Five UK charities hope to take the investment world by storm this week, when they launch a platform to link investors with SMEs needing long-term capital to expand and benefit their communities in rural Africa, Asia and Latin America.
ACRE - Access To Capital For Rural Enterprises - will connect impact investors with small and medium-sized enterprises (SMEs) in countries where the charities already have longstanding relationships with entrepreneurs.
The five charities behind ACRE are Christian Aid, Traidcraft, Practical Action, Twin and Challenges Worldwide. Together they have created a syndicate through which investors can fund hand-picked SMEs.
"We're entering this space because we believe we can bridge the gap between investors who want to make a difference and SMEs which have great potential to grow," said Joanna Heywood, ACRE programme lead at Christian Aid.
"We also hope to fill the so-called missing middle in which SMEs require investments of between £100,000 and £1 million - amounts that many impact investors find too risky or expensive. As charities already working with enterprises across Africa, Asia and Latin America, we have the relationships and the understanding of local contexts that impact investors need, and the footprint and networks to reach hundreds of enterprises."
Among the 100 businesses already in the ACRE investment pipeline are a Nicaraguan producer of concentrates made using the climate-resilient plant Hibiscus and a Ugandan clean energy company which turns waste into solid and gas fuels.
Many companies in the pipeline are women-led, or source their supplies from women producers. ACRE expects investments in these companies to lead to higher incomes for women. One investor working with ACRE is Martin Rich, 42, who worked at several mainstream investment banks before moving into the impact investing world. He has spent the last seven years as Sales Director of Social Finance Ltd and advised on the creation of ACRE.
Mr Rich said: "I've come to understand the enormous barriers faced by these types of enterprises, which make it hard for them to grow from being grant-funded to self-sustaining. ACRE gave us a unique opportunity to bring together the essential components required to make this process easier.
"For the enterprises, that means essential business support and patient capital. The charities bring their relationships and understanding of the impact that can be achieved in each situation. And for impact-first investors like myself, it's the ability to find and support these enterprises and the comfort of building on existing relationships. It's a very exciting and potent combination, with the added benefit that successful investments will return the capital to be reused elsewhere."
Ms Heywood added: "ACRE is targeting enterprises which have the potential to transform the efficiency or scale of the market in which they operate - for instance, a Zimbabwean organic producer of Baobab tree-based products who lobbied the European Union to allow imports of Baobab products into Europe, opening up a huge new market.
"The enterprises we're working with typically lack a track record in formal business and the experience to present their financials to investors. They also suffer from the price of debt in the local market and lack familiarity with equity investments. So as well as linking investors and companies, ACRE will help companies become investment-ready.
"We will also use existing impact investment reporting standards, as well as the charities' experience of measuring their impact, to demonstrate that investors can help to change the lives of people in poverty."
The ACRE syndicate is a group of like-minded, impact-first investors who sign an agreement to consider investing in the ACRE pipeline on a deal-by-deal basis, with support from pro-bono legal advisors. The investors are able to leave their capital invested until a positive result has been achieved - which may take 10 or more years - and want to help create wider sustainable change, rather than chasing shorter-term financial returns.
Source: Christian Aid