Impact Investing Digest #21 - 20th February 2025

When the US catches a cold...

As a non-US citizen, it doesn't feel like it's my place to comment on the rights and wrongs of domestic policy decisions. That being said, it would be naive not to acknowledge recent events and their impacts. However, it's clear that the ripples of early actions by the new administration are having significant effects on an already fragile impact investing ecosystem in emerging markets. I've already seen a number of our existing portfolio social enterprises and impact-focused fund managers significantly affected by the immediate funding delays and broader uncertainty. The longer-term impacts on the innovative finance ecosystem could be huge given the central role both USAID (e.g. through DIV) and DFC play globally. There are also indications that climate-focused initiatives domestically in the US are under the microscope. The rapidly evolving situation has been extensively covered by leading news outlets such as Devex, ImpactAlpha and Pioneers Post. A few articles I've found helpful include:

• US development financing freeze puts private investments in Africa in peril (via ImpactAlpha)
• USAID shutdown ‘undermines global impact investing ecosystem’ (via Pioneers Post)
• The assault on USAID is a wake-up call for the rest of the world (via Financial Times)
• Trump’s EPA takes aim at Climate United and the Greenhouse Gas Reduction Fund (via ImpactAlpha)
• What are the costs and impacts of shutting down USAID? (via ODI Global's podcast series)

ECOSYSTEM NEWS

Reimagining Business Ownership in the Global South (via Stanford Social Innovation Review ): much of the narratives around transforming business ownership have tended to focus on disrupting the dominant status quo in North America and Europe. However, this new piece by Harvey Koh and Laura Amaya highlights some promising examples in Africa, Asia and Latin America of innovative alternative approaches to ownership. Interestingly many of these emerge from the agriculture sector, where giving smallholder farmers ways to aggregate and more fairly access the value of their work can have transformative impacts on livelihoods. Cooperatives have long sought to fulfil this function, but the article highlights some particularly effective examples. From my own recent reading, I'd highlight the fascinating attempts by Pachamama Coffee and others to re-invent supply chains to ensure value is shared more equitably with producers.

Mobilise mobilise mobilise (via ImpactAlpha): a recurring theme in this newsletter is the need for DFIs to shift their model to mobilise private capital at scale (see #Digest17, and before that #Digest14, #Digest9 and #Digest2). British International Investment 's new CEO Leslie Maasdorp amplifies this call in a recent article, urging DFIs to move away from a "buy-to-hold" approach and instead a focus on mobilizing private capital. He highlights a recent partnership with 美世 to mobilise more capital for climate finance (#Digest19) as one recent example of BII's increased momentum in this area - more structures such as the $1.1bn SDG Loan Fund collaboration between Allianz Global Investors , FMO - Dutch entrepreneurial development bank and MacArthur Foundation .

Mainstream x Impact Fund Managers (via ImpactAlpha ): a good piece summarising the increasing trend of mainstream investors buying "GP stakes" in impact fund managers. We've seen this first-hand with our investees BlueOrchard Finance Ltd and responsAbility Investments AG (partially owned by Schroders and M&G plc respectively).

LP co-investments (via ImpactAlpha ): data-rich article on the trend of increasing co-investment interest demand among LPs as a way to reduce fees and deploy capital in a more targeted way, featuring long-term Ceniarth investee Generate . Some of the figures were stark, with leading pension fund allocators making significant fee savings and moving up to 50% of their allocations to co-invest strategies.

SECTOR-SPECIFIC CONTENT

• 6 things we would change about the cocoa sector today - with a cocoa sector in crisis, Acumen profile six social enterprises looking to disrupt the status quo and deliver better outcomes for farmers. It features two Ceniarth portfolio companies, Beyond Good and Uncommon Cacao .
• Are coffee farmers benefiting from the historic rally in the coffee market? - Paul Stewart of TechnoServe summarises the heterogeneous impacts of the recent spike in coffee prices on farmer incomes. Farmers in El Salvador, Honduras and Guatemala are seeing close to 1:1 pass through into higher farmgate prices, while those in Nicaragua see much more limited benefits...and local dynamics mean Ethiopian farmers are actually seeing incomes fall.
• Overcoming Investor Risk Perception in Smallholder Finance - risk in smallholder finance is real and meaningful, but as this recent report by ISF Advisors and IDH shows, perceptions often exceed reality and mitigants can be effective.
• Innovative Financing for Inclusive Credit Fintechs in Africa - Alexander G. Sotiriou and colleagues at CGAP are always a source of great applied research around financial inclusion. This recent piece on innovative financing EM fintechs supporting MSEs provides a useful summary of emerging trends, featuring Ceniarth portfolio examples such as Lendable and Community Investment Management .
• Estimating the Number of Firms in Africa - a new The World Bank Group working paper looking into the data around micro-enterprises and larger businesses in Africa. As per #Digest16, Africa needs to see more large firms scale to generate more productive employment and ultimately growth. It's stark that the there are only 127,000 large firms (>100 employees) across the whole continent, and micro-enterprises (<5 employees) and sole proprietorships make up 78% of the labour market.
• Expanding mobile internet fuelled a financial transition in Rwanda (via VoxDev ) - emerging evidence on how mobile connectivity improves access to land, enabling individuals to use land titles as collateral for bank credit and invest in construction.

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