Originally posted on Devex Impact

Global humanitarian organization Catholic Relief Services announced on Monday it will invest in Lafaza, a U.S.-based agriculture company that sells vanilla sourced directly from smallholder farmers in Madagascar.

The $500,000 investment marks the first impact investment for CRS — part of the Roman Catholic community in the U.S. — after several years of exploring the issue. It’s the latest signal in a trend Devex identified earlier this year of international nongovernmental organizations making or considering impact investments, those made with the intention of generating measurable social and environmental impact along with a financial return. It also comes on the heals a high-level conference on the subject hosted by the Catholic Church at the Vatican in June.*

The deal was years in the works, beginning as an informal partnership in 2013, then evolving to a CRS grant about a year later to support capacity building among the farmers Lafaza was buying vanilla from. Now, the investment will take that work to the next stage by helping Lafaza expand the number of farmers it buys from and extend its reach as an international supplier, according to Lafaza CEO Nathaniel Delafield.

“This is very important enabling financial support so we can achieve short to medium-term deals,” he said, adding that it will likely also help set them up for future investments.

The yearslong collaboration has helped leaders at Lafaza evolve their approach to business and the way they work with farmers, and Delafield said he’s hopeful that his company can continue to benefit from CRS’ knowledge and partnership as it continues to expand in Madagascar and elsewhere.

The investment is seeking financial returns but is also targeting a number of impact factors — such as number of farmers reached, the premium they are paid, and the impact on farmer livelihoods and communities, including health care and education. Root Capital, an agricultural impact investor that has worked with CRS in the past and gave Lafaza a working capital loan earlier this year, is administering the investment.

This investment is an example of how blended capital — or capital of different types or at different stages — all play a part in one eventual deal. In this case, it involved a grant from CRS, a working capital loan from Root Capital, a loan guarantee from the U.S. Agency for International Development’s Development Credit Authority, plus investments from both CRS and the MGR Foundation.

The USAID guarantee was especially significant, Delafield said: “It was an important backstop to us being able to access larger working capital loans.”

That guarantee combined with crop insurance helped to derisk the deal, which fits well into the CRS “pathway to prosperity” strategy through which the organization assists people, helps them out of crisis situations and helps connects them to markets, said Sean Callahan, who will take over as president and CEO of CRS on Jan. 1.

CRS has been looking at impact investing for a few years and sees its engagement in three ways: investing part of their endowment in pooled impact investment funds, investing in smaller organizations to help them do a greater level of impact investing and investing to help develop enterprises working at the local level, he said.

While this is the first investment of its kind, CRS is looking to expand this approach with more investments in 2017 as they identify different organizations — some that they may already be working with — that can help them link farmers to markets, Callahan said.

For CRS the investment comes alongside other work the organization has done or is doing to build capacity among farmers, and while it is aimed at creating a more sustainable funding stream, it’s also designed to show local communities that to achieve growth they need to be connected to and operate in the commercial world, Callahan said.

“We need to make sure we reach out quicker to a larger population and are self sustaining because it’s likely there will not be enough development dollars to give grants and this way resources are much more productive,” he said.

John Kohler, the senior director of the impact capital program at the Miller Center for Social Entrepreneurship at Santa Clara University, praised the investment, but he also had some advice for CRS.

“There could be ways for CRS to fast forward their work,” he said.

One typical problem among new impact investors is that they often take a long time to make a decision because they’re still getting used to how things work, Kohler said. By learning from other organizations, such as Cordaid, who have been doing this work for a long time or partnering with investors such as Root Capital, they can accelerate their investments and their impact, he said.