Broadly speaking, impact investing seeks to leverage capitalist means to achieve social and environmental progress by creating a way to recycle the capital. The vision overall for an impact fund manager is hence to catalyse companies and industries that generate positive social and environmental outcomes, while positioning their investment portfolios for profit from their rise and impacts.

According to the Global Impact Investing Network (GIIN) [www.thegiin.org], the three key characteristics of an impact investor are as follows:

 

a) Expectation of a financial return that can range from the return of capital to risk-adjusted market-rate returns and that can be derived from investments in a range of asset classes.

b) Intent to generate a positive social and/or environmental impact through investments. For example, investors may seek to use investments to increase access to basic services or invest in solutions aimed at mitigating the negative effects of climate change.

c) Commitment of the investor to measure the social/environmental performance of underlying investments.

We target a large variety of accredited investors both locally and internationally – their common attribute being the desire to seek exposure to alternative investments, specifically those which are targeted for social and/or environmental good along with market-rate commercial returns – they include development finance institutions (DFIs), community development finance institutions (CDFIs), philanthropic foundations, private wealth managers, impact investment funds, boutique asset managers and high net worth individuals.

Our STEPs MSME Impact Fund offers investors the opportunity for social and environmental returns with risk-adjusted market, or above-market, returns. Due to no financial trade-off, we expect to see our mandate aligned with a large group of global, regional and local investors.

Most impact investors wish to take a proactive role in creating social and environmental good while generating risk-adjusted financial returns. Other, more commercially-oriented investors have recognized impact investments as a separate asset class less correlated with global equity and bond markets - such investors look to diversify their portfolios by allocating capital to impact investments.

AIM STEPs utilizes a consortium approach to engineer financial inclusion for the micro, small and medium enterprises (MSMEs) primarily in non-urban areas. The financing options are sought by entrepreneurs who demonstrate a track record in managing their business and associated financing requirements, but fall short of the traditional banking requirements, e.g. financial records, credit rating etc..

Leveraging our partner organizations’ distribution network and using a technology enabled proprietary platform to record and store periodic data across operational, transactional and financial performance we screen for potential MSME investees.

We have a distribution footprint across 25 districts in Bangladesh with c. 100 Field / Marketing Agents working via a hub & spokes model. Our database of potential MSME investees is growing daily (and already includes detailed information on 10,000+ MSMEs across our nationwide network).

Current profile of investees includes dairy farmers (some with bio-gas digester modules), fisheries, handicrafts, handlooms and livestock entrepreneurs who face barriers in accessing finance from traditional financing entities. AIM STEPs encourages growth in these small industries as they promote a sustainable rural economy and simultaneously lays the foundation for transformative progress in their daily lives and future generations.

Our consortium partners collectively have over 20 years of industry presence, comprising many who are former Grameen Bankers with 20+ years of experience. They are subject matter experts and utilize data-driven systems for analysis, auditing and reporting.

Rural banking creates a communal relationship between the lender and borrowers that become rooted in the fabric of their communities. These entrepreneurs value the ability to stay with their families without having to migrate elsewhere to earn a living (especially for cyclical agricultural businesses); hence a sustainable income stream becomes vital for the family unit. Among other things, our financing helps these families stay together.

Industry research suggests that in comparison to large corporates the MSEs are a mere 1 notch lower from a credit rating perspective. Additionally, our experience from the BDT 130+ crores of financing already disbursed evidences a recovery rate ranging between 93%-98% over the past 5 years. While their past repayment performance does not fully mitigate future risk, AIM STEPs utilizes a blend of data-driven tools for rigorous business analytics alongside physical monitoring by field / marketing agents to capture early warning indicators to address any perceived risks.

AIM STEPs via its consortium partners is well connected with a large network of MSME customers and potential MSME investees. The network footprint across 25 districts in Bangladesh allows us to have scale in our outreach efforts in non-urban areas. Furthermore, rural banking creates a communal relationship between the lender and borrowers, which become rooted in the fabric of the communities.

Our consortium partners collectively have over 20 years of industry presence, comprising many who are former Grameen Bankers with 20+ years of experience. They are subject matter experts and utilize data-driven systems for analysis, auditing and reporting. Compliance with all regulations are an integral part of our value proposition.

There are also regulations from Bangladesh Bank providing guidance on the interest rates applicable for microfinance lending etc.. Our consortium partners involved in the distribution of such loans take these guidelines seriously and undergo inspections and/or audits by relevant authorities on a routine basis. Interest rates on loans for obvious reasons can vary between MSMEs for a variety of factors but are always within the limits permissible by Bangladesh Bank.

In solving the world’s most complex problems, a multidisciplinary approach is often needed. The same holds true, in our opinion, for addressing the challenges faced by impact investors in emerging markets, especially in the MSME sector.

Recognizing this early, we have taken a consortium approach by including experts with a proven track record and stable operating expenses. An added advantage of this consortium approach is the low-cost overheads for AIM STEPs, which enable us to retain a meaningful portion of profits thereby allowing market-competitive returns back to our valued investors.

The consortium approach has enabled AIM STEPs to reach a large number of borrowers through the hub & spokes model across 25 districts in Bangladesh. The function performed by field / marketing agents is an integral part of the business model; they are the conduit between the formal organization and the investee universe.

Field / Marketing Agents are trained to use a blend of tools to select borrowers and present them to the AIM STEPs Investment Committee for consideration, and also play a key role in monitoring the financing projects they have helped originate. These agents have been selectively recruited and trained by other senior field agents and/or experienced management members.

Our activities are supported by a robust proprietary technology platform called i-SME. Our field / marketing agent through the network of branches and i-SME Centers disburses the loan to the borrowing MSME – this is tracked in i-SME and there are a host of robust reporting tools to enable field / marketing agents to alert borrowing MSMEs on repayment timelines. In many cases, we also conduct educational workshops across our network of i-SME Centers to help them re-engineer and run their businesses better.