IMPACT ON CLIMATE

We like to share examples on how financial inclusion can advance climate-smart solutions and drive inclusive progress. A series of impactful projects of all shapes and sizes in emerging countries that address climate change, and help people adapt to and be more resilient to climate hazards. We at Incofin hope these stories of entrepreneurs, of financial institutions, of cooperatives, of impact organisations around the world can inspire how impact investors can contribute to a sustainable transition to a climate resilient economy.

Climate change is now. We must ensure that the most susceptible to the impacts of climate change – who are often already among the most vulnerable – are not left behind. Climate change is as much an environmental challenge as it is one of livelihood and social justice. Low-income communities (not the least women in those communities) are on the frontline of the dire effects of climate change. With the proper financial and technical solutions they are able to adapt, build resilience and mitigate climate change. Financial inclusion is well positioned to play a key role in empowering low-income vulnerable populations to adapt to climate change.

It brings us this time to Banco Pichincha in Ecuador, and especially to Maria. Enjoy her story.

 

Watch here the example of Mufin Green in India:

 

Incofin invests EUR 2 million in PEBCo-Bethesda in Benin. The funding comes from the Agricultural Liquidity Fund (ALF) and is a testament to Incofin’s dedication to advancing sustainable agriculture and climate resilience through financial inclusion. This resonates deeply with Benin, a country where agriculture sustains livelihoods and contributes 30% to GDP.

With more than 70% of its population relying on agriculture, the importance in Benin of agriculture cannot be overstated. Established in 1996, microfinance institution PEBCo Bethesda Benin has emerged as a catalyst for change, with a core mission to empower low-income communities, particularly women, in this agrarian landscape.

It facilitates farmers to purchase seeds and other inputs and supports the necessary investments to ensure revenue generation. This approach not only enhances the financial prospects of individuals but also contributes to the broader economic development of the populations it serves.

 

Comprehensive financial services

PEBCo’s efforts encompass a range of financial and non-financial services, including savings, agricultural loans, education loans and green loans for the acquisition of solar panels, among others.

 

Confronting climate challenges

However, Benin, like many other countries, grapples with the adverse effects of climate change. In recent years, unpredictable and erratic weather patterns, marked by floods and droughts, have cast a long shadow over the agricultural sector in Benin. It has not only imperiled food security but also jeopardized the livelihoods of countless individuals.

PEBCo has enlisted the expertise of an agricultural specialist to assist the MFI and its client sin adapting to and mitigating climate risks. This proactive approach underscores its commitment to safeguarding the interests of its borrowers and promoting sustainable farming practices.

Incofin, committed to inclusive progress and sustainable agriculture

Incofin’s debt investment of EUR 2 million in PEBCo originates from the Agricultural Liquidity Fund. The fund seeks to support actors in the sustainable agrifood value chain. This investment reaffirms Incofin’s commitment to fostering agriculture in Africa and the belief in PEBCo’s pivotal role in this endeavor.

 

Incofin just sold its 28% equity stake that its Rural Impulse Fund (RIF II) had in Unguka Bank to LOC Holdings, one of the leading global financial platforms for micro, small and medium entrepreneurs (MSMEs).

RIF II sold its entire 28% participation in Unguka Bank in Rwanda. Since its investment in 2012, RIF II has helped the company more than double its total assets from USD 14 million to USD 29 million, growing into the largest microfinance bank in Rwanda, serving 1,685 clients.

Geert Peetermans, Co-CEO of Incofin commented: From the time we entered over a decade ago as first foreign institutional investor in the then early-stage microfinance bank Unguka, its team has consistently built out tailored services and deepened outreach among Rwanda’s rural MSMEs. We are today passing on the baton to a new strategic investor, with confidence that Unguka Bank and its spirited team have a great future ahead offering responsible financial services.”

In addition to financing, Incofin has provided technical assistance to the bank to develop an agricultural lending strategy, related products and methodologies as well as to migrate to a new, more efficient core banking management system. This was in line with the RIF II-mission to promote socio-economic development in rural areas.

Besides its lending activities (for purposes such as job creation, housing and agricultural development), Unguka Bank has made significant contributions to social protection. Through an annual budget allocation, the bank for example supports vulnerable populations by covering school fees for children and constructing shelters.

Reflecting on the journey with Incofin, Justin Kagishiro, CEO of Unguka Bank, said: “Unguka Bank is grateful to RIF II for the exciting journey we have been on together since 2012 and for the impact we have made on our customers. We see Incofin not only as a financial investor but also as a trusted partner to extend our reach.”

Commenting on the significance of the investment in Unguka Bank, Deputy Chairman of LOLC Holdings Ishara Nanayakkara said: The African region possesses immense growth potential, characterized by higher GDP growth. Leveraging on our position as a leading global player in the MSME market, we are eager to address the requirements of this population segment and empower them to enhance their standard of living. By implementing our successful MSME model within Unguka Bank, we aim to offer accessible financial products and services that effectively meet the diverse financial needs of entrepreneurs. As LOLC remains committed to the UN Sustainable Development Goals, we actively contribute to economic development as a responsible lender, promoting financial inclusion while upholding robust client protection principles.”

 

About Rural Impulse Fund II

Rural Impulse Fund II is a EUR 120 million (USD 173 million) fund that was launched in 2010. The fund aims to contribute to the alleviation of poverty in rural areas by investing in microfinance institutions that have a strong presence in these rural regions.

 

LOLC Holdings

The LOLC Group is one of the most strategically diversified financial services conglomerates with presence in 23 countries across Asia, Africa and Australia. This extensive coverage enables LOLC to reach a population of over 1.3 billion globally, effectively catering to the needs of the underserved populations in each of its markets. LOLC is engaged in financial services, leisure, plantations, construction, mining, manufacturing and trading, digital empowerment, research & innovation and other strategic investments. As a leading player in the international MSME sector, the Group has been a catalyst in facilitating financial inclusion, whilst striving to maximise environmental benefits through green operations and processes, in line with its triple bottom line focus.

 

About Unguka Bank

Unguka Bank Plc (www.ungukabank.com) is a Microfinance Bank which started as a Microfinance Institution and licenced by National Bank of Rwanda since 2005. Unguka Bank is licenced to take deposits from clients and grant loans, as well as other related financial services. Its 14 branches and 1 outlet are opened in the Capital City of Kigali and other 3 Provinces (North, South and West) of Rwanda; it is yet to open a Branch in Eastern Province. The Bank has been serving the population, both in rural and urban areas, women and men, as well as MSMEs operating in various economic sectors.

Climate finance is hot, and right­fully so. The threat is real, and the needs are towering. The good news is that there are investible solutions out there. As with any new field, the development of climate finance has been accompanied by a range of standards, taxon­omies and met­rics. For climate mitigation, a clear consensus seems to be emerging on emissions reductions as the preferred metric to be tracked by investors, however the jury is still out on the ideal standards for tracking the impact of climate adaptation, and it is only starting to deliberate on resilience projects.

This difference in the pace of development of climate mitigation and adaptation standards has led to an unintended consequence: that the story of climate finance today is the story of climate mitigation. Less than 10 percent of all climate finance today goes to adaptation and resilience. This happens not because mitigation is more important than adaptation, but because the impact of mitigation projects is easier to track than that of adaptation projects. Simply put: what gets measured, gets managed.

The problem with too narrow of a focus on climate mitigation is that it does not take into account the fact that climate change is a challenge of livelihoods and social justice as much as it is an environmental chal­lenge, especially for low-income populations and other vulnerable com­muni­ties in the global South. Because climate change is not gender neu­tral, applying a gender (or JEDI for Justice, Equity, Diversity) approach to investments can increase the effectiveness of efforts to com­bat climate change and accelerate adaptive capacity. And vice versa: because climate change disproportionately impacts the lives of socially vulnerable people, investing with a JEDI lens can only work if it in­cludes a holistic climate focus as a centrepiece.

Scaling up and mainstreaming climate adaptation and resilience is cri­ti­cal to ensuring that communities most vulnerable to climate change are not left behind. A smallholder farmer in South America or Africa would benefit, for example, from climate-resilient seeds, a smart irri­gation system, soil rehabilitation or an emergency shelter for livestock. What needs to be done to channel more funding toward a more holis­tic approach to climate change?

Balancing standardization versus innovation
More standardization would lure more investments to climate adap­ta­tion and resilience solutions, but this can be an uphill battle.

The lack of clear, evidence-based definitions of resilience investments (e.g., healthcare, housing, gender equity, food security, employment, water) is a barrier for investors. While standards could boost credi­bility, they simultaneously risk inhibiting innovation, which is much needed given the high level of unpredictability about future climate change impacts. The underlying vulnerability of people and ecosys­tems as well as their ability to recover from climate shocks depends on many factors (e.g., physical, social, ecological, financial).

On the capital demand-side, the additional costs linked to demon­strating environmental impact in a rapidly changing and increasingly regulated context can be a stumbling block. Not all companies can afford to issue such instruments, undergo periodic external audits, deploy sizeable eligible portfolios and report in alignment with regu­latory taxonomies. Therefore high transaction costs are seen as one of the key factors deterring firms from issuing green bonds.

Overcoming these roadblocks requires a more inclusive approach in building a framework for climate adaptation and resilience.

Three steps toward a “fit-for-purpose” approach
However difficult, these challenges must be overcome. An inclusive, bottom-up approach needs to draw upon an under­stand­ing of the realities of communities most threatened by changing cli­mate conditions. The poor and marginalized in emerging countries – who have limited economic and institutional capacities – are the most vulnerable to these changes, so the proportionality principle should be applied to create “fit-for-purpose” standards. At Incofin, we put it into practice through three steps. It might be an inspiration for other impact investors as well.

First, it is imperative to start with a detailed diagnosis of the under­lying assets. At Incofin, we apply a climate lens across all our investments to understand how our partner financial insti­tutions and their clients are affected by climate change and how they contribute to climate mitigation, adaptation and resilience solutions. During our due diligence process, we assess their “greenness” by looking at three levels: the climate strategy and commitment, their systems and processes to manage climate risks and the climate-responsive products and services. Our investment approach emphasizes the importance of financial sustainability and recognizes that investments in climate resilience, mitigation and adaptation can be mutually reinforcing and socially beneficial. We therefore, rigorously incorporate social, gender and environmental dimensions in our analysis and impact tracking framework. We also welcome the various efforts and initiatives to better understand the social dimension of climate resilience, such as the resilience index of 60 Decibels.

Second, it is important to develop fit-for-purpose metrics that go beyond emissions reductions and suit the nature of the as­set. For Incofin’s recent­ly launched Water Access Acceleration Fund, for example, Incofin does not just track one metric, but a whole range, including amongst others:

  • Number of water bus­inesses implementing a climate resilience strategy
  • Number of these businesses using carbon credits
  • Volume of water reused
  • Efficiency of water use
  • Tonnes of CO2 emissions averted

These metrics are tailored to the chosen sector (in this case, water) and provide clear guidance for tracking the climate-related impact of the investments.

Finally, adapting to the realities of the specific market where we operate has always been at the core of Incofin’s investment and impact strategy. Unfortunately, stan­dard­ised metrics and rigid frameworks developed in the global North some­times fail to account for the diverse and specific needs of end clients in the South. A comprehensive, bottom-up approach must com­ple­ment rigor­ous quantitative data with qualitative insights gained on the ground, with a human-centered lens that accounts for the needs and demands of end clients. The physical presence of an investment team in the coun­tries in which investments are made enables a flow of feed­back that allows for the development of products and metrics that take into account the unique needs of the local market.

While the inclusive finance sector widely acknowledges the climate adaptation gap in low-income countries, there is an urgent need to accelerate the flow of financial resources to support low-income popu­la­tions at the front line of climate change. Failure to do so will lead to further social and finan­cial exclusion. To avoid this, it is imperative to break silos and develop a holistic approach that recognizes that invest­ments in climate mitigation, adaptation and resilience rein­force one another and create positive environmental outcomes, as well as pro­mo­ting gender empowerment and other social benefits. The sector can play a key role in doing this at scale by drawing on more than two dec­ades of experience in developing, tracking and delivering im­pact in a sustainable manner.

Noémie Renier, Partner and Head of Debt for Financial Institutions and Kapil Kanungo, Private Equity and Fund Development Manager at Incofin Investment Management. 

 

Africa dominates global cashew nut production with 56% of the market. Surprisingly, only 10% is processed locally. Enter Anatrans – the exclusive supplier of Nuts2 – and the leading processor in Burkina Faso, empowering 4,000 local farmers.

Through Incofin’s Technical Assistance project, co-financed by the Smallholder Safety Net Upscaling Programme (SSNUP), and the agRIF Technical Assistance Facility (agTAF), the lives of cashew nut producers in Burkina Faso have seen remarkable improvements. How?

  • Access to Fairtrade certification
  • Provision of advance payments
  • Focus on education and healthcare for their children

With 416 farmers trained on Fairtrade practices and 2 cooperatives receiving a Fairtrade certification, the Technical Assistance project has been a resounding success. Moreover, 159 farmers received advance payments for education and healthcare. But how can you know that it is truly impactful? We listened to the farmers themselves. You can find the results in the conclusions of the survey “Voice of the Farmer”.  It turns out that farmers have embraced more sustainable production practices, and 99% have witnessed increase in their cashew nut income. Thanks to the Fairtrade label, they now benefit from larger sales volumes and higher prices.

Another heartening outcome is the significant prevention of child labour, thanks to enhanced awareness among farmers and increased resources for better living conditions for the children. The farmers themselves have spoken and wholeheartedly believe that the benefits provided by the Fairtrade label are worth every penny invested.

 

agTAF, the Technical Assistance Facility of agRIF fund

agTAF was launched in 2018 to foster the financial inclusion of smallholder farmers and rural entrepreneurs through the provision of tailored capacity building support to selected investees of the Fund. agTAF is a EUR 1.8 million facility jointly financed by the European Investment Bank (EIB), the Société de Promotion et de Participation pour la Coopération Economique S.A. (PROPARCO), the Belgian Investment Company for Developing Countries (BIO) and the agRIF fund.

 

About Smallholder Safety Net Upscaling Programme (SSNUP)

The Smallholder Safety Net Upscaling Programme (SSNUP) is a 10-year programme which aims to strengthen the safety nets of 10 million smallholder households in Africa, Latin America and Asia through technical assistance and investment in agricultural value chains, resulting in an improved well-being of 50 million low-income people. Funded by the Swiss Agency for Development and Cooperation and the Luxembourg Directorate for Development Cooperation and Humanitarian Affairs, the SSNUP works as a facility to co-finance the technical assistance projects of impact investors active in the field. ADA ensures the coordination as well as the knowledge management component of the whole programme. For more info visit: www.ssnup.org.

 

 

Incofin invests INR 35 crores or USD 4.3 million in India’s rural affordable housing finance market by partnering with Varashakti Housing Finance (VHF) becoming its first institutional investor. The series A funding comes from the Incofin India Progress Fund.

VHF, led by Ms. Sahaana Sankar, focuses on the rural housing finance market, offering loans for asset creation in three South Indian states. With the loans benefiting women, who serve as either primary borrower or co-applicant, VHF has catered more than 4,200 borrowers till date. This ensures that women have equal rights and access to finance and opportunities for asset creation.

Director of VHF, Ms. Sahaana Sankar, founded VHF in 2017 with a mission make the aspirational dream homes of low-income households a reality. “We are excited to join forces with Incofin. This funding allows us to expand our business, scale up the organisation and further impact the lives of the rural underserved segment and enhance overall borrower experience. We will benefit immensely from Incofin’s global experience and value creation and look forward to including them in our journey!”

 

The Incofin India Progress Fund (IPF), launched in 2021, is a private equity fund to support promising entrepreneurs with growth capital. Financial incuclusion is one of the two main focus points for the impact fund. Commenting on IPF’s third investment in ihe financial inclusion space, Aditya Bhandari, Partner and Regional Director Asia Equity for Incofin: “With this investment, Incofin reinforces its mission to invest with a gender lens and to support climate resilient solutions. We see a large opportunity in the rural Indian affordable housing finance industry and believe that VHF’s experienced team together with its strong technology platform will realise success while achieving deep impact goals.”

As of June 2023, VHF offers home loans, home improvement loans, loans against property, small ticket business loans and reported an asset under management of INR 119 crores with 28  branches. VHF aims to reach an asset under management of INR 1,750 crores by catering to 30,000 borrowers in the next five to seven years.