Joint Impact Model

Over the years, development finance institutions (DFIs) and multilateral development banks (MDBs) used input-output modeling to estimate indirect impact associated with their investments. In 2019, AfDB, BIO, CDC, FinDev Canada, FMO and Proparco together with Steward Redqueen (SRQ) signed a Memorandum of Cooperation to harmonize their methodologies on indirect jobs, value added and emissions estimations. Later, CIF, OeeB, KFW, and PIDG joined the initiative and formed the Development Panel. The initiative was named the Joint Impact Model (JIM).

In 2021, these partners worked on several work streams to further improve the JIM and align it with international standards. In November 2021, the JIM 2.0 was launched, which aligns with the PCAF Global Standard. This led to considerable changes in several estimates. For comparability reasons, we have restated the 2020 results to align with JIM 2.0. The full description is available in the JIM application document.  

However, one key point to mention is the shift from marginal to average asset to turnover ratios. This means that for finance enabling effects we no longer look at the marginal change that occurs from the lending to local business, but instead we look at the average effects. This increases the finance enabling numbers, but it is ultimately aligned with the PCAF methodology.

Limitations of the model

The impact model allows quantifying the wider impact of investing in various economic regions and sectors, both directly and through financial institutions and funds. The model makes use of data from international statistical sources and investment-specific information which we obtain from our customers’ annual accounts. The impact model is an economic input-output model, which enables the model to trace product and money flows through an economy. It can provide more complete impact insights as it is applicable to the full portfolio, and has low data burden. As with any model, there are several limitations:

  1. Estimates of indirect impact are based on industry averages (via input/output tables). In reality in-direct effects will be different at the individual company level due to differences in individual company characteristics. As a result, model outcomes become less accurate for smaller numbers of investments.

  2. Estimates are based on historical relations, while the methodology is based on the most recent (macro) economic data available, which means that the JIM does not reflect the negative effects of the COVID-19 pandemic.

  3. FMO’s investments are treated as investments from any other lender and it has been assumed that FMO’s financial support does not affect the relations of sectors within an economy.

Local impact only

Taking these limitations into account, we report results only on the portfolio (and sub portfolio) level. In addition, we perform activities to provide insight in ex-post development effects, such as monitoring of direct effects, sector evaluations, effectiveness studies and impact evaluations. More information is available on our website with regards to how we measure impact and the JIM methodology.

JIM attribution rules

FMO provides part but not all of the capital a company needs. Other investors likely also contribute to a company’s business (either by providing capital or advice). In addition, external circumstances such as changing market conditions, climate change and technological developments may also influence the impact created by a business. This raises the question of attribution: which portion of results of an invested company or portfolio of companies is due to the activities of an investor, taking into account other investors and additional factors that may have influenced the achievement of the results? The JIM takes a pragmatic approach to this attribution question and applies prorating to attribute part of the impact to the investor’s intervention. In line with the PCAF Global Standard we moved from fair values to book values for debt investments and now apply an ownership percentage for equity. For a full description please see the JIM application methodology.