Selecting double/triple bottom line investment opportunities through rigorous due diligence

Deetken Asset Management Inc. (DAMI), a joint venture between The Deetken Group and Cooperativa ABACO, manages the Deetken Impact Fund (DIF). To learn more about the DIF, click here. DAMI’s investment approach aims to identify opportunities that provide social impact, such as businesses that promote entrepreneurship or provide or enhance access to basic services (i.e. health care, affordable housing, clean energy and education for low and middle income populations). At the same time, we have a “returns first” focus; we will not sacrifice the financial returns of DIF to meet social or environmental objectives.

In order to select investees that meet these dual objectives, DAMI developed a rigorous evaluation or “due diligence” process. The process is designed to move from initial screening to investment approval over an eight week timeframe.  It relies on a series of steps starting with pre-visit desk analysis, an on-site visit and concluding with a decision regarding investment. It builds in a continuous feedback and decision-making loop for our Investment Committee.  What is unique about our approach is that we focus on building solid relationships with our potential investees throughout the due diligence process.

Due diligence in action in Ecuador and Peru

We recently undertook due diligence processes for two microfinance institutions based in Ecuador and Peru, respectively.  We started by collecting and analyzing available information and preparing a screening memo. Once the opportunities were deemed appropriate through this process, our next step was to undertake site visits. For the DAMI team, this is one of the most exciting parts of our job.

Our visits involved spending one day at a field site where we met with branch managers, loan officers, individuals responsible for client management systems and others. Together with a manager and a loan officer, we met with multiple clients to “get to know their stories”; that is, discuss their businesses, how they were using their loans and their general experience with the microfinance services they were using.  Client visits also helped us to confirm that the loan due diligence and disbursement processes and procedures practiced in the field were consistent with company policy.

We then spent time at each institution’s head office, interviewing the senior management team as well as operations level colleagues.  We used these interviews to get to the bottom of our “tough questions” – about governance, responsible lending, collections, loan quality and any performance concerns. This was also the best time to gauge the commitment of leadership to the company’s social mission, and to test how well it is integrated with day-to-day business practices.

By the end of the site visits in Peru and in Ecuador, we had built critical relationships and were in a strong position to make an appropriate investment recommendation.