While mobile internet has transformed the lives of people worldwide, markets that skipped traditional broadband infrastructure increasingly need fixed-line technology.
“We call it the limits of the leapfrog,” Ben Matranga, managing partner at Connectivity Capital, an impact investment fund that provides debt capital to internet service providers in emerging markets, said at an event on Wednesday announcing the launch of a new effort to strengthen digital infrastructure in emerging markets. “When more pipes get to more places, amazing things can happen.”
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As the internet becomes more central to people’s lives, expanding access requires both mobile networks and fixed access through ISPs, but these providers often lack the growth stage debt financing needed to expand connectivity networks.
The U.S. Agency for International Development has invited private sector partners to invest in digital services for underserved customers. The agency on Wednesday launched Digital Invest, a new blended finance program to mobilize private capital for ISPs and financial service providers in low- and middle-income countries. In its first year, USAID will provide $3.45 million in grants, with the goal of mobilizing nearly ten times that amount, or $335 million, in private capital, to benefit populations that have been left out of the digital economy.
Connectivity Capital’s new Connect the World Fund is one of five Digital Invest partnerships that have been announced.
USAID’s grant to the fund, which makes up a portion of the total capital that will be lent, mitigates the risk for other investors, Matranga told Devex.
“It’s basically an enticement for limited partners, who are already mostly focused on impact, to take a look at this,” he said.
Matranga and Jim Forster, his co-founder, started the organization five years ago to bring “patient” — or long-term — capital to so-called last-mile connectivity networks in emerging markets.
And this isn’t the first time they’ve partnered with the U.S. government.
Connectivity Capital worked with Jenny Internet, an Africa-based ISP, to double internet bandwidth in Eswatini, and has collaborated with the U.S. Trade and Development Agency to expand into other African countries.
While the fund has traditionally engaged in high-risk investments by supporting people taking the internet into new markets, its Connect the World Fund will support companies that already have a baseline of operations to help expansion.
With USAID’s support, Connectivity Capital will provide specialized debt financing, which is critical for ISPs that might otherwise delay or forgo their expansion plans.
“Infrastructure all over the world really proliferates when you have debt markets that work,” Matranga said. “Most of the capital for any digital initiative – fiber tower, data center, access network, etc. – is almost all debt financed, but those sources of capital just don’t exist in emerging markets.”
While Digital Invest is a welcome development, it will cost billions of dollars to build these fixed-line connections in emerging markets, so Matranga said that hopefully, Digital Invest is just the beginning of a growing trend.
Connectivity Capital aims to demonstrate “you can make a risk-adjusted return by investing in a last mile connectivity provider,” he said.
Moving forward, Matranga said he wants connectivity to emerge as a new category in impact investing, so it becomes a commodity with competing infrastructure leading to services that are accessible and affordable to all.
About the author
Catherine Cheneycatherinecheney
Catherine Cheney is the Senior Editor for Special Coverage at Devex. She leads the editorial vision of Devex’s news events and editorial coverage of key moments on the global development calendar. Catherine joined Devex as a reporter, focusing on technology and innovation in making progress on the Sustainable Development Goals. Prior to joining Devex, Catherine earned her bachelor’s and master’s degrees from Yale University, and worked as a web producer for POLITICO, a reporter for World Politics Review, and special projects editor at NationSwell. She has reported domestically and internationally for outlets including The Atlantic and the Washington Post. Catherine also works for the Solutions Journalism Network, a non profit organization that supports journalists and news organizations to report on responses to problems.
