Identifying good impact investments and measuring impact: A conversation with Ambassador John Simon, Founding Partner of Total Impact Advisors
This blog recently looked at the Medical Credit Fund, an OPIC loan recipient that is providing financing to many of the small, private healthcare clinics in Sub-Saharan Africa that serve low-income populations throughout the continent, but often cannot obtain even small loans from traditional banks to buy equipment or upgrade their facilities.
OPIC’s deal to provide financing to the Medical Credit Fund came about in part through Total Impact Advisors, a financial intermediary that helps identify and develop investment opportunities that are attractive both socially and financially. In addition to supporting Africa’s healthcare sector by helping small clinics improve operations and expand so they can serve more people, the Medical Credit Fund achieved a high loan repayment rate of 98.3 percent in 2012.
John Simon, Total Impact’s Founding Partner, who previously served as OPIC Executive Vice President, recently spoke about the Medical Credit Fund, the growing interest of investors in doing good while doing well, and the challenge of achieving both.
Medical Credit Fund provides small loans to small private clinics in Africa. What are some of the challenges these clinics faced when they were first identified as potential loan recipients?
Often the quality of care they provided was poor. Sterile rooms were not necessarily sterile. Pharmacy control was not as strong as it should have been and they did not necessarily have the medicines that people needed. And the clinics are often not structured in a way that supported efficient patient flow. Another problem was that there was no way to gauge the quality of these clinics. We needed to create a quality measurement system.
What was the solution? Medical Credit Fund is an initiative of the PharmAccess Foundation, a longtime client of Total Impact, which is focused on improving the quality of healthcare in Africa by strengthening the private healthcare sector. PharmAccess created a
system with grades so they could rate and rank health care providers. To get a loan from Medical Credit Fund, you have to get an initial assessment. It is a low standard because, frankly, the overall quality of clinics in Africa is low, but once you get into the system you start improving quality. The ratings also help health insurance companies identify who is providing a higher quality of health care. It also helps to make clear what clinics need to do to move up the ladder and obtain more financing.
How did they attract investors?
The Medical Credit Fund put together a proposal for the 2012G20 SME Finance Challenge focused on entities that could support SMEs. There were 500 applicants and Medical Credit Fund was one of 14 winners, earning a $2.5 million grant.
The first meeting with OPIC occurred right after they won the SME challenge and OPIC’s willingness to take this on helped bring on a lot of other support. They were able to get commitments from the Dutch Ministry, USAID, Soros (the Soros Economic Development Fund), Calvert Foundation, and then Deutsche Bank and Gates Foundation.
How did Total Impact decide to work with the Medical Credit Fund?
We do have standards for identifying good investments, but it is also a “you know it when you see it” situation. There is not a cookie cutter way of identifying social impact, but it has to be quantifiable and measurable. Each client may have a very different social impact case.
Medical Credit Fund was easy. They have very clear standards and, what is essential to impact businesses is that they measure along those standards, because that is fundamental to the success of their business. We are confident that given where these clinics are located, they are serving a lot of low income people. Over seven years, they are expected to serve thousands of clinics through $65 million loans that go out and come back.
As the founding partner of a firm that was founded to identify investments that were both socially and financially attractive, what have you learned about impact investing?
It is a new industry and you can view the glass half full or half empty. But there are real deals getting done. There are certain sectors and regions where a lot of the activity is today: South Asia and Africa, healthcare and agriculture and clean tech. There are a lot of opportunities.
The challenge is that the impact investing business models are still relatively new. The comparison people often make is to the microfinance sector and that took 15 years or so before you saw it really gain traction.