The growing and critical role of NGOs in impact investment
As Dr. Samuel Johnson once wrote of travelling: ‘The use of travelling is to regulate imagination by reality, and instead of thinking how things may be, to see them as they are.’ Over the last month I have had the pleasure of spending quality time with my NGO peers at Endeva’s workshop on NGOs in Inclusive Business, the ANDE Annual Conference and other events debating the growing and critical role of NGOs in impact investment.
It strikes me that we are collectively and assertively moving, as a sector, away from imagination to reality and operationalising innovative and systemically impactful roles in the impact investment ecosystem, from which I sense our collective learning will lead us to a few key enduring business models and functions for INGOs in this space. From the European Endeva workshop participants to the NGO members of The INGO Impact Investing Network in the US, development organisations and their partners are delivering on their missions to fight poverty through market-based solutions, increasing income and employment opportunities, access to affordable goods and services and improved living standards. ACRE (Access to Capital for Rural Enterprises), a consortium of five INGOs based in the UK with global operations, takes a very specific role as intermediary in the impact investment spectrum and challenges the sentiment held by some impact market stakeholders that INGOs should not ‘do’ impact investment at all.
ACRE – an impact first facility supporting and connecting investment-ready enterprises to patient investment capital
ACRE supports small and medium sized enterprises (SMEs) to become investment-ready and access the vital patient capital they need to grow, scaling positive social and environmental impact for poor and disadvantaged rural communities. Our consortium of Christian Aid, Practical Action, Twin, Traidcraft and Challenges Worldwide provide technical assistance (TA) to mostly agri-businesses, but also to SMEs operating in the energy, services, livestock and technology sectors, all seeking $150k - $1.5m of debt or equity to grow.
Leveraging our programmatic footprints, local knowledge and specialist expertise as INGOs
Through our long-running relationships with community networks in developing countries, we understand deeply the challenges and opportunities faced by our SMEs and the communities they engage with. We connect smallholder farmers (SHFs) who are part of our Sustainable Livelihoods programs to SMEs like food producers and processors seeking to expand their supplier base - thereby enhancing SHFs access to high quality input and service providers, advice and education on best farming practices, or technology platforms that help them to sell produce at the best price, access insurance and transport services.
If one of our enterprises needs access to export markets or international retailers, ACRE utilises the expertise and business networks of its member INGO staff to provide this expert advice to businesses, whilst acknowledging that we won’t always have the skillsets to match the unique needs of our businesses within our consortium – in which case, we partner with trusted consultants to provide this support.
Enabling the inclusive business ecosystem
It is widely acknowledged that support for and investment into SMEs is just one cog in the big machine of inclusive market development. ACRE member INGOs run programs that compliment ACRE’s objectives and impact measurement framework by enabling the business environment for our ACRE enterprises. Advocating for land rights for indigenous farmers, or influencing local and national governments on fair and transparent business regulations for example, help to strengthen the inclusive business models developed by our enterprises. Most importantly, the businesses we work with have been identified for their potential to transform their value chains and business ecosystems. In many cases, ACRE entrepreneurs may for example return a portion of their profits to a partner non-profit that funds schools for disadvantaged families, administers microfinance and improved production training facilities for SHFs or partners with local government in preparing organic production legislation. In short, by linking our work with impactful enterprises to our broader programs and objectives, we are helping to strengthen the environments and supply chains in which those businesses operate and create change.
De-risking investment opportunities for impact investors
A critical role, which we may less frequently communicate as ACRE, is a de-risking role for impact investors. It is challenging for investors mandated to return financial as well as social impacts to take riskier positions in earlier stage SMEs. ACRE businesses have or are receiving grant funding from our member INGOs for a range of developmental activities that strengthen operational capacity but may not be appropriate for investment funding. In this way, ACRE is blending concessionary capital with investment capital and de-risking investment opportunities for impact investors.
Through our ‘broker’ function, matching impact investor objectives and preferences with enterprise needs and potential, ACRE also presents its syndicate of angel-style investors with de-risked businesses by performing a due diligence process for them. Whilst ACRE investors must still complete their individual due diligence processes on investment opportunities, we support our entrepreneurs to strengthen and grow their businesses through an average of 8-10 weeks of tailored business support - this includes the establishment of sound financial management practices and systems, governance advice, sales and branding strategies, or coaching entrepreneurs to better articulate their 5 year growth strategy, vision for the future and their own social impact. ACRE’s technical assistance to investment opportunities serves to tip the balance in favour of a successful and impactful investment in this way, acting as a robust due diligence screen for impact investors.
These roles and functions of ACRE are by no means a comprehensive picture of INGO activities in the impact investment landscape, and whilst we, along with our peers, are taking leaps forward in crystalising our remit for the future, we still have a collective journey to travel. An openness by donors to exploration and failure, greater collaboration to avoid duplication amongst INGO peers and partners, and stronger direct linkages between investors and the bespoke services INGOs provide to them will go a long way, as we continue towards our destination of defining a unique value proposition for INGOs in impact investing.
This blog is a part of the October 2017 series on NGOs in inclusive business, in partnership with endeva.
Read the full series for insights on what kind of roles NGOs have carved out for themselves, either as partners of companies, as intermediaries, investors, or even as entrepreneurs and their lessons learnt in doing so.