Investment Approach & Impact Evaluation


Investment Approach

A number of factors have converged to make possible a reusable platform for impact investing in the MSME sector.

Using this platform, our impact fund developed a replicable model for non-bank-intermediated formal financing of MSMEs.

 

  • A number of factors have converged to make possible a reusable platform for impact investing in the MSME sector. Using this platform, our impact fund developed a replicable model for non-bank-intermediated formal financing of MSMEs.
  • The Impact MSME Platform transitions pipeline development away from a network-driven effort to a data-driven, methodical approach. A wide net is cast across the country to source the most attractive MSME investees. This reduces the cost of deal sourcing relative to deal size, which will be a significant stride in the MSME sector.
  • A structured due diligence and investment monitoring process is in place. This is executed by former Grameen Bank alums with decades of experience in the sector and region. The Impact MSME Platform will enable investments to be monitored by a combination of accounting software implementation and cluster-based high-touch monitoring.
  • The platform isolates the impact of an investment from confounding factors. Impact variables are collected along with financial data on a quarterly basis by redeploying i-SME infrastructure. Thus the affordability problem of impact evaluation in the MSME space is addressed.
  • The STEPs MSME Impact Fund adopts an open-ended fund structure which leverages an array of self-liquidating equity instruments, improving exit rates. All returns will be structured as dividends to facilitate repatriation to investors.
  • The Fund is structured to provide institutional investors access to an attractive, but heretofore inaccessible, investment frontier. With three decades of microfinance data on Bangladesh’s rural enterprises demonstrating a highly attractive risk-adjusted return profile (20%+ annualized returns, <2% non-performing investments) that is largely uncorrelated with global capital markets, the opportunity has been the exclusive domain of the informal financial sector. By participating in the Fund, local and international institutional investors can gain entry.

Impact Evaluation

Developing a scalable and objective impact measurement system has been one of our key pillars.

Due to the high cost of impact evaluations relative to the size of an MSME investment, impact evaluations on a per-enterprise basis has traditionally been difficult to execute. This has been a disincentive for impact investment in the MSME space since impact investors want to know the social and environmental impact of their dollars. To address this gap, we have taken steps to create a scalable means to quantify the impact of our investments.

 

  • Impact variables added to financial data-feed: The i-SME platform records financial, transactional and operational information every quarter.
  • Impact data compatible with global standards: Measurement will use GIIRS taxonomy. In addition to general/cross-sector impact data metrics, we use sector-specific impact metrics with our frame-working partners such as Yale SOM. Investors will be able to determine the success of their impact investments.
  • Ability to isolate impact of an investment: One of the most innovative and revolutionary characteristics of the MSME Impact Evaluation Module will be its ability to isolate the impact of the investment from other confounding variables.
  • Historical Relationship Quantification: Peer group and investee time-series data is available both before and after the investment. Operational, financial and other variables of the peer group benchmark will be regressed on investee’s metrics to determine the relationship of investee’s dependent variables on the benchmark’s independent variables.

Focus Sectors


FINANCIAL INCLUSION
FINANCIAL INCLUSION
Education and Skills Development
Education and Skills Development
FOOD SECURITY
FOOD SECURITY
WOMEN EMPOWERMENT
WOMEN EMPOWERMENT
CLIMATE ACTION
CLIMATE ACTION
HEALTHCARE
HEALTHCARE