A new tool for achieving impact: A look at OPIC’s IFIP pilot
One of the ways OPIC has been able to achieve a positive development impact for more than four decades is by consistently innovating its tools and processes. OPIC listens to clients, and regularly introduces new financial and insurance products to better serve our partners.
One of those recent innovations is the Innovative Financial Intermediaries Program, or IFIP, which was launched as a pilot initiative to better cultivate and nurture promising, unconventional investment vehicles that are often targeting some of the most hard-to-reach-sectors. Since IFIP’s launch two years ago, OPIC has received more than 100 applications through its quarterly call process. To date it has committed support to three investment vehicles that are investing in small businesses in poor and underserved communities in Asia, Africa and Latin America, and continues to review a rich pipeline of candidates within the IFIP pilot.
OPIC’s Joan Larrea, managing director of business and partnerships, explains the work behind the IFIP acronym and the benefits of supporting this unique deal stream.
Why did OPIC develop IFIP?
One of the main ways that OPIC furthers development is through support for emerging market private equity funds, which often have a strong presence and a deep expertise in the markets we operate and are able to make investments in businesses that have the potential to create jobs and have a strong developmental impact. We started seeing a stream of applications that could not be considered in the formal Investment Fund Calls for Proposals that we periodically issue to support investment funds. Some of these applications were for funds that were quite small, or had other unusual features, but which still offered compelling propositions to reach populations that were not easy to reach in other ways.
For example, a traditional private equity fund will deploy capital into a series of portfolio companies during a defined investment period and then sell and return the capital to investors by a certain date. But there are some emerging markets where it is not a credible proposition to tell prospective limited partners that you’ll exit your investments in a set timeframe. We’ve seen structures that, instead of featuring a 10-year horizon, are set up as long-hold or evergreen structures; other managers create self-liquidating investments that still provide for equity-style risks and returns.
Or a fund might structure its LP capital in an innovative way. In some of the vehicles that have applied for OPIC financing through IFIP, we see interesting capitalizations. There may be a layer of grant capital and a layer of market return LP equity capital. They are inviting a range of investors of different stripes.
How can OPIC support these unconventional investment vehicles?
We don’t see any other development finance institutions that are systematically supporting small funds and first time fund managers in emerging markets. These managers don’t have a lot of doors to knock on. They need OPIC’s support for two main reasons. First, as a first-time manager, it is hard to get any LP backing; getting OPIC on board could move certain LPs from a tentative expression of interest to a hard commitment. The second benefit we can provide is visibility. Some fund managers come to us having made good progress with smaller LPs or individual investors. OPIC becomes the first brand name they have on their investor list and allows them to target other institutional players. The fact that someone of OPIC’s caliber has stepped up is really meaningful to them.
Can you talk about one of the projects that has been approved through IFIP?
Last year, we committed $12.5 million to Unitus’s Livelihood Impact Fund, LP. Livelihood is a prospective $40 million fund that is developing what it describes as market-based solutions to global poverty in countries throughout Asia. Unitus supports a range of small businesses from agriculture producers in India to shopkeepers in Vietnam. Because of its size, it is not a natural candidate for OPIC’s Investment Funds department. But since it is seeking to invest in scalable, early-stage businesses that will help create jobs and increase the incomes of the working poor, it is addressing the sort of positive impacts that OPIC seeks to have in all the projects we support.
What’s the status of the IFIP pilot today?
IFIP was initially launched as a two-year pilot, which ended at the close of 2015. Based on the early positive reception it’s gotten in the market, we’ve extended it for another two years so that we can continue to collect evidence on its effectiveness. There’s been good market uptake and the program is functioning as we designed it, which is to help us look at pioneering and small scale financial intermediaries.
How can I learn more about whether a project might qualify for financing under IFIP?
We maintain a dedicated page for IFIP on the OPIC website here. The page lists eligibility standards and evaluation criteria, along with a link to the application portal, Frequently Asked Questions, and the date of the next quarterly submission deadline.