INNOVATIVE FINANCE – AN INTRODUCTIONINVESTING FOR DEVELOPMENT EVENT SERIES1ST EDITION , 12 May 2020

Anja-N. KönigLead DACH Region / System Change / Investing for Development

What is innovative finance - and why do we need it?

New actors

Innovative ways to mobilise additional (private) finance for sustainable

development

Innovative ways to use finance more effectively and efficiently for sustainable

development

PurposeIncentives

forimpact

Incentives for efficiencies

Local / international Public / private / philanthropic

Nature of innovation

Function of innovation

Financingmechanism

Capital sources

AND

Developmental / commercial

Markets Sectors

Innovative finance – a new idea? New combination of instruments, new investors, new focus

Wave 1: Tax, leviesand voluntarycontributions

Wave 2: Foreign basedinvestment funds, PPPs, frontloading of aid, politicalrisk mitigation measures

Wave 3: Risk sharinginstruments; result based andoutcome based finance

Wave 4: Impact linkedfinance, local currency, syndications, securitisationand insurance/guaranteesbased Innofins

2.0 Focus on mobilising additionalpublic capital and experimentationwith market based instruments/mobilising of private sector

4.0 Focus on “democratisation”,mobilising private local capital& building local (capital) markets

3.0 Focus on results,improved efficiencies,scaling of early innofins

1.0 Aid based pilots mobiliseadditional resources

*based and adjusted from on Dahlberg (2014)

2000: MDGs2004-2007: Landau Report, World Summit, Paris 2008: Doha 2012: UN, Rio

2010: UN Resolution on Innofin

2011: AidEffectiveness, Busan/Korea

2015: Agenda 2030

2015: Addis Ababa Action Agenda

2015: COP 21

Focus

Instruments

What is Catalytic Capital and Blended Finance?

5

• Strategic use of catalytic (developmental) capital for

the mobilisation of additional (commercial) capital

towards sustainable development (in developing

countries)

Blendedfinance

Catalyticcapital

• Intentionally accepts lower returns, more flexible terms,

longer timeframes, and/or higher risks than conventional

investors

• Fill capital gaps and unlocks additional investment from

more conventional investors

• From public, private or philanthropic impact funders

What is “additionality” and why is it so important?An intervention leads to results which would not have occurred without the

intervention

Developmental additionalityThe interventiongenerates impact thatotherwise would nothave occurred withoutthe interventions- or toa less extent

Financial (Input) additionalityThe intervention

mobilises capital and

leads to an investment

that would not have

happened otherwise

Inte

rven

tion

How: concessionality, signaling & endorsement, demonstration effect, aggregation of investment

opportunities, expertise, technical assistance, (capital) market building strategy

Where from? How? What for?

InstrumentsGrants, Debt

Equity, Mezzanine, Guarantees

Insurance

Innovative financemechanism

ApproachesFunds & facilities, PPP

Syndication, Securitisatio, Hedging, impact linkedfinance

De-risk innovations/geographies

Strengthen localmarkets

Innovative finance value chain: the design of Innofins to be drivenby specific challenges and expect impact

(More)commercialcapital providers

Catalytic capitalproviders

Indirect impact Directimpact

Other long termdevelopmentobjectives

mob

ilisa

tion

mobilisation

A huge variety of IF mechanism: lets zoom in on two „innovative finance families“ !

MOBILISING ADDITIONAL PUBLIC OR CROWD CAPITAL

Postcode lottery

Financial transaction tax

INCREASING EFFECTIVENESS &

EFFICIENCY

Levy on airline tickets

Output Based Aid

Syndicated loans

Policy based loans / Reform financing

Debt swaps

counter-cyclical loans / GDP-indexed bonds

Voucher programmes

MOBILISING ADDITIONAL PRIVATE

FINANCE

Outcome based finance

Solidarity levy

Crowdfunding

Local currency loans/ bondsClimate/ Catastrophe

risk insurance

Green/ SDG/ thematic corporate bonds

Unclaimed assets

Premium on feed-in tariffs

Investing in impact businesses

Shock resilient loans

Project development facilities/ insurance

Auctions

Reduction of harmfulsubsidies/ smart subsidies

Ressource (micro) tax

Voluntarycontribution

Diaspora bonds

Structured funds

Thematic credit lines

Advance Market Commitments

Credit guarantee(funds)

Conservation trust funds /foundations

Local currency loans/ bonds

Export guarantees

Interest free loans/ Repayable grants

Infrastructure PPP

Social Impact Incentives

Education financeVenture capital / start up finance

CDM

Development Impact bonds /

SIINC

Monetizing eco-system services for Co2 reductions

/REDD+

Performance based (repayable) grants

Securitization

Microinsurance

Product development facilities/ Challenge funds

FX hedges/swapsCrowd

funding & investing

• What is your unique financial and developmental additionalityas as providers of impact capital?

• How to deploy the mobilised capital most effectively and efficiently? Don’t forget to design and evaluate for indirect / systemic impact!

• No one size fits all! Combining innovations in unique ways to meet specific financing needs and sector challenges

• Innovative finance requires high level of innovation capacity, and multi-disciplinary approaches = > is your organisation ready for that?

Final food for thought

Please contact us for more information

Anja-N. KönigLead DACH Region / System Change / Investing for DevelopmentBerlin, GermanyEmail: akoenig@evpa.eu.com

The KfW Toolbox on Innovative Development Finance 2020 can be accessed here

KfW Development BankGlobal Equity and Funds

May 2021

Entw

urf

KfW Development Bank / Financial Cooperation with developing countries and emerging economies

Three business sectorsKfW Development Bank as part of the KfW Group

We promote development

KfW Development BankDEG

Promotion of developing countries

and emerging economies

EUR 12.4 billion

International businessDomestic promotion

We supportinternationalisation

KfW IPEX-Bank

International export and project finance

EUR 16.6 billion

2

We promote Germany

SME Bank & Private Clients

Digital massbusiness

EUR 86.3 billion

CustomisedFinance &

Public Clients

Individual financingsolutions and

municipal finance

EUR 19.2 billion

KfW Capital

Venture capitalfund investments

EUR 0.9 billion

Entw

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3

Sources: 1 GIIN Annual Impact Investor Survey, 2 Symbiotics Private Asset Impact Fund Report 2020 ; 2 DM = Developed Markets, 3 Estimate IFC

The market for impact investment is growing, but it remains toosmall and impact is not always clear

4.080 6.216 4.535 5.997 9.60219.940

5.3056.951

1.4343.287

22.216

EECA

2.881

East and SE Asia LAC MENA South Asia SSA DM

9.38513.167

7.822 9.26412.808

42.156

1.447

3.2673.206

growth until 20192015

Volume of Impact Investment market by region (in $mm)1

Too little capital finds its way to the poorest countries – LDCs are currently not a focus in impactinvestment

The overall Impact Investment market saw a CAGR von ~17% between 2015 and 2019

Not all that glitters is gold – there are no commonly accepted standards for impact measurement,

The market has to grow – The UN estimates USD 2.5 trillion are required anually to close SDGF fundinggap

2

Overall invested volume: ~USD 715 Mrd.1AUM in LDCs: USD ~2,5 Mrd.3

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European-African Fund (EAF)

Seite 4

Startup 1 Startup 2 Startup…n

Partech Africa Fund 2 (PAF 2)France

German Feeder (KG)

Other Investors

Equity(EUR 50m)

Equity

Equity

Equity

GP GmbH

GP S.A.S.

Manage

Manage

Target:• Support the African start‐up ecosystem by scaling local value chains to create African champions• Enable viable Europe‐Africa value chains, with emphasis on expansion of European startups into Africa• Creation of at least 6,600 new jobs• First close: Q3 2021

Entw

urf

Verdant Capital Hybrid FundStrengthening capitalization of African FI to support MSME growth

Investors Fund Fund manager

TA Facility

TA Facility

Private InvestorsInstitutional Investors

High-Net-Worth Individuals

Public investors

(EUR 30 Mio.)

(EUR 4 Mio.)

Equity

Equity

Grant

MFIs Banks

Equity, subordinated debt

& TA

Equity

Management

GmbH & Co KG (Germany)

Manager: Verdant GermanyAdvisor: Verdant South Africa

Investment Team:• Johannesburg• Kinshasa• Accra• Lagos

Leasing FintechFactoring Other NBFI

MSMEsMSMEs MSMEs MSMEs MSMEsMSMEs MSMEs MSMEs MSMEsMSMEs MSMEs MSMEsMSMEs

Other leading (European) DFIs

Leverage private capital for increased impact

Exemplary structure

Innovative development finance through structured funds

Investing in Development1

Development finance institutions

• Medium to long-term maturity

• Target and complementary return

Donors

• Long-term or perpetual maturity

• Target and/or complimentary return

Inco

me

dist

ribu

tion

Ris

k ta

king

Notes

Mezzanine shares

Junior shares

Senior shares

L-shares

Private institutional investors (incl. foundations and family offices)

• Short to medium-term maturity

• Fixed income

Exemplary structure

Innovative development finance through structured funds

Investing in Development2

Notes

Mezzanine shares

Junior shares

Senior shares

Inco

me

dist

ribu

tion

Ris

k ta

king

L-shares

L-shares - facilitate local currency lending• Dedicated, donor-backed share class that

absorbs exchange rate risk• Safeguards local financial systems and

businesses• Facilitates loans to investees in their own local

currency• Protects investees (e.g. MSMEs and low-

income households) from exchange rate fluctuations

• As a key aspect of responsible finance, contributes to sustainable economic growth and strengthening of local financial markets

provided financing

denominated in 18

different local

currencies.

• Platform structure provides for flexibility and scale

• Focus on range of asset classes, if applicable via dedicated sub-funds (SANAD: debt sub-fund and equity sub-fund)

• Geographic expansion to new regions (eco.business Fund: sub-fund I: Latin America and Caribbean, sub-fund II: Sub-Saharan Africa)

• Calvert Impact Capital’s acquisition of five loans (USD 41 million) originated by the eco.business Fund in Latin America

• Fund was able to free limited capacity to originate new loans

• The offloaded portfolio continues to generate positive environmental impacts monitored by the eco.business Fund

Structural set-up facilitates innovation and scale

Investing in Development3

Milena Bertram

Carl-von-Noorden-Platz 560596 Frankfurt a.M.Deutschland

Director

+49 69 271 035-127

m.bertram@finance-in-motion.com

Thank you foryour attention

P

E

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