Investing for change

29 Jun 2018

Nepal’s first private equity impact fund helps uplift Makwanpur and Tanahu villages
– SIDDHANT RAJ PANDEY

Jun 29, 2018-Up the hills of Makwanpur,113 km south west of Kathmandu,a small village development community named Raksirang is located; its inhabitants are from the Dalit, Chepang and Tamang communities. The electricity supply to Raksirang is via grid connectivity through a single-phase line that barely services the villagers. Agriculture is the main source of income, but with poor water supply and access to markets it barely makes the end meet for the farming community.

Recently, an innovative private company involved with renewal energy technology set up a 30 Kw solar power system in the village. These solar photovoltaic panels provide electricity to the solar generated pumps to distribute 150,000 litres of water per day to not only irrigate the fields, but also provide drinking water to each household through a network of pipes.  This measure has changed the face of this small town in less than a year. Since its installation, every household has its own water tap and irrigation is now possible for 60 ropanis of land, in which villagers farm red chilies commercially.

In another example, a small town called Dubung in Tanahun district, which has no grid connectivity for electricity, 18 Kw solar plant was installed. Since the installation, the economic impact to the 150 households of that community has been exponential. A fresh house for selling meat, flourmill, multiple poultry farms have all sprung to business.

Entrepreneurship has begun to thrive.  A small act of access to energy has enabled these developments. The company that made this happen is called Saral Urja Pvt Ltd a partner company of Business Oxygen Pvt Ltd (BO2), which is Nepal’s first global Private Equity (PE) impact fund that provided equity financing for the company to scale. The Raksirang and Dubung are only a few of many locations where such impact funds have brought changes in.

Importance of impact investing

Impact investing is all about positively changing the livelihoods of communities with acts such as setting up renewable energy resources that enables agriculture growth. The importance of investments through PE impact funding goes beyond the balance sheet. The focus is to provide fundamental financial systems in the companies that PE impact invests in; quality assurance standards are developed along with corporate governance framework. The idea is to create entrepreneurs and companies along the lines of international best practices that make differences in the local economy. Whether it is assisting hundreds of dairy farmers down the supply chain for one of the doggy chew exporting companies or providing employment to thousands including representatives of marginalised and deprived communities to creating eco lodges in the Everest region, the lessons from investments made so far has been that a company’s proactive involvement in the communities, both from the side of the investor and investee, leads to tangible results that capital injection alone would not have even begun to address.

For instance, climate change is a fact and has enormous negative repercussion on economies globally.  Nepal is not immune from it. Countries like Nepal with the least carbon footprints are among the most vulnerable from the effects from climate change. Therefore, they are at the receiving end. Climate resilience needs to be taught to entrepreneurs as they move ahead coping with climate adaptation methods in doing business. In the case of high altitude agri-business, a coffee planter will no longer be able to yield quality harvest at the same altitude due to climate change and hence will need to go higher up to maintain that quality and yield. Identifying that gap will determine whether that business will fail or succeed. The adaptation to climate is another area impact investors assist to sustain businesses across the economic spectrum by providing mentorship and technical expertise.

Addressing needs

Blended finance with impact investing started around a decade ago internationally.  In development finance, blended finance is a term used to mobilise capital for sustainable development. It funnels private and commercial capital towards countries that have fragile economies or are coming out of conflict that have the potential for financial return and can demonstrate impact.  Impact investments addresses the social and environmental needs along with financial returns of the economy.

Besides being another form of access to finance, here in Nepal, this modality of investments has just begun. Mainly the multilateral organisations such as the IFC of the World Bank Group, Special Climate Fund’s PPCR, and bilateral organisations such as UK Aid’s Department for Internationa Development (DFID) and the Development Financial Institutions from European Nations have been promoting Impact investing in Nepal. Globally impact investors have begun to align their strategies to the UN’s sustainable development goals (SDGs). With the advent of global impact funds in Nepal’s economy, Nepali businesses are learning the importance of sustainable financing. The byproduct of sensible investing is the effect on society and the environment, which in turn will also enable to meet the SDG goals by 2030.

Pandey is CEO of Business Oxygen Pvt Ltd

siddhant@bo2.com.np

Published: 29-06-2018 08:02

Source: The Kathmandu Post