A few lessons from the DFID impact fund experience

While poor people in developing countries are more than willing to pay for basic goods and services, the existing private sector solutions in place so far do not allow them to meet such needs effectively. They often have to pay higher prices for similar goods and services, or settle for inferior quality.

We believe that development finance institutions have an important role to play in boosting private initiatives as social and profitable businesses. DFID decided to enter the impact investment market to tackle some of the significant challenges it faces (including market fragmentation, information mismatch and limited fund manager ability to measure the social and environmental performance of impact investments). It is in this way that the DFID Impact Programme was created in 2012. As a key part of this Programme, the USD75m DFID Impact fund was established to invest in businesses that generate benefits for the poor while also achieving profitability. This facility, which is managed by CDC, the UK’s development finance institution, uses a ‘fund-of-fund’ approach – CDC selects and partners fund managers. The USD40m DFID Impact Accelerator Facility, also managed by CDC, invests directly in transformative enterprises. In the short term, these funds will use the capital raised to boost co-investor confidence through robust due diligence of investees’ financial returns and development impact, and by offering limited potential subordination to private investors where necessary to catalyse their participation. In the longer term, they aim to raise additional capital by demonstrating the financial viability and positive impact of pro-poor business models.