FAQs The DFID Impact Fund (managed by CDC)

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1 # Question: Answer: FAQs The DFID Impact Fund (managed by CDC) General Questions 1 What is the DFID Impact Fund? The DFID Impact Fund invests through vehicles that combine a clear strategy to invest in businesses that achieve positive impact on the BoP (base of the pyramid) population in Africa and South Asia. The DFID Impact Fund seeks to make investments that provide benefits to livelihoods for low-income people, either through improved access to goods and services, or through improved income generating opportunities. The DFID Impact Fund will only consider funding proposals that have applied through the RFP process. 2 How is the DFID Impact Fund managed? The DFID Impact Fund is managed by CDC Group ( CDC ), the UK s Development Finance Institution ( DFI ). CDC s well-established governance structure and controls will apply to the DFID Impact Fund. 3 What type of structures will the DFID Impact Fund consider for investment? The DFID Impact Fund invites proposals from intermediated investment vehicles, such as funds, holding companies and other investment vehicles (referred to as Funds in this document). The DFID Impact Fund will not invest directly in operating companies or projects. The DFID Impact Fund seeks to support Funds that (1) are professionally managed, (2) target a diversified pool of investments, and (3) can raise additional private (non-public) capital from third parties. The DFID Impact Fund can invest through a variety of instruments including equity, debt and guarantees. It is envisaged that the most likely investment routes used by the DFID Impact Fund will either be as a limited partner in private equity funds, or through providing loans to permanent capital vehicles. However the DFID Impact Fund may participate in a broad range of fund structures and welcomes suggestions for innovative and flexible financing options where such arrangements can help to crowd-in private sector funding (e.g., evergreen, hybrid, consortiums, special purpose vehicles, investment holding companies, or other long term fund structures). First-loss structures will be considered where a Fund can provide strong rationale that these will be instrumental in attracting a larger amount of private capital, 1

2 4 Which sectors will the DFID Impact Fund invest in? 5 Are there any countries where a Fund cannot invest? 6 What is the available capital for each investment commitment, and at what point is the DFID Impact Fund funding available? 7 Are first-time managers eligible for DFID Impact Fund financing? 8 Does the DFID Impact Fund require a Fund to raise matching investment from third parties? 9 What are the expected financial returns from a Fund receiving DFID Impact Fund s financing? The DFID Impact Fund is open to supporting investment in all sectors where a Fund can demonstrate significant unmet need for investment to achieve impact. These include, but are not limited to, businesses providing access to food, housing, energy, water, sanitation, health, education, financial services, and livelihoods for the BoP. Given that microfinance has successfully attracted investment capital from other sources, the DFID Impact Fund will not invest in microfinance-focused investment vehicles (although those will continue to be eligible for funding from CDC under its normal course of business.) The DFID Impact Fund is focused on investments in low income and lower-middle income countries in sub-saharan Africa and South Asia (list of countries attached in the appendix). A maximum of 15% of the DFID Impact Fund s capital will be available for investing in India through global or regional Fund structures. This amount will be split among all selected proposals that invest in India. Funds investing only in India are not eligible for an investment from the DFID Impact Fund. The DFID Impact Fund can invest up to a maximum of 15 million per commitment, although this is dependent on a number of factors including the target size of the Fund. The intention is that the DFID Impact Fund will attract private capital alongside its own funds. The DFID Impact Fund s investment will be committed once CDC has concluded its due diligence and final terms have been agreed. Yes, the DFID Impact Fund welcomes first-time Fund managers and new teams to apply for funding through this call for proposals. The DFID Impact Fund will consider the collective and/or individual track records and relevant experience of a Fund s management team. Although it is not a requirement for a Fund to raise matching investment from other sources, we would prioritise investing in proposals that have the potential to attract third party capital, preferably private capital. In instances where a Fund receives capital from other sources of public capital, such as DFIs, the DFID Impact Fund can still invest as long as it is done on a pari passu basis. The existing portfolio of a Fund, and the equity already invested, would be considered as a matching investment for these purposes because the DFID Impact Fund s objective is to catalyse new capital. The DFID Impact Fund invests on an Impact first basis. It has no set target for returns or funding costs to cover, but will expect at a minimum to have its capital returned upon exit. The DFID Impact Fund does not screen applications based on return expectations. The returns for each individual proposal are assessed in relation to a Fund s specific strategy. We expect these to vary from Fund to Fund. Individual investments by a Fund should be made at rates that reflect the risk of the transaction and do not distort local financial markets by providing subsidised capital. 2

3 10 What are the expected targets for development returns? 11 When does the DFID Impact Fund expect an exit? 12 Will the DFID Impact Fund provide grants or technical assistance to Funds selected through the RFP? 13 Can a non-profit organisation submit a proposal under this RFP? 14 What tenors are acceptable to the DFID Impact Fund? 15 Will the DFID Impact Fund consider Funds with a shorter term, such as 5-7 years? 16 Does the DFID Impact Fund require sponsor support or other credit enhancement? 17 Is there an upper limit on a Fund's management fee that the DFID Impact Fund would be willing to support? The DFID Impact Fund invests in Funds that can articulate and expect to achieve a clear positive impact on the poor in the DFID Impact Fund s target geographies. This could be achieved through providing improved access to affordable basic goods and services, through enabling improved livelihoods, or through enhanced employment opportunities for the poor. Each of these will generate development returns in different ways. The DFID Impact Fund will look for measurable evidence that a Fund s investment activities will reach a large number of beneficiaries, and have a meaningful effect on their quality of life. The DFID Impact Fund will need to exit all investments within ten years of investment. All loans will require repayment and guarantee instruments will terminate within ten years. Equity investments (such as commitments to a private equity fund) will need to be structured and managed such that the vehicle is wound up within ten years of investment. The DFID Impact Fund will be paired with a technical assistance ( TA ) Facility to support underlying investees on a competitive basis. The TA is not available to subsidise investments or the ordinary running costs of a Fund manager. The decision on disbursement of TA will be taken based on requests submitted by the Fund managers and their demonstrated ability to appropriately disburse the TA. The DFID Impact Fund encourages proposals that have grant or technical assistance funding from other sources. Other than the TA facility, the DFID Impact Fund will not provide grants, but will make investments that should provide returns consistent with a Fund s strategy. Questions Regarding Structure, Governance and Other Requirements Yes, a non-profit could submit a proposal as long as the vehicle requesting investment from the DFID Impact Fund fits the parameters of the RFP. The DFID Impact Fund can support Funds with a life of up to ten years. The DFID Impact Fund is open to alternative fund structures as long as there is a valid reason for it. The Fund structure will be taken into consideration in the evaluation of a Fund proposal. No the role of the DFID Impact Fund is to share / reduce the risk for other investors. The DFID Impact Fund will review a Fund s management fee within the context of what is needed to run the Fund management activities. The management fee should be aligned with market rates. It should support the operations of the Fund and not be a source of profit. 3

4 18 Will the DFID Impact Fund consider proposals that rely on subsidies to cover Fund operations? 19 What are the anticipated fees and expenses to be paid by an applicant for a potential investment from the DFID Impact Fund? 20 Does the DFID Impact Fund expect to participate in the Fund vehicle's capital gain? 21 Does the DFID Impact Fund require that the manager of the Fund, or the Fund itself be UK-owned? 22 Does the Fund have to be domiciled in the UK? 23 Does the Fund or its manager need to register the Fund before submitting a proposal? 24 Can DFID Impact Fund investments be denominated in a currency other than GBP? 25 Does the DFID Impact Fund participate in investment decisions of a Fund or the manager of a Fund? No. The DFID Impact Fund will only consider proposals that are commercially viable on a standalone basis, without the use of subsidies. The DFID Impact Fund will not charge the cost of its due diligence to a Fund. Yes, the DFID Impact Fund does expect to participate in a Fund s capital gains. This will be subject to modification in cases where we have agreed to guarantee returns to other investors to crowd them in. It is recognised that whilst the Fund expects to receive at least its capital back, a large capital gain may not be always feasible. No. No. However, the Fund should be domiciled in a jurisdiction with adequate legal certainty such that CDC will be comfortable that its agreements with the Fund will be enforceable in that jurisdiction. The DFID Impact Fund follows CDC s policy regarding the use of offshore financial centres that is linked to the ratings of the OECD Global Forum on Tax Transparency and Exchange of Information for Tax Purposes. The list of ratings for compliant jurisdictions can be found at: No. The DFID Impact Fund can support investments in all currencies. The decision by the DFID Impact Fund to engage in the investment committee of a Fund or its manager and nature of such involvement will be made on a case by case basis. Given the nascent nature of impact investment as a sector and the ambition of the DFID Impact Fund to be catalytic, we may choose to indirectly participate in investment decisions of some Funds (through external nominees) during the early stages to get comfort around implementation of the Fund s proposed investment strategy. The extent and nature of the DFID Impact Fund s participation will be assessed during the due diligence stage. 4

5 26 What is the extent of the DFID Impact Fund s participation on Fund advisory boards? 27 What are the DFID Impact Fund s policy requirements or restrictions for investments? 28 Can a Fund that generates investment return exclusively or predominantly from a commercial revenue stream of land-use carbon projects, which provide local incomes and livelihoods, qualify for support? 29 Are Funds or managers of Funds that have not historically focused on Impact investing eligible for this RFP? The DFID Impact Fund will generally seek to have a seat on a Fund s advisory board, which amongst other duties would make decisions regarding potential conflicts of interest. Investments must comply with CDC s Investment Code on environmental, social and governance matters and sector restrictions. This includes all requirements relating to Know Your Customer and anti-money-laundering rules as well as compliance with good practice on social and environmental issues. A copy of the current Investment Code can be found on CDC s website at: esting%20(final%20annotated).pdf The DFID Impact Fund is intended to improve the lives of the poor in low-income countries. Purely environmental objectives are not a priority. Such objectives are catered for through other DFID programmes. The DFID Impact Fund seeks to mobilize new capital to the impact investing sector, i.e. capital targeting both financial and social returns. The RFP outlines the parameters for consideration. Managers who have been in other areas of investment or other fields of endeavour are welcome to apply. The track record will be considered, but applicants entering the impact investing sector for the first time will also be considered. Questions About the RFP Process 30 Is there a deadline to the RFP Process? Yes, the RFP process will close on 31 st December Further details here: 31 Will any additional information be required after the proposal is submitted? After reviewing your proposal, should our due diligence proceed, selected applicants may be asked to: 1. Answer additional questions; 2. Complete a Sponsor Disclosure Report; 3. Visit CDC s offices for an interview; 4. Make their staff available for additional detailed due diligence; and 5. Provide information regarding past and current portfolio investments, including the opportunity to visit sites and review financial records of selected investments. 5

6 32 Should our proposal address the RFP questions in the order they are presented in the call checklist? 33 What is the preferred process for applicants who would like to apply for funding for more than one potential Fund? Should the applicant submit two separate proposals or one proposal with detail on both Funds? We would prefer to have the questions answered in the order they are presented in the checklist, but this is not mandatory. Applicants can elect to submit proposals in any form that they wish. If the two Funds are not related in any way, it would seem reasonable to submit two proposals. If the applicant is proposing an umbrella Fund that would provide capital to both Funds, one proposal may be sufficient. 6

7 APPENDIX- DFID Impact Fund Universe (Eligible Countries, States and Territories) Region South Asia Africa Countries Afghanistan, Bangladesh, Bhutan, India, Maldives, Myanmar, Nepal, Pakistan, Sri Lanka Algeria, Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde, Central African Republic, Chad, Comoros and Mayotte, Congo (Democratic Republic of), Congo (Republic of), Côte d'ivoire, Djibouti, Egypt, Equatorial Guinea, Eritrea, Ethiopia, Gabon, The Gambia, Ghana, Guinea, Guinea-Bissau, Kenya, Lesotho, Liberia, Libya, Madagascar, Malawi, Mali, Mauritania, Mauritius, Morocco, Mozambique, Namibia, Niger, Nigeria, Rwanda, Sao Tome and Principe, Senegal, Seychelles, Sierra Leone, Somalia, South Africa, South Sudan, Sudan, Swaziland, Tanzania, Togo, Tunisia, Uganda, Zambia, Zimbabwe 7