The Luxembourg-based NGO Appui au Développement Autonome (ADA) has launched the first Société à impact societal (SIS) dedicated to financial services with the support of the Directorate for Development Cooperation and Humanitarian Affairs of the Ministry of Foreign and European Affairs.
The Financing Innovation Tool (FIT) meets a strong demand for a secure, government-backed channel for environmental, social and governance (ESG) financing which benefits from an NGO’s longstanding experience.
Helping innovative businesses thrive
The Financing Innovation Tool (FIT) will contribute to closing a development gap by supporting innovative and impact-oriented SMEs, microfinance institutions and business support organisations in developing countries.
Franz Fayot, Luxembourg's Minister for Development Cooperation and Humanitarian Affairs, explained: “We regard entrepreneurship as key to creating employment and to improving living conditions in developing countries. However, many innovative enterprises and business support organisations are stifled in their development by a limited availability of funding. While public grants are insufficient to take them to the next level, international impact investors shy away from the risk of supporting them. The FIT will help to close this gap and support these entities in their transition to full financial autonomy by preparing them to access funding on the market.”
Funding complemented with technical support
Flexible FIT financing solutions will be complemented by ADA’s support on the ground. This will reduce risks and make the supported entities more attractive for further financing by impact investment fundsor financial institutions.
Patrick Losch, Chairman of ADA’s Board of Directors, explained: “We will analyse the individual needs of each eligible SME, microfinance institution and business support organisation and combine a tailored financing solution with expert coaching to strengthen their internal governance and investment readiness in a holistic and sustainable manner.”
Innovation as a key funding requirement
Innovation and a strong sense of initiative are key selection criteria for FIT investees. This can take the form of a service, product or business model, which constitutes an innovation for the institution itself, the sector, the market or the final beneficiaries.
FIT will build on ADA’s longstanding experience in helping entrepreneurs in developing countries to identify promising and innovative companies with a strong social mission for its investments. For example, ADA is currently carrying out due diligence assessments in preparation of FIT investments in an accelerator supporting female entrepreneurship in West Africa and a risk-sharing loan facility for students from poor areas of Rwanda.
Opportunity for institutional and private donors
While ADA and the Luxembourgish government are providing initial funding of €5.5 million, FIT aims to increase this amount to €10 million by 2025 with donations. All profits will be re-invested with the aim of achieving a lasting impact, thus maximising the effectiveness of donations.
FIT Chairman Axel de Ville explained the attractiveness of donating to FIT: “As a Societal Impact Company, FIT presents a transparent, sustainable and long-term financing channel which complements existing philanthropy and wealth management offers such as foundations, trust funds or once-off donations. We are excited to present institutional and private donors with this unique possibility of directly supporting innovative, social enterprises in developing countries.”