There are good reasons private capital doesn’t flow to small, private businesses in emerging markets the same way it does to Fortune 500 companies on global stock exchanges.
Businesses struggle to mitigate high perceived risk, at the same time their return expectations may be lower because they operate in underdeveloped markets and target low-income customers. Investors may have to accommodate longer time horizons, as enterprises figure out how to provide complex solutions in complicated markets.
A summary of a forthcoming report showcases examples of innovative financial structures being deployed in Latin America and taking direct aim at these barriers with a range of new and alternative financing models. The report comes from the Multilateral Investment Fund, an innovation lab within the Inter-American Development Bank, along with Transform Finance, a scrappy advocacy group ensuring capital finds its way to communities, and the Rockefeller Foundation, a long-time financier of financial innovations.
The report looks beyond traditional debt, equity and grant-funding mechanisms. For example, open-ended funds give investors flexibility for when to exit (see, Aqua Spark’s open-ended fund). Holding companies can relieve pressure to exit an investment prematurely (see, Encourage Capital’s Pescador Holdings).