Calvert Impact Capital makes impact investable. In their 22-year history, they’ve mobilized over $2 billion of investor capital, raising capital from individual and institutional investors to finance intermediaries and funds that are investing in communities left out of traditional capital markets. They’re currently at the top of our league tables for private investors involved in blended finance, so we knew we wanted them to be our first member spotlight.
Najada Kumbuli is a Director on the Investments team and is responsible for originating and executing transactions that leverage private debt capital to scale the renewable energy sector and local financial markets in Africa, Asia, and Latin America.
Originally from Albania, Najada combines her personal experience of growing up in an emerging market with her technical knowledge to be creative in the ways we use finance to tackle some of the world’s deepest problems.
We spoke to Najada about Calvert’s overall investment approach, specific blended finance transactions she was involved in, how Calvert measures the impact of their investments, and much more.
Tell me a bit about Calvert’s overall investment approach and mandate? How does blended finance fit in?
We invest private capital in sectors and regions where it hasn’t been channeled at scale to strengthen and build underserved markets. When we say underserved markets, we mean both markets and organizations that are not served by traditional finance markets, but also individuals who aren’t able to access basic services, like finance, affordable energy, and other basic services.
We see blended finance as a tactic – an effective tool to accomplish our market-building goals. All of our investments internationally would fit under the blended finance umbrella, where we are bringing private capital into structures that have some form of catalytic capital (e.g. first loss capital, guarantees etc.), in order to create a risk-adjusted investible package for private investors.
Do you find that there are specific sectors or regions where blended finance is more effective?
Where blended finance really makes a difference is in sectors and regions that have a limited track record, where investors have a tougher time differentiating between perceived and actual risk. In these cases, blended finance makes it possible for private capital to come in by reducing the risk of non-payment so that private capital can get the risk-adjusted return it requires. Overtime, this allows the deal, sector, and region time to start building their own track record, ultimately shrinking the perceived versus real risk so they can graduate to traditional capital markets. Some of these sectors include renewable energy, financial inclusion, and younger sectors like ocean preservation. When there isn’t enough of a track record to adequately analyze and price the risk, blended finance is effective in attracting new investors.
Conversely, in sectors that are more established like microfinance, blended finance is less likely to make a big difference. That’s because the microfinance sector has been around for decades, which means you have enough performance, industry, and sector data to make comparisons and to price and size risks appropriately.
In terms of regions, those regions that haven’t been able to attract as much private capital because of the nature of their economy and geopolitical challenges, such as sub-Saharan Africa and Latin America, are where blended finance is most effective. It’s in those places that catalytic capital from philanthropic organizations or public institutions can really enable private investors to come in.
Can you give us an example of a blended finance transaction that you’ve been involved in?
The Honduras Renewable Energy Financing Facility comes to mind. The Fund addresses the capital gaps that small scale renewable energy projects face when providing services to rural populations in Central America.
This was a transaction where we were the first and only private capital provider in the structure and benefited from significant subordination from the Inter-American Development Bank. Our participation provided a kind of “stamp of approval” needed in order for other private capital providers to invest, essentially telling them that private capital can be invested in these types of financial vehicles and ultimately, in these types of investments and sectors abroad.
What’s the role of catalytic capital in these transactions?
As a private capital provider, the most beneficial role that catalytic capital providers can play is that ability to backstop potential losses in investment structures and allow them to build their track record over time. So down the road the private sector can identify what the risks of the transaction are and as a result price the investment opportunity appropriately.
How do you measure the impact of your investments?
We think about impact in two ways. We think about broader systemic change and market development as well as end beneficiary impact.
In terms of systemic change and market development, we monitor quantitative and qualitative metrics to determine whether we are strengthening local financial markets, boosting economic activity, encouraging gender equity, etc., to ensure that our investments have a positive “big picture” impact. Some of the metrics we monitor include total capital deployed as percentage of sector/regional needs, capital leveraged, the type of new products being offered into the sector, and the amount of capital crowded in from other private investors and local financial institutions. We track these metrics to understand if we are moving the sector and region to a level of maturation that allows it to be picked up by the traditional market.
In terms of end beneficiary impact, we collect and monitor metrics that are aligned with industry standards like number of clients served, gender disaggregated data at the leadership and client level of the company, as well as data on job and wealth creation.
For each deal we invest in, we work closely with our borrowers to determine a set of financial and impact metrics to be reported in order to align financial performance with impact performance.
Advice for any of our members interested in engaging in transactions?
The amount of capital needed to meet the Sustainable Development Goals is enormous. We need to activate all types of capital – philanthropic, public and private capital - to make meaningful progress and that will require us to think creatively and act collaboratively.
Start with determining what type of capital you have, understand where that capital is most “catalytic” in addressing the sectors’ and regions’ needs, and then develop your investment strategy accordingly.
To help other investors navigate this process, we developed a financial supply chain framework that guides blended finance practitioners through the process of identifying where their capital can be used most effectively to advance their goals.