture the company in addition to providing capital. As a company grows, they are able to make a greater positive impact on the livelihoods of many people. Therefore, impact investment funds exist to catalyze impact through investment in social enterprises and other socially-minded organizations.
Acumen Fund is the brainchild of Jacqueline Novogratz, whose journey through South Asia and Africa working with women in microfinance led her to believe that somehow, capital could be used to support local enterprises that have innovative approaches to serving the poor. Acumen Fund was incorporated in 2001 with seed funding from the Rockefeller Foundation, Cisco Systems Foundation, and three individual philanthropists. Since establishment they have made over $70 million worth of investments – called “patient capital” – in India, Pakistan, Kenya, Tanzania, Uganda, the United States, and the United Kingdom. These investments typically range from $300,000 to $2 million in equity and debt with a payback of roughly seven to ten years, hence the name “patient”. The goal isn’t high returns, but rather to improve the ability of the poor to live with dignity.
Grassroots Business Fund (GBF) is based in Washington, DC and has offices in Kenya, Peru, and India. Their focus is to invest in high-impact businesses in emerging markets that provide sustainable economic opportunities for the bottom of the economic pyramid. GBF was an initiative led by Harold Rosen, who spent 30 years managing the International Finance Corporation’s emerging markets investments. They make various equity, quasi-equity, and debt investments between $250,000 and $1 million with an average investment period of six to eight years. These investments are complemented with business advisory services such as financial management, accounting, and governance. GBF supports enterprises in Kenya, Tanzania, India, Indonesia, Bolivia, and Peru.
LeapFrog Investments focuses on financial services businesses, mostly companies that provide insurance, in the African and Asian market. They invest large amounts typically between $5-20 million over a four to seven year period and expect to exit the mature business with an IPO, trade sale, sale back to partner, or MBO. Since operations began in 2008, LeapFrog has a track record of investing in companies that provide microinsurance products including crop insurance, livestock/cattle insurance, fire or theft insurance, health insurance, term life insurance, death insurance, disability insurance, or insurance for natural disasters. Traditionally, people living at the bottom of the pyramid are excluded from insurance services and as a result do not have a safety net, which they require more than anyone.
Root Capital concentrates on helping small and growing agricultural businesses in Africa and Latin America. It was founded by Willy Foote who began his career as a financial analyst in the Latin American Corporate Finance group at Lehman Brothers. While in Mexico and Argentina, he discovered the challenges faced by cooperatives and small producers who lacked access to credit and markets. The company began lending in 1999 to farmer associations and private businesses that create prosperity in rural regions. The number of loan disbursements made total 1,266 with a value of $436 million.
The Small Enterprise Assistance Funds (SEAF) began in 1989 as the CARE Small Business Assistance Corporation (CARESBAC) owned by CARE, the international relief and development organization. At the time, there was a recognition that small and medium enterprises were vital to achieving prosperity and political and economic stability in both developing and transition countries. In 1995, CARESBAC spun out to become the SEAF and provided investments supporting businesses operating in underserved communities. The first fund was launched in Poland in 1992 and has since expanded across Central and Eastern Europe, Latin America, and Asia. In total, SEAF has made over 300 risk capital investments through investment vehicles such as funds, facilities, and finance companies in over 20 countries. Investments generally range from $200,000 to $3 million.
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