The Overseas Private Investment Corporation (OPIC), the U.S. government’s development finance institution, uses private capital to tackle some of the world’s biggest development challenges – and in the process, advance U.S. foreign policy.
Dia Martin, Director on the Social Enterprise Finance Team and Manager for the “Portfolio for Impact” program, spoke with OnFrontiers recently about her work and what kinds of projects OPIC finances. Read excerpts from her conversation with OnFrontiers below.
How important is impact investing to OPIC?
Impact investing is a very important investment approach to leverage private capital to increase development globally that we strongly support at OPIC.
We seek to be leaders in the impact investing sector. We have designed a series of initiatives to facilitate and increase investment in the space. The impact sectors we focus on are what we call the “sectors you need to live” such as agriculture, education, access to finance, housing, SME (small & medium enterprises), healthcare, renewable energy, water and sanitation.
I manage one of the OPIC initiatives – the “Portfolio for Impact” program – which focuses on relatively small and earlier stage companies that are committed to achieving social and environmental as well as financial returns.
How do you measure impact? And does it come at a cost – ie: lower financial returns?
We provide financing anywhere from $1 million to $250 million on the debt side. So each deal is very unique in terms of the structure, the risk and the market; we are open in over 160 countries.
We look at the project goals and particularly at whether it provides goods and services to the underserved. We understand in looking at the projections of future cash flows that there are costs attendant to reaching the last mile or research and development of affordable products as examples to serve people. So we look at pricing on an individual basis. And we look at each deal in terms of: What are the costs to fund? What are the risks inherent in the deal? What is the business model & the capacity to support the pricing we offer?
It’s also very important for us that we don’t crowd out private sector investing. So we want our pricing to be very much aligned with commercial pricing.
Our advantage often is that we can provide financing in larger amounts or for longer tenors than some local commercial bank. We look for deals in emerging markets that have enough financial return to service debt and a high social and/or environmental impact.
How does your “Portfolio for Impact” fit into the traditional OPIC investment mandate?
With the “Portfolio for Impact” program – we are working with social investors to take on a little of the higher risk for earlier stage projects. We anticipate that as these companies grow, they could become candidates for additional OPIC financing that exceeds the $5 million limit of the Portfolio for Impact program,
Within the “Portfolio for Impact” program, we support companies across various sectors and countries. We take a portfolio approach as a risk mitigation tool and thus seek to support projects in diverse sectors, countries, regions, and with companies at different stages in their life cycle.,
What are the target businesses that you would like to finance?
We want to finance businesses that have an impact and can measure that impact – it must be integral to their business model.
Since its inception in 2014, we have committed financing to eight projects totaling approximately $38 million under the “Portfolio for Impact” program.
One example is GreenLight Planet. They sell off-grid solar lights throughout Asia, Africa and Latin America – giving access to the electric grid to millions of people.
What we really like about them is that the lights are affordable to their communities – they range from $10 to sophisticated home systems that are maybe over $100. They actually have individuals – like Avon salespeople – in India & Kenya who sell and service the lights.
Another example is Envirofit – which sells clean-cook stoves that have enormous health and safety benefits for women and their families in developing countries.
These are the kinds of companies that we want to support with the “Portfolio for Impact” program: innovative, socially-oriented companies that are serving low-income populations globally with a sustainable business model.
What are the top three things that prospective borrowers would want to know about how to work well with OPIC?
I think it’s very important to know who we are. We are the U.S. government’s development finance institution. So we sit in a very unique space in the market.
They also should understand the type of products we provide: we provide debt financing and political risk insurance. We don’t provide grants or equity; we provide debt. So we focus on companies that are at that level where they need debt financing to scale and grow.
The second thing is to understand the types of companies that we are looking for.
It’s all on our website, as well as the requirements for financing. As companies come to us for financing, it’s very important that they understand that information. And also, the OPIC process and how that works. We also host Expanding Horizon workshops across the country for small and medium enterprises to learn directly from U.S. Government officials about programs that support U.S. companies entering developing markets.
Finally, I’ve noticed with early stage companies, it’s very helpful if they start talking to us not at the moment when they need financing – but well ahead of that so that all parties have adequate time to exchange necessary information and meet the company’s timing requirements for financing. For a lot of companies, if they initiate contact with us earlier, we can watch the companies as they grow, and be in a better position to engage with them as they approach being ready for OPIC financing. But it’s good to already know the company and have that relationship.
What countries is OPIC most active in currently? Do the countries reflect changes in the geo-political landscape? For example, does OPIC prioritize supporting projects in post-conflict countries like Iraq, Afghanistan?
OPIC is open in over 160 countries. Our portfolio is about 50% in Latin America & Caribbean and Sub-Saharan Africa. We also have a fair amount of investment in Asia and Eastern Europe as well. We are demand driven and have a fair number of projects that are regional or global – so we are not really specific country driven.
We want to support post-conflict, low-income countries and we want to make a contribution where the OPIC involvement could be extremely meaningful. So there definitely is a focus, a tracking, and an effort to do more there.
Read more about impact investing.