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Coordinating Impact Capital: A New Approach to Investing in Small and Growing Businesses - Santa Clara University, Center for Science, Technology and Society

Posted By Saurabh Lall, Tuesday, September 27, 2011
Published in July 2011

Note: This research document is a result of an ANDE-funded Capacity Development Fund grant.

This study by Santa Clara University’s Center for Science, Technology and Society (CSTS), finds the need to develop a more collaborative approach to deploying capital in the impact investing space. The majority of the 45 organizations surveyed in the report ‘Coordinating Impact Capital’ expressed an interest in linking with potential co-investors to lower the risk associated with funding small and growing businesses (SGBs) in developing countries.

The authors also find that nearly 60 percent of respondents used multiple investment vehicles (grants, loans, convertible notes and equity) and 50 percent employed local intermediary organizations when making debt investments. However, only 17 percent reported having used Capacity Development Organizations (CDOs) to help their enterprises build management and systems capacity, despite the potential benefits.

They recommend a syndicated approach of ‘phased investing’, in which two or more investors provide capital during different phases of an SGB’s development, to ensure a steady stream of capital to the enterprise. The authors also suggest that equity may not be the most effective funding instrument for the sector. Instead, the development of cash-flow based investment vehicles could improve the predictability of returns and drive more mainstream capital into impact investing.

The study was funded by the ANDE Capacity Development Fund 2010, and these findings present an opportunity for ANDE to play a greater role in coordinating the flow of impact capital and capacity development services to SGBs. The report also suggests potential areas of future research on the impact of SGBs on poverty and economic development, and identifying factors that lead to greater social outcomes.

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Tags:  Access to Finance  ANDE Members  Global  impact investing  sector publication 

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