Impact Investing in Brazil

To crown my MA studies in International Development at the Monterey Institute of International Studies (MIIS), I am taking part in the Frontier Market Scouts (FMS) program, developed in partnership with Village Capital. VilCap’s partner in Brazil – Artemisia Negocios Sociais – IS the field of impact investing in Brazil.. More about this fascinating organization and its complex network to come in future posts. For now, suffice it to say that VilCap Brazil is currently in stage 4 – portfolio management – of its signature process. FMS scout Hallie McCormick and myself are here to work and learn alongside of two very promising social enterprises and VilCap Brazil investees Sautil and QMagico, respectively.

Though an enthusiastic participant in the almost-or soon to become a-field of impact investing (which many use interchangeably with social entrepreneurship), I’m trying to keep my cool and still question its novelty.. Whether or not a unique phenomenon, however, social entrepreneurship seems to address at least some of the issues facing other avenues to development explored to date, all-the-while also appeasing those disgruntled with the profit-first nature of the private market.

To name just a couple of the aforementioned issues, development activities by governments and intergovernmental organizations, both of which tend to be laden with convoluted and inefficient bureaucracies, are often characterized by the wrong incentives and flat out inefficient implementation.. The NGO sector oftentimes fails to mobilize locals to address the issues they have reason to want to address and suffers from a lack of financial sustainability as well as coordination of efforts.

OECD country governments and multilateral agencies have for decades been allocating considerable chunks of their GDP to benefit the world’s poorest countries (albeit those whose values aren’t too divorced from those of donor governments)..And despite the impressive figures boasted as being spent on the noble cause, the long-awaited trickle down effect remains to be seen.

Grassroots may be the key approach, but NGOs as they exist today may not be the key agents of bottom-up change. At least not the most efficient ones.. The point in development, and the non-profit world is that which taught me so, is sustainability of impact (impact being the social change as opposed to mere tangible outputs facilitated by a development activity).. However, for any a development agent, sustaining impact is a matter of sustaining operations, and that’s where the NGO model, its reliance on grants and donations, and program-focused development falls short of hitting that very target.

Another issue in how both governments and NGOs handle development is the question of WHO gets to decide what needs changing.. While the worst example is shipping US corn (read: contracting US companies) to address hunger in Sub-Saharan Africa and moreover tying the aid to certain purchasing requirements to further benefit US exporters, better projects equipped with needs-analyses and respective custom-made solutions also fall prey to taking matters into the wrong hands.

Social impact-driven businesses by their very nature seem to have at least the above critiques covered. As the successful social enterprises are those that generate at least enough revenue to break even, money circulates and is therefore not “wasted” as in the case of foreign aid.. Moreover, breaking even is a straightforward measure of whether or not a social enterprise is succeeding in meeting a local need. And the last, and my favorite aspect of social entrepreneurship, is its local flavor. While the field building for impact investing may have started in the so-called Global North, the social entrepreneurs supported by the numerous accelerator and incubator programs springing up throughout Emerging Markets are mostly local.

Clearly, as any a new and exciting venture, this field is too young to already have research to back its purported impact.. While microfinance is arguably is failing at achieving its poverty reduction impact, impact investment’s focus on small-and growing-businesses, which can be taken to scale, is expected to be a more suitable medium for poverty reduction.. Oxalá!!!

More to come soon…