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Catalytic capital doesn’t get the same media attention as conventional impact investments with big returns. But it’s essential to making many impact ventures happen. These infusions provide capital that is considerably more patient, risk-tolerant and willing to accept lower-than-market returns than conventional funders require. And they allow a large number of potentially significant social and environmental enterprises and funds to get off the ground and grow.
With that in mind, MacArthur Foundation, The Rockefeller Foundation and Omidyar Network just announced the launch of the Catalytic Capital Consortium. It’s aimed at addressing financing gaps for funds and intermediaries that conventional financiers won’t touch.
“We want to make sure catalytic capital takes its rightful place along the continuum of capital needed to address the world’s problems,” says Julia Stasch, MacArthur’s president. “Increasingly, impact investment has a bias toward market rate returns and the notion that the market can take care of virtually all of it.”
According to a newly released report Catalytic Capital: Unlocking More Investment and Impact from Tideline, catalytic capital is also an essential part of achieving the United Nations’ Sustainable Development Goals (SDGs). Doing so means addressing a mindboggling $5 trillion to $7 trillion financing gap. Unlocking the necessary money can’t happen without catalytic capital, argues the report.
MacArthur is dedicating $150 million to the overall effort. Its first $30 million will be used to expand Rockefeller’s Zero Gap innovative finance portfolio, to be matched by $30 million from Rockefeller. Launched in 2015, the Zero Gap portfolio has around 50 financial structures across 28 countries. The new investments aim to catalyze at least $1 billion in new capital to help meet the SDG funding gap. “We’re investing in instruments that will bring more private capital to the task of achieving the SDGs,” says Dr. Rajiv Shah, Rockefeller’s president.
That’s just the beginning, according to Stasch. The Consortium plans to back another five or six other field partnerships, in addition to Zero Gap.
MicroBuild Fund is one example of a fund where catalytic capital made a difference. Created in 2012 by Habitat for Humanity, it focuses on loans for housing finance in developing countries, an area not usually targeted by microfinance institutions (MFIs). The $100 million revolving loan fund, managed by Triple Jump, with a $10 million technical assistance sidecar, is for MFIs to help low-income families build safe and durable housing. Early seed funding and first-loss capital came from a $2 million Program Related Investment from Omidyar, plus $8 million additional equity from Habitat for Humanity, Triple Jump and MetLife, and $90 million in debt from OPIC. Ultimately, $10 million in equity investments were leveraged 10 times to create a $100 million fund.
The upshot: MicroBuild has provided improved housing for over 685,000 people. Also 73% of borrowers are women; 68% are from rural areas. Plus the fund has approved over $124.6 million in financing for 54 MFIs in 30 countries.
The rest of MacArthur’s funding will provide matching investments to a select group of funds and other intermediaries, aimed at everything from forest conservation to refugee finance. Also, MacArthur, Rockefeller and Omidyar will use $10 million over three years to finance grants that help build an understanding of how best to use catalytic capital. “We want proof points of the power and rigor of the research and inquiry about the use of catalytic capital,” says Stasch. “The consideration of that will inform, inspire and empower other investors to join us. If we aren’t deploying the full range of tools we aren’t doing our job.”
March 12, 2019 at 02:49PM
Forbes – Entrepreneurs