Catalytic capital and blended finance

Explore

Home: Investment intermediaries

GFI's role
GFI's role

The foundations and impact investors involved to date

Catalytic Capital Consortium:

MacArthur Foundation⁠

has pioneered this approach

Rockefeller, Gates, Ceniarth, etc.

Other NGO’s like GFI have initiated, designed, managed, and been implementation partners for blended finance deals

NGO’s in Convergence’s

design funding grant portfolio⁠

⁠

Rainforest Alliance, Nature Conservancy, Climate Policy Initiative, etc.

Other non-profits from Innpact website

Design funding grants

About design and project preparation grants

Transactions that have received design or project preparation grants accounted for 8% of transactions launched between 2017-2019. Design-stage grants have commonly been used to support deal sponsors developing proof of concept (e.g., completing design and structuring activities before launching a financial vehicle), and / or conducting feasibility studies (e.g., market scoping studies). Meanwhile, project preparation grants have been used to define a project’s legal and regulatory requirements, support technical and financial feasibility studies, and determine a project’s overall viability. To date, transactions that have received design or project preparation grants have been smaller, both in terms of average ($127 million vs. $250 million overall) and median ($26 million vs. $57 million) transaction size. This makes sense since design grants support the introduction of innovative, first-time transactions going to market, rather than the scaling up existing constructs. Design and preparation-stage grants have been provided by a variety of organizations and have taken on many forms. Notable programs include those with a more general focus, such as The Rockefeller Foundation’s Zero Gap Portfolio and USAID’s Development Innovation Ventures program, alongside other sector-specific or regionspecific programs. For example, the International Union for Conservation of Nature (IUCN) Blue Natural Capital Financing Facility supports businesses and projects in coastal regions that combine commercial activities with conservation, while the Seed Capital Assistance Facility provides co-financing for clean energy projects in frontier markets.

Convergence State of Blended Finance 2020⁠

⁠

Design funding grantmakers

Convergence:

https://www.convergence.finance/design-funding⁠

⁠

MacArthur Foundation:

https://newventurefund.org/for-grant-seekers/c3grantmaking/⁠

⁠

Additional detail⁠

⁠

https://www.edf.org/ecosystems/how-catalytic-capital-can-support-sustainable-agriculture⁠

⁠

Impact wholesalers:

Big Society Capital⁠

⁠

Rockefeller:

Blue Forest example⁠

⁠

Technical assistance facilities

Technical Assistance, to supplement the capacity of investees and lower transaction costs. Technical Assistance (Technical/Operational Expertise) – Advisory or preparatory services, assistance, and training to facilitate private investment in high-impact projects and enterprises in order to supplement the capacity of investees and more generally lower the transaction costs

⁠

Technical Assistance addresses the risks in new, uncertain and fragmented markets for investors. Costs and risks associated with exposure to new markets, technical uncertainty, and the inability to build a pipeline can be reduced through this mechanism, lowering the high transaction costs for investors and operational risks which often dissuade a commitment of funds.

– Sharing local market knowledge and experience to bridge knowledge and capability gaps. – Building local capacity, to help support local markets. – Shaping policy and regulatory reform to help improve the local investment climate.

Designing a blended transaction requires two distinct skill sets, one being financial expertise to develop the right financial structure with appropriate risk-return profiles for funders and investors, and the other, sector-specific expertise to determine interventions that can yield the desired development impact.

Conduct functions like education, resource development, consulting, data collection, deal flow and sourcing, introductions, local knowledge, and impact monitoring and reporting

GFI would literally be paid to do everything we are currently doing, via for-profit revenue and/or donations

Our comparative advantage is knowing who the impact investors are and our signaling and convening power

Expanding our appeal to philanthropic funders/investors

BILL & MELINDA GATES FOUNDATION PRI ASSESSMENT METHODOLOGY

The Gates Foundation Strategic Investment Fund (SIF), responsible for deploying program-related investments (PRIs) at the Bill & Melinda Gates Foundation, uses a rubric when it deploys PRIs to consider the following questions related to the enterprise-level impacts it targets, its investor contribution, and potential risks: • Impact: “Are we achieving program goals?” • But for: “Would this happen without us?” • Sustainability/scalability: “Are we promoting rational market solutions?” • Risk: “How much risk/subsidy are we absorbing?” • Leverage: “Are we drawing in external capital?” • Portfolio: “Is this within our exposure limits?” • Oversight: “How much burden is it on our portfolio management?” These questions help the foundation consider potential benefits (impact, “but for” additionality, sustainability, and leverage) relative to potential risks and costs (subsidy, staff resources, etc.) in a consistent way. The scorecard excerpted below illustrates the SIF team’s use of the rubric when considering an $11 million equity investment (alongside a $4 million grant) in bKash, an impact enterprise in Bangladesh that provides mobile banking services to underserved populations.94

⁠

Screen Shot 2021-01-12 at 8.59.22 AM.png

⁠

Reflecting their mission-driven nature, charitable foundations play a key role in providing catalytic capital. Regulations in the United States, for example, allow US foundations to count investments primarily motivated by charitable purpose toward their annual 5% “payout” (grant-making) requirement. Though these “program related investments” (PRIs) offer a flexible financing tool, relatively few US foundations make significant use of them due, in part, to lack of clarity on the unique impacts of PRIs and the different skillsets required of foundation staff to make and manage investments.60

The Bill & Melinda Gates Foundation has allocated $2 billion to PRIs to scale enterprises that serve the poor, often collaborating with other investors and using a range of financial tools, including direct equity investments, fund investments, loans, credit enhancements, and guarantees.

Ceniarth, a family office based in the UK, plans to invest $300 million in direct and fund investments over the next ten years and target capital preservation rather than market-rate returns, using a mix of concessionary debt, private credit, real estate and real assets, as well as patient equity.62,63

Next steps for GFI

Further research

Join MacArthur's Catalytic Capital Consortium, Rockefeller Zero Gap initiative

As part of the initiative, MacArthur is dedicating up to $150 million in investments on a matching basis to approximately five funds or intermediaries that demonstrate a powerful use of catalytic capital across sectors and geographies

Convergence.finance membership

Design funding grants

Benefits that NGO and development partners provide to blended finance structures

Engagement at earlier stages of the investment life cycle, when the potential upside is greater

Increased long-term sustainability of returns

Reputation enhancement of the transactions for investors and other stakeholders

Access to partners, technical skills and in-country training that enhances the viability of investments

Deep financial and technical resources and unique capabilities.

Capabilities ranging from guarantees to in-market assistance and networks are essential for helping private investors to overcome market challenges that prevent the scale-up of financing, from the selection of the right partners to facing risks specific to a particular sector, geography or stage of maturity - a critical element of a Blended Finance transaction.

Relationship to other initiatives like venture philanthropy and program-related investment

CFF

Dana Farber

“Philanthropy must do what it does best: peel back the first layer of risk, and experiment where other sectors cannot, making development and commercial investment dollars more productive and less risky” DR. JUDITH RODIN, PRESIDENT, THE ROCKEFELLER FOUNDATION

Uncategorized notes

GFI is a design and implementation partner for blended finance funds

⁠

Technical advisory⁠

Asana task notes, Liz idea

⁠

https://assets.ctfassets.net/4cgqlwde6qy0/5QkuJxIFjtgEAO69GX7Y3o/3cfff08ca866e4755d034fda80c89317/Aceli_Africa_Case_Study__Convergence_2020__1_.pdf⁠

⁠

Platform Structure • First-loss cover ($28 million) ● Origination Incentives ($12 million) ● Technical Assistance ($10 million) ● Data and Learning ($8 million) ● Innovation Facility (Fundraising, $8 million) ● Administration ($9 million)

Pull from

https://www.innpact.com/⁠

⁠

Design funding grants (Convergence,

USDA⁠

) pull from note below

Our comparative advantage is knowing who the impact investors are and our signaling and convening power

Technical assistance facility, fund advisory, fund consulting, initiator could be GFI role

Need to talk with impact capital wholesalers, like Big Society

Technical assistance and fund advising

Other non-profits from Innpact

Get some secondment fellows to build this out from GIIN, Acumen Fund, MaRS Centre for Impact Investing, Purpose Capital, etc. Investment bank social finance programs: RBC Generator Fund, JP Morgan Social Finance, Deloitte Canada

To arrange for a bespoke knowledge exchange for your organization, email Aakif Merchant at

aakif.merchant@convergence.finance⁠

⁠

https://www.convergence.finance/design-funding/grant-portfolio⁠

⁠

https://www.convergence.finance/design-funding/grant-portfolio/34Ra3ds5ZKi9TQDTKz26T8/view⁠

share with GFI Brazil as an interesting case study

⁠

http://blue-finance.org/⁠

Share with Jen, also

https://www.convergence.finance/design-funding/grant-portfolio/1p0gkVK0kW7IBAlHNniZ4J/view⁠

⁠

https://bluemarktideline.com/clients/⁠

⁠

https://www.macfound.org/programs/catalytic-capital-consortium/⁠

⁠

GFI could provide technical assistance (sales, talent, technology, finance, impact, operations, governance)

In 2015, Blue Forest received an early-stage design grant from the Rockefeller Foundation’s newly launched Zero Gap Portfolio. Here, the Rockefeller Foundation was specifically looking for projects that were i) scalable and replicable across a broader market, ii) commercially viable, and iii) creative in their structuring approach. Rockefeller’s funding offered crucial support to Blue Forest as they continued to build out the model and identify investors.

⁠

https://bigsocietycapital.com/how-we-work/social-enterprises-and-charities/⁠

⁠

Start an impact investment wholesaler for the alternative protein sector

The India Impact Fund of Funds plans to lend US$1 billion to debt funds that invest in social enterprises. The Fund seeks to fill an apparent gap in medium- to long-term unsecured debt. It will target a 9% return over its ten-year life. The Fund aims to raise US$600 million from finance-first investors (those that emphasize return) and US$400 million from impact-first investors (those that emphasize social goals and do not necessarily seek a commercial return). The Fund will approach financial institutions and members of the Indian diaspora as finance-first investors. It will approach foundations and development finance institutions as impact-first investors. It will ask the impact-first investors to take a first-loss position.

⁠

https://thegiin.org/current-members⁠

all their members

We need to present this to OPP, FAIRR,

Jan: Share blended finance, catalytic capital with Dev team as an idea

⁠

https://www.convergence.finance/design-funding/grant-portfolio/7hiK3ZRA1UgE0WQyIE6Cgo/view⁠

⁠

Jan: Work with MacArthur, Ford, Gates, Rockefeller, Omidyar, and others to show how alt proteins are an opportunity area for catalytic capital. Omidyar Network, Blue Haven Initiative and Candide Group, both family offices, have made substantial impact investments and done significant “catalytic” work. It can also be a corporation—Prudential

Join MacArthur's Catalytic Capital Consortium, Rockefeller Zero Gap initiative

⁠

http://www3.weforum.org/docs/WEF_Blended_Finance_Private_Sector_Context_pager.pdf⁠

⁠

Screen Shot 2021-01-10 at 7.04.03 PM.png

⁠

Screen Shot 2021-01-10 at 7.04.14 PM.png

⁠

Screen Shot 2021-01-10 at 7.06.04 PM.png

⁠

How do non-profits generally participate and benefit? Informs GFI role

⁠

https://www.thinknpc.org/about-npc/⁠

⁠

http://www.incofin.com/⁠

⁠

https://thegiin.org/current-members⁠

⁠

http://www3.weforum.org/docs/WEF_Blended_Finance_A_Primer_Development_Finance_Philanthropic_Funders.pdf⁠

⁠

http://www3.weforum.org/docs/WEF_How_To_Guide_Blended_Finance_report_2015.pdf⁠

⁠

Screen Shot 2021-01-10 at 7.20.58 PM.png

⁠

– Design a monitoring and evaluation approach: Your organization will need a verification and reporting protocol to ensure that the investment is being deployed as intended, that key financial and environmental, social, and governance (ESG) guidelines are being followed, and that desired outcomes are being attained. The monitoring and evaluation challenge specific to Blended Finance relates to the need to measure the value added by bringing private capital into an investment. Assessing whether a Blended Finance transaction can be successful is not limited to the ratio of investment raised against grants invested, but rather the evaluation of the development impact of actual projects financed, and the extent to which development funding has enhanced impact. This can often be a challenge, due to the lack of insight into the alternative scenario but can be guided with a checklist on how to assess and measure different types of additionality (outlined in Appendix 2.5) and a structured monitoring and evaluation process (outlined in Appendix 2.6).

⁠

https://www.ecobusiness.fund/en/the-development-facilities⁠

⁠

Case study of technical assistance facility:

https://www.ecobusiness.fund/fileadmin/user_upload/Publications/english/ecobusiness_DF_Pitchbook_LAC_subfund_final_10_2019.pdf⁠

⁠

https://www.edf.org/ecosystems/how-catalytic-capital-can-support-sustainable-agriculture⁠

⁠

https://www.macfound.org/media/files/C3_Introductory_Resources.pdf⁠

⁠

Impact investment wholesalers are an emerging category of catalytic capital investors. These entities are explicitly designed to channel capital into impact intermediaries and enterprises to contribute to market development. A wholesaler may receive its funding from dormant accounts, public development institutions, governments, institutional investors, foundations, individuals, development aid, or some combination, and can be a standalone institution or operate within a larger entity. They seek “to invest where, but for the wholesaler’s capital, the investees could not raise enough money” to deliver impact.64

Big Society Capital, a UK wholesaler managing £585 million, connects investment to social enterprises and non-profits creating social change. BSC invests in intermediaries including property funds, loan funds, venture funds, and social banks to help them sustain or grow their operations and reach more people throughout the UK, alongside developing the market. Increasingly BSC works with development partners to address specific social issues where social impact investment could work with other tools to achieve deep and lasting impact.65, 66

⁠

Screen Shot 2021-01-10 at 8.19.27 PM.png

⁠

Screen Shot 2021-01-10 at 8.25.07 PM.png

⁠

Finance in Motion is responsible for identifying and structuring investments, preparing legal documentation, monitoring ongoing investment and development performance, and managing the relationships with the fund’s partner institutions.

⁠

Finance in Motion⁠

serves as the Technical Assistance Facility Manager, working to identify and support the technical assistance needs of the fund’s investees, build the green finance ecosystem, and develop and expand the energy efficiency, resource efficiency, and renewable energy sectors in the fund’s regions of operation.

⁠

Banque de Luxembourg⁠

has been appointed as the GGF’s Depositary, Central Administration and Domiciliation Agent, with European Fund Administration acting as Central Administration for the GGF by sub-delegation of Banque de Luxembourg.

⁠

https://www.ggf.lu/about-green-for-growth-fund⁠

⁠

Corporate Governance

The eco.business fund is a SICAV-SIF under Luxembourg law, a proven vehicle for development finance funds such as the

EFSE⁠

GGF⁠

, and

SANAD⁠

The Board of Directors appointed by the shareholders is the main decision-making body. Approval of investment proposals submitted by the Advisor is delegated to the respective sub-fund Investment Committee, whose members are appointed by the Board.

⁠

Screen Shot 2021-01-10 at 8.29.25 PM.png

⁠

Case study:

https://www.arbaro-advisors.com/⁠

⁠

https://www.pidg.org/our-business/how-we-operate/upstream-technical-assistance/technical-assistance/⁠

⁠

https://www.impactassets.org/⁠

⁠

WRI is an investor in case study:

https://www.macfound.org/media/files/C3_Case_Studies_-_print_read.pdf⁠

⁠

file:///Users/zakweston/Desktop/The_State_of_Blended_Finance_2020.pdf

Liquidnet, a tech-driven institutional investor network, launched the B2T (Billions to Trillions) community in Q2 2020, in partnership with the philanthropic initiative Schmidt Futures.

Liquidnet + Schmidt Futures: B2T Community (Billions to Trillions) Members: Launched with 20 members, the community has expanded to include 60+ professionals from diverse organizations, including institutional investors, development finance institutions, family offices, foundations, fund managers, and NGOs. B2T developed the following terms to clarify the different roles in the community: “Builders” (deal originators, structurers, and fund managers), “Buyers” (impact-agnostic institutional investors), “Catalysts” (providers of concessionary capital seeking development outcomes), and Service Providers (intermediaries and supporting organizations). Activity to date: B2T has developed a shared vision for its future product roadmap; has begun mapping the investment and impact preferences of Catalysts and Buyers; and has refined its process for presenting different investment structures for education and feedback. Page 51 of State of Blended Finance 2020

The Catalytic Capital Consortium (C3)

⁠

https://www.oecd.org/dac/financing-sustainable-development/development-finance-topics/tri-hita-karana-roadmap-for-blended-finance.htm⁠

⁠

The foundations and impact investors involved to date

Other NGO’s like GFI have initiated, designed, managed, and been implementation partners for blended finance deals

Design funding grants

Technical assistance facilities

Expanding our appeal to philanthropic funders/investors

Next steps for GFI

Benefits that NGO and development partners provide to blended finance structures

Relationship to other initiatives like venture philanthropy and program-related investment