Impact Investing Digest #18 - 27th November 2024

ECOSYSTEM NEWS

ENABLE-ing UK CDFIs: hot off the press is today's exciting announcement of new public-support through the British Business Bank for a new wholesale financing programme for UK CDFIs. This is coupled with £4m of new funding from JPMorganChase to strengthen community development finance institutions’ operations and more efficiently deploy small business loans. I know this is a result of significant work behind the scenes by Responsible Finance and others (see #Digest17 for more on the economic case for this, and #Digest8 for more on the impact created by existing CDFI lending), and builds off the successful Community Investment Enterprise Fund (CIEF) partnership between Social Investment Scotland , Better Society Capital and Lloyds Banking Group . Phase one will see public funding, and excitingly phase two will look to leverage private capital as CIEF has done successfully. This is hoped to unlock £150m of additional lending capital over the next two years, leading to £500m per year of lending by 2029 and ultimately unlocking an extra £1bn for 15,000 SMEs in the UK’s most disadvantaged areas.

• As a side-bar, more promising UK-specific news with the confirmation after significant delays that £87.5m of dormant assets will flow to social investment wholesalers. Hopefully positive news for Access - The Foundation for Social Investment , Pathway Fund and others!

Big giving trends in the US: useful summary of key giving trends from The Bridgespan Group . While not specifically oriented towards impact investing, many of these large organisations are at the forefront of US catalytic investing activity through family offices, DAFs and foundations. As Ceniarth 's founder Diane Isenberg and her co-Managing Director Greg Neichin recently said in ImpactAlpha , "our view is that these new (catalytic) funders will likely not come from conventional impact investors venturing into the deep end of the pool. Most of these allocators are just too wedded, for various reasonable and unreasonable reasons, to classic risk-adjusted market rate returns. Rather, we are more hopeful that those who have made significant philanthropic commitments through initiatives such as the Giving Pledge, will begin to see catalytic capital as an important tool to enhance and complement grantmaking strategies. We need to find ways to engage and educate these philanthropy circles."

• Speaking of big-giving, this week saw the announcement that Warren Buffett had donated $1.15bn to his family's foundations and signalled plans for them to become custodians of his immense remaining $150bn wealth (this is even after $60bn of donations to date). This will create a series of new "mega-foundations" in the US as discussed in #Digest11. His full note outlining his aversion to dynastic wealth and thoughtful approach to forward planning is worth reading.

Bringing philanthropy and endowments into sync: US Foundations were early innovators in using catalytic capital in the form of program- and mission-related investments to amplify their traditional philanthropic giving. More recently innovators like Omidyar Network called for family offices and foundations to mobilise the entirety of their assets by investing across the returns continuum. At Ceniarth we have embraced this approach, committing all of the assets we manage to impact-first investing and allocating across a range of positions on the impact-risk-return continuum.

However, because we are not a traditional grant-making organisation (with occasional exceptions!) I tend to lean outward to our peers to learn from those looking to integrate focused programmatic work with their investment activities. This article from Irina Ivan-van der Kwaak of Van Leer Foundation provides some great examples of a foundation focused on early childhood development and caregivers integrating this work into an affordable housing impact investing programme - it particularly resonates given we are co-investors in two of their three pilot investments Bridges Fund Management Ltd. and Jonathan Rose Companies !

Evolving UK and EU regulations: one of the luxuries of being a private investor is being less constrained by regulatory structures compared to more institutional investors. However, the power of regulation to embed impact principles into corporate and investor behaviour is huge if we want to see capital flow at scale. This post from The Good Economy was a helpful summary of some of the emerging trends in the UK and EU's sustainable investment regulatory regimes, as well as the variance between them.

IMPACT MEASUREMENT & MANAGEMENT

2024 Microfinance Index: there has been much bad publicity around microfinance over the years, pointing to the pitfalls of over-indebtedness seen in India and more recently Cambodia. Similarly, RCT evidence over the impacts on end borrowers has been mixed, showcasing a wide variety of outcomes for different population segments in different contexts. On the former, it's important to acknowledge malpractice and seek to support more responsible lending practices to protect clients. On the latter, the onus is on the wider financial inclusion sector to both deepen the evidence base and improve products and services to increase impact.

60 Decibels have sought to bring a client-centric approach to solve both these issues in their work around measuring the impact of financial inclusion. Ceniarth has been a long-term supporter of this work and were excited to see the recent launch of the 2024 Microfinance Index. It's filled with rich insights from 36,000+ interviews with clients of 126 financial service providers across 45 countries. Key findings include:

• 89% of clients report improved quality of life - the highest in three years
• 26% remain vulnerable to unexpected expenses, though additional services like training, savings, or insurance are helping bridge this gap
• Group loans are effectively reaching historically excluded populations such as female and rural borrowers: 85% of group borrowers are women
• Women are more likely to use loans to invest in businesses, enhancing financial resilience
• Mature financial service providers outperform younger and older peers in client impact
• Clients with longer tenure and additional services show stronger climate-related recovery capacity

I am particularly excited by the increasing ability to derive nuanced insights longitudinally as the data set deepens - and more practically for impact-first investors to start using this data as a key input to strategy, origination, diligence and post-investment monitoring.

Inclusive investing = lower risk? (via Pioneers Post ): thought-provoking piece by Isabelle Irani of Sumerian Foundation , pointing to emerging insights from their UK investment portfolio that suggest that social enterprises led by ethnically and gender-diverse founders have a stronger repayment profile. This echoes work I have read previously around female microfinance customers and female-led SMEs in emerging economies.

SECTOR-SPECIFIC CONTENT

• Microfinance: Contribution to portfolio diversification and measurable impact - interesting piece from BlueOrchard Finance Ltd on the role of microfinance as a risk/return-enhancing part of a diversified investment portfolio. The impact case for investing in the sector is clear (see above!), but this paper looks to make a compelling case for integration into conventional portfolio allocation due to the stable, uncorrelated returns the sector has provided over decades. BlueOrchard conducted simulations assessing the effects of gradually reducing fixed income exposure in favour of microfinance investments. The observation period spanned from January 2004 to December 2023. The results indicate a significant reduction in risk while maintaining returns in fixed income-heavy strategies, such as "Fixed Income," "Income," "Yield," and "Balanced." In contrast, the impact was less pronounced in "Growth" and "Equities" strategies, where fixed income allocations were smaller.
• Stablecoins: the emerging market story - I tend to shy away from most things crypto, but came across a great post by Alexandre Lazarow on the increasing use of USD-linked stablecoins in emerging markets. It links to a much longer research paper by Castle Island Ventures. Many now prefer stablecoins over traditional bank accounts to hold USD-equivalent assets, creating a more stable financial option in economies where banking access can be limited. They are being used for trade, remittances, payroll, B2B payments, and currency conversion. In regions like Nigeria, Turkey, and Argentina, stablecoins provide a critical alternative to volatile local currencies.

Thanks for reading!