Beyond Compliance 2024

Beyond Compliance: Embedding Impact through Innovative Finance17OBF can be used in supply chain finance to support localized, inclusive supply chain development. OBF enables companies and third-party lenders to extend financing to less established suppliers by linking investment terms to performance rather than typical due diligence parameters. Aceli Africa is a donor-funded market incentive facility with the aim of increasing lending to smallholder farmers in East Africa. Incentives include first loss cover and origination incentives to defray the high cost of making small loans. Cumulative Agri-SME lending across the 35 lenders involved has tripled in value since 2019, growing from $154 million to $497 million. Commercial banks account for 90% of the loans, with lending growing at a compounded annual rate of 50%. Agri-SME lending remains a small part of banks’ overall portfolios (rising from 2.0% in 2019 to 4.1% in 2022); however, it is increasing in significance.43 OBF can be used for pre-commercial collaboration with competitors, civil society and governments to create large-scale, transformative solutions that no single entity could achieve independently. Yellowwoods Holdings (YW) has led efforts to tackle social issues like youth unemployment in South Africa over the last decade. YW co- developed Harambee Youth Employment Accelerator , supporting marginalized young people into jobs. One of the issues that they are tackling is youth unemployment which stands at around 45% in South Africa. In partnership with the government, Harambee has supported 4 million people and placed 1.4 million youth in jobs to date.46 In 2018, YW launched Bonds4Jobs, a pay-for- performance initiative aimed at testing quicker, demand-led training. This programme achieved a return for investors (up to 11% annual interest rate for commercial investors), met 90% of its targeted outcomes and placed 1,800 previously disadvantaged young people in jobs. Its success inspired larger public-private projects like the government’s Jobs Boost Fund and companies’ collaborations such as Collective X, focused on scaling digital jobs. These efforts have showcased how companies can coordinate skills development and funding, reducing inefficiencies and wage competition. CASE STUDY 5 Aceli Africa – financing for smallholder farmers CASE STUDY 6 Yellowwoods Holdings – supporting skilling initiatives2.4 Talent and skills Access to skills is a key corporate issue, especially in low- and middle-income countries. OBF has been used in development and commercial contexts to align skills training with market needs and improve employability. It can help create inclusive workforces by sharing risks and lowering barriers for marginalized groups. Additionally, OBF increases transparency by showing which programmes are effective in delivering a real return on investment. Companies can look to the development sector to see how these issues have been addressed through OBF, for example, through roughly 85 impact bonds tackling employment and training. The sustainable finance market has also scaled OBF mechanisms addressing workforce diversity, including, for example, $120 billion in gender-linked loans launched in the last two years.44 OBF shares the financial risk of scarce skills development between companies, training programmes and trainees. For example, the American Diesel Training Centres launched a $4.7 million career impact bond to address the diesel technician shortage and remove financial barriers to training. The innovative income-sharing agreement allows students to enrol without upfront costs and ties repayments to post-graduation income.45 Employers co-sponsor tuition for many graduates, with over 1,000 technicians trained and graduates seeing a 62% median income increase. The initiative is part of an outcomes fund that supports multiple projects.