Set up as a revolving fund, Hivos-Triodos Fund reinvests the money repaid by its clients. By end 2018, the fund had EUR 67 million outstanding in investments in 28 companies in 16 emerging markets worldwide.
Hivos-Triodos Fund has three core impact themes: financial inclusion, access to clean affordable energy, and sustainable food chains. Fund Manager Karel Nierop: “The common denominator is the reach across low-income households and marginalised groups.” This broad scope is also highlighted in the publication Catalysing green, inclusive growth in a context of stories and numbers.
Access to innovative financial services
Fund Manager Karel Nierop explains that the fund wants to contribute to the development of sustainable sources of income for entrepreneurs in developing countries.
“We invest in SMEs and institutions within the three impact themes, and many of them are in early stages of their life cycle. Several are even not yet profitable. Many also use relatively new business models so there can be a higher level of financial risk.”
The investment in early stage SMEs means business plans need to be very robust. The fund has recently established partnerships with fund managers, Caspian in India and AlphaMundi in East Africa, to assess the more early stage, complicated companies that operate in local markets.
“We’ve set up joint vehicles with these fund managers and rely on their local network, knowledge and monitoring. 2018 has proved to us that there is a strong business case for assessing and investing this way,” he says.
Microfinance style investments
The fund also builds on Triodos’ expertise to assess companies that have business models replicating microfinance lending.
“Some pay-as-you-go solar companies we invest in can have a portfolio of a couple of hundred thousand clients. They sell on credit and lease small solar panels to low-income households. They often also include a battery, lights, and maybe even a television or fridge. Customers make down payments, but the basic part of the product is a loan which is usually paid back with mobile money. It means in part we need to analyse these types of companies as we would a financial institution,” he tells.
In 2018 the fund added Sistema Biobolsa to its portfolio, which also offers its customers a financing scheme that can be repaid over time. The company produces biodigesters, which convert animal manure into biogas. Biogas produces clean energy and reduces both CO2 emissions and the use of chemical fertilizers. Farmers achieve savings from reduced fuel costs and increased crop yields. Bio-slurry, a by-product of biogas production, is also an excellent organic fertilizer. The Hivos-Triodos Fund investment has enabled the company to expand operations from Latin America into East Africa.
Nierop is proud to talk about the investment. “Biodigesters are often financially unattainable for smallholder farmers, but Sistema Biobolsa’s business model makes it possible for them. Everything about this company really impresses me. Their product ticks all the boxes and impacts on a lot of development issues: poverty alleviation, climate action, reduced CO2 emissions, recycled waste, and organic fertiliser,” he says.
“The fund’s major focus in 2019 will be to continue to boost investment in the renewable energy and sustainable food and agriculture themes. We want to scale up our investments in SMEs in emerging markets so I expect that the microfinance portfolio will also decline a bit. In the longer term, I aspire that the companies we invest in will do so well that we can finance them throughout their lifecycle, perhaps all the way up to our Triodos Impact Equities and Bonds funds once publicly listed.
In 2018 Hivos-Triodos Fund invested in Sistema Biobolsa, which produces biodigesters. Sold mainly in Latin America, its products convert animal manure into biogas that can be used for cooking, heating, or electricity generation. The by-product can also be used as an organic fertilizer. Since 2010, Sistema Biobolsa has installed almost 4,800 biodigesters in Latin America, treated 7.1m tons of animal waste and mitigated 92,000 tons of CO2. With a loan from Hivos-Triodos Fund, it is now expanding sales from Latin America into East Africa.
The publication Catalysing green, inclusive growth highlights how Hivos-Triodos Fund made a difference in 2018. By zooming in on investees in Latin America, Africa and Asia it gives a flavour of how the fund catalyses green, inclusive growth, and how these investment touch upon the UN Sustainable Development Goals.