By John Kohler
The most recent Latin American Impact Investing Forum (Foro Latinoamericano de Inversión de Impacto , or FLII) gathering, held in Mérida, Mexico, highlighted both the promise and remaining challenges of impact investment and social entrepreneurship in Latin America. Here are the top three things I took away from the 2016 FLII event:
- Latin American impact investing is gaining traction and evolving its own identity. The FLII attendees are very professional in how they’re forming, supporting, and investing in social enterprise in Latin America. They are also taking ownership of the FLII event and creating a vibrant, solutions-oriented conference. A precursor to FLII, Sustainatopia, was held in Miami with sessions primarily in English. With its move to Mérida, Mexico, FLII now presents a majority of sessions in Spanish. This is important, because impact investing needs to be locally driven. Some in our sector like to say, hemispherically, that we want to encourage a South-to-South conversation around solutions, rather than holding the North-to-South dialog that has been the norm until recently.
It was also obvious at FLII that the idea of impact investing is gaining momentum throughout the region: About half of those attending in 2016 were new to FLII, which bodes well for the continued growth of impact investing in the region.
- Although the infrastructure is growing and progress is happening, FLII felt very Mexico-centric. Yes, there were people there from Guatemala, Chile, Argentina, Bolivia, Peru, and Colombia, but most of the action is from Mexico. Perhaps part of that imbalance was because the gathering was held in Mérida and because it was organized by New Ventures Mexico. But for the entire Latin American region to flourish and to benefit from social investing, the FLII message needs to have a more regional reach.
The conference organizers tried to hold a FLII event in Columbia last year, and they also tried to do one in Guatemala. Unfortunately, both were too small, and one-time events lack staying power and continuity. It’s good news that the premier Latin conference has moved from the United States (Miami) to someplace that’s more accessible to Latin Americans. But I would love to see FLII extend even further.
- At this year’s FLII, there were more people from countries that have been largely isolated in the past, specifically Chile and Argentina. Until now, the efforts of those countries have not melded with the rest of Latin America. The South American countries showed some nascent activity in the past, but I see bigger sparks being generated. I’m hopeful that with greater South American participation, FLII becomes truly a southern hemisphere effort for all of Latin America.
Beyond those three takeaways, I had one other observation of note, which is the flowering of new financing programs that leapfrog the whole idea of banks. One issue faced by many social enterprises in Latin America, especially agricultural or other seasonally based businesses, is that their income isn’t consistent throughout the year. As a result, it’s difficult for these enterprises to adhere to traditionally structured, monthly loan payments. The need for flexibility with repayment amounts and timing is a consistent theme across several Latin countries.
In addition, traditional bank loans are based on collateral, and many Latin American social entrepreneurs are women or farmers or others that have not had the ability to hold anything of sufficient value in their own names.
An example of an alternative approach is Variable Payment Obligation (VPO) financing, which I pioneered at Santa Clara University’s Miller Center for Entrepreneurship. Taking a page from venture debt mechanisms, and another page from microfinance aimed at very small-scale livelihood loans, the combination became VPO financing for social enterprises, in which payments are based on cash flow instead of collateral and fixed monthly payments.
At this year’s FLII, not only did a number of VPO financings take place, but there was a session where an investor and an entrepreneur talked together about their considerations as they went through the VPO financing process, as a way of teaching the rest of the investors and entrepreneurs in attendance how they might do it, too.
It’s clear that Latin Americans have quickly grasped both the opportunity and the depth of change that’s possible by embracing impact investing and by supporting social enterprises and entrepreneurship in their communities and countries. In the end, I came away from FLII feeling optimistic about the direction of impact investing and social entrepreneurship in Latin America.
John Kohler is executive fellow and director of impact capital, Miller Center for Social Entrepreneurship, Santa Clara University. He is the pioneer of a new impact investment vehicle – the Demand Dividend – that presents investors with a structured exit alternative to equity. Kohler will speak on a panel at the Second Vatican Conference on Impact Investing June 28 in Rome.