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My top three lessons in innovative investment

By Alix Peterson-Zwane  |   Posted 9th September 2022

I was fortunate enough to spend time this week attending the Centre for Global Development’s annual Development Leaders’ Conference in Paris.

It is always a great forum for discussing the challenges and opportunities facing the wider development community, and I was pleased to join both Juliette Seban, Executive Director of Fonds d’Innovation pour le Développement, and Anka Lee, Acting Deputy Assistant Administrator at USAID, for a fascinating discussion focused on how we can most effectively enable evidence-based innovation in development, and why it is important that we do.

At the end of a week in which we welcomed a new UK Prime Minister and the appointment of a new Foreign Secretary, I wanted to share some reflections on just three of the important lessons we at the Global Innovation Fund have learned since we made our first evidence-based investments back in 2015.

 

1. We must catalyse private sector capital

This is increasingly urgent in an era of tightening aid budgets. Innovators need access to early-stage, flexible finance, and impact investors can blend capital across the returns continuum, taking smart risks to fund innovation that has the potential for outsized social return.

For example, at GIF we invested in Babban Gona, an agricultural franchise model working with poor farmers in northern Nigeria. The company had the potential to improve the lives of farmers in a particularly hard-to-reach and conflict-affected region, but to take their innovation to scale, Babban Gona needed to access large loans to finance their farmers’ inputs.

With this in mind, we structured our investment as a local currency and subordinated debt tranche. We took on more risk, but we were able to crowd in several times our own original investment from other Nigerian, European, and American investors.

This is just one example of how we at GIF de-risk firms and, in doing so, catalyse the private sector capital that is so critical to tackling major development challenges. We’re hugely proud that since GIF began investing for impact, we have mobilised $6 of capital for every $1 committed of our for-profit investment. 

 

2. We’ll never know what works unless we measure our impact

Assessing the true impact of aid is not done enough. Impact measurement is not just a screen, and a commitment to the generation of evidence is not just an excuse for yet another annual report. These are vital tools for the smart deployment of aid money. 

Understanding how much impact the innovations in our portfolio are having is critical to locating where we can make the biggest difference, and understanding which risks are worth taking at an early stage.

At GIF we have developed a methodology called Practical Impact which allows us to forecast, track and aggregate impact and ensure we are directing our resources towards those innovations where the evidence points towards outsized impact.

Practical Impact looks at depth, breadth and likelihood of success for each investment, allowing us to compare very different opportunities on a single leaderboard. It lets us compare riskier investments that have higher potential impact with more certain investments that have a more limited impact.

We have worked to make it a cost-effective tool – it doesn’t make economic sense to run a full calculation of the social rate of return on each potential investment. But if we as funders commit ourselves to placing practical approaches to evidence at the core of our approach to impact investment, we know we will make steady progress. 

 

3. We can’t do this alone

To be an effective funder of innovation, strong partnerships between mission-aligned organisations that all share the same commitment to improving the lives and livelihoods of the world’s poorest people is critical. At GIF, as well as our donors, we have excellent working relationships with outstanding colleagues from leading educational institutions, charities, think tanks and professional organisations, all of whom enrich our approach and empower us to be better investors in impact.

We are at a pivotal point in the effort to eradicate extreme poverty, and different actors each have a role to play. The more we can work together and share our experiences and collective wisdom, the greater the chance we have to succeed.

Earlier this year when new Prime Minister, Liz Truss, was Foreign Secretary, she described the goal of international development as being to “unleash the power of people and countries to take control of their own future”. I couldn’t agree more.

GIF’s evidence-based investment approach means that we are especially well placed to give advice that is certain to work. I hope these lessons provide some inspiration for investors in innovation – whether you’re working in government, or the public or the private sector.