SIFEM - Swiss Investment Fund for Emerging Markets

Theory of Change

SIFEM, the Development Finance Institution (DFI) of the Swiss Confederation, is part of Swiss development cooperation. Its investments must fit in the strategic framework as defined by the Swiss Parliament every four years and complement other instruments of Swiss development cooperation.

SIFEM is an impact investor, as all SIFEM investments are made with the intent to generate measurable development impact and achieve targets such as job creation, skills development, tax payments, financial sector deepening and diversification, as well as the implementation of international best practice environmental, social and governance standards, all captured by specific indicators.

SIFEM commits to working to maximise the development effects linked to its investment decisions throughout the whole investment cycle, from investment analysis, investment decision-making, to investment management and monitoring. For this purpose, SIFEM analyses and monitors the contribution of its investments to four broad development outcomes, which reflect the Strategic Objectives assigned to SIFEM by the Swiss Government, and which are fully in line with the 2030 Agenda for Sustainable Development adopted by the United Nations in 2015 and with the Paris Agreement on Climate Change.

Since 2018, SIFEM uses a specific "Theory of Change" at the level of its portfolio, which is based on a logical framework model. SIFEM’s Theory of Change underpins all of SIFEM’s investments with the logic that financial intermediation plays a pivotal role for private sector growth in developing countries and emerging markets. SIFEM focuses on strengthening local intermediaries in their capacity to deliver long-term capital to SMEs and fast-growing companies. SIFEM’s role is thus both financial (provision of long-term finance) and non-financial (hands-on advice to financial intermediaries), and the combination of these two roles contributes to the sustainability of SIFEM’s outcomes.

SIFEM invests primarily in funds, which in turn become shareholders in local SMEs and other fast-growing companies in different sectors. SIFEM also acts as a direct lender by investing in local financial institutions, which in turn extend loans to individual clients and local businesses. These two different business lines need to be recognised in differentiated Theories of Change i.e. one for fund investments (SIFEM as an equity provider), and another for financial institutions (SIFEM as a debt provider).

All SIFEM investments contribute to the overall impact in the long run albeit in different ways, as captured by the different outcomes depicted in the graph 1 below. Every SIFEM investment contributes at least to the first two outcomes (Economic viability & resilience, Economic opportunities & decent jobs). Furthermore, some SIFEM investments may also contribute to additional development effects captured by outcome 3 (Social Inclusion) and 4 (Climate change mitigation & adaptation), depending on the characteristics of each investment.

The SIFEM outcomes are linked to specific SDGs, as shown in chart 1.

SIFEM is relying on a result measurement framework in line with the practice of other development finance institutions, allowing for the monitoring and aggregation of results at the portfolio level.