New impact fund to help Asia-Pacific’s COVID recovery
9 November 2020 at 5:54 pm
The fund addresses a major financing gap for small and growing businesses in the region
An Australian government-backed impact investment fund is set to support thousands of vulnerable people in the Asia-Pacific and help the region recover from COVID-19.
Sydney social purpose organisation Good Return has just launched the $1 million fund, which provides guarantees to incentivise local banks and other lenders to finance underserved small businesses.
While microfinance agencies offer small loans for micro businesses in the Asia-Pacific region, slightly larger businesses miss out. These businesses also miss out on bank loans because of insufficient collateral and lack of documented banking history or financial records.
It is this financing gap – for businesses with investment needs from $10,000 to $50,000 – that this fund looks to address.
While small businesses were one of the first groups the Australian government supported when COVID-19 hit, there has been no such stimulus support for small businesses in the Asia-Pacific.
Good Return chair Kate Jordan said these businesses were the backbone of the economy and needed support to ensure the region recovers from the COVID crisis.
“Small and medium sized agribusinesses will be the drivers of economic recovery in rural areas, generating jobs, income and food supply for vulnerable families,” Jordan said.
“Lack of investment at times like this can have dire consequences that thrust families deeper into poverty for generations.”
Good Return CEO Shane Nichols told Pro Bono News the organisation was working with local financial service providers to identify the smaller businesses in need of finance, with a focus on boosting economic opportunities for women in poor, rural communities.
He said they expected to finance 50-plus small businesses and generate income and employment for at least 1,000 people.
“The focus is on agricultural value chains because poverty is still largely a rural phenomenon and investments in agriculture have been demonstrated by the World Bank and others to be the most effective way of investing in jobs in rural communities,” Nichols said.
“And we’ve got a strong gender focus. We want to ensure that we’re supporting women as business owners and as actors in the value chain.”
The Department of Foreign Affairs and Trade (DFAT) has provided a catalytic injection of $200,000 for the fund.
Nichols said the DFAT funding was designed to reduce risk for other investors so they were encouraged to come on board.
“DFAT is putting up 20 per cent of the value of the fund and we’re using that as a first loss pool. So that way, if there are any losses that this fund incurs, that will be absorbed first by the DFAT funding,” he said.
“We are also providing guarantees to our financial service partners, and that helps them to offset the risk of a new type of business.
“But over time, as they build comfort and experience with lending to these particular small businesses in agricultural value chains, then it’s our expectation that they will continue lending to them without the need for our guarantee support.”
Good Return has so far raised one third of the fund’s $1 million value.
Nichols said they have enough investors on board to start signing partnerships with in-country partners, with two already identified in Cambodia and Indonesia.
“So the next step for us is to actually start deploying these funds in Cambodia and Indonesia while simultaneously raising the rest of the capital to reach our $1 million goal,” he said.
Nichols urged trust, foundations and private ancillary funds (PAFs) to get behind the impact investment fund.
He said the current environment meant many were sitting on large amounts of cash and that this fund was a good alternative to having cash sitting in their portfolio.
“This fund targets the cash rate of return. So they would still be getting the cash rate of return, but on top of that, they’d be getting the social impact that accrues with the funds,” he said.
“So we think there’s a really compelling argument in particular for PAFs to get on board and invest.”