Innovative Finance Toolkit for Impact Enterprises

LightCastle Analytics Wing
March 6, 2022
Innovative Finance Toolkit for Impact Enterprises

Impact investing in Bangladesh has been a much new concept in discussion in the last few years. Impact Investments are investments made with the intention to generate positive, measurable social, and environmental impact alongside a financial return. The vast majority of early-stage impact enterprises in Bangladesh are typically raising capital using standard equity or equity-like instruments that are designed to support fast-growing tech ventures. As access to finance is one of the key challenges these startups face in the early stage, it is important to select financing instruments that match an enterprise’s business model, needs, and the stage of development that the firm finds itself, in order to help ensure the impact enterprise success and foster its development.

Innovative Finance Toolkit To learn more about the Innovative Finance Toolkit
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This Toolkit was originally prepared and published by Biniyog Briddhi.

Innovative Finance Toolkit, a set of alternative structures for financing early-stage impact enterprises in Bangladesh, is jointly produced by LightCastle Partners, Roots of Impact, and the Swiss Agency for Development and Cooperation. The toolkit shall be used as a source of inspiration for the further creative development of innovative financing instruments. The wider use and spectrum of available alternative financing tools does not only benefit impact enterprises but also SMEs in general: due to their size, they are intrinsically more vulnerable to variations in the credit market and therefore need a broader range of instruments.

The instruments are described in this toolkit in five different chapters;
Chapter 1 explains financing instruments that resemble equity-type instruments and convertibles
Chapter 2 elaborates on catalytic impact-linked finance instruments
Chapter 3 features other impact-linked finance instruments
Chapter 4 focuses on other catalytic funding instruments
Chapter 5 covers results-based finance instruments for non-profit organizations

The toolkit also elaborated upon the probable stages to the use of these instruments as well as the exceptions in the Islamic Financing System.

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Opportunities for Bangladesh:

Currently, more than 90% of all impact capital comes from Development Finance Institutions, which, by and large, have been looking for larger deal sizes and more mature enterprises – the lion’s share of this in the form of debt. In contrast, private equity investors and impact funds prefer venture capital or equity as a form of investment. As demonstrated in this report, the new generation of investees will require more flexibility and support from impact funders, in particular with regard to the type and terms of the investment provided. However, innovative financing instruments that cater to the specific needs of early-stage impact enterprises are still virtually unheard of in the Bangladeshi impact investing market.

B-Briddhi is a multi-year public-private development partnership (PPDP) between the Embassy of Switzerland in Bangladesh, Roots of Impact, LightCastle Partners, and other stakeholders, including investors, private sector organizations, incubators, and support organizations for impact enterprises.

WRITTEN BY: LightCastle Analytics Wing

At LightCastle, we take a systemic and data-driven approach to create opportunities for growth and impact. We are an international management consulting firm which creates systemic and data-driven opportunities for growth and impact in emerging markets. By collaborating with development partners and leveraging the power of the private sector, we strive to boost economies, inspire businesses, and change lives at scale.

For further clarifications, contact here: [email protected]

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