CANBERRA — VisionFund International this week received its first commitment from Australian investors, who have raised $20 million Australian dollars ($13.5 million) to provide loans to families living in poverty in low- and middle-income countries.
Warwick Aubin, director of Australasian fundraising for VisionFund, told Devex that the new social impact bond, which was open to investors for three days starting Nov. 11, was the first bond that any microfinance institution has issued in a major traded currency and shows that demand is growing for these investment products among private investors and high net worth individuals.
“We need to be able to trial things to see if they work.”— Warwick Aubin, director of Australasian fundraising, VisionFund
VisionFund is the microfinance subsidiary of World Vision International operating in 28 lower-income countries. Since 2004, its services have delivered 16 million loans with an estimated value of $9 billion — in addition to savings and microinsurance products — with women making up the majority of clients.
The decision to test the water of the Australian market was inspired by growing demand for social impact investing opportunities identified by World Vision Australia, as well as financial incentives. Waived fees and pro-bono services offered to support this bond meant that approximately AU$900,000 was saved in its public release. But Australia’s low-interest rates also played an important role.
“I have been working in this space since 1982 and never have I seen Australian interest rates lower than the United States,” Aubin said. “It was an opportunity for VisionFund to buy in a lower interest rate market.”
Growing Australian demand
Australia’s largest corporate bond insurer, FIIG Securities Limited, was responsible for managing the public release of the bond, as its first foray into impact investing.
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“FIIG believe that there was a real gap in the market,” Aubin said. “With other impact bonds, such as green investment bonds, the market has seen, and liked those. Although it is imperative we move to green energy, the impact is not as significant as leading 400,000 people out of poverty. This bond offered that.”
FIIG clients interested in social impact investing were enticed by VisionFund statistics — a 98% repayment rate over the past decade, which suggests low risk. It was a number that encouraged investors to dip their toes in, Aubin said, but there are other factors that could encourage the consideration of social impact bonds.
“When I was speaking to credit analysts in the early stages of this, I was very excited that they were looking at it and saying that it was low risk because of the diversity in the investments,” Aubin said.
Microfinance is a banking model that investors understand, although operating in emerging countries is riskier, Aubin explained. Here, risk is reduced due to the geographic, political, and economic diversity of over 30 countries VisionFund operates in, as well as through the number of people and businesses that loans are provided to, Aubin said.
“If any of these clients default, well we feel for that family, but from a financial risk perspective it is not a big risk,” Aubin said.
Assessing the impact
An AU$20 million bond allows VisionFund to be relatively conservative in its first time out to market. And it provides an opportunity for other development organizations, as well as bond insurers, to test the Australian market demand for such products. That includes both VisionFund and World Vision Australia.
“World Vision Australia is working with VisionFund in the area of small and growing business,” Aubin said. “The SGB team are looking at going to market with an impact investment product as well, so the learnings from this would be helpful for that.”
Aubin anticipates that this product will require a smaller debt raising, be higher risk, and will have a smaller subset of investors to the current bond. World Vision Australia also has a new business team looking at impact investment opportunities, particularly in agriculture in the Pacific region.
The benefit of products like this, Aubin explained, is that funds are unstructured, allowing them to offer clients in lower-income countries more products to protect them — including insurance and savings products that can be bespoke for clients and regions.
“VisionFund is very focused on improving efficiency of delivery of our services, delivering the right services and trying new things,” Aubin said. This includes a pilot in Uganda where VisionFund has been lending to refugees to engage in economic activities over the past six months — a mode that is showing positive results.
“We need to be able to trial things to see if they work,” Aubin said. “It supports our clients as well as investors in supporting social impact.”