SDG500: Catalytic Financing for Startups and Small Business Amid COVID-19
Key Takeaways
- COVID-19 is making it even harder for SMEs (small and medium enterprises) to access risk-appropriate financing.
- The SDG500 platform is using first-loss capital to support innovative startups while attracting additional private sector funding to solutions that help achieve the Sustainable Development Goals (SDGs).
- The CARE-SheTrades Fund is one of SDG500’s underlying investment vehicles that is capitalizing on public-private partnerships, CARE’s technical expertise and network of local service providers, and catalytic capital to address SDG 5: Gender Equality.
Since March, we’ve been exploring the implications of COVID-19 on startups and impact investing.
As businesses enter, or prepare to enter, this next phase where we balance virus mitigation with financial recovery, StartingUpGood — together with our sister initiative SDGCounting — has broadened our scope to include content related to the Sustainable Development Goals (SDGs). Specifically, if we were never on target to achieve the SDGs, how can investors and companies — large and small — prevent the COVID-19 crisis from derailing progress?
The pandemic is having deep negative effects on progress toward targets across all 17 goals. The World Bank estimates that COVID-19 could push up to an additional 100 million people into extreme poverty in 2020.
We are following this situation to find examples and trends that will nudge the global community toward “Building Back Better” rather than collapse toward a perfect storm of lost momentum. The United Nations is making a concerted effort to use this time to rethink and re-platform work toward the SDG Targets.
We followed over 30 sessions of the 2020 UN High Level Political Forum (HLPF) so we could share information on how the global development community is responding.
The Importance of SME Financing to COVID-19 Response and Recovery Efforts
On July 14th, the Government of Luxembourg, the UN Capital Development Fund and the International Trade Centre hosted the HLPF side event “The Importance of SME Financing to COVID-19 Response and Recovery Efforts”.
Speakers included:
- Dorothy Tembo, Acting Executive Director, International Trade Centre
- Lucica Ditiu, Executive Director, Stop TB Partnership
- Navid Hanif, Director, Financing for Sustainable Development Office, United Nations
- Michelle Nunn, President & CEO, CARE
- Judith Karl, Executive Secretary, UN Capital Development Fund (UNCDF)
- Esther Pan Sloane, Head of the Partnerships, Policy and Communications, UNCDF
- Manuel Tonnar, Vice-Chairman of Lux-Development, the Luxembourg Microfinance Development Fund
- Lacina Koné, Director General, Smart Africa
- Jean-Philippe de Schrevel, Founder and Managing Partner, Bamboo Capital Partners
SDG500 Platform
The SDG500 platform, which was launched in Davos 2020 last January, was the cornerstone of this HLPF side event.
As described by impact fund manager Bamboo Capital Partners:
SDG500 is a groundbreaking USD $500 million impact investment opportunity which aims to accelerate progress towards the SDGs. It is led by a coalition of private and public sector entities, including United Nations bodies, nongovernmental organisations and Bamboo.
Its six underlying funds are:
- SME financing in the Least Developed Countries (BUILD Fund)
- Technology for impact in Africa (BLOC Smart Africa Fund) and in Latin America and the Caribbean region (BLOC Latin America Fund)
- Health tech businesses in emerging and frontier markets (HEAL Fund)
- Smallholder farmers and small and medium agribusinesses in developing countries (ABC Fund)
- Gender justice, businesses empowering and providing jobs for women (CARE-SheTrades Fund)
As describe in this March NextBillion interview:
Each fund in the SDG500 platform includes a catalytic first-loss layer designed to encourage and protect senior tranches of funding. Target returns are market returns, but the risk-reward is enhanced thanks to the first-loss protection. This allows (the platform) to invest and finance early-stage enterprises.
Because of the platform’s unique blended finance structure, every dollar invested by foundations and development finance institutions in the first loss triggers an additional $2.50 invested by the private sector in the senior tranches. The goal is to encourage private investors — like pension funds and family offices — to invest in smaller businesses they might otherwise consider too risky.
The funds will use debt and equity to invest at Seed, Series A and Series B stages in hundreds of businesses in emerging and frontier markets. SDG500 aims to address the ‘missing middle’ financing gap that affects entrepreneurs in these markets, where growth is constrained by a lack of access to follow-on financing.
Thus the platform will bring additional financing resources to making meaningful and measurable progress towards achieving the SDGs.
Bamboo Capital’s Jean-Philippe de Schrevel described SDG500 as a game changer in SDG investing because it’s the first asset-backed initiative. The platform has a 12 year life, and investors can choose from three different tranches based on their risk tolerance.
NGOs and governments have committed to first-loss capital so that their investments can be catalytic. The platform has raised $80 million from first loss investors and is looking to raise an additional $60 million to begin deploying capital.
The platform’s unique structure also addresses the needs of SMEs for stage appropriate growth capital to provide solutions to gender equality, climate resilience and more equitable health strategies. Jean-Philippe de Schrevel thinks that the model will be replicable and scalable.
COVID-19’s Impact on SDG Financing
The panelists discussed the impact COVID-19 was having on the SMEs that the SDG500 platform was created to support.
Judith Karl of UNCDF pointed out that crisis funding provided by government stimulus packages were not reaching SMEs so her organization is restructuring loans to better support their clients.
Dorothy Tembo of the ITC spoke about the over-sized impact that failing small businesses have on women and young people.
Lucica Ditiu of the Stop TB Partnership discussed the need to transform our fragile health care system using innovations developed by SMEs — more people will die because of the effects of COVID-19 than from the disease itself.
Many of the panelists, including the UN’s Navid Hanif, emphasized that the world is flooded with liquidity that wasn’t there pre-COVID-19. But we need the unique instruments, pipeline of projects, technical assistance, and measurement ability to be able to channel these resources to more environmentally sustainable and socially equitable investment solutions.
CARE-SheTrades Fund
CARE’s Michelle Nunn spoke about the CARE-SheTrades Fund, one of the six Funds comprising the SDG500 platform. The $75 million fund has an expected rate of return of 7.5% “to harness the power of the private sector in pursuit of SDG 5 on gender equality.”
Nunn discussed how the SheTrades Fund could help unlock critical capital for women even during the pandemic by applying a robust gender analysis around all aspects of its investments. She also explained how the fund is utilizing CARE’s existing programs on the ground to provide technical assistance that builds gender smart solutions.
Even though SDG500 was launched prior to the pandemic, COVID-19 has affected how the platform will pursue its fundraising and capital deployment activities. This event demonstrated that the platform’s leaders are actively looking for ways to insure their efforts address new challenges and opportunities created by the pandemic in attracting financial resources to achieving the SDGs.
Watch the recording of this HLPF side event to learn more.
