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: [email protected]
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
urf
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
Thank you foryour attention
P
E
4 Investing in Development
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