In Latin America, Leaders Begin to Catch Up with Impact Investment Activity

Latin America’s homegrown community of impact investors will get an assist from two visitors this week.

First up is Pope Francis, who has called for markets to better serve the basic interests of people. “Impact investors are those who are conscious of the existence of serious unjust situations,” he said at a Vatican conference in 2014.

Also visiting Mexico this week is Sir Ronald Cohen, often regarded as “the father of British venture capital,” who has emerged as a champion of social impact investing on the global stage. Cohen will be the keynote speaker at the Latin America Impact Investing Forum on February 16th through the 18th in Merida, Yucatán.

Latin America’s impact investment funds face additional uncertainty and higher legal or regulatory risk than do counterpart funds in other parts of the world.Bain Consulting

Cohen will try to make headway on the pope’s call for government policies “capable of promoting a market of high-impact investments, and thus to combating an economy which excludes and discards.” In August, Mexico (along with Brazil and three other countries) joined the Global Social Impact Investment Steering Group, a global taskforce led by Cohen. The GSG, which grew out of an effort launched by the G-8 countries in 2013, is charged with promoting impact investing around the world and pushing for policy support in national markets.

“When you get an idea as fundamental as this,” Cohen recently told Imogen Rose-Smith of Institutional Investor, “you begin to change the mind-set of society.”

Mexico should be receptive to Cohen’s entreaties. Mexico is now home to more than 10 impact investing funds. The largest, IGNIA, in November closed the Mexican vehicle of its second fund, raising $90 million through publicly traded certificates and attracting investment from Mexican pension funds.

In 2015’s impact investor survey from the Global Impact Investing Network and JP Morgan, Latin America jumped to number three among regions (after sub-Saharan Africa and East and Southeast Asia) to which investors planned to increase their allocations. Latin America is home to 11 percent, or $6.6 billion, of the $60 billion global impact investing assets under management, according to the report.

Early last year Brazil-based FIRST announced a $66 million close to became the country’s largest impact investing fund before surpassing $98 million in May with a notable investment from a Roman Catholic trust.

Latin America is also hosting significant innovations in impact investing practice. The Swiss government, the Inter-American Development Bank, Roots of Impact and Ashoka recently launched a pilot of a new form of “pay-for-success” model in Latin America, termed Social Impact Incentives, that will pay businesses that are able demonstrate social impact. And one of the first three first-time fund managers selected for investment and training by the Bill Gates-backed Capria Accelerator is from Latin America.

But there’s been little high-level policy support so far. “There is still much to be done to promote impact investing in Mexico,” said Rafael Alonso, with New Ventures, one of the country’s leading social venture accelerators. “This could be a huge opportunity for the public sector to join the impact investing movement and become a catalizing player developing sustainable solutions to some of the most pressing issues we currently face.”

Few Latin American countries have clear legal frameworks for blending social impact and for-profit organizations, according to a 2014 report, The State of Impact Investing in Latin America, from Bain Consulting. “Latin America’s impact investment funds thus face additional uncertainty and higher legal or regulatory risk than do counterpart funds in other parts of the world,” the report said.

The Latin American Impact Investing Forum, in its sixth year, has become the largest such gathering for social entrepreneurship and impact investing in the region. Cohen will keynote the event and also meet with Mexico’s National Advisory Board, a group chaired by Rodrigo Villar, CEO of New Ventures Mexico, who also represents Mexico on the global steering group.

 

Recent impact investing activity in Latin America

Accion invested an undisclosed amount into Tienda Pago to finance mom-and-pop shops in LatAm. The small investment was made through Accion’s $10 million Venture Lab initiative. Tiendo Pago focuses on providing working capital loans, mobile banking and lines of credit to hundreds of mom-and-pop shops in Peru, Venezuela, and soon, Mexico.

“Sapphire” Fund invested $10 million in LatAm financial inclusion. The new SFRE fund, launched last year by the Global Alliance for Banking on Values, committed just under $10 million in two Latin American financial institutions. The two commitments were made to Banco Vision in Paraguay, focused on financial services for rural residents; and Costa Rica’s Financiera Desyfin, which lends to small businesses.

Elevar Equity raised a $74 million third fund geared toward basic services in low-income communities in India and Latin America. The Seattle-based impact venture capital firm has already invested in a financial services provider in Peru. Investors in the new fund – Elevar Equity III, LP – include Rockefeller Brothers FundJP Morgan Chase, Omidyar Network, Prudential Financial and the Rockefeller Foundation.

The Calvert Foundation has teamed up with the Inter-American Development Bank (IDB) in a $20 million fund for Latin American banks and financial institutions supporting small business and local development. The fund’s first borrower is Bayport Colombia, a Colombian financial institution serving public employees.

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