Impact investing can unlock the potential of blockchain in Africa
The Global Impact Investing Network (GIIN) recently published research which revealed that global impact assets under management topped $502 billion in 2018. It is further proof, if we needed any, of the exponential growth of impact investing in recent years, with new entrants both small and large coming to market.
However, despite this growth, there is still a plethora of untapped opportunities that impact investors have yet to take advantage of. Blockchain is one of the biggest and has the potential to transform millions of lives in some of the poorest regions of the world. In Africa, there are three converging trends that will enable blockchain to have an exponential positive impact on the lives of low income communities on the continent
The three converging trends
The first trend is that impact investing is becoming mainstream. This is, in part, driven by the intergenerational transfer of “wealth with purpose” from baby boomers to millennials, which Deloitte estimates could reach between $19 billion and $24 billion by 2020. Millennials are more likely to align their investments with a social purpose and according to Morgan Stanley, a significant majority of millennials (86%) are interested in sustainable investing. This has triggered the migration of large asset managers into impact investing, encouraged by this new generation of investors who are geared towards companies with positive impact at the very heart of their business model.
The second trend is the rise of blended impact-first capital. Governments, supranational organisations and non-governmental organisations (NGOs) are under pressure to receive less discretionary funding and show sustainable funding models. Therefore, grant and aid money is starting to interact with market-based models more. Blended finance structures allow not-for-profit and for-profit capital to sit alongside each other in the same investment vehicle.
A first loss layer is filled with grant or philanthropic capital, which has a catalytic affect to attract and protect senior layers of funding from the private sector at lower risk-returns. Blended impact-first capital can scale small and medium-sized entrepreneurs (SMEs) and some investment vehicles serve the “missing middle” financing gap for SMEs in rural areas by providing them with small loans.
The third and final trend is the exponential development of technology in Africa. In recent years, Africa has lived the mobile phone revolution, which has triggered both the mobile money and distributed energy revolutions. The GSMA shows that unique mobile penetration in Sub-Saharan Africa was 44% and the regional subscriber base is set to grown at a CAGR of 4.8% for the period 2017-2022.These technological developments in Africa have provided people with increased connectivity to both the internet and banking services, which has leapfrogged traditional infrastructure and formed the building blocks of a thriving digital economy on the continent at a price point that people can afford.
We have witnessed these three converging trends through our work at Bamboo Capital Partners .We have seen first-hand how African governments are willing to innovate to improve the lives of the poor. For example, BBOXX Togo, a portfolio company of our investment platform BEAM, in partnership with EDF and TogoCell, recently launched “Tomorrow’s Connected Community”. This smart village concept provides 300 houses and 4,000 people in the village of Sikpé Afidégnon in Togo via distributed solar energy, which helps power mobile-money financing, internet access and domestic appliances – making it a next generation concept.
The case for blockchain
The convergence of these three trends has made it possible for investors to seriously consider the potential of companies using blockchain in Africa. African governments are more willing to commit to innovation, there is a willing pool of investors wanting to invest in companies with a purpose, previous technological developments have provided a platform for companies using blockchain to grow and there is a financing structure that will develop and scale SMEs employing blockchain.
However, there still remain some barriers to growth. Blockchain arrives with a whole host of reputational challenges, mainly linked to cryptocurrencies. The Bitcoin rush in late 2017 left many retail investors out of pocket, while a series of fraudulent initial coin offerings (ICOs) in 2018 have caused serious reputational damage. However, the underlying technology is where the true value of blockchain lies and there are companies who are already using it to generate a positive impact.
One such company is Moeda Seeds Bank. It allows investors to invest in impact-led projects. The entire process uses blockchain, which provides security and transparency, from investors offering contributions to keeping track of the project’s progress and accountability. Moeda invests in projects that align with the UN’s Sustainable Development Goals (SDGs) and also supports rural women in frontier markets to scale their projects quicker, ultimately generating significant impact on the ground.
The opportunity is there to be taken
At Bamboo, we have recognised the potential of blockchain. We launched the BLOC Fund, a first-of-its-kind global technology impact fund using blended finance. BLOC will leverage blockchain to provide investors with full traceability of their investments and invest in companies using new technologies, specifically blockchain, to benefit low-and middle-income populations in areas such as energy, education, FMCG, financial inclusion and healthcare.
Impact investors should wake up to the potential of blockchain. The positives of security and transparency via distributed ledgers outweigh the negative perceptions, such as the ICO bubble. It will have a significant impact on people’s lives and investors should be helping SMEs using blockchain to scale their business.
By Florian Kemmerich, managing partner at Bamboo Capital Partners