A KOIS perspective on innovative finance in the COVID-19 era.
In the midst of the COVID-19 crisis, calls emerge worldwide to plan for a fairer, more sustainable ‘new normal’. Staring down staggering needs in both the near and far future, private investors have a historic opportunity to make a real difference.
How can we help them achieve the highest possible social and environmental impacts? Now is the time to invent and embrace new ways to invest. KOIS is ready.
Livelihoods and the economy
The current collapse in economic activity is threatening the livelihoods of billions. As a response, governments of high-income countries have introduced packages to support affected businesses and individuals. Yet, most low- and middle-income countries cannot afford such measures. In these settings, the social safety net is typically limited, and offers no protection for the informal sector. Faced with a very real threat of starvation, the poor must receive immediate support if they are to stop working during lockdown measures, and withstand the economic crisis.
Where government and donor efforts are not sufficient, innovative credit schemes can be introduced. ‘Lockdown microloans’ could channel private capital to those individuals most in need. They could then repay them once their livelihoods resume. Philanthropic or public capital in donor countries can provide guarantees to help ensure low interest rates. Additionally, beyond humanitarian motives, this can present an opportunity to strengthen lockdowns and limit contagion globally. KOIS is currently exploring similar approaches to address the livelihood challenges faced by impoverished construction migrant workers in India.
Beyond this emergency, the recovery will provide a historic opportunity to reorient economic activity and build tomorrow’s world. Now is our chance to develop new, impactful and sustainable business models. But, left to traditional market mechanisms, the new normal may be very much like the old. Impact investing funds are critical: they support financially sound sustainable investment opportunities. These can help substantially move the needle towards a sustainable, inclusive economy. In partnership with an established private equity team with a long track record, KOIS is preparing to launch a new initiative named Impact Expansion. This project will start a € 150M impact private equity fund. Its goal? Identify and scale up existing companies and successful models across Europe, with high impact on healthcare, education and the environment.
To make this better world possible, some geographies and sectors require blended finance models. In these, a small amount of catalytic, public or philanthropic capital can limit investors’ risk and incentivize impactful investments. KOIS is designing blended finance instruments to attract private capital to renewable energy and equitable access to water in Africa (also a short term COVID-related need), in partnership with UNDP and UNICEF.
Social inclusion and housing
The lockdowns are exacerbating the urgent need for shelter among homeless individuals at risk of contagion in the streets. In many countries, a large-scale emergency response is under way. Countries are mobilizing available spaces such as hotels and school gymnasiums. However, these solutions are unsustainable in the long-term. When hotels and schools reopen, we will be left with the unthinkable prospect of sending the homeless back to the streets. After decades of hand-wringing, the time may have come for radical and durable solutions to address homelessness.
Mounting evidence points to the effectiveness of ‘housing first’ approaches: by providing stable housing combined with intensive professional support, we can durably help the homeless rebuild their lives. Such interventions, when successful, create a virtuous cycle for public finances, with savings on shelter and law enforcement costs potentially outweighing the investment. However, with state budgets already stretched by immediate COVID-19 responses and a lack of established track record at scale – inherent to innovative interventions –, public funding of such programmes faces an uphill battle. Through a mode of results-based financing known as a social impact bond, private capital can finance the intervention upfront, with government paying it back if and when impact has been proven, based on savings generated. KOIS, partnering with Médecins du Monde, will be testing an approach of this nature in France in the course of 2020.
While mechanisms such as impact bonds can establish proof of concept of innovative interventions, we also need longer-term instruments to ensure long-lasting homeless protection. Since 2015, KOIS, Degroof Petercam and Revive have demonstrated through the impact real-estate fund Inclusio that private capital contributes to offering affordable, quality housing to vulnerable populations over the long term. This initiative is ready to be replicated and scaled up, with an IPO in preparation for the end of the year.
The road ahead
The new normal will not automatically differ from the old. As the world reels from the impact of the pandemic and looks ahead to an uncertain future, now is the time to plan for it, and to define how to finance it.
Building resiliency to resist future global shocks will be a crucial cornerstone for our new future. Meeting climate goals alone will require an investment in the trillions of dollars in coming decades. It will not happen without deliberate actions to channel private capital where it will do the most good for people and planet.
At KOIS, we know that no single player can achieve this on their own. We want to be the bridge that connects investors with businesses, nonprofits and governments to make this possible. Will you join us?
About the authors
Colin Godbarge is a Principal at KOIS Paris
François de Borchgrave is a Managing Partner and co-founder of KOIS
