"We are aligned in our goals to provide social and environmental impact"
News from 2018-07-02 / KfW Development Bank
Jennifer Pryce, the CEO of Calvert Impact Capital, about the importance of local capital markets in Africa
Calvert Impact Capital is a private US impact investor with more than USD 400 million assets under management. It has recently invested USD 10 million into the African Local Currency Bond Fund (ALCB Fund), an initiative created by KfW Development Bank. The ALCB Fund supports African capital markets by executing anchor investments into local currency bonds issued by Microfinance Banks, Housing Banks, Agribusinesses and Renewable Energy companies. With this, the ALCB Fund helps to bring down financing costs for the bond issuers, which benefits their balance sheets and at the same time supports their final customers like farmers, small businessman and handcraft shops. Jennifer Pryce, the CEO of Calvert Impact Capital, explains why retail investors in the U.S. are supporting local capital markets in Africa.
What role will African Capital Markets and the mobilization of western private sector investments play in your view to fulfill the "Sustainable Development Goals" (SDGs in Africa?
Achieving the SDGs like combating poverty and child mortality in Africa or anywhere requires investment at a tremendous scale. As a first step towards fulfilling the SDGs, local African Capital Markets will need to strengthen and grow the existing financial infrastructure, increase market sophistication and improve efficiency. It’s the local capital markets that will eventually scale and meet community needs. As the local markets mature, they will also create the level of ease and access that most western private capital requires. The ALCB Fund is a great example of this evolution — strengthening local capital markets while leveraging western private capital. In the future, as ALCB Fund develops a track-record, they will ideally be able to attract higher volumes of private and institutional capital, which is the type of scale capital the SDGs demand.
Why do you think you were able to mobilize U.S.-private sector investment into the ALCB Fund?
As a nonprofit investment firm, Calvert Impact Capital has a unique reach into U.S. private capital markets through the fixed-income security we issue called the Community Investment Note™ ("the Note"). The Note can be purchased by virtually any U.S. investor — from individuals to institutions — and trades through brokerage accounts, enabling us to tap into vast market of privately advised assets. We have raised nearly USD 2 billion from roughly 20,000 investors since we launched the Note in 1995 and have maintained 100% repayment rate of principal and interest to all investors. A critical part of maintaining that track record is having good opportunities to place investor capital. The ALCB Fund is a great example of such an opportunity — it’s a well-structured fund that can absorb private capital and meets a demonstrated need in the local marketplace.
Will working jointly with western Development Finance Institutions (DFIs) remain a priority for your institutions going forward?
Absolutely. DFIs offer critical de-risking and leverage capabilities that make them ideal partners for moving capital efficiently at scale into emerging markets. Importantly, DFIs are also partners with whom we are strategically aligned in our goals to provide social and environmental impact through investment.
Which priority do investments in Africa have for your institutions and is the support for local capital markets a key target?
Calvert Impact Capital is sector agnostic, but as a firm we are dedicated to creating more just, sustainable economic systems — like access to finance, education, housing — that serve people equitably. A good way to accomplish that goal is to focus on local capital markets development — a key priority for us — to support the growth of high impact sectors by reducing their exposure to foreign exchange risk, mismatched tenors and heavy reliance on foreign and donor funding.
What are your medium-term views on the economic development of Africa?
We’re seeing exciting new sectors and opportunities across the continent as local capacity has emerged and only expect that to grow in years to come. Over the past five years, Calvert Impact Capital’s portfolio activity in Africa grew at a CAGR over 50%, more than three times faster than our overall portfolio growth. We think this, as much as anything, speaks to the opportunity we see on the continent in the future.
What makes KfW attractive as a partner for investments in developing countries?
Alignment in strategic vision and approach makes KfW an ideal partner for us. KfW consistently takes a "big picture" approach to investment opportunities and focuses on the potential for systems change, rather than carving out a niche focus with one-off deals. As a private investor, we appreciate KfWs support for investment structures that are not only designed to crowd-in private capital, but conscious of how to do it appropriately.
The interview was conducted by Karl von Klitzing, Chairman of the Board of Directors of the ALCB Fund and Principal Project Manager at KfW Development Bank.