31 Jul 2013

Strengthening Luxembourg as a center of excellence in impact finance

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Working at home, Vietnam 2012

    No doubt that Luxembourg has been for a quite long time recognized as a place for the microfinance fund industry. But what about the nascent impact investing sector ?

   

Competition in view in the impact investing industry

Luxembourg is a a leading centre for the domiciliation of MIVs (Microfinance Investment Vehicules) :
– approximately 40 MIVs (i.e. 30 % of the total number of MIVs in the world) are domicilied in Luxembourg, gathering more than 50% of the worldwide MIVs’ assets under management
– 7 out of the 10 world-largest MIVs are based in Luxembourg

Owing to a lack of maturity, the impact investing sector is still poorly structured at a worldwide level : no worldwide accepted definitions, standards and practices ; uncoordinated initiatives resulting in a lack of transparency and still high transaction costs for the projects’ sourcing and the deal flow (read also the article of March ’13, which collects various “hot” reflections from the worldwide impact investing community)

It is then difficult to expect which countries will emerge as the most appropriate places to run impact investing activities.

With the AIFMD (Alternative Investment Fund Managers Directive) transposed into the Luxembourg law almost a week ahead of the 22th July deadline for transposition imposed by the EU, Luxembourg hopes to compete among the forerunners to woo the alternative investment players, including the promising segment of the impact investing.

In my opinion, it should take some time before the impact investing industry reaches a significant volume of transactions that would urge the big financial players to develop a specific range of products and services. By then, this industry should keep being scattered almost everywhere in the world.
 

Luxembourg, a fertile ground to run impact investing activities

Initiatives are flourishing in Luxembourg among the buoyant SRI community. One of them is meso IMPACT Finance, a new holding company being specialised in impact investing (read also the article of Dec. ’12 about this company).

The context

Increasing poverty and environmental challenges are arising from an ever larger world population. They can no longer be solved with a purely philanthropic approach.

• The assumption that the success of an investment should be measured by financial return alone is increasingly contested.
Generating a financial and a positive social/environmental performance both should be the standard practice.

Companies must also think differently and develop or adapt products & services that provide real solutions for the humanity instead of just breeding the consumption’s pace
 

Why and how meso IMPACT Finance innovates ?

1. Financing the missing middle
Everywhere, creative and socially-minded entrepreneurs are running small to medium scale companies that create jobs and revenues for the local economy.
Most of them often lack access to long-term capital. Their business is either too small to access credit from conventional banks or too large to get the support of the microfinance institutions.
They are forced to rely on family funds, cash-flow, and advance payments on products to finance operations, which harms their growth perspective.
The “meso IMPACT Finance” concept aims – upon the basis of a close relationship with the local management – to direct mid- to long-term investment capital to sustainable SME businesses generating profit and measurable benefits for the society.

2. Direct investing
One of the aftermaths of the financial crisis has been a growing mistrust in the financial markets. An increasing number of investors are looking for alternative investment solutions that provide them with a better view in what and how their money is actually used.
The ”meso IMPACT Finance” concept allows investors to get really in touch with the investee companies.
Investments channeled through regular funds are submitted to the rules of a pre-formated and impersonal reporting without hardly any possibilities for the investors to have a direct and permanent contact with the fund manager.

3. Building knowledge in Luxembourg
Unlike many segments of the investment industry – such as microfinance, for instance where the fund managers are used to being located abroad – the “meso IMPACT Finance” concept retains the know-how and the ownership of the overall investing process in Luxembourg.
It includes the entire value-chain going from the projects’ selection to the follow-up and reporting of the investee companies.

Other Luxembourg-based initiatives are underway whose results might be reported later on.

More info :
meso IMPACT Finance

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