As part of our market research to identify top impact fund managers globally, we studied key trends across three categories: impact investment activity, investment ecosystem readiness and entrepreneurial activity. We are now highlighting trends by region.
Keep an eye out for our full report to be released shortly!
SME funding is integral to economic development but not always available: 90% of Indonesia’s population is employed by Small and Medium Enterprises (SMEs). In the Philippines, the Department for Trade and Industry estimates that there are almost 1 million micro to medium sized enterprises, which represent over 99% of all businesses in the country. These SMEs should be an important focus for impact investors, but after speaking to entrepreneurs in the region, we found that although there are small grants available, there are few significant sources of capital for growing ventures. Research from KPMG supports this claim, as the firm found that 79% of Indonesian SMEs don’t have access to formal financial services.
Foreign and diaspora investors are responding positively to improvements in the investment ecosystems: According to the World Bank, the Philippines is the third largest recipient of remittance inflows in the world. With further development of the investment ecosystem, the $30 billion sent as remittances could shift into investments. While Singapore is still the primary conduit of investment in the region, some investors believe that international funds will become the key source of capital. An example of a foreign based impact fund with an Asia focus is LGT Venture Philanthropy, which invests in the Philippines, but is a part of a larger Europe-based investment group. Additionally, other Asian and non-Asian investors are starting to invest directly in places like the Philippines and Vietnam. The Wall Street Journal recently noted that foreign direct investment to Vietnam rose nearly fivefold between 2005 and 2013. Indonesia is also taking measures to attract more foreign investors, but the investors we surveyed there still cite challenging ownership regulations as barriers to investments. Fortunately, regional investors point to a recent partnership—AVCII (Alliance of Venture Capitalists in Indonesia)— as a positive step. Investors in the Philippines believe that the country attracts foreign investors since it is a good market to pilot ventures in the region. These investors cite relatively low costs of operation, the young and tech savvy population and the fact that English is the official language as some of the reasons for this trend.
Clean energy and agriculture have high potential for investment, innovation and growth: Southeast Asia is particularly vulnerable to the effects of climate change, especially the Philippines. For this reason, clean energy is a big opportunity for entrepreneurs. At Capria, all of our fund manager applicants targeting Southeast Asia for investment are looking to invest in the clean energy sector. Even the government of the Philippines has taken initiative in this area by creating an application called Agimat to respond to natural disasters and the application could have venture funding potential in the future. Another sector getting significant attention in Southeast Asia is agriculture. Food security is closely tied to the effects of climate change, and investors in Indonesia believe that streamlining supply chains and increasing farm yields are two specific challenges that entrepreneurs can profit from solving. According to the World Food Program, Indonesia imports much of its food and experiences significant periods of food insecurity. Unitus Impact has invested in an innovative venture in this space called Big Tree Farms, a vertically integrated supply chain company for organic coconut and cocoa products.
A growing consumer class: Entrepreneurs and investors that we surveyed both see huge opportunities in innovative ventures serving Indonesia’s emerging consumer class. McKinsey projects that Indonesia will be adding 90 million people to its consumer class by 2030, paving the way for ventures to fill the emerging needs of these aspiring masses. Given these projections, it is not surprising that half of Capria’s applicants targeting Southeast Asia are from Indonesia.
“Impact investment in Southeast Asia has tremendous potential. We look forward to continuing to build relationships with both aspiring and existing impact fund managers in the region,” said Jack Knellinger, Principal at Capria. “Local investment teams will play a critical role unlocking opportunity throughout the region and we’re actively looking to support 5-10 teams in the region over the next few years.”
If you are an active investor in the region or if you are looking to set up a fund, please contact us.