EXTERNAL REPORT

Portfolio for Impact 

and Innovation (PI2) 

Evaluation

NOVEMBER 2023
Table of Contents

EXTERNAL REPORT

EXECUTIVE SUMMARY

I. INTRODUCTION

II. EVALUATION FINDINGS

III. RECOMMENDATIONS

ANNEX - METHODOLOGY

03

06

09

25

33

Looking forward: Strategy recommendations

Increasing effectiveness: Process recommendations

26

29
1. Center for Global Development, “Trends in Private Capital Flows to Low-Income Countries: Good and Not-So-Good News”, July 2019.

2. Center for Global Development, “Comparing Five Bilateral Development Finance Institutions and the IFC”, January 2018.

3. SME Finance Forum, “MSME Finance Gap: Assessment of the shortfalls and opportunities in financing micro, small, and medium enterprises in emerging markets”, 2017.

4. Portfolio committed capital and percentage of investments in low-income and lower-middle-income countries is current as of Sept 2023.

5. DFC Fiscal Year 2021 press release. DFC’s ‘Roadmap to Impact’ (2020-2025) notes a target of ‘Focus at least 60 percent of all projects in low-income and lower-middle 

income countries, and in fragile states’.

6. The evaluated PI2 portfolio was assessed as having a moderately high risk at origination, on average, that deteriorated to high risk over time vs. a comparison group

comprised of 27 loans made during the same period which did not experience such fluctuation. PI2investments may be given an optional downgrade in its risk 

assessment to account for increased risks associated with the PI

2 portfolio, approved by Credit Policy and/or Risk Management.

7. The evaluated sample of 23 PI2

 investments represent the earliest projects in the PI2 portfolio.

8. Inclusion and Innovation represent 92% of total IQ points awarded to the PI

2 mature sample group.

3

EXTERNAL REPORT

Executive Summary 

Despite their impact potential, early-stage social enterprises, innovative projects, and new 

fund managers face significant financing gaps when scaling impact solutions in underinvested 

and underserved markets and communities. Historically, return-seeking investors and

development finance institutions (DFIs) have overlooked these types of projects, compounding the 

challenges created by limited institutional and domestic financing. The Center for Global Development 

reports that 3% of private capital1 and less than 10% of DFI commitments2 flow to low-income 

countries (LICs), contributing to the $5.2 trillion financing gap facing micro, small and medium 

enterprises in emerging markets.3 

The United States International Development Finance Corporation (DFC) has sought to address

this financing gap through the Portfolio for Impact and Innovation (PI2

), an investment portfolio 

tailored to early-stage social enterprises, innovative projects, and impact-oriented funds. This

portfolio focuses on underserved markets, with 92% of PI2

 allocations to low- and lower-middle income

countries4 compared to ~65% across DFC’s overall portfolio.5

 PI

2

 also prioritizes mobilizing capital for

underserved communities (e.g., low-income households, rural populations, etc.,) and early-stage, often

venture-backed businesses that combine elevated risks with a high potential to scale. This evaluation

aims to assess PI2

’s performance by looking back across nearly ten years of transaction history to

identify the relationship between developmental impact, financial risk, and financial returns.

Between 2014 and Sept. 2023, PI2 has executed 84 transactions and built an investment portfolio of 

$539M in committed capital. The PI2 portfolio began as a ‘grassroots’ program developed by Investment 

Officers and supported by DFC leadership, despite the institution’s limited initial experience and lack of 

tools to serve these market segments at inception. The portfolio has since benefited from input from 

multiple departments across the agency (e.g., Credit Policy, Risk, Office of Development Policy, Office of 

External Affairs, Legal, etc.) that collectively shaped a shared vision for the risk and goals of the program. 

This evaluation shows that the assessed PI2 portfolio delivers developmental impact and 

additionality alongside positive financial returns while managing elevated financial risk.6 The 

evaluated sample of 23 ‘mature’ PI2 investments7 yields an overall ‘Impactful’ Impact Quotient (IQ) 

score of 108 out of 150 that is largely driven by high scores in the Innovation and Inclusion pillars.8 

Over half (57%) of PI2 mature investments score in the two highest IQ tiers – ‘Highly Impactful’ and 

‘Exceptionally Impactful’.
EXTERNAL REPORT

In addition to its developmental impact, the overall PI2 portfolio has also delivered financial returns, with a 

cumulative projected positive net cash flow and a positive internal rate of return (IRR).

9 The mature PI2 portfolio 

of 23 investments also yields positive projected net cash flow and a slightly positive IRR.10,11 PI

2

’s investment in a 

company that helped scale the development of innovative, off-grid solar lantern products, is an example of how 

the portfolio combines high impact, elevated risk, and positive returns. The loan resulted in an ‘Exceptionally 

Impactful’ IQ score of 135 and had positive financial returns, despite relatively high risk. After repaying its loan to 

PI2, the energy enterprise went on to raise over $50M from DFC’s standard loan process and over $700M in 

capital from other investors, illustrating the growth potential that PI2investments can have.

The evaluated sample of 23 ‘mature’ PI2 projects yields a significant percentage (22%) of investments 

reaching the highest IQ threshold of ‘Exceptionally Impactful’. A comparison group made up of 

investments illustrative of DFC’s overall portfolio originated during the same timeframe saw only 4% of projects 

cross this threshold.12 At the same time, the average ex-post IQ score for the PI2 mature portfolio (10 8) is lower 

than the average ex-ante score for more current PI2investments (~125), indicating that the portfolio’s elevated 

risk does also result in challenges (e.g., LMIC/LIC context, Covid-19, early-stage business continuity) throughout 

the lifecycle of the investments that can potentially reduce the intended impact of projects.

The assessed PI2 portfolio also supports catalytic impact beyond the scope of each individual 

transaction, as shown by the relationship between IQ scores and additionality. DFC’s investor-level 

contributions include financial additionality (e.g., providing patient capital via longer tenors and grace periods) 

and non-financial additionality (e.g., signaling to the wider market that a company is investable). For example, 

DFC’s guaranty enabled a food distribution and services company to establish, for the first time, a relationship 

with a local commercial bank, sending market signals to local lenders that had previously been reluctant to 

extend credit to it and similar businesses. Following DFC’s investment, the company went on to raise significant 

debt funding from local banks alongside equity from institutional investors.

Beyond its immediately measurable impact, PI2 has generated valuable learnings on investing in 

innovative business models, deploying unique structures and terms, and operating in investment 

environments unfamiliar to DFIs that can inform DFC’s and other investors’ priorities moving forward.

At the company level, PI2 has demonstrated that impact for early-stage social enterprises and funds is strongly 

correlated with their ability to be innovative and inclusive, suggesting DFC should focus heavily on those aspects of a 

company’s business model during the origination and monitoring phases. At the investor level, DFC can achieve 

impact by strengthening internal collaborations across sector and functional teams; increasing its use of innovative 

financial products, patient capital, and partnerships with local intermediaries; and providing targeted postinvestment support to first-time borrowers. 

9. See methodology section for details on net cash flow and IRR calculations and details on the cumulative PI2 portfolio.

10. The 23 mature investments are among the first investments originated in the PI2 portfolio. Investments in the cumulative portfolio include more recent investments (with 

commitment dates up to 2022)

11. R1ealized . cash returns as of Sept 2023 (i.e., realized interest, fees, and net of write offs).

12. This comparison group comprises 27 commitments of under $30M to enterprises or under $20M to funds that were generated by DFC’s Office of Development Credit team. 

The comparison group was used to benchmark PI2's performance against an ‘overall DFC portfolio’; however, PI2's unique thesis means the comparison group cannot be treated 

as a control group. In addition, the development impact assessment is not directly comparable to DFC’s current IQ framework, which also complicates true comparisons.

4
13. The presence of restructuring does not necessarily lead to poor financial returns for DFC. Additional details on how PI2 supports investees through the restructuring 

process can be found later in this document.

14. I.e., catalyzing capital flows towards underserved geographies or populations, emergent sectors, business models or deal types.

5

EXTERNAL REPORT

PI2’s performance has been enabled by DFC’s decision to tolerate risk, deploy subsidies, and

allocate significant staff time throughout the investment monitoring period. Over 60% of

evaluated PI2

 deals required restructuring13 due to a variety of factors (e.g., market shocks and the

effects of Covid-19, among others) that triggered extensions and write-offs. PI2

 monitoring teams have

worked closely with investees to help them financially withstand external shocks, effectively manage

high growth, and drive future financial sustainability. DFC’s level of effort has been significant, and in

many cases challenging to anticipate at origination.

Delivering high direct and indirect developmental impact has required operational investments

that DFC may be uniquely positioned to make even more effectively and efficiently moving

forward. The institution’s shift towards a sector-centric configuration means catalytic activity14 taking

place at the sector level can not only build on the historical lessons of PI2 but also ensure learnings

from future catalytic deals are more directly translated into sector-wide investment strategies. Under

this setup, catalytic investments act as ‘R&D’ opportunities that will enable DFC to better calibrate

risk, reduce transaction costs and generate incremental impact on larger allocations at more mature 

stages. With the right structuring capabilities, DFC can make the most of its ability to offer a range of 

instruments to design and underwrite innovative transaction types that otherwise may not have been 

possible.

By continuing to be a pioneer in the field and sharing learnings from the PI2

 portfolio and future

catalytic investments, DFC can strengthen the overall ecosystem and help bridge the funding gap for

early-stage social enterprises, innovative projects, and new fund managers across developing markets.
EXTERNAL REPORT

I. Introduction
15. Sustainable Development Solutions Network, “SDG Costing & Financing for Low-Income Developing Countries”, September 2019. The report estimates that 59 lowincome and lower-middle income countries would require a total of $400 billion in additional funding each year from 2019 through 2030 to achieve the SDGs.

16. Graca Machel Trust, “Survey to explore growth barriers faced by female entrepreneurs in East Africa”, 2018.

17. Hornberger, Kusisami, “Scaling Impact: Finance and Investment for a Better World”, Palgrave Macmillan Press 2023, Chapter 5

18. The Center for Global Development (CGD) assessed 2012-2016 commitments from Britain’s CDC Group (now BII), Germany’s DEG, the Netherlands’ FMO, France’s 

Proparco, the United States’ OPIC (now DFC), and the IFC.

19. FMO had the lowest average project size ($11.41M), followed by Proparco ($18.46M), DEG ($19.89M), CDC Group / BII ($32.7M), the IFC ($39.94M), and OPIC / DFC 

($42.35M).

20. Finance and insurance, which includes small and medium enterprise (SME), microfinance institution (MFI), and private equity funds investments, is the largest sector 

of projects by volume.

21. Center for Global Development, “Comparing Five Bilateral Development Finance Institutions and the IFC”, 2018.

22. FMO deployed the greatest percentage of its overall portfolio in LICs (11%), followed by Proparco (9%), DEG (8%), CDC Group / BII (6%), IFC (6%), and OPIC / DFC (5%).

23. Most investments in the evaluated ‘mature’ portfolio originated when the PI2 program limits were $1M to $5M. The $5M cap was increased to $10M in 2020.

24. DFC portfolio data

EXTERNAL REPORT 7

Early-stage social enterprises, innovative projects, and first-time entrepreneurs or fund managers face 

significant financing gaps when seeking to scale development solutions in emerging markets. As a result, 

low- and lower-middle income countries are facing a $400B annual shortfall in funding for the Sustainable

Development Goals.15Barriers to capital are even more pronounced for historically marginalized entrepreneurs

and social enterprises. In East Africa, for example, over 70% of women entrepreneurs reported self-funding their 

businesses,16 while social enterprises around the world report being trapped in the “missing middle”—too big for 

microfinance, too small for banks, and without the growth profile sought by venture capitalists.17

Historically, development finance institutions have overlooked early-stage, innovative projects in 

favor of larger investments in proven industries and / or markets. Per a 2018 analysis from the Center for

Global Development, the average project size across five DFIs18 ranged from approximately

$11-42M,19with most capital deployed to the finance and insurance,20utilities, and manufacturing sectors.21 Of

the $8.9B of commitments analyzed, 7% was deployed in low-income countries.22

 

Despite recent efforts by DFIs to increase capital flows to early-stage, innovative projects in low- and 

lower-middle income markets, significant institutional challenges remain. For DFIs that lack specialized

processes, smaller deals typically have higher transaction costs as a percentage of the total deal compared to

larger investments. Low transaction volume may mean origination and monitoring staff are less familiar with 

how to source and manage small deals, contributing to institutional inertia. Finally, DFIs and other institutional

investors may believe that smaller deals have imbalanced risk-reward profiles, making them less commercially 

attractive. Ultimately, the perception that small-scale, innovative companies combine elevated risk with uncertain

impact and poor financial returns has perpetuated low investment levels and exacerbated existing funding gaps.

In 2014, DFC's predecessor agency, OPIC, launched what is now the Portfolio for Impact and Innovation 

(PI2) to help address the financing gap for small-scale, high-impact, innovative companies operating in 

underserved markets. To qualify for PI2, investments must be $10M or less ($5M or less for deals originated 

between 2014-2020)23 and targeted to early-stage, high impact projects that are inherently riskier than the 

overall DFC portfolio. As of September 2023, ~$539M in net commitments has been made across 84 loans and 

guaranties in Asia, Africa, Latin America, and the Middle East, with 92% of the portfolio’s investments being 

made in LMICs or LICs.24 

To launch the PI2 portfolio, DFC developed new processes and assumed new risks. New processes 

included the introduction of a ‘pre-screen’ rubric to determine eligibility for the PI2investment track; an 

interdepartmental working group including Credit Policy, Risk, Office of Development Policy, Office of External 

Affairs, and Legal; customized investment templates; and a streamlined credit approval process. 
25. Dalberg analysis of DFC data

26. Going forward, DFC plans to focus on five key sectors, four of which are represented in the PI2 portfolio. The fifth sector focus, infrastructure and minerals, is not

represented within our sample of PI2 mature deals.

27. Excludes 8 of the 27 loans in the comparison group that did not provide data on the commitment amount.

EXTERNAL REPORT

8

These new processes helped PI2 be intentional in taking on elevated risks, including investing in 

companies with as little as $1M in revenues or assets or that are not yet breakeven; investing in lowand lower-middle income countries; reaching underserved customers and SMEs; committing capital 

to new business models and sub-sectors; supporting first-time fund managers; and/or adapting 

financing terms and products to fit investees’ needs. 

Given PI2’s established track record and considering the continued financing gap facing 

PI2-eligible projects, DFC engaged Dalberg Advisors to assess the relationship between the 

portfolio’s developmental impact, financial risk, and financial returns. This report evaluates this 

question through the analyses summarized in Figure 1.

Figure 1: Key components of this evaluation

The sample group for this evaluation of PI2’s impact, risk, and return profile included 18 loans 

and 5 guaranties originated in the early stages of the program and totaling ~$98M in 

disbursed capital.25 The evaluated portfolio spanned four major sectors—funds, health and 

agriculture, small business support, and energy—across Africa, Asia, and Latin America.26

This evaluation also assessed how this sample of mature PI2

investments performed against 

a comparison group of 27 loans made over a similar period. The comparison group comprises 

commitments of under $30M to enterprises or under $20M to funds that were generated by DFC’s Office 

of Development Credit team. The intention of the comparison group is to benchmark PI2

’s performance 

against an ‘overall DFC portfolio’; however, PI2

’s unique thesis means this comparison group should 

not be treated as a control group. The maximum commitment size in the comparison group is $20M, 

or four times the maximum allowed under the PI2

 program for the evaluated sample.27 In addition, the 

comparison group does not share PI2

’s focus on emerging enterprises and first-time funds. Additionally, 

the development assessment of the investments in the comparison group utilized a different impact 

framework than DFC’s current IQ framework, which complicates direct comparison of impact results.

Financial returns

Analysis of loan status, 

restructuring needs, and absolute 

and relative financial returns

Example data points:

• Net cash flows as of

September 2023

• Projected internal rate

of return (IRR)

Developmental impact

Analysis of the developmental 

impact and additionality created by 

PI2 investments.

Example data points:

• IQ scores and categories

• Additionality factors

Financial risk

Assessment of risks identified 

at origination and throughout 

the loan lifecycle and analysis of 

subsidy levels over time.

Example data points: • Origination and updated risk

and cost assessments as of

March 2023
EXTERNAL REPORT

II. Evaluation Findings
28. Methodology on assessing developmental impact via Impact Quotient (IQ) scores is outlined in the annex

10

EXTERNAL REPORT

Evaluation findings show that the assessed PI2 portfolio has achieved developmental impact 

and additionality alongside positive financial returns while managing elevated risk through 

differentiated origination and monitoring processes. PI2

’s approach has yielded several highly

impactful investments including a leading off-grid energy company, a primary care provider and a 

carbon credit finance provider among others. These companies create impact by scaling new 

products or services and providing significant benefits, such as clean energy, healthcare, and 

sanitation services to end-beneficiaries in underserved communities around the world.

In doing so, PI2investments take on significant risk, with elevated risk at origination that reflect 

volatile political environments, unproven business models, and/or expansion into new sub-sectors. As 

Figure 2 shows below, PI2investments have created developmental impact28 in this elevated risk 

environment, with over half of the portfolio achieving a ‘Highly Impactful’ or ‘Exceptionally Impactful’ 

IQ score and over 80% of investments having projected net positive cash flows. Additionally, several 

PI2investments in the mature portfolio have leveraged PI2’s catalytic funding to continue to scale, 

receiving follow-on commitments through the standard DFC lending process or from other private 

investors and development finance institutions.

Figure 2: Comparison of Impact Quotient, risk, and financial returns for PI2 mature investments

- returns + returns Commitment size ($M)

140

130

120

110

100

90

80

70

60

50

40

Exceptionally 

impactful

Highly

impactful

Limited

impactful

Impactful

A

U

R

W

H

I

V

C

N

L

F

S

O

J

G

K

M

T Q

B

D

Risk at origination

Lower risk Elevated risk

IQ score

C

KEY: letters A-W represent anonymized investments
29. The comparison group used an impact scoring system that pre-dated the Impact Quotient and scored projects on a scale of 1-100 rather than 1-150. To translate 

these scores into IQ scores, we multiplied each of the comparison group’s ex-ante impact scores by 1.5. Since the two frameworks are inherently different, the 

actual impact results between the two groups are not comparable.

30. These two enterprises represent outliers in the PI

2 sample group, with IQ scores of 52.5 and 57.5, respectively. Impacts of these investments were diminished due 

to severe operational and financial challenges that the companies faced, including higher costs of working with mobile network operators for the financing 

enterprise and production/supply chain issues for manufacturing enterprises. Without these outliers, the IQ score for the evaluated PI2 portfolio would be 112, 

which a more upward sloping trend line between IQ score and risk rating at origination. 

31. The sum of the three pillars is less than the average score due to deductions not shown in the breakdown graph.

11

EXTERNAL REPORT

The PI2 mature portfolio’s average Impact Quotient score corresponds to an “Impactful” rating

that is driven by high marks on inclusion and innovation. Overall, the 23 investments in the 

PI2 evaluation sample resulted in higher development scores than a comparison group of 27 

comparison loans from the same period, with an average IQ score of 108 for the sample group vs. an 

average IQ score of 96 for the comparison group.29,30 

Figure 3 below shows that PI2

 evaluated portfolio’s average IQ score of 108 is driven by innovation

and inclusion, with these two pillars jointly contributing approximately 90% of points awarded across

the evaluated portfolio. Over half (57%) of the evaluated portfolio achieved ‘Highly Impactful’ or

‘Exceptionally Impactful’ scores, the two highest thresholds of IQ scores.

Figure 331: Impact performance of PI2 portfolio

Exceptionally 

impactful

127.5 - 150

Inclusion

IQ pillar

Innovation

Economic

growth

0 20 40 

11.3 

N=23 

46.1 

51.6 

Highly

impactful

112.5 - 127.4

Limited impactful

37.5 - 89.9

Limited impact Impactful Highly impactful Exceptionally impactful

Indeterminate

<37.5

Impactful

90 - 112.4

Average IQ score for the PI2

Mature Portfolio

PI2 mature portfolio investments by IQ scoring threshold

Breakdown of avg. 

IQ score by pillar

150

108

0

4 (13%) 9 (30%) 7 (35%) 4 (22%) 

Analysis also uncovered common characteristics among loans with higher Impact Quotient scores 

at maturity. Figure 4 below shows that when DFC invested through local intermediaries or used 

innovative financial structures, or when the recipient successfully served low-income customers or 

provided disruptive, innovative products, Impact Quotient scores were higher.

Average IQ Score
12

EXTERNAL REPORT

120

100

80

60

40

20

0

100

114

98

128

98

120

97

116

No Yes

Invested through

local intermediaries

When DFC: When recipients of DFC funding:

Used innovative 

financing structures

Target lowincome clientsProvided disruptive

products or business model

No Yes No Yes No Yes

Figure 4: IQ score broken down by common loan characteristic

The following case studies bring these common characteristics to life.

Water enterprise provides direct loans to water service 

providers in a country where 10% of the population lacked 

access to piped water in their homes as recently as 2019. 

Water enterprise helps capitalize small community, municipal, 

or privately-run water service providers that frequently lack 

the credit history and technical capacity to apply for loans. 

As of 2023, Water enterprise has provided loans to 20 water 

service providers, resulting in improved access to water 

services for nearly 27,000 households as well as first-time 

access to water services for an additional 13,600 households. 

The ‘Impactful’ IQ score for this investment reflects Water 

enterprise’s ability to provide an uncommon service via flexible 

loans and technical assistance to local intermediaries—the 

water service providers—that in turn serve low-income and 

marginalized communities.

Impact through investing in 

local intermediaries 

*investee name has been anonymized in

order to maintain confidentiality

Case Study:

Water enterprise
13

EXTERNAL REPORT

DFC invested in a first of its kind specialized Health enterprise 

based in Africa. The enterprise is improving health outcomes 

directly, by providing care to patients, and indirectly, by building

capacity in the country it operates via the professional 

development of clinical and administrative staff. As of 2022, the 

Health enterprise had performed over 10,000 surgeries of which 

76% of achieved a ‘good outcome’ as defined by WHO standards 

one day post-op. The facility is improving health outcomes directly, 

by providing care to patients, and indirectly, by building the 

country’s health care capacity via the professional development of 

clinical and administrative staff. 

At the time of origination, the Health enterprise loan was the 

largest loan using an innovative, impact-first structure and one of 

the only of these structures backed by a development finance 

institution. The ‘Exceptionally Impactful’ IQ rating for this 

investment reflects the demonstration effects created through this 

innovative financing facility and the high degree of inclusion 

enabled by targeting underserved segments in the country it 

operates. 

Education enterprise is a non-bank financial company which 

provides debt financing to private schools in India. In doing so, it 

aims to increase access to affordable education for low-income 

populations. Large numbers of school-age children in India are 

not enrolled in school (as of 2016, UNICEF estimated that 6% of 

primary, 7% of lower secondary and 23% of upper secondary 

school-age children are not attending school), while concerns 

about the quality of the public education have led to an increase 

in demand for private schools.

PI2 provided a $5M guaranty to a financial intermediary for a 

$8M loan to Education enterprise, committed in 2015. By 2019, 

Education enterprise had increased the number of schools it was 

lending to five-fold (to 3,607), serving 3.4 million students. By 

providing financing to private schools that offer affordable 

tuition rates, Education enterprise aimed to expand access to 

quality education for lower- and middle-income students.

Impact through 

innovative financing

Impact through 

innovative financing

*investee name has been anonymized in

order to maintain confidentiality

*investee name has been anonymized in

order to maintain confidentiality

Case Study:

Health enterprise

Case Study:

Education enterprise
Company trajectory: Supporting the

company’s impact thesis and/or growth in 

a way that would have been difficult without 

the investment, Providing financing at a key 

point in the company’s evolution.

Technical assistance: Provide technical 

assistance at any point during the life cycle 

of the investment to help the company grow 

and create impact in a sustainable way

First debt financing from an institutional 

investor or DFI: Investing in highly impactful 

opportunities as the first institutional investor 

or DFI to close debt at scale for the project

Market signaling and follow-on:

Facilitating subsequent follow-on funding 

to help impact-oriented, high-growth 

companies overcome funding and reach 

their potential scale

*Note: ‘Demonstration effects/replication’s included as part of the Impact Quotient

ESG standards: DFC’s funding marks the first

time the company met the ESG standards of

a DFI investor

Demonstration effects/replication* : Other 

companies built on the proof of concept/validation 

created from the project to develop similar models

within or across sectors and regions

Crowding-in capital at origination: DFC is a 

lead ‘thought partner’ at origination and helped 

support/catalyze the presence of co-investors 

and collaborators

Patient capital terms: During origination or 

restructuring, offering a longer runway via improved 

deal terms/structure and longer tenure loans and/

or grace periods (e.g., tailoring loan products to meet 

the needs of an early-stage company)

Non-financial additionality factors

32. For the ESG standards additionality factor, this evaluation assumes that companies that had not received financing from a DFI before DFC had to meet the rigorous

ESG standards required by DFIs through the PI2 investment for the first time.

EXTERNAL REPORT

14

Financing enterprise is an impact-focused investment fund 

that provides financing to small and medium enterprises 

(SMEs) that deliver clean cooking, fuel, water, and other 

household products to a global customer base by using 

potential revenue from future carbon credits as collateral. 

PI2 support helped Financing enterprise expand its portfolio, 

which has provided clean products to nearly 1.6 million

customers globally as of 2021.The ‘Exceptionally Impactful’ IQ

rating for this investment reflects the fact that, at the time of

loan origination, there were no other funds providing a similar 

model of lending to companies in Financing enterprise’s target 

sectors.

Impact through disruptive 

products or business model 

Beyond individual transactions, the assessed PI2 portfolio has catalyzed markets through its 

focus on financial and non-financial additionality, with a clear relationship between higher 

Impact Quotient scores and higher levels of additionality. The figure below summarizes seven 

financial and non-financial additionality factors present across the mature PI2 portfolio.32

Figure 5

Financial additionality factors

*investee name has been anonymized in

order to maintain confidentiality

Case Study:

Financing enterprise
15

EXTERNAL REPORT

Commitment size ($M)

140

130

120

110

100

90

80

70

60

50

40

0 1 2 3 4 5 6 7 

Exceptionally 

impactful

Highly

impactful

Limited

impactful

Impactful

A

U R

W

H

I

V

C

N

L

F

S

O

J

G

M

T

Q

B

P D

Number of additionality factors per PI2

 sample investment

Developmental impact score

E

The assessed PI2 projects' most common form of financial additionality is its patient capital 

terms, with 78% of PI2 investments receiving terms not available from other lenders at 

origination and/or during restructuring. Examples of patient capital terms include longer tenors, 

with an average tenor of 6.5 years across the 23 PI2 deals as compared to an average tenor of 2-3 years 

offered by other institutional investors. Additionally, DFC was the first institutional investor or DFI to 

provide debt financing for 52% of evaluated transactions. Approximately 70% of projects in the PI2

mature sample successfully raised follow-on funding, with 65% receiving funds from at least one 

private investor. From a non-financial additionality perspective, DFC’s funding helped nearly 70% of PI2

investees develop or expand products and services tailored to low-income customers. 

As Figure 6 shows below, there is a positive correlation between an investment’s Impact 

Quotient score and the number of additionality factors present in the deal.

Figure 6: Impact Quotient score compared to total additionality factors present by investment

The additionality factors most strongly correlated with higher Impact Quotient scores include ‘crowding 

in capital at origination’ (i.e., unlocking capital from co-investors who value DFC’s participation) 

and providing ‘market signaling and follow-on funding’ (i.e., directly or indirectly contributing to a 

company’s ability to raise additional capital in subsequent rounds).

KEY: letters A-W represent anonymized investments
Sanitation social enterprise

COMPANY CONTEXT

PI2 provided an African social enterprise that converts waste into agricultural inputs, with a $5M 

direct loan to expand its production facilities. The social enterprise deploys self-contained toilets in 

unplumbed informal settlements, improving local sanitation, and uses the resulting waste as 

feedstock to produce organic fertilizer or compress into ecofuel.

PI2 ADDITIONALITY

PI2 made financial and non-financial contributions to the social enterprise’s impact. As a result, five of 

the seven categories of additionality were present in the deal. 

16

EXTERNAL REPORT

25

20

15

10

5

0

8

24

Crowding in capital

at origination

Increase in IQ Score

Market signaling and 

follow-on funding

Figure 7: Additionality factors with the largest effects on IQ scores

The following case study of an African startup that upcycles human waste into agricultural

inputs, illustrates the links between additionality and high developmental impact.
DFC financial additionality

Major drivers of financial additionality included the fact that PI2 was the first development finance 

institution to provide the social enterprise with debt financing. PI2 also offered better terms than 

commercial investors at origination (e.g., a seven-year tenor and interest rate of 4.5% plus cost of

funds) and during Covid-19-related restructurings (e.g., suspending interest and principal repayments

to enable the close of a $5.0M Series C round).

Major contributors to non-financial additionality included the fact that PI2

’s flexibility regarding the 

use of loan proceeds enabled the social enterprise to successfully weather the Covid-19 pandemic. In 

addition, PI2

 provided the social enterprise with technical assistance as it scaled its operations. 

COMPANY IMPACT

The social enterprise’s Impact Quotient (IQ) rating is ‘Exceptionally Impactful’, corresponding to a 

score of 130 out of 150. Since its founding, the company’s self-contained toilets have served 170,000 

low-income people across informal settlements in three African cities and helped 8,000 farmers 

adopt regenerative practices. The company scores highest on the two pillars—inclusion and 

innovation—which collectively account for 90% of the PI2 portfolio’s overall IQ score. 

17

EXTERNAL REPORT

Was DFC the first institutional investor to provide debt financing?

Did DFC’s commitment help catalyze capital at origination?

Did DFC offer terms not available from other lender at origination and/or restructuring?

DFC non-financial additionality

Did DFC’s support make a critical contribution to the company’s impact trajectory?

Did DFC’s market signaling contribute to the company raising follow-on funding in 

subsequent rounds?

Did DFc’s provide technical assistance to the company?

Did DFC’s funding mark the first time the company met the ESG standards of a 

DFI investor?
33. Subsidy levels reflect the projected amount of return or loss for a given project based on the total commitment amount and the project’s risk. See 

methodology annex for additional details. 

Many PI2 deals required restructuring and frequent engagement by portfolio monitoring teams.

Of the 23 evaluated PI2 investments, nearly 60% have undergone restructuring. Restructuring occurs 

due to a variety of factors, including company-specific issues (e.g., cash flow or business continuity 

challenges, ability to manage rapid growth) and exogenous shocks (e.g., COVID-19, political upheaval). 

EXTERNAL REPORT

18

Subsidy as

of March 2023

Origination subsidy

Total Subsidy

$ 2.2M

$14.9M

+10.5M

PI2 contributed to the social enterprise’s high inclusion and innovation scores by providing affordable, 

flexible financing for a novel product targeting underserved consumers (i.e., financial additionality) and 

helping the company preserve its impact mandate throughout the Covid-19 pandemic (i.e., non-financial 

additionality). For the social enterprise, and for many companies with high IQ scores in the PI2

 portfolio, 

PI2

’s investor-level additionality helps ensure the company’s impact objectives scale alongside its business.

Accepting elevated risks, higher subsidies,33 and more hands-on monitoring has been a crucial 

factor in enabling PI2’s impact. The PI2 mature portfolio has relatively elevated risk levels, showing 

higher risk at origination and currently than the comparison group. 

The elevated risk for PI2is driven by the types of investments that fit within portfolio’s impact thesis 

and mandate (e.g., early-stage companies, innovative product and business offering, relatively 

unproven business models, underserved reach populations, and less developed markets). PI2’s 

elevated risk levels carry through to the subsidy process. The PI

2 mature portfolio has an overall

positive subsidy, meaning the portfolio requires a budgetary allocation to fund potential losses related

to elevated risk. While PI2’s risk and subsidies increased over time, the relatively greater increase in 

subsidies reflects PI2 defaults and/or restructurings.

Figure 8: Subsidy at Origination and as of March 2023
There is a distinction between different types of restructurings in the PI2

 portfolio, however, as restructuring 

does not necessarily result in poor financial returns for DFC. Some closed projects had restructurings that 

resulted in significant write-offs while others shifted their business model and have since paid back the 

full amount of DFC funding. Other active investments that have been restructured will need more time to 

determine whether their forecasted impacts and financial returns come to fruition. 

DFC can support investees undergoing restructuring through patient capital terms (e.g., extending grace 

periods) that help stabilize the company’s financial situation and preserve its potential to create or maintain 

positive developmental impact. The two case studies below illustrate select scenarios.

EXTERNAL REPORT 19

DFC’s patient capital 

restructuring terms can help 

companies maintain good 

financial standing

PI2’s loan was initially intended to help Sanitation enterprise

expand its production facilities by increasing its capacity to 

upcycle human waste into animal feed.

However, during the COVID-19 pandemic, PI2 waived restrictions 

on the use of the loan proceeds and deferred interest payments

to facilitate a close of Sanitation enterprise. In this case, DFC 

provided strategic flexibility in its loan structure, which 

ultimately helped the social enterprise manage the impact of the

COVID-19 pandemic and maintain its impact-first business 

model while successfully raising additional private capital. 

Consumer goods manufacturing enterprise is located in SubSaharan Africa for wholesale distribution to US retailers. PI2

provided consumer goods enterprise with a $5M loan.

Unfortunately, COVID-19 lockdowns across Africa and retail 

distributor’s bankruptcy in the US pushed Consumer goods 

enterprise into a liquidity crisis. 

Rather than enforce liquidation, DFC first decided to restructure the 

loan to enable Consumer goods enterprise to continue 

its operations while it attempted to raise additional capital. With the 

company facing bankruptcy, DFC opted to execute a full write-off 

that would provide a 6-month severance package to the enterprise 

employees and allow the company’s local entity to receive the 

company’s remaining cash. PI2’s decision to execute an impact-first 

restructuring and write-off minimized financial harm to Consumer 

goods enterprise’s women employees and helped the company 

continue operations in Sub-Saharan Africa.

DFC can preserve impact even 

in worst-case write-off scenarios

*investee name has been anonymized in

order to maintain confidentiality

*investee name has been anonymized in

order to maintain confidentiality

Case Study:

Sanitation enterprise

Case Study:

Consumer goods 

enterprise
Despite the challenges associated with restructurings, the assessed PI2 portfolio has had 

positive development results overall. Figure 9 below shows that PI2 investments operating in an 

elevated risk environment can achieve strong developmental impact results based on client-reported 

data, with over half of the evaluated portfolio achieving a ‘Highly Impactful’ or ‘Exceptionally Impactful’ 

IQ score and a positive correlation between higher risk taking at origination and higher impact several 

years after DFC’s loan disbursement.

Figure 9: Impact Quotient score at maturity compared to financial risk at origination

PI2 investments intentionally push for greater innovation and operate in riskier environments (e.g., 

emphasis on LMIC and LICs, early stage etc.) to drive impact, with higher risk at origination 

corresponding with significantly higher innovation IQ scores in the evaluated sample. PI2

investments with a moderately high had an average innovation IQ score below 36, while PI2

investments with a more elevated risk had an average innovation IQ score of 55. 

The following case study of Energy enterprise illustrates an instance where high developmental 

impact and large-scale growth was created by a company with an elevated risk profile at origination. 

Commitment size ($M)

140

130

120

110

100

90

80

70

60

50

40

Exceptionally 

impactful

Highly

impactful

Limited

impactful

Impactful

A

U

R

W

H

I V

N

L

F

S

O

J

G

M

Q T

B

T D K

Risk at origination

IQ score

E

C

Lower risk Elevated risk

KEY: letters A-W represent anonymized investments

20

EXTERNAL REPORT
PI2’s willingness to accept financial risk in the pursuit of greater developmental impact is 

reflected by the high number of investments that receive an ‘Exceptionally Impactful’ Impact 

Quotient rating, as seen below in Figure 10.35 The evaluated PI2 portfolio also showed limited 

impact downside compared to the comparison group, with 13% of the PI2 portfolio recording a 

‘Limited Impact’ score or lower, while 33% of the comparison group projects had this score.36

34. BusinessWire (2020)

35. The evaluated PI2 ‘mature’ sample IQ scores are ex-post and the comparison group scores are ex-ante. The difference may be even greater with the comparison

group (i.e., a lower percentage of exceptionally impactful investments in the comparisons group) if both IQ scores were ex-post.

36. Projects in the comparison group were evaluated using DFC’s previous impact methodology, which scored projects out of 100 total possible points (as opposed to 

the 150 total possibly points in the IQ methodology). Comparison group scores were multiplied by 1.5 to enable a rough comparison with the sample portfolio.

21

EXTERNAL REPORT

Energy enterprise is a pioneering solar energy company that

designs, distributes, and finances solar home energy solutions to 

households that lack reliable access to the grid. Energy enterprise’s

products help reduce household energy costs, improve health and

safety, and reduce greenhouse gas emissions from ‘dirty’ energy

sources (e.g., kerosene lamps). 

PI2 provided a loan to Energy enterprise with high risk due to

the company’s still relatively unproven business model and 

nascent off-grid energy products sector. 

Energy enterprise utilized PI2’s funding to scale operations and 

has repaid the loan in full. Since DFC’s loan, Energy enterprise

has raised $700M+ in follow-on funding, including $300M+ in 

debt funding and significantly expanded operations (reaching 

19M units sold by 2022) and its ‘Exceptionally Impactful’ IQ 

rating reflects the health and environmental benefits that 

Energy enterprise’s innovative products have provided to 

communities and the planet, with over 43 billion additional 

hours of light used, over $6 billion saved on energy 

expenditure, and over 27 million metric tons of CO 2 avoided.34

*investee name has been anonymized in

order to maintain confidentiality

Case Study:

Water enterprise
PI2 evaluated portfolio (n=23)

% of “Exceptionally 

impactful” loans

Comparison group of other 

direct loans (n=27)

22%

4%

Figure 10: Percentage “Exceptionally impactful” investment for PI2 and comparison group

Despite the higher risk profile, the PI2 portfolio sample reviewed has achieved positive financial 

returns over the period evaluated. Cumulatively, the overall PI2 portfolio has a positive projected net 

cash flow and a positive IRR. This cumulative portfolio includes more recent PI2 investments, with 

commitment dates up to 2022. The 23 PI2 mature investments (net commitment size of ~$98M, with 

commitment dates up to 2019) evaluated as part of the PI2 portfolio sample also has generated positive 

net cash flow.37 A total of 19 of the 23 projects generated positive cash flows, with 4 investments 

generating losses. The largest financial gain was +$2M and the largest loss was -$4.7M. Additional detail 

on net cash flow contribution is detailed in Figure 11 below.38

Figure 11: Summary of cash flows for 23 mature PI2 loans evaluated

$49M

$34M

-$14M

$3M

$20M

$9M

Principal paid Unrealized 

principal*

Writeoffs Fees** Interest** Total

-$97M

Disbursements

Note: analysis does not include cost of funds or overheads associated with origination monitoring and management of loans that were restructured

*Unrealized principal of $34M is net of writeoffs (i.e., ~$14M of the $48M principal outstanding has been written off, resulting in $34M remaining in 

unrealized principal) ** Interest payments include unrealized and capitalized interest, which make up 19% or ~$4M of the total $20M in interest; 

Fees also include unrealized fees, which make up 26 %, or ~$780K of the $3M fees

37. A conservative case of measuring financial returns includes reducing projected future cash flows for investments if they have assessed as high risk and have

been late on payments (for principal, interest, or fees). This conservative analysis still shows a positive IRR for both the overall portfolio and the PI

2 mature 

portfolio. Additional details can be found in the methodology annex of this document.

38. Based on cash flow data as of September 2023. Does not include cost of funds or overheads associated with origination, monitoring and management of 

investments that were restructured. See methodology section for further detail on net cashflow and IRR calculations.

22

EXTERNAL REPORT
The evaluated PI2

 portfolio has a slightly positive projected internal rate of return. A total of 19 of 

the 23 investments evaluated have a positive financial returns, with four generating a negative returns. 

The distribution is fairly even with the exception of a few write-offs.

Figure 12, below, shows that IQ scores are positively correlated with financial returns. Energy enterprise

provides a notable example of this trend, as the solar lantern company has a ‘Exceptionally Impactful’ IQ 

score that reflects the innovation and inclusion the company has created for underserved communities 

that lacked access to clean energy products. In addition, the company has been able to scale profitably 

and has successfully repaid its debt obligations.

Figure 12 : Impact Quotient score compared to financial returns for PI2 mature portfolio

Commitment size ($M)

140

130

120

110

100

90

80

70

60

50

40

0 

Exceptionally 

impactful

Highly

impactful

Limited

impactful

Impactful

U

R

W

H

I

V

C

N

L

F

S

O

J

G

M

Q

B

T

K

IQ score

D

A

P

KEY: letters A-W represent anonymized investments

23

EXTERNAL REPORT

Negative Positive

Financial Returns 
Achieving PI2

’s level of developmental impact and financial returns required managing higher risk 

through differentiated investment processes and increased engagement from the origination and 

monitoring teams. 

• Differentiated investment processes: Potential transactions are first evaluated through a

‘pre-screen’ rubric used to determine an investment’s eligibility for the PI

2

track. Deals

approved for the PI2track subsequently undergo a full screening via a tailored memo that

includes sections outlining the company’s impact thesis and DFC’s potential additionality.

After proceeding through DFC’s standard due diligence process, PI2 deals complete a

streamlined credit review process whereby the credit team provides input instead of

approval, making the Vice President of the Office of Development Credit the single approver.

(Note that this process reflects DFC's organizational structure prior to its 2024 realignment.)

To reflect the additional risks inherent in many of PI2’s small-scale, early-stage deals, PI2’s

policies and procedures include an optional risk downgrade for all projects.

• Increased engagement from origination and monitoring teams: Many companies

require significant support to navigate the investment process. In scenarios where DFC’s

loan or guaranty is the first time a company is accessing capital from an institutional

investor, origination officers may need to devote extra time to structuring and explaining

the deal. In scenarios where borrowers are facing challenges with repayments, monitoring

officers may spend just as much time restructuring a PI2 deal as they would restructuring a

much larger investment. These high-touch relationships help boost communication

between DFC and PI2 borrowers, indirectly decreasing risk, but also represent a significant

investment of time and resources.

The evaluation shows that PI2 has successfully constructed a portfolio that achieves development 

impact and additionality alongside financial returns while managing high financial risk through 

differentiated investment origination and monitoring processes. Going forward, DFC can continue 

to build on PI2’s successes as it hones its own catalytic capital strategy and provides insights for 

other development finance institutions who are new to the space. 

24

EXTERNAL REPORT
EXTERNAL REPORT

III. Recommendations
The PI2

 evaluation has provided a proof point on the strategy of creating impact through innovative 

and inclusive business models. The table below summarizes two routes to adding value that DFC should 

continue moving forward.

LOOKING FORWARD: STRATEGY RECOMMENDATIONS

In the nearly 10 years since the launch of the PI2, the portfolio has created a proof point that 

demonstrates how development finance institutions can invest in growth-stage opportunities 

through a tailored approach that intentionally balances risk and developmental impact. Going 

forward, DFC can build on insights from the PI2

 evaluation to add value to early-stage companies, deploy 

capital at scale, and shape the catalytic ecosystem by sharing strategies and insights with peer development 

finance institutions. Figure 13 summarizes the three levels by which DFC can leverage learnings from the PI2 

mature portfolio evaluation to better support and improve the catalytic capital ecosystem.

Figure 13: Framework for supporting and improving the catalytic capital ecosystem

26

EXTERNAL REPORT

Scale innovative and 

inclusive products 

and services

This evaluation shows that significant developmental impact 

can be created through innovative and inclusive business 

models. PI2

 should continue to seek out opportunities (both 

through companies and funds) to fund these models and help 

scale them through additionality factors such as being the first 

institutional investor or DFI to provide the company with debt 

financing at scale.

Shaping markets

DFC can help fill existing financing gaps by supporting the 

scale-up of catalytic capital

Deploying catalytic capital

DFC can deploy catalytic capital successfully by considering key 

strategic and process differentiators

Adding value to early-stage opportunities

DFC can help investees continue to push on innovation and 

inclusion before and after investment
This evaluation also identified key institutional practices and strategies PI2

 uses to identify investible 

opportunities and support investments throughout the deal lifecycle. By continuing to refine the 

approaches in the table below, DFC can more effectively deploy catalytic capital in the future.

27

EXTERNAL REPORT

Increase internal 

resources to 

manage support to 

borrowers

Provide patient and 

flexible capital at 

scale 

Utilize new or 

innovative financial 

instruments at scale

Supporting the elevated risks of the PI2

 portfolio required a 

high amount of effort from multiple DFC teams. To ensure 

that investees are set up for success, DFC should continue to 

allocate internal resources to program management, origination, 

monitoring, and investments in reporting systems/IT. Additionally, 

working with investees to provide tailored post-investment 

support (e.g., technical support and capacity building) throughout 

the loan lifecycle will help align expectations between DFC and 

first-time borrowers. 

Long tenors and grace periods provide early-stage, thinly 

capitalized companies with sufficient runway to achieve 

financial sustainability. Going forward, DFC should continue 

to provide affordable funding that is flexible enough to meet the 

unique needs of each investee as it expands its portfolio across 

sectors. This type of patient and flexible capital can be key to a 

company’s sustainability and growth, as demonstrated in the case 

of Consumer goods enterprise, where PI2’s long tenor allowed the 

company to refinance multiple expensive, short-term loans, saving 

time and decreasing administrative burden. 

Innovative financial instruments help de-risk early-stage 

investments and enable new types of transactions. In the case 

of Fintech enterprise, for example, PI2 used a local currency 

guaranty—the first of its kind for DFC—to manage foreign 

exchange risk. In the Health enterprise deal, PI2 acted as the 

anchor investor for what was, at the time, among the world’s 

largest development impact bonds. Going forward, DFC should 

continue to pilot financing innovations that expand the realm of 

PI2

’s investible opportunities and consider increasing the size of 

PI2

 investments to up to $20M to capture a wider range of catalytic 

opportunities. 
Looking forward, DFC can build on the momentum from the PI2 portfolio and the learnings above to 

play a larger market-shaping role in the catalytic capital ecosystem. The table below summarizes two 

ways DFC can leverage learnings from the PI

2

 success to further influence and shape the field.

39. British International Investment, “Investment Policy for the period from 1 January 2022 to 31 December 2026”, April 2022.

EXTERNAL REPORT 28

Partner with local 

intermediaries

Continue to take a 

pioneering role in 

identifying impactful 

models in catalytic 

capital

Investing through local intermediaries will enable DFC to reach

marginalized populations and, in the case of funds, provide an

efficient use of DFC resources and decrease DFC’s exposure to

any individual company. There are some successful examples

of this strategy in the PI

2

 portfolio including Financing enterprise, 

an investment fund that provides financing to small and mediumsized enterprises, and Housing enterprise, a lender that provides

mortgages to women in India. Going forward, DFC should expand

its co-investments and partnerships with local intermediaries as a

lower-risk way to support small and medium enterprises that are

too small for direct investment.

Some of PI2’s most impactful investments, including the Health 

enterprise, Energy enterprise, and Financing enterprise,

offered uncommon products or services that were delivered

through unproven business models. Going forward, PI2 can be

utilized as an ‘R&D center’ that identifies projects that successfully

create developmental impact through innovative and inclusive

models that can be scaled. PI2

’s emphasis on underserved markets

and early-stage projects can serve as an incubator for later-stage

DFC and proof points for the rest of the market on what types of

catalytic support and impact models can achieve scale.

Take advantage 

of DFC’s unique 

characteristics to 

strategically grow its 

catalytic portfolio 

DFC is uniquely positioned to build or scale catalytic portfolios

that deliver significant developmental impact alongside

positive financial returns through strategic risk-taking. External 

benchmarks, including British International Investments’ decision to 

allocate 10-15%39 of net asset value to its Catalyst Portfolio, suggest 

greater opportunity for DFC to expand its risk allocation, as PI

2

 is

currently limited to 1.5% of DFC’s total portfolio. Internally, DFC

possesses a unique set of characteristics that enable it to take on

increased risk, pursue impactful initiatives, and play a more prominent

role in the financing landscape. Additionally, DFC’s ability to offer

political risk insurance covering up to $1 billion in potential losses can

help crowd in commercial investors interested in exploring impactful

growth opportunities.
INCREASING EFFECTIVENESS: PROCESS RECOMMENDATIONS

This evaluation surfaced several process recommendations, outlined below, that can further 

enhance PI2

’s ability to effectively serve its target markets as DFC builds its support for the broader 

catalytic capital ecosystem. These recommendations are grouped according to the two major phases of 

the deal cycle: ‘Origination and approval’ and ‘Monitoring’, with an ‘Evaluation and Learning’ component that 

spans the full investment lifecycle. 

29

EXTERNAL REPORT

Develop a purposeful 

learning agenda 

to extract useful 

insights that inform 

strategy and 

influence the field 

A purposeful learning agenda that uses strong data 

collection and dedicated research support will help DFIs 

like DFC extract useful insights that inform strategy 

and influence the field. As DFC expands its catalytic 

capital offering, it should continue to generate the types of 

learnings surfaced in this evaluation by embedding a learning 

agenda within each investment (e.g., key lessons on financial 

structuring / patient capital needs, challenges of the investee in 

realizing the business model and impact potential etc. that are 

applicable to future investments). By proactively planning to 

generate and disseminate learnings, DFC can encourage other 

DFIs and impact investors to join them in filling the financing 

gap facing early-stage, innovative businesses in low- and lowermiddle-income countries. Through this ecosystem-wide view of 

impact investing, DFC can help the sector evaluate what works 

and develop industry-wide standards for effective catalytic 

capital, magnifying the impact of the PI2 portfolio and creating 

lasting, positive changes within the sector. 

Origination & approval Monitoring

Sourcing Screening Approval Monitoring Due 

diligence

Project

close

Evaluation and learning
Process recommendations on Origination and Approval

Process recommendations on Monitoring

40. This recommendation is focused on revisiting Impact Quotient scores to address the current lack of ex-post impact data. Since DFC already collects ongoing

information about an investments’ risk rating and financial returns, we assume DFC can easily undertake ex-post evaluations across those two dimensions. 

30

EXTERNAL REPORT

Incorporate 

additionality factors 

into screening

Conduct ex-post 

Impact Quotient 

re-scores within 

a consistent 

timeframe

Continue to track the 

proportion of the PI2 

portfolio allocated 

to direct vs. indirect 

investments 

Systematize the 

data collection 

and calculations 

underpinning IRR 

analysis

Create a dedicated 

group of Origination 

and Monitoring 

Officers to manage 

PI2

 deals end-to-end

Factoring additionality into investment decisions at origination 

will help identify opportunities for PI2

 to add value at the 

investor level. Assessing additionality also helps identify which 

project risks could be mitigated through investor-level support, 

which helps create value as a catalytic lender.

Conducting ex-post evaluations shortly after final repayment 

or write-off will help assess how well the project performed 

against ex-ante impact projections. Timely ex-post evaluations 

(e.g., evaluations with ~3-6 months of closing) will also surface 

learnings that can inform DFC’s screening or monitoring process for 

future investments.40

Tracking portfolio data to show allocations of direct and 

indirect investments will help build portfolio intentionality and 

balance. Direct investments can generate first-hand learnings and 

while investing through intermediaries can allow DFC to efficiently 

fund multiple organizations indirectly.

Creating a standardized methodology for projecting cash flows 

and analyzing net cash returns will help enable consistent 

and timely assessments of financial returns. Aligning on a 

consistent methodology to calculate IRR, for example, will speed 

up data collection and reporting while enabling DFC to assess PI2

’s 

commercial performance over time. 

Assigning a dedicated group of Origination and Monitoring Officers 

to the PI2

 portfolio will help ensure staff have sufficient bandwidth 

to provide the increased level of support required by early-stage 

investments. This dedicated group would: 1) increase visibility into 

the workload associated with PI2

, 2) increase officers’ familiarity with 

PI2

 criteria, impact theses, structuring, etc., and 3) enable officers to 

dedicate more time to investee relationships (e.g., participating in 

investor calls to keep up to date on financial and impact risks).
Streamline internal 

processes for data 

collection and 

verification

Refining how PI2 collects and manages data across 

developmental impact, financial risk, and financial returns 

will help provide efficient data inputs into a comprehensive 

review of investment performance. Investments in data 

software can also simplify data monitoring and reporting 

processes within and across departments.

Process recommendations on Evaluation and Learning

Continue 

collaborating 

internally across 

different areas of 

expertise 

Set portfolio-level 

impact targets 

Clarify PI2

’s 

process for 

developing external 

benchmarks 

Building on PI2 efforts to collaborate across sectors and 

functional teams will help build expertise and promote the 

type of interdisciplinary knowledge required for catalytic 

transactions. DFC should continue collecting input from multiple 

internal stakeholders via the program’s Working Group to build 

a shared understanding of the risk and goals of the program and 

facilitate regular updates on PI2

’s performance.

Setting goals for the percentage of investments that achieve a 

‘Highly Impactful’ or ‘Exceptionally Impactful’ ex-post IQ score 

will help DFC assess PI2

’s performance at the portfolio level. 

This macro view helps frame the proportion of PI2

 investments that 

achieve success in the portfolio’s elevated risk environment and 

provides a threshold for portfolio success, as developmental impact 

and financial returns vary significantly across individual investments. 

Establishing guidelines for the composition of future PI2

comparison groups can help streamline the benchmarking 

process. While no two comparison groups will have the consistency 

of true control groups, a set of guidelines or regularly reviewed 

criteria will help mitigate the ‘statistical noise’ created by variations 

across comparison groups. 

31

EXTERNAL REPORT

Recommendations to measure PI2’s effectiveness in balancing developmental impact, 

financial risk, and financial returns
Process recommendations on Evaluation and Learning

Refine and systemize 

measures of 

additionality

Ensure investees 

comply with DFC’s 

data reporting 

requirements 

Incorporating the measures of additionality included in this 

report into DFC’s standard data collection can help capture 

the full breadth of PI2

’s catalytic contributions. Consistently 

evaluating additionality alongside other measures of developmental 

will ensure DFC’s investor-level contributions are tracked over time.

Receiving consistent, timely, and high-quality data from 

investees can help DFC more accurately evaluate early-stage 

investments whose IQ indicators focus on the causality or depth 

of impact. Indicators like ‘Benefits to People and Communities’, for 

example, cannot be effectively scored without consistent longitudinal 

data, which is dependent on the investee to provide. 

Recommendations on how IQ evaluation process can better assess PI2

’s impact thesis

Conducting ex-post assessments on the PI2 portfolio

Evaluate financial 

risk and returns 

alongside 

developmental 

impact

Assess each 

projects’ 

likelihood of 

sustained impact

Track the percentage 

of PI2

 loans 

graduating to DFC’s 

standard portfolio

Including financial risk and financial returns analyses alongside 

ex-post IQ scores can help present a more holistic view of PI2

’s 

performance. Evaluating an investment through all three themes 

ex-post will create a comprehensive perspective on performance 

and avoid siloed analysis and takeaways. 

Adding a new indicator that measures the ‘likelihood of 

sustained impact’ can help predict an investment’s long-term 

effects. While an ex-post IQ score reflects PI2

’s developmental 

impact, assessing the project’s trajectory after DFC’s involvement 

gives a longer-term perspective on its impact potential.

Understanding how often PI2

 loans graduated to DFC’s standard 

portfolio can provide another measure of PI2

’s long-term 

catalytic effects. As with the ‘likelihood of sustained impact’ 

measure, this creates another window into an investment’s longterm impact potential once it leaves the PI2

 portfolio.

Recommendations to measure PI2

’s effectiveness in balancing developmental impact, 

financial risk, and financial returns

32

EXTERNAL REPORT
EXTERNAL REPORT

Annex - Methodology
41. The World Bank country income group classifications places low-income countries as having $1,135 USD or less of GNI per capita, while lower-middle income 

countries have a GNI per capita between $1,136 and $4,465 USD. Two projects in the sample group took place in upper-middle income countries where the GNI per 

capita is between $4,466 and $13,845 per capita. 

42. Documentation provided by DFC included business plans, credit memos, development impact projections, loan agreements, Form 008s, and special asset reports, 

among others.

Impact Quotient (IQ) • Description: The Impact Quotient (IQ) assesses a project’s

performance across three impact pillars – economic

growth, inclusion, and innovation – and assigns a total

score of between 0 and 150 that corresponds with one of

five tiers ranging from Indeterminate (score below 37.5) to

Exceptionally Impactful (score above 127.5).

• Purpose: Assessing how each project scored across DFC’s

three impact pillars provides insights into ‘how’ the PI2

portfolio generated impact, while each project’s overall IQ

score and corresponding impact tier provides insights into

the relative amount of impact generated.

34

EXTERNAL REPORT

Between July and October 2023, Dalberg Advisors reviewed 23 ‘mature’ loans and guaranties from 

the Portfolio for Impact and Innovation (PI2

) to assess their performance across three dimensions: 

Developmental impact, financial risk, and financial return. These projects are among the first 

investments originated in the PI2

 portfolio and ranged in size from $1.6M to $5M, the maximum amount 

permitted under PI2 guidelines prior to 2020. Over 90% of projects took place in low- or lower-middle 

income countries.41 

Dalberg’s evaluation of these 23 loans and guaranties drew on multiple sources of information 

provided by DFC, including interviews with Origination and Monitoring Officers, document reviews,42

financial data, independent research, and expert interviews with Drew von Glahn, Executive Director 

of Frontier Finance, and Mike McCreless, Executive Director of Impact Frontiers. 

In addition, DFC’s steering committee for this project (Elizabeth Boggs Davidsen, Lori Leonard, 

Matthew Guttentag, Rachel Bass, Dia Martin, Richard Greenberg, Ricardo Salinas, Olivia 

Thompson, Laura Andersen, Joseph Myers, Yvonne Durazzo, Denise Leung, Amy Macharg, 

Kenneth Fried, and Megan Buckley) provided guidance and feedback throughout the course of 

this evaluation and report.

The following breakdown provides an overview of how Dalberg conducted its analyses across the three 

major dimensions of impact, risk, and returns.

Developmental impact
Impact Quotient (IQ)

Additionality

• Process: Dalberg utilized DFC’s Impact Quotient guidance

document to assign ex-post impact scores to each of the

23 deals in the sample group. IQ scores developed during this 

evaluation were based on desk review of investee-provided 

impact metrics and information. A few key notes on 

methodology:

» Dalberg selected impact indicators and supporting metrics 

that reflected the project’s ex-ante objectives. For example, 

a company that reported an ex-ante intention to expand 

local employment would receive an ex-post score on job 

creation.

» Dalberg issued a 7.5 point deduction to projects whose ex-post 

impact scores were unlikely to be sustained reflecting the risk 

that anticipated development impacts will not

be achieved during the DFC loan tenure. For example, a

company that recently was affected by financial distress and

business continuity challenges would receive a 7.5-point

deductions based on potential risks of impact sustainability.

• Description: Additionality factors assess DFC’s investor-level

impact. Per the Multilateral Development Banks’ Harmonized

Framework for Additionality in Private Sector Operations,

additionality captures whether and how an investor “make(s)

a contribution beyond what is available in the market”.43

• Purpose: Assessing which additionality factor(s) are present 

for each project provides insights into how DFC adds value at 

the investor level beyond the dollar amount of its

commitment.

• Process: Dalberg collaborated with the PI2 team to shortlist

financial additionality factors (e.g., catalyzing capital at

origination, offering favorable terms, etc.) and non-financial

additionality factors (e.g., technical assistance, market

signaling, etc.). 

43. IFC, “Multilateral Development Banks’ Harmonized Framework for Additionality in Private Sector Operations”, September 2018.

35

EXTERNAL REPORT

Developmental impact
Risk assessment

Subsidy levels

• Description: Risk is captured by evaluating qualitative and

quantitative risk factors facing a DFC investment, through

risk scoring models based on different portfolio segments.

This evaluation included a review of a project’s risk

assessment at origination as well as its current risk

assessment (if live) or final risk assessment (if closed).

• Purpose: Analyzing how a project’s risk evolved over time

provides insight into how accurately DFC can gauge risk at

origination, how project risks evolve over time, and the

relationship between risk, impact, and financial returns.

• Process: Dalberg used the risk assessment provided by DFC,

current as of March 2023.

• Description: Subsidy levels reflect the projected amount

of net expected return or loss for a given project based on the

total commitment amount and the project’s risk rating.

Subsidies are presented as both a percentage of net

committed capital and as an absolute dollar value. This

evaluation included a review of a project’s subsidy level at

origination as well as its current subsidy level (if live) or final

subsidy level (if closed).

• Purpose: Analyzing how a project’s subsidy level evolved over

time provides insight into a monetary metric of how project

risks evolve over time.

• Process: Dalberg used the subsidy data provided by DFC,

current as of March 2023.

36

EXTERNAL REPORT

Financial risk 
Internal rate of 

return (IRR)

• Description: The internal rate of return (IRR) calculates the

annual rate of growth an investment is expected to generate

by identifying the discount rate that yields a net present

value of zero.

• Purpose: Evaluating IRR provides insight into the financial

performance of the PI2 portfolio. IRR is calculated for the

mature PI2 portfolio (23 investments) and the overall PI2

portfolio (55 investments included in the dataset, which did

not include equity investments and other investments that

did not have available data). A few key notes on

methodology:

» Cash flow data is current as of September 2023.

» Dalberg calculated IRR through the projected

net cash flows of the portfolio by assessing cash

inflows (repaid principal, interest, fees, and the

unpaid balance of each project) and cash outflows

(disbursements and writeoffs).

» For simplicity on the cash inflow calculation, unpaid

balances (i.e., potential future cash flows) are

assumed to be repaid in full by the end of 2023.

» If the investment has actualized writeoffs and is still

open, the remaining unpaid balance is reduced by (1-

Loss Given Default). The ‘Conservative’ case expands

this future cash flow reduction - if the investment

has a high risk assessment and is late on any

payments (principal, interest, or fees), the unpaid

balance is reduced by (1-Loss Given Default)

» If the investment is charged off and closed, the

unpaid balance is set to zero (i.e., future cash flows

are assumed to be ‘lost’).

37

EXTERNAL REPORT

Financial returns 
Impact Quotient (IQ) Projects in the comparison group received ex-ante impact 

scores using a DFC impact scoring methodology that scored 

projects between 1-100 (vs. the new Impact Quotient 

methodology, which scores projects between 1-150). To 

translate the comparison group’s ex-ante scores into IQ 

scores, Dalberg multiplied the ex-ante scores by 1.5 to reach a 

150-point scale. For example, a comparison group project that

scored 75 under the old methodology would be indexed to

112.5, or “Highly Impactful”, under the IQ scoring system.

While this indexing method allows for a very rough approximate 

comparison between the comparison group and the PI2 sample 

portfolio, it is important to note that the previous impact 

scoring method was less flexible than the IQ scoring method, 

meaning the index calculation does not result in a true “like-forlike” comparison.44 The comparison group’s indexed IQ scores 

are also based on ex-ante projections that may skew higher 

than the PI2 sample portfolio’s ex-post evaluations. 

In addition to the 23 ‘mature’ PI2 sample deals, this project also evaluated a comparison group

of 27 commitments that were generated by DFC’s Office of Development Credit team. To ensure

comparison group deals were close in size to PI2

 commitments, projects in the comparison group

were capped at $30M or less in the case of direct investments and $20M or less in the case of funds.

Equity funds were excluded from the comparison group as well, as these investments use a different

risk rating methodology vs. the rest of the DFC portfolio. The intention of the comparison group is to

benchmark PI2

’s performance against an ‘overall DFC portfolio’; however, PI2’s unique thesis means this

comparison group should not be treated as a control group.

Dalberg’s evaluation of the sample group drew on data provided by DFC, including information 

on past impact ratings, credit risk, subsidy levels, and financial data. Dalberg did not conduct 

any interviews with Origination or Monitoring Officers or review transaction documents (e.g., credit

memos, special asset reports, etc.) for projects in the comparison group. Below is an explanation

of where the methodology used to evaluate the comparison group diverged from the methodology

outlined above.

Developmental impact

44. The previous impact scoring methodology scored all potential investments against a standardized matrix, while the IQ methodology selects the most appropriate

indicators from a pre-approved library.

38

EXTERNAL REPORT