Investing for job creation

Jessica Villanueva is MEDA’s senior director of technical areas of practice.

MEDA Risk Capital Fund aims to support the organization’s programs and strategic goals

Some MEDA supporters are surprised to learn that the organization holds a fund that makes investments. Why does the MEDA Risk Capital Fund (MRCF) exist, they ask? And how does it relate to the organization’s strategic goal to create decent work for 500,000 people?

Investment is part of MEDA’s DNA and has been since its inception almost 70 years ago, Jessica Villanueva says. MEDA got its start as an investment club, with people risking money to test solutions to poverty. A group of ten Mennonite businessmen each invested $5,000 US. This allowed Paraguayan farmers to improve their dairy genetics through a successful breeding partnership that became known as the Sarona Dairy. The efforts helped to multiply milk production from a quart a day to between four and five gallons a day.

The original investment was repaid and has been reused again and again in succeeding decades. At its inception in the 1950s, MEDA was only an investment fund, Gerhard Pries said. Pries was a long-time MEDA chief financial officer who went on to found Sarona Asset Management, a private equity firm that was spun out of MEDA in 2010. “All of MEDA was an investment fund. There was no donation-funded program,” he said. “So, the original investment fund was called Mennonite Economic Development Associates.”

MEDA’s investment focus has evolved dramatically over its history. It started with specific investments in companies such as the Sarona Dairy, the Sinfin Tannery, and the Fortuna Shoe Factory. As the organization matured and became more program-focused, the emphasis on investments waned.

In the late 1990s and early years of this century, MEDA began working with more systemic investments through platforms such as MicroVest and Sarona. Over time, it shifted its focus to program-linked investments which reinforce the need for both financial and non-financial support, including technical training. Investments made by MEDA over its 70-year history can be categorized in four different ways.

  1. Debt investments into Paraguay’s Sarona Dairy or Mountain Lion Agriculture — a rice milling firm in Sierra Leone — have been thematic. These were designed to support the growth of individual companies.
  2. Platform builds occurred in the past several decades, trying to promote the development of a new ecosystem by creating a new entity. MEDA’s equity investments into the MicroVest microfinance firm in the US, Sarona Asset Management in Canada, and US non-profit ImpactAssets are examples of this.
  3. Project-linked investments emerged beginning in 2010. These took two forms. A project in Tajikistan involved equity investments and technical supports. A project in Senegal received debt investment plus technical assistance. These investments aimed to achieve systemic impacts in countries where economic growth and development are held back by a lack of capital and technical knowledge. Research has shown that MRCF’s project-linked investments have resulted in vastly more job opportunities for women than investments that were not linked to projects.
  4. By 2012, MEDA was using a blended finance investment strategy in many projects. Blended finance combines official development assistance with other private or public resources to leverage additional funds from other investors.

MEDA aims to serve three interconnected roles in impact investing. It wants to be a catalyzer, placing resources into strategic sectors, geographies, and impact themes. It also wants to be a convener, influencing other investors to mobilize their capital through co-investment opportunities. Finally, it works at being a thought leader, encouraging other impact investors to apply MEDA’s learnings toward creating their own investment solutions.

The MRCF is a tool to achieve MEDA’s strategic goals. New investments are made in service of MEDA’s efforts to create decent work for 500,000 women, youth, and men in agri-food market systems. They will work to sustainably improve these systems by using two specific lenses: gender equality and social inclusion; and environmental sustainability and climate action. Investments will be prioritized within the context of MEDA’s development programs. They will seek to leverage knowledge developed through these programs to identify financial needs and to screen, assess, and structure investments.

The MRCF investment committee includes a group of seasoned businesspeople. MEDA board representatives include Rob Schlegel, Jeremy Showalter, Greg Gaeddert, Chad Horning, Crystal Weaver, and Jenny Shantz. External advisers are Tohunbok Ishmael, who provides an African perspective, Craig Pho, who provides an Asian perspective, and generalist Tara Proper. MEDA staff representatives include CEO Dorothy Nyambi, CIO Wendy Clayson, senior vice-president of strategy & impact Lindsay Wallace, and director of investment finance Erika Wulff. Sarona Asset Management provides advisory and monitoring services to MEDA for the MRCF.

Improving entrepreneurs’ access to finance in the Global South is crucial, Villanueva said. MEDA wants to use its capital “to be catalytic, to ensure that we are stimulating the response in the financial ecosystem.” MRCF investments have been longer-term commitments with limited liquidity, so a new approach is required. That means MEDA is “stopping investing directly into companies. Now we want to do that through financial intermediaries because we think that there’s a way to leverage our capital.”
The new approach, seen in the Mastercard Foundation Africa Growth Fund consortium that MEDA spearheads, is consistent with MEDA’s maturation.

MEDA grew from working with individuals and groups of farmers to a lead firm model in order to have greater impact. Similarly, its new approach is designed to have locally led, systemic impact. As the $150 million capital that will be invested through the Mastercard Foundation Africa Growth Fund is returned over the next 10 to 15 years, that money will be repaid to MEDA and form part of the MRCF. That will dramatically increase the amount of money available to invest from the $22.3 million of investments MRCF held as of Sept 30, 2022.

Impact measurement will be crucial to the success of MEDA’s approach, Villanueva said. “We need to be more sophisticated on our measurement. And I think that this is still a work in progress.” Discussions around how best to measure impact to avoid greenwashing or pinkwashing are happening in the industry now, she said.

Greenwashing is pretending to make meaningful changes around the environment and climate change. Pinkwashing is pretending to make meaningful changes with regard to gender.

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