Challenges in Financing the Future
by Kusi Hornberger, director of investment research, Global Partnerships
After joining Global Partnerships in June, participating in the 2015 Biennial of the Americas Financing the Future: New Frontiers in Impact Investing clínica as a respondent last month was an interesting way to review the field's current themes and challenges from the perspective of a new role. The discussion was lively, with broad representation from across the impact investing space, including wealth advisors, accelerators and nonprofits. The clínica touched on a number of themes across the industry, but I wanted to share my thoughts on four of the challenges discussed that are most relevant for GP, as well as the impact investing industry as a whole:
- Impact investing has emerged—now we need to improve its execution. The growth and amount of capital deployed in the impact investing space is astounding. A report from Bain & Company last year1 found that capital committed to impact investing had increased from $160 million in 2008 to $2 billion in 2013 in Latin America alone. A recent GIIN report, The Landscape for Impact Investing in East Africa, suggests that non-development finance institution (DFI) impact investors have deployed more than $1.4 billion to date in the region through more than 550 deals. Every day more organizations are being formed that seek to raise or deploy capital to invest in ventures aimed at addressing social issues. The challenge now is execution: Over the next five years, industry actors will need to show that impact investing can achieve and maintain scale. Meeting this challenge is at the heart of GP's rigorous due diligence process for new partners, and is how our five funds have achieved 40 consecutive quarters of positive social and financial returns.
- Despite industry growth, early-stage social ventures still face gaps in funding. There is a funding gap for earlier-stage ventures. Mature investors are less willing to invest at this stage because of a lack of understanding of the business models involved or a lack of confidence in the maturity of the business plans of many earlier-stage social ventures. Organizations like the Eleos Foundation, Endeavor Catalyst and Vox Labs have begun to set up innovative approaches to address this gap, but more resources are needed.
- Balancing impact evaluation with still-developing metrics. As the industry matures, foundations and DFIs are placing increasing importance on impact measurement and evaluation. At the same time, impact measurement tools such as GIIRs, IRIS and B Analytics are recognizing that the metrics and tools available to impact investors remain inherently imperfect, as they continue to evolve rapidly. To date, metrics have generally been output-driven, when what many impact evaluators strive for is outcomes, which are much more difficult to measure and take time to prove. Overcoming this tension will be a critical challenge for the industry as we move forward. GP reports impact evaluation metrics to IRIS (individuals receiving technical assistance, for example), recognizing that not all of the metrics we track are a perfect fit and trying to control for the possible evolution of metrics over time.
- Maintaining focus as the industry landscape continues to evolve. Many impact investors have had difficulty focusing their resources, but reaching clarity on what they do and do not do is essential to focusing their investments in the areas where their efforts can have the greatest impact. This can be challenging, but is critical to success as competition increases and the industry continues to evolve. GP's core value, "aim well and follow through," helps us focus carefully on the initiatives and social enterprise partners where our capital can achieve the greatest impact.
My first two months at Global Partnerships have been exhilarating, as I am now able to focus full-time on an approach to helping reduce poverty I am truly passionate about. Participating in the clínica was a great way to gain perspective on GP's role in the broader impact investing industry and on my role within the team.
After ten years of investment and strategy consulting experience across the public and private sectors, it is gratifying to put what I have learned to work on some of the most important challenges of our day. Namely, how to identify and invest in the most impactful and financially sustainable approaches to economic development in Latin America and East Africa, as well as to support GP's development as a successful impact investor as we—and the industry—continue to grow. I look forward to sharing more of my insights and research moving forward.
1Full disclosure: Kusi Hornberger is one of the report's authors.
Expanding Opportunity for Smallholder Farmers
by Danny Stokley, director of business development, Global Partnerships
By supporting COOPEFACSA with a working capital loan, GP aims to support their plans to add new members and expand their non-financial services offerings.
Global Partnerships (GP) recently disbursed a working-capital loan to a new partner, COOPEFACSA (Cooperativa de Ahorro y Crédito Fondo Campesino de San Antonio), a savings and credit cooperative offering financial services to rural populations in the Autonomous Region of the South Atlantic (RAAS) in Nicaragua. This region remains underdeveloped compared to the rest of Nicaragua, with limited infrastructure, lower literacy rates and a higher percentage of the population living in poverty1. COOPEFACSA is member-owned and deeply integrated within the region. Committed to professional development for both employees and members, COOPEFACSA is one of the only sources of financial services and adult training and education available to the cooperative's 2,800 members. This cooperative is an excellent example of how people living in a remote region can be empowered to expand their own opportunities—the belief at the heart of GP's work in rural livelihoods.
One way that COOPEFACSA supports members is by combining flexible credit, technical assistance and market access in order to help producers begin cultivating cacao. This particular crop requires significant investment in saplings, labor and inputs, and trees only begin producing after two to three years. However, once farmers begin harvesting cacao, they report significantly higher income than from other agricultural uses of their land.
How COOPEFACSA works with outgrowers to create impact
"Outgrowers" are a type of social enterprise GP has recently added to our portfolio. Typically privately-owned companies (agricultural processors or exporters), outgrowers purchase crops from individual farmers or farmer cooperatives. Many also offer training and purchase guarantees that can significantly reduce the economic risks farmers take to run their businesses.
With a lengthy turnaround between a farmer's initial investment and the first harvest, cacao production comes with a number of risk factors that can be particularly worrisome for smallholder farmers. COOPEFACSA's partnership with an outgrower limits their members' exposure to that risk. COOPEFACSA works with INGEMANN, an outgrower that provides technical assistance to farmers, allowing them to produce higher value crops, and guarantees purchase of what they produce. COOPEFACSA provides the loan that allows members to purchase saplings and inputs, and negotiates minimum prices with INGEMANN on behalf of their members. As part of GP's due diligence process, I had the opportunity to visit COOPEFACSA in January, and learned a bit about how this partnership with an outgrower reduces COOPEFACSA members' risk, making an investment in cacao production attractive.
- The first major hurdle smallholder farmers face with cacao is that it can take up to three years from the time saplings are planted until the first harvest. This is a substantial investment that yields no return for several years. COOPEFACSA assists members by offering credit tailored to cacao production, with a grace period of three years. Frank, the cooperative member pictured with his family above, shared that this loan was crucial, as he wouldn't have been able to put his own money into such a long-term investment.
- The next obstacle is a lack of local knowledge of how to plan, maintain and harvest cacao. To overcome this, INGEMANN offers interested COOPEFACSA members a certification course in growing cacao. INGEMANN technicians also visit each member every week to provide onsite technical assistance while farmers cultivate their first plot of trees.
- Perhaps the most worrisome risk for farmers is uncertainty about the ability to sell a new crop after such a significant investment of time and resources. INGEMANN also addresses this concern by guaranteeing to buy 100% of farmer production at a contractual minimum price based on predefined quality standards. While the minimum is set, the final price may be higher, depending on world cacao prices when the farmer is ready to sell.
This partnership allows smallholder farmers to transition to growing a higher value crop with minimal risk, and connects smallholder farmers in an underserved area of Nicaragua with an exporter that supplies gourmet chocolate producers abroad. While the evidence is anecdotal at this stage, COOPEFACSA members confirmed that they were happy with the services received through INGEMANN after several years, and were earning more income than before. Cacao trees also produce fruit year-round, unlike many crops available to smallholder farmers, resulting in a much more consistent source of income over time. As many of the largest chocolate producers globally are warning of an upcoming chocolate shortage, cacao will likely continue to be a lucrative crop for smallholder farmers in certain parts of Latin America2, and relationships between farmers and outgrowers will be essential in cultivating that opportunity.
Why we invest in local partners
COOPEFACSA's employees and owners are all from the region, their current Credit Manager began her career with the cooperative on the janitorial staff, and most of their board members are smallholder farmers themselves. Nearly every employee, from credit officers on up through management, utilizes the organization's financial services offerings. This integration is one reason COOPEFACSA has such a thorough understanding of the products and services most appropriate to, and those that will be most appreciated by, their members. From offering members small savings accounts and a place to receive remittances, to the technical assistance and market access offered through partnerships with outgrowers, all of their activities are driven by local needs. With strong ties to the surrounding community, local partners like these know what their clients need better than anyone else. GP is proud to partner with them and increase the life-changing impact they bring to their clients.
Reflections on Impact Evaluation
by KJ Zunigha, impact evaluation officer, Global Partnerships
Last month, I joined nearly 100 of my monitoring and evaluation peers in Washington, DC to talk impact, measurement and data at the 2015 Metrics Conference hosted by the Aspen Network of Development Entrepreneurs (ANDE). Held annually since 2010, the conference provides people working in the impact evaluation space the opportunity to dig deep into the exciting, challenging and often nebulous nature of measuring how much and what kind of impact the social enterprises in which we invest are having on the lives of the people they serve.
Three of the top themes that emerged from the conference were:
1. Right-sizing evaluations
Although randomized controlled trials (time- and resource-intensive studies) are considered the gold standard in evaluation, they are not always the right type of evaluation to conduct. As an impact investor working to categorize and evaluate the impact we and our partners have at the household level, Global Partnerships (GP) needs to look at the size of the project, the question(s) we want answered, and the resources we and our partners have available to help guide evaluation design. We must always keep our partners and their clients at the forefront of this process so that any evaluation activities we undertake do not overly burden or interrupt the work of the people we are ultimately working to serve. The right evaluation must be as rigorous as possible within the bounds of the environment in which we and our partners operate.
2. Understanding different audiences and communicating effectively
Impact evaluators collect, analyze, synthesize and report impact data for a wide variety of audiences, each of which has different needs. Some may need only an "elevator pitch" or talking points, some want to dive deep into the details, while others are looking for a specific kind of finished product—a case study, a story, a trend report or projection. There are countless ways we can measure, discuss and share data, so as evaluators it is critical for us to understand the needs of our various audiences so that we are able to communicate our work effectively.
3. Maintaining continuity with investors at all stages
GP provides debt financing to social enterprises that are looking to grow and scale their organizations, and may be one of a number of investors and supporters. Too often in this sector, investors at various stages in a social enterprise's development don't communicate their measurement approaches. This creates the likelihood of a dramatic shift in measurement activities and data requirements—and a potentially significant burden for the social enterprise—as it grows and seeks new types of capital.
While measurement approaches and indicators may change as a social enterprise grows and matures, it is important that all investors at every stage of a social enterprise's development have visibility into each other's measurement activities to create a more streamlined approach and a sense of continuity.
Tara Murphy Forde, GP's Director of Impact & Strategic Initiatives, led a conference session on this topic with Vox Capital's Rebecca Obara, looking at the impact frameworks of their respective organizations. The session focused on Vox's custom, hands-on approach to working with its investees as an early-stage investor, and GP's approach that focuses on impact at the household level across our portfolio and multiple initiatives. One way GP supports visibility into our impact framework is by feeding our data into IRIS (Impact Reporting and Investment Standards), a database of social impact metrics intended to help create a common framework for impact measurement.
Perhaps the greatest overall takeaway from this year's ANDE metrics conference is that, with our broad portfolio of initiatives, Global Partnerships' best opportunity to gain meaningful data and insight is to approach impact measurement with flexibility. With an eye on the big picture, the data we collect from each of our partners can tell us about what their work really means for the people they serve.
If you enjoyed this post, you might also like:
- Meet KJ, GP's new impact evaluation officer
- 3 emerging trends in impact evaluation
- Why is measuring impact so complex?
Investors Report for the first quarter of 2015
In the first quarter of 2015, Global Partnerships achieved two exciting "firsts." GP made its first investments in Paraguay, marking our entry into our 13th country. And, GP reached an important milestone of impacting over three million lives. Learn more in Global Partnerships' Investors Report:
- Our Chief Investment and Operating Officer, Mark Coffey, provides an overview of the "outgrower" or contract farming model to deliver credit, technical assistance and market access for thousands of smallholder farmers (read here).
- We introduce BioExport, an outgrower and a new GP partner that sources, processes and exports sesame and chia seeds from smallholder farmers throughout Paraguay (read here).
- We provide updates on our Social Investment Funds' performance (read here).
Investing in women means investing in future generations
by Gail DeGiulio, chief capital resource officer, Global Partnerships
Crowding together, we squeezed inside of Michaela’s stall. Colorful hand-woven purses hung from wall to wall. Michaela, 52, and a mother of eight, beamed with pride as she spoke about the business she built against all odds.
As the oldest of five children, Michaela never attended school. She was responsible for caring for her younger siblings. She also worked at her family’s weaving business. This is a typical childhood for women in rural Guatemala. For Michaela, she was determined as a mother to change that for her children. She wanted to provide them with better opportunities than she had growing up.
Thirteen years ago, Michaela took out her first loan from Friendship Bridge (FB), a Global Partnerships partner in Guatemala. With her loan, she bought materials to start her own textile business. Through FB, Michaela also received education on budgeting, finance, saving, women’s health, and the importance of women’s education. This combination of loans and education empowered Michaela to succeed. Through the years and multiple loan cycles, Michaela has grown her business to include two stores that sell high- quality textiles that appeal to both local customers and tourists visiting Lake Atitlan. Most importantly to Michaela, she has been able to send all of her children to school.
Approximately 60 percent of the clients Global Partnerships’ partners serve are women, and many of them are mothers like Michaela. They are determined to help their families succeed. When you consider the risks, challenges and hardship they must overcome, you realize how this kind of resolve is nothing short of amazing and awe-inspiring. So in honor of Mother’s Day, we applaud mothers like Michaela that are making a difference in their children and their family’s lives. Stories like her's fuel our commitment to investing in partner organizations that empower women and mothers with the resources and education they need to transform generations to come.
True or false? Six things you may not know about coffee
It’s not often that coffee producers, exporters, roasters and baristas find themselves in the same room. But earlier this month, about 10,000 people from throughout the coffee value chain converged in Seattle for the Specialty Coffee Association of America (SCAA) Event and Symposium. This annual event is a major opportunity to network and build relationships, as well as exchange ideas on important issues affecting the coffee industry.
Several Global Partnerships team members attended SCAA’s lectures and events. We also hosted an open house for our coffee cooperative partners that were in town. We value these opportunities to learn from our partners and others in the industry. Many of the things we heard reaffirmed our knowledge, while other things were new to us. Test your own coffee knowledge and see if you can correctly identify what is true or false.
1. Coffee prices reflect coffee production costs.
False. There is no direct correlation between coffee production costs and coffee prices. Furthermore, most farmers face substantial risk and volatility that is not priced into cost. The poor correlation threatens the livelihood of smallholder farmers. This can be addressed by guiding producer organizations to understand the gap between trading relationships and farming practices.
2. Coffee producers need higher coffee prices in order to improve their incomes.
True, but coffee price is not the only factor that matters. Inefficient or non-existent value chains (the linkages between coffee farmers/producers, processors, exporters, buyers, etc.) contribute to increased costs of production and delayed payments, both of which impact farmers’ incomes.
3. Coffee production costs are pretty stable and consistent from country to country.
False. For example, the infrastructure for coffee production in Latin America is much more developed than in Africa. Yet, Fair Trade pricing provides a flat minimum price for coffee throughout the world. Although Fair Trade does promote more sustainable farming practices and helps farmers earn higher incomes, there are still many disparities in coffee farmers’ profits.
4. Diversifying the kinds of products produced on coffee farms can help improve coffee yields.
True. Several co-ops told us that they would like to start beekeeping on their farms. This is because bees pollinate coffee crops, strengthening the quality of coffee yields. In turn, the bees also produce a high-quality coffee-infused honey that provides farmers with a new revenue stream. Diversification enables farmers to build resiliency against fluctuations in the coffee market.
5. Financing is the only thing coffee farmers need to run their businesses.
False. Coffee farmers need financing to pay for many inputs and other costs, such as fertilizer, coffee plants and labor. But technical assistance and access to markets are just as important as financing. For example, many farmers need technical assistance to learn how to calculate their cost of production or improve their farming techniques. And with access to specialty markets, farmers can sell their coffee for higher prices. GP invests in cooperatives that provide loans alongside technical assistance and access to markets.
6. Impact investors, like Global Partnerships, can play an important role in helping coffee producers improve their livelihoods
True. Impact investors like Global Partnerships can provide cooperatives with much needed working capital. Working capital is vital for cooperatives because it enables them to provide their members with access to financing, technical assistance and markets. GP invests in co-ops that go beyond providing financing to farmers. Impact investors can also better serve cooperatives by staying abreast of changing financing needs (such as longer-term loans for replanting coffee trees or new financial products that facilitate crop/product diversification).
Spring 2015 IMPACT Newsletter
Have you ever wondered how Global Partnerships uses philanthropic gifts to create impact? Would you like to understand how research funded by philanthropy helps establish strategic partnerships that expand opportunity for people living in poverty? Learn all this and more in the Spring issue of IMPACT >
YOUR GIFTS CREATE IMPACT
How does philanthropy help Global Partnerships create impact? GP’s Chief Capital Resource Officer Gail DeGiulio explains. Read more >
PHILANTHROPY FUNDS INNOVATION
What is an "outgrower"? Learn how research funded by philanthropy helped us identify and invest in a new type of social enterprise that helps farmers earn better and more stable incomes. Read more >
IMPACT IN ACTION
Impact in action: How solar lights brighten homes & futures
Francisco Sambrana, 34, lives with his wife and two young children in Las Conchas, Nicaragua. He is a primary school teacher, and when he’s not in the classroom he’s often helping his kids with their homework or preparing lessons. He used to depend on candles, kerosene lamps, and flashlights to illuminate his work after sunset.
However, after purchasing a solar-powered Barefoot Connect 600 plug-and-play system, he has a “brighter and clearer light” that is also significantly more economical. He only uses two of the four lights that came with the system, saving the other two for emergencies. But the lights are bright enough that he can put one in the kitchen and keep one light over the threshold of his living room and bedroom, effectively using two lights to illuminate three rooms.
The system also has USB ports through which he can charge cell phones or power a portable DVD player. Now that he no longer has to buy candles and batteries, or travel to the nearest town to pay to charge his phone, he saves several hours and about 565 cordobas ($22) each month. His solar system allows him to cut down on costs, cut down on contamination from kerosene smoke, and even provide phone charging services to his extended family.
The positive impact of his solar-powered system was so great that Francisco decided to take out a loan from FUNDENUSE, a GP partner, to purchase five SunKing Mobiles, which are solar lights with cell phone charging capability, and sell them in his community. He knew from his own experience that “these lights are a great benefit,” and his conviction makes him a natural salesman. Francisco's customers now benefit from reduced energy costs and cleaner air by no longer being dependent on kerosene lamps, and Francisco has been able to supplement his income with a 20 percent commission on sale of the solar lights.
By investing in social enterprises that provide access to solar products, GP helps connect individuals like Francisco with clean, affordable solar solutions. In turn, individuals like Francisco also receive the opportunity to supplement their incomes by reselling solar lights.
Learn more about our solar investments by watching this video explanation about why solar lights are important in developing countries.