Impact Investing Success Story: Lending in Developing Countries – Improving Lives and Livelihoods While Generating Market Rate Returns
Recently, I got to visit a long time friend and mentor of mine, Gloria Nelund, Chairman & CEO of TriLinc Global. Gloria is a leader and innovator in the impact investing space so I was thrilled to talk to her about the impact investing “a-ha” moment she had partway through her career as well as the details of a recent international lending success she’s particularly proud of.
Sonya: How long have you been working in impact investing and community lending?
Gloria: As a full time career endeavor it has only been since 2008 when I started TriLinc; however, I have always been a believer in it – even before it had a label. Growing up in Ohio with a father who was a business owner, it just made sense to me that you would make better returns if you invested in “good companies” with quality management teams and ethical business practices, and who gave back to their communities. So, in the late 90s when I had the opportunity to support the development of a socially-responsible investment (SRI) product at Scudder, I was excited. It wasn’t that easy though – as you know, it really hasn’t been until the past few years that you could easily get the information needed to make that analysis.
Then, when I was at Deutsche Bank, a leading institutional supporter of microcredit, I led the effort to create multiple programs to help Private Wealth Management clients learn about and invest in the sector. I also served on the Board of the Deutsche Bank Americas Community Development Group, which provided loans, investments and grants to targeted organizations throughout the U.S. and Latin America.
Sonya: So in your current role, which is 100% impact investing focused, can you tell me about a meaningful impact project that you have worked on?
Gloria: Wow. It’s difficult to pick only one.
There is one of TriLinc’s loans though that I do love – it’s a loan to a grain processor in Uganda. The owners started the company because they felt a personal responsibility to help the people of Uganda. They operate their business with an ethical and moral compass that leads them to employ business practices that allow them to run a profitable business, while at the same time, advancing the economy in the region, and significantly improving the lives of smallholder farmers and their families.
This grain processor company sources, processes, and stores maize before selling it all across Uganda, Kenya, and Rwanda to clients such as the relief organization, World Food Programme. The company sources 80% of their maize from local farmers, thereby reducing the carbon footprint of the production process. Additionally, the company provides the local, supplying farmers support centers where they can sell their maize, access competitively priced agricultural inputs such as seeds and fertilizers, and borrow working capital at reasonable rates. To date, these support centers have provided over 45,000 farmers with agricultural finance. All of these activities facilitate the farmers’ ability to sell their harvests through a reliable process at fair pricing. This improves farmers’ livelihoods and contributes to regional food security. The resulting increased stability of harvests creates regular and more predictable income to both the farmers and the grain processor.
Sonya: That’s great. What about on the risk side of the equation?
Gloria: Occupational health and safety risks can significantly hurt the financial performance of a company – accidents, spills, employee strikes, etc. are costly to a company. To that end, this grain processor sought to meet the standards of, and was approved by, the National Environment Management Authority for its “sustainable business practices.” They know that by paying fair wages, understanding and managing the environmental impact of their business, and by ensuring compliance with national environmental and social standards around waste management, occupational health and safety, and community concerns, the company avoids these costly operational risks and enhances their own profitability.
Sonya: Tell me more about how you see risk management in relation to impact investing and the direct lending work you do.
Gloria: Purely from a risk management perspective, understanding a company’s environmental, social and governance (ESG) practices can help reduce the risk of the investment. There are many great examples, but Nike is probably the one that got the most press. In 1991 when it was discovered that they were exploiting workers in their Asian manufacturing operations, their stock suffered almost overnight and sales dropped dramatically. That is an example of a social risk that could have been known if there had been analysis of the company’s practices and policies. In our analysis at TriLinc, in addition to evaluating standard ESG factors, we also look for companies with strong management teams and ethical business practices because we believe they just make better investments.
Loan structuring is where we have an advantage over more developed markets where there is not as much of a supply-demand mismatch. We make loans to private companies in emerging markets where there is a significant lending gap and so, as the lender, we have an advantage. We could use that advantage to simply “extract” more return (which we do not do) instead we use that advantage to reduce the risk of the investment by the requirements, terms and covenants. For example, we over-collateralize our loans with hard assets that have been discounted to liquidation value.
Sonya: What are your thoughts on your company’s role in contributing to positive social and environmental impact?
Gloria: To solve the big challenges the world faces, we need private capital, at scale, focused on investing in sustainable, responsible companies committed to making a positive impact.
Bringing an institutional quality investment opportunity that allows investors to get both market rate returns and proof of positive impact has allowed us to bring more private capital to projects and companies that create impact. It’s a win-win!
Sonya: What interesting project are you working on now?
Gloria: In addition to launching a new fund for institutional investors, the TriLinc Global Sustainable Income Fund, we are also launching a new event series called RIA Impact Roundtable with the purpose of gathering like-minded impact investors and money managers to identify ways that we can collectively advance the impact investing industry.
For more information on TriLinc Global – https://www.trilincglobal.com
For more on Sonya and Solutions with Sonya – www.solutionswithsonya.com