News & Insights
The state of impact investing in Latin America
What is the current state of impact investing in Latin America? The Aspen Network of Development Entrepreneurs (ANDE) hosted a webinar on April 11 to discuss this very topic. The talk was led by Kusi Hornberger, consultant at Bain & Company and the founder of SIMB.co, a blog about social impact business models. Here are three of our takeaways and thoughts on Hornberger’s presentation:
Impact investing in Latin America has grown to approximately $1.4 billion in commitments.
However, of that amount, only about $800 million has actually been invested. Global Partnerships (GP) is one of about 70 impact investors investing in the region. At present, we have over $57 million* in social investment fund capital at work in Latin America and the Caribbean. This means we currently provide an estimated 7 percent** of the active impact investing capital in the region.
The impact investing market in Latin America is still early-stage.
Hornberger explained that, in the context of the four phases of market development (uncoordinated innovation, marketplace building, marketplace capture, and maturity), impact investing in Latin America is in between the first two stages: uncoordinated innovation and marketplace building. This means that there are now many more industry players, and they have experimented with different models. But, in order for the marketplace to develop to the next stage, supporting institutions and a legal framework that support impact investing need to be formed.
Impact investors in Latin America face the same challenges that the impact investing industry as a whole is addressing.
One such challenge is the lack of enough investable opportunities. Hornberger broke down the four main stages of impact investing opportunities: (1) idea formation (2) start-up (3) growth (4) scale. Most impact investors invest in the “growth” and “scale” stages, but the investable enterprises at that stage are limited.
We believe that one way to develop more opportunities is to have accelerators mentor enterprises at the startup stage, when they are developing their product and business plan, and testing out pilots. Accelerators can also connect social enterprises with the resources and support they need to become “investment-ready.” However, accelerators need to align their approach with impact investors' needs for this pipeline-building mechanism to work.
One webinar attendee from Mexico also observed that there is an increasing amount of local impact investors cropping up in Latin America, and they are more likely to invest in earlier-stage ventures than foreign investors. This could indicate that there’s a trend forming where Latin American capital is used to build a pipeline of later-stage enterprises for foreign impact investments.
In regard to our role, historically, GP has invested in organizations that have achieved financial sustainability but we are looking to play a bigger role in catalyzing early-stage social enterprises. We seek innovative initiatives that have the potential to ignite long-term solutions, regardless of the stage they are in. Other industry challenges include: defining and executing impact measurement and looking for successful exit opportunities.
Why does this matter?
As impact investing grows in Latin America, so too do the number of opportunities created for people living in poverty. The majority of impact investors in Latin America currently focus on housing, education, agriculture and microfinance, so opportunities in those areas are being created and developed. GP’s investments are centered on health, rural livelihoods, green technology and microentrepreneurship. By making impact investments in initiatives within these four impact areas in Latin America and the Caribbean, we maintain our commitment to expanding opportunity for people living in poverty.
*Does not include grant capital. Figure from most recent Investors Report.
**Estimate based on GIIN/JP Morgan reports and author’s interviews with ~20 fund managers investing in Latin America and data collection from an additional 10-20 fund websites or exchange of email.