Today’s article is by Good Return. Impact investment is a growing field in international development. It enables the public and private sectors to collaborate to tackle the world’s most pressing issues, as captured in the UN’s Sustainable Development Goals (SDGs). Globally, the funds required to achieve the SDGs fall well short of the total global aid budget, with an estimated annual funding gap of USD $2.5 trillion. Impact investing, or investment made with the intention of creating positive social or environmental impact, holds the potential to bridge the SDG funding gap.
Impact Connect links small and medium enterprises (SMEs) across Cambodia and Indonesia with access to finance to unlock their potential in contributing to the achievement of the SDGs.
A 2017 report from the World Bank Group found that SMEs make up more than 95% of registered firms worldwide and play an important role in diversifying economics, promoting innovation and integrating underemployed demographics, such as women, into the economic mainstream. Despite these benefits, SMEs remain severely underserved by financial institutions, especially in emerging markets across the Asia-Pacific.
Impact Connect seeks to address this issue. Using funding from impact-first investors, Good Return will partially guarantee loans of AUD $20,000 — $250,000 from local partner financial institutions to SMEs. This risk-sharing will incentivise formal lending to the under-served agricultural sector, and alongside this Good Return and Palladium are developing innovative SME financial products, such as structuring loan repayments based on actual business cash-flows rather than a fixed schedule. Since better meeting the needs of SMEs will ultimately reduce risk to both banks and enterprises, Impact Connect aims to stimulate the long-term flow of capital to SMEs by demonstrating the financial viability of these innovative loans.
BIDUK: Closing Indonesian SME Financing Gaps
Reflections on the Frontier Brokers workshop at AVPN Bali