By any measure, the COVID-19 pandemic has impeded efforts to address global poverty. With many livelihoods and many aspects of daily life disrupted, about 97 million more people were living on less than $1.90 a day last year, according to the World Bank. Across the globe, world leaders have continued to announce large-scale investments to address and alleviate the negative economic impacts of COVID-19, but we can’t forget the importance of solutions for the “last mile” to ensure that the most vulnerable communities also benefit.
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For many years, social impact companies have developed the solutions we need to serve those last mile populations. These enterprises have many different names and operate with a wide range of business models, but what unites them is their deep understanding of the unique needs of low-income communities and their ability to effectively develop scalable, commercial solutions that align impact with profit.
Supporting companies that drive social impact
While the proliferation of these companies worldwide is promising, the lack of access to capital frequently impacts their ability to grow and advance their businesses. This is particularly true of earlier-stage social impact companies — often seen by investors as risky — in need of financing to take their solutions to scale. Commercial banks, foundations, and development finance institutions, or DFIs — with a shared mission and the capability to provide capital — are in many cases the critical lifelines that they need.
Considering the enormous current and future challenges facing the world, we cannot achieve the Sustainable Development Goals without focusing on last mile solutions. Over the years, Citi has collaborated on many initiatives to reach underserved communities around the world, and one particular effort stands out as a model for how to accelerate social impact businesses.
Scaling Enterprise is a $100 million loan guarantee facility that enables Citi to provide earlier-stage financing to companies that expand access to basic services in low-income communities around the world. Through shared risk guarantees provided by the U.S. International Development Finance Corporation and the Ford Foundation, Citi can leverage its global footprint to provide affordable capital in local currencies to early stage social impact companies.
For example, Citi and DFC collaborated in 2019 to provide a working capital loan of $5 million in local currency to d.light, a pioneer in delivering affordable energy solutions for the 259 million people around the world without access to reliable energy. The loan enabled the company to expand operations in Kenya. Similarly, Citi and DFC collaborated to provide a $5 million loan to InI Farms in India to help smallholder farmers sustainably growing bananas and pomegranates access export markets and increase incomes by up to 20%.
The early stage loans to d.light and InI Farms helped expand their impact and accelerate their evolution to commercial enterprises. With the Scaling Enterprise loans, both companies have been able to borrow from commercial banks, including Citi, without any risk guarantees — which, in turn, frees up development financing for other earlier-stage social impact companies.
Considering the enormous current and future challenges facing the world, we cannot achieve the Sustainable Development Goals without focusing on last mile solutions.
—The opportunity for DFIs
For DFIs, Scaling Enterprise offers two important lessons. The first is that risk assumptions about the viability of social impact companies need to change. Not only have there been no losses in Scaling Enterprise’s portfolio, but more than 50% of portfolio companies have gone on to secure commercial financing more quickly than predicted.
The second lesson is that through innovative risk guarantee models, DFIs have the potential to become disrupters themselves and build the social finance ecosystem needed to achieve sustainable and inclusive development.
As we look to continue supporting the most underserved communities through an inclusive economic recovery, we need to ensure that more social impact companies are able to reach scale, expand their reach, and achieve their social and environmental goals. This will require innovative cross-sector collaborations, a rethink of our appetite for risk, and an acceleration of efforts to help these businesses access diverse and sustainable sources of funding. DFIs, banks, and other impact investors can, and should, join us.
About the authors
Eugene Amusin
Eugene Amusin leads client solutions and strategy development at Citi Social Finance, focusing on social impact in emerging markets. He provides industry specialist support across regions working with corporate, microfinance institutions, banks, and nonprofits. He is also responsible for the bank’s work globally with social enterprises.
Lynee Bradley
Lynee Bradley is the region head for North America in Citi’s Export and Agency Finance group with responsibility for all U.S.-based official agency programs with a focus on infrastructure, power, and financial inclusion sectors. Bradley has over 20 years of experience in structuring complex transactions, which benefit from the support of official agencies.
John Finnigan
John Finnigan is the head of development organization in the banking, capital markets and advisory division of Citi. Citi’s clients for development organization include supranationals, development financial institutions, and NGOs. Finnigan leads a team of coverage bankers that provide financial services including capital markets, credit, risk management, treasury and trade solutions, and securities services.
