Impact Investing in Central America: New Funds, More Support, High Expectations

Promising impact ventures, new impact funds and growing interest from banks, NGOs and high net worth families – impact investing in Central America may finally be poised for takeoff.

One place to take stock of the rising level of activity is Antigua, Guatemala, which is gearing up for this month’s second Latin American Impact Investment Forum for Central America and the Caribbean (“FLII”), Nov. 16 and 17. Social entrepreneurs, impact investors, corporates, academics and public sector actors will explore solutions to the region’s social and environmental challenges. Last year’s forum brought together over 300 participants from Central America, North America and Europe.

Central America would be a perfect place to start working because it has all the conditions for the impact industry to take off.Acumen Fund's Virgilio Barco at FLII 2015

The forum is being organized by Guatemala-based Alterna in partnership with Mexico-based New Ventures. It is similar in format to FLII in Merida, Mexico – the largest impact investing gathering in Latin America, but the Guatemala edition focuses exclusively on Central America and the Caribbean – a region often absent from the impact investing conversation.

“The goal of the Forum is to bring the key actors together to catalyze local impact investing market and ensure the region joins the global ecosystem,” says Daniel Buchbinder, co-founder and CEO of Alterna. Alterna, the first center for social innovation and entrepreneurship in the region, aims to catalyze social entrepreneurship by cultivating local social entrepreneurs, incubating social ventures and fostering and strengthening the social entrepreneurship ecosystem.

Impact investing has been held back by challenges at the enterprise level and lack of support for early-stage companies.The so-called “pioneer gap” is a persistent challenge – many enterprises are too large for microfinance but too small for banks and investment funds. Social entrepreneurs lack visibility and the investment, and the impact investing ecosystem remains fragmented at both regional and national levels.

Now, new actors are entering the space, helping bridge the gap between the social enterprises and resources needed for their growth. Buchbinder sees three trends that can help the region catch up:

 

Family foundations and businesses are stepping up. High net worth families in Costa Rica, Guatemala and El Salvador are starting to see impact investing as an alternative to grant making and CSR activities. For example, the venture capital firm E 10 in Guatemala city, owned by the family of Juan Jose (“JJ”) Estrada, provided seed capital for Kingo, a renewable energy services company that serves rural communities without access to an electricity grid, initially in Guatemala and eventually in Honduras, Nicaragua and El Salvador. JJ, who serves as a CFO at Kingo, brings his operational expertise and connections to the company, which has a goal of reaching 150,000 homes over the next five years,

Local banks are getting engaged. Several regional banks have partnered  to launch pilot initiatives that address many of the needs of the entrepreneurs. Banco de America Central in Nicaragua, for example, is a key partner in a multi-stakeholder initiative that provides flexible financing and capacity building for women-led small and growing businesses (see, “Test in Nicaragua Shifts Lending for Women-Led Businesses From Collateral to Cashflow“).

BBVA’s Momentum Project in Mexico offers program participants support, visibility, training, networking and possible funding. These kinds of programs allow banks to access new markets with reduced risk because partner organizations help develop capacity – and in some cases provide financial guarantees.

First impact investing funds in the region are taking a bottom-up approach. Funding early-stage companies providing products and services to the very poor is risky. Leading international NGOs including Heifer International, World Vision International and Catholic Relief Services are exploring impact investing funds that would provide much-needed capacity building to early-stage businesses, along with capital.  This would allow the NGOs to amplify their impact and diversify their funding sources.

Pomona Impact, an impact investor, announced that it is working on launching Pomona Impact Fund I, the first impact investing fund focused on early growth companies in Central America. In July, Pomona received approval for a $1 million loan and $200,000 technical assistance grant from the IADB (Inter-American Development Bank). The capital will be used to invest in social enterprises and connect entrepreneurs with resources and expertise (see, “Capria Accelerator Backs First-Time Impact Fund Managers in Uganda, Guatemala and Zimbabwe“).

Disclosure

ImpactAlpha is a media sponsor of the forum. ImpactAlpha contributor Marina Leytes will lead a discussion on local banks’ growing engagement in impact investing in Central America.

ImpactAlpha readers can register now at www.inversiondeimpacto-ca.org and get a discount with the code IMPACT.ALFA.REF.US.60.

Photo credit: Pedro Szekely

 

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