Financing Development with Impact

One of the most dramatic shifts in the private sector investment landscape has certainly been the increased focus on projects that have a positive social and environmental impact. Development Finance Institutions (DFIs) have played a leading role in ensuring this shift is especially noticeable among investors in low-income countries, thus propelling a new wave of development assistance that is focused on sustainable private sector growth. Driven by the demand from both DFIs and other institutional investors, there is rising pressure on portfolio companies to show their positive impact. However, both investors and the companies they invest in lament large uncertainty over how to measure and manage investments in LICs and their impact in the first place. This project aims to be the first large-scale comprehensive study of management practices, broadly defined, of DFIs and Private Equity and Venture Capital fund managers in LICs, to shed light on key measurement and management issues plaguing both policy and academic progress in the area. The project will focus on addressing the following main questions: Is there dispersion in investment practices among DFIs and LICs-focused fund managers? What impact do these types of investment have on the investee and economic development more broadly?

This project is focused on creating a better understanding of impact investing as a driver of growth through a large-scale comprehensive and rigorous data collection process. To this end, Colonnelli aims to combine multiple sources of data regarding investment practices of the near-universe of DFIs and Emerging Markets (EM) fund managers and their portfolio companies. The data sources will include manually collected data, administrative databases, confidential investment documents, and novel extensive surveys of all major stakeholders (DFIs, fund managers, portfolio companies). This data will initially be used to describe the ecosystem (e.g., market size and composition of DFIs and EM investors), given the lack of comprehensive data up to this point. Colonnelli will then proceed to descriptively analyse the various investment practices of both DFIs and EM investors. Finally, they will explore the association between investment practices and both impact and financial performance of the entities.

From the perspective of DFIs, businesses, and local and international government agencies dedicated to the support of a vibrant investing ecosystem for high-growth companies, this data collection effort will provide a much-needed comprehensive set of data points that can be leveraged to better understand challenges to investment and impact management and measurement practices across all layers of the investment landscape. With respect to the academic literature, this would be the first comprehensive study of DFIs and Venture Capitalist /Private Equity investors across LICs.



Emanuele Colonnelli

University of Chicago