Global humanitarian organization Catholic Relief Services announced
on Monday it will invest in Lafaza, a U.S.-based agriculture company
that sells vanilla sourced directly from smallholder farmers in
Madagascar.
The $500,000 investment marks
the first impact investment for CRS — part of the Roman Catholic
community in the U.S. — after several years of exploring the issue.
It’s
the latest signal in a trend Devex identified earlier this year of
international nongovernmental organizations making or considering impact
investments, those made with the intention of generating measurable
social and environmental impact along with a financial return.
It also
marks the Catholic Church’s first foray into impact investing after
hosting a high-level conference on the subject at the Vatican in June.
The
deal was years in the works, beginning as an informal partnership in
2013, then evolving to a CRS grant about a year later to support
capacity building among the farmers Lafaza was buying vanilla from. Now,
the investment will take that work to the next stage by helping Lafaza
expand the number of farmers it buys from and extend its reach as an
international supplier, according to Lafaza CEO Nathaniel Delafield.
“This is very important
enabling financial support so we can achieve short to medium-term
deals,” he said, adding that it will likely also help set them up for
future investments.
The yearslong
collaboration has helped leaders at Lafaza evolve their approach to
business and the way they work with farmers, and Delafield said he’s
hopeful that his company can continue to benefit from CRS’ knowledge and
partnership as it continues to expand in Madagascar and elsewhere.
The
investment is seeking financial returns but is also targeting a number
of impact factors — such as number of farmers reached, the premium they
are paid, and the impact on farmer livelihoods and communities,
including health care and education. Root Capital, an agricultural
impact investor that has worked with CRS in the past and gave Lafaza a
working capital loan earlier this year, is administering the investment.
This
investment is an example of how blended capital — or capital of
different types or at different stages — all play a part in one eventual
deal. In this case, it involved a grant from CRS, a working capital
loan from Root Capital, a loan guarantee from the U.S. Agency for International Development’s Development Credit Authority, plus investments from both CRS and the MGR Foundation.
The
USAID guarantee was especially significant, Delafield said: “It was an
important backstop to us being able to access larger working capital
loans.”
That guarantee combined with crop
insurance helped to derisk the deal, which fits well into the CRS
“pathway to prosperity” strategy through which the organization assists
people, helps them out of crisis situations and helps connects them to
markets, said Sean Callahan, who will take over as president and CEO of
CRS on Jan. 1.
CRS has been looking at
impact investing for a few years and sees its engagement in three ways:
investing part of their endowment in pooled impact investment funds,
investing in smaller organizations to help them do a greater level of
impact investing and investing to help develop enterprises working at
the local level, he said.
While this is the
first investment of its kind, CRS is looking to expand this approach
with more investments in 2017 as they identify different organizations —
some that they may already be working with — that can help them link
farmers to markets, Callahan said.
For CRS
the investment comes alongside other work the organization has done or
is doing to build capacity among farmers, and while it is aimed at
creating a more sustainable funding stream, it’s also designed to show
local communities that to achieve growth they need to be connected to
and operate in the commercial world, Callahan said.
“We
need to make sure we reach out quicker to a larger population and are
self sustaining because it’s likely there will not be enough development
dollars to give grants and this way resources are much more
productive,” he said.
John Kohler, the
senior director of the impact capital program at the Miller Center for
Social Entrepreneurship at Santa Clara University, praised the
investment, but he also had some advice for CRS.
“There could be ways for CRS to fast forward their work,” he said.
One
typical problem among new impact investors is that they often take a
long time to make a decision because they’re still getting used to how
things work, Kohler said.
By learning from other organizations, such as
Cordaid, who have been doing this work for a long time or partnering
with investors such as Root Capital, they can accelerate their
investments and their impact, he said.