The Inter-American Development Bank (IDB) has approved a US$25 million loan to IGNIA Partners, LLC, a Monterrey, Mexico, venture capital firm that seeks to invest in projects that profitably serve low-income individuals with basic housing, health care and other needs.
Launched almost a year ago, IGNIA is looking to invest up to US$100 million in eight to twelve early stage and growth companies in Latin America and the Caribbean. IGNIA is seeking projects in health care, education, housing and basic utility services targeted to serve individuals making less than US$300 a month. In the region, this amounts to more than 360 million persons, or about 70 percent of the population.
IGNIA’s investment criteria is built on more than a decade of first-hand experience in microfinance by its founding partners, Michael Chu, a Harvard Business School professor and former CEO of ACCION International, a global pioneer in microfinance, and Álvaro Rodriguez Arregui, until recently chief finance officer of Mexico’s Grupo Vitro, formerly CEO of Farmacias Benavides, and Board member of Banco Compartamos, the leading microfinance bank in the region.
In addition to the loan, the IDB’s Multilateral Investment Fund will be considering a US$5 million equity stake in the IGNIA’s investment vehicle, the IGNIA Fund I, LP later this summer.
IGNIA marks the first lending operation approved under the IDB’s Opportunities for the Majority (OM) initiative launched in 2006. The initiative seeks to engage the business community to view the low-income sector as active participants and stakeholders in vibrant markets with strong growth potential.
"Unfortunately the poor in the region tend to pay a penalty for their situation—in the form of money spent on trucked water, hours wasted on commuting to distant jobs, work days lost to preventable diseases, or high interest rates paid to informal money lenders," said IDB President Luis Alberto Moreno. "The business community can help to reduce that penalty by offering quality goods and services tailored to the specific needs of low-income consumers and producers."
The IGNIA Fund will invest precisely in companies that have the potential to reach this low-income segment of society, said Elizabeth Boggs Davidsen, IDB project team leader.
“We want to help create an ‘investment case’ for these companies and highlight the benefits of empowering local entrepreneurship and generating social impact,” said Davidsen.
IGNIA’s co-founder Álvaro Rodriguez Arregui said the IDB’s participation will allow IGNIA “to support the growth and expansion of high growth social enterprises.”
“Together, the IDB and IGNIA are launching a pioneering approach to address some of the critical development challenges of the region,” he added.
This is the first time the IDB will provide a loan to a venture capital firm and represents an innovative way to apply senior, secured debt to an equity fund.
IGNIA plans to invest between US$2 million and US$10 million in each enterprise, including a primary health care clinic business and a low-income housing development.
“Partnering with the IDB is especially meaningful given the Bank’s leadership through its Opportunity for the Majority initiative,” said IGNIA co-founder Michael Chu. “With the IDB’s support, we hope to create the vanguard of new industries that will deliver key goods and services to help the poor realize their full human potential.”
IGNIA’s initial emphasis is on Mexico but expects a minimum of 40 percent of the fund’s resources to be invested throughout the region.