Closing the credit gap and investing for social good
Tuesday, January 10, 2017
Impact investing describes investments made to organisations with the intention of creating measurable social or environmental impact, in addition to providing capital returns to investors.
With almost 60% of INGOs actively engaged with or piloting social impact schemes impact investing is a growing trend in international development. The ACRE (Access to Capital for Rural Enterprises) partnership is just one scheme embarking on this innovative new approach to funding.
According to the World Bank, formal small and medium enterprises (SMEs) account for nearly 45 percent of the employment in emerging economies. At the same time half of these enterprises do not have access to formal credit, leaving a gap of $1.2 trillion. ACRE, a partnership between 5 leading INGOs (Christian Aid, Traidcraft, Practical Action, Twin and Challenge Worldwide), aims to close this gap by helping SMEs in developing countries to become more investment ready, linking them up with investors who can provide patient capital investments. Acting as the middle man, ACRE creates positive social change on 3 levels - individuals (in the form of jobs, income, access to goods), enterprise (increased sales, impact, access to finance), and market (stronger value chains, improved economy).
Each organisation that ACRE supports is first assessed using a set of filters designed to identify whether it is suitable to become a part of its pipeline. These filters include assessing the social impact the enterprise has in the context of rural livelihoods, whether it is commercially viable (or at least has the potential to be), and whether it has leadership in place with the skill and incentive to grow the business. The INGOs in the consortium provide technical assistance and support, including expertise in financial management, management structures, sales and markets, governance, growth strategy, operational plans, and developing a business plan to present to investors.
In Nicaragua, ACRE has worked with smallholders in order to make them more resilient to climate change and the erratic weather patterns that cause low yields. The ACRE cooperative supports Nicaraguan farmers in cultivating hibiscus, a high demand crop that can withstand climate change, by training small producers on better farming and harvesting techniques, and by securing higher prices for produce through value-added processing, creating both permanent and seasonal jobs.
By demonstrating the effectiveness of investing for social good, ACRE hopes to influence wider investment practice by encouraging more impact investors to support early stage small and medium enterprises.