Make mainstream capital impact capital
Seb Elsworth MBE is the founding CEO of Access- The Foundation for Social Investment and has led the organisation since its inception in 2015. As CEO Seb has overseen the significant impact of the Foundation, working in close partnership with a range of organisations, to increase access to finance for community based charities and social enterprise right around England.
We had a packed room and really rich discussion at the Blended Finance Collective’s session at Impact Europe’s Business of Impact and Capital Ideas conference in The Hague on 13 June.
The gathering, bringing together impact investors, impact funds and corporate impact actors, had already had a number of sessions stressing the importance of concessional capital in building the market. As usual, to help build familiarity with these approaches and expand their take up, we wanted the Blended Finance Collective to dive into the detail through three case studies:
Annika Tverin presented the Save the Children Global Ventures’ programme supporting early childhood development centres in Rwanda and South Africa.
Jon Salle presented the €30m FEFISOLII Fund, managed by Sidi in Paris, focused on lending to small companies mostly in sub-Saharan Africa, often where other investors really struggle to reach.
Finally, Matt Smith from the Key Fund in Sheffield presented the structure of their Northern Impact Fund 2, currently £8.54m, supporting smaller community based social enterprises in the North and Midlands of England.
These three examples present a range of design features. All three have a first loss layer, but they are used in different ways to address various barriers. In the Save the Children example, the 5% first loss layer provided by USAID is intended to help shift philanthropic donors from making grants to being comfortable with their money being lent and recycled.
At the other end of the spectrum, the 40% first loss layer from Access- The Foundation for Social Investment provided to the Northern Impact Fund is intended to enable Key Fund to lend to social enterprises in left behind communities both building back after the pandemic and tackling the cost-of-living crisis while protecting the investor’s capital. There are two layers of investment in the fund, unsecured loans from Foundations, and loans secured on Key Fund’s assets which also benefit from Community Investment Tax Relief. It is expected that there will be residual grant which Key Fund will be able to use to boost their ability to lend in the future.
For Sidi there are three capital enhancement tools in play. The FEFISOLII Fund uses a first loss layer for eligible loans for agriculture businesses through the Aceli programme, which varies from 2-9% depending on the country and crop risk involved. Secondly, a £5m guarantee from the US International Development Finance Corporation covers up to 50% of client losses. Thirdly, given the currency risk involved in FEFISOLII, Sidi also benefit from a subsidy from USAID to cover FX losses.
The three case studies all also highlight the importance of dedicated technical assistance built in to support the enterprises, often delivered by local partners. In the case of Save the Children and Sidi this is funded separately. For the Northern Impact Fund 2, the support and hand holding which many of the social enterprises need is part of the operating cost model for Key Fund although they are also able to benefit from addition support on an enterprise-by-enterprise basis from Access’s Reach Fund.
It was a pleasure to chair the discussion as the participants in the room really got into the spirit of diving into the detail in their questions – wanting to understand more about the negotiations which brought about the structures, the time it took and future plans to scale.
Please do reach out to blendedfinance@access-si.org.uk if you’d like to learn more.