From time to time, project sponsors working in impact sectors may seek investment to align senior debt financing, including technical assistance funds or some equity cushion, to make a project financeable or to expand and scale. Today, there is general agreement that large amounts of capital that could have tremendous development impact are sitting on the sidelines because other types of capital are not properly aligned. Few players possess all the necessary types of capital instruments at their disposal. In other words, the proverbial “layers of the capital cake” are rarely coming together at the right time in the investment life cycle.
A donor or early stage risk capital provider may need access to larger amounts of capital to scale up their successful project. Projects that a development lender can support may require some technical assistance funds or some equity cushion to make the project financeable.
The following represent examples where various parties may come together to support a project in an impact sector.
Aligned Capital: OPIC is a leading voice in the effort to align the capacity and capital of global philanthropies, foundations, and non-governmental organizations with development finance institutions (DFIs). When philanthropic capital is invested in a way that catalyzes DFIs, which in turn catalyze commercial capital, it represents a highly effective way of increasing private capital flows forward toward targeted sectors, regions, and development priorities.
A number of investors who came together for education …
Example: Higher Education Financing Fund. This project shows how an investment by a foundation triggered an OPIC loan, which then “crowded in” commercial funding. To address the lack of funding for higher education, OPIC is providing a $10-million loan to the Higher Education Finance Fund and the Calvert Social Investment Foundation, Inc. to provide loans to microfinance institutions and other financial intermediaries, which will in turn provide loans for higher education to underprivileged youth in Guatemala, Honduras, Dominican Republic, Peru, Bolivia and Paraguay.
A number of investors who came together for healthcare …
Example: Healthpoint Services. This is an example of the type of small but impactful projects that face unique and challenging collateral issues. OPIC has committed to provide a $3.5 million loan to support the construction of small water treatment facilities to some 400 communities in India that have limited access to safe drinking water. The project is expected to prevent the spread of waterborne diseases and other problems such as arsenic poisoning. In addition, by its fifth year in operation, the project is expected to create about 470 permanent jobs. The project, which will use reverse osmosis and ultraviolet technologies to purify water, is also expected to generate procurement of goods and services from local businesses. This project exemplifies the characteristics of a host of deals that struggle to get financing under the current system and which would benefit from pooled capital.