Climate solutions
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Impact-Linked Finance Fund: Amplifying gains in resilience with impact-linked loans
In a nutshell
| Location | Eastern and Southern Africa |
|---|---|
| Sustainable Development Goal | Good health and well-being |
Project timeline
"Project is 37.4284226965% completed "
The challenge
Driven by practical, innovative and forward-thinking social activists and their networks, social entrepreneurship has emerged in recent years as a significant catalyst for societal transformation. The approach integrates elements from business, charity and social movement models to come up with solutions that deliver sustainable and impactful change. Many social entrepreneurs make use of market mechanics to create and scale their social and/or environmental impact.
In Eastern and Southern Africa, however, social enterprises often find it difficult to secure the investment needed to multiply their impact and achieve financial sustainability without philanthropic support. Coupled with the uncertainty inherent to emerging markets, factors such as political instability, inadequate infrastructure and regulatory hurdles contribute to a widespread perception that this part of the world is high risk – discouraging potential investors.
The approach
The market opportunities presented by high-impact enterprises that address pressing societal and environmental challenges have drawn increasing interest from the private sector. Indeed, impact investing is gaining in popularity relative to conventional development financing. “Impact-linked” investment, in particular, has the potential to enhance the risk-return profile of regions that investors perceive as high risk by linking financial terms directly to the achievement of desired social and environmental outcomes.
Run by the Impact-Linked Finance Fund, the Impact-Linked Fund for Eastern and Southern Africa (ILF ESA) is a model of innovative financing that can help address societal challenges ranging from climate change to malnutrition. Building on best practices from results-based finance, ILF ESA goes a step further than impact investing by integrating market-based mechanisms while rewarding higher-impact social enterprises with better terms and conditions for realised outcomes.
Using this grant, ILFF will be able to review social enterprises that have received support from the Swiss Re Foundation and its partners, including SCBF and BimaLab Focusing on enterprises with an established business model and a solid impact track record, it will conduct formal due diligence with the aim of providing two to three impact-linked loans. Advisory firm iGravity will manage loan disbursement and oversee impact measurement.
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Goals and expected impact
The Swiss Re Foundation expects this grant – its first impact investment – to have a two-fold impact. First, it should increase the number of people with improved resilience and number of organisations improved by the social enterprises it supports with loans as well as build the enterprises' capacity to attract more investment. Second, it should allow us to gauge the potential to increase the societal impact of our activities by reusing the principal and interest returned through impact-linked loans, helping us further define our approach, instruments and targets.
References
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