What's Next in Microfinance and Social Impact Investment?

Keynote Speaker:

• Michael Chu, Co-Founder and Managing Director, IGNIA Fund; and Senior Lecturer, Initiative on Social Enterprise of the General Management Group, Harvard Business School
• Panelists:
• Fernando Campero, Lead Financial Specialist in the Access to Finance Unit, Multilateral Investment Fund (FOMIN)
• Maria Cavalcanti, Chief Strategy Officer, AVINA Foundation
• Nikhil da Victoria Lobo, Vice President, Insurance and Specialty, SwissRE
• Brinda Ganguly, Associate Director, Rockefeller Foundation (Moderator)
• Tammy Newmark, President, EcoEnterprises Fund

Summary

On November 15, the Americas Society/Council of the Americas hosted their fourth microfinance panel: “Latin America Update: What's Next in Microfinance and Social Impact Investment?” Speakers presented a wide range of perspectives on the scope of microfinance and social impact investment in Latin America today. The discussion highlighted current trends in the field of social impact investment as well as barriers to growth and future prospects for the success and stability of microfinance institutions throughout Latin America.

Keynote Remarks by Michael Chu

Co-Founder and Managing Director of the IGNIA Fund Michael Chu opened the discussion by providing a panorama of microfinance in the past 40 years. According to Chu, although approximately $60 billion has been invested in microfinance worldwide, the market is still highly underserved. Chu estimates that out of the 400 million underserved families in the world with little access to financial services, only 100 million are supported by microfinance loans. But Chu did highlight bright spots, such as Compartamos Banco of Mexico as an example of microfinance’s immense growth over the past two decades. He pointed out that, despite the global financial crisis of 2008, Compartamos Banco has continued to grow over the past years. The organization went from 25,000 clients in the mid 1990s to 1.7 million clients today. Chu added that the recent success of microfinance institutions will only continue to grow exponentially in the future.

Current Trends in Microfinance and Social Impact Investment

Moderator Brinda Ganguly of the Rockefeller Foundation opened the discussion by asking panelists for examples of projects from their respective portfolios that highlight the scope and diversity of social impact investment in Latin America. Ganguly stressed that, when speaking of microfinance, it’s crucial to view it as a sub-sector of the impact investment space.

Nikhil da Victoria Lobo of SwissRE and Fernando Campero of the Inter-American Development Bank’s Multilateral Investment Fund (MIF) spoke about preventative funds created by their respective institutions and designed to respond to areas frequently exposed to natural disasters. Campero explained that MIF makes its emergency liquidity funds available to microfinance institutions affected by natural disasters with incentives to repay these loans. Maria Calvacanti of the AVINA Foundation spoke about partnering with Goldman Sachs and JP Morgan to create the first impact-investing venture capital fund in Colombia, INVERSOR. Offering an environmental perspective, Tammy Newmark of the EcoEnterprises Fund explained the organization’s investment in Sambazon, a company started by American surfers vacationing in Brazil that produces organically certified açai products. Since its inception in 2002, Sambazon has employed local açai farmers to improved the livelihoods of the communities where they work, all while generating $35 million in sales to date. The story of Sambazon’s success showcases how social impact investments must engage local communities while generating returns and promoting environmental sustainability.

Finding a Balance Between Social Impact and Financial Returns

Ganguly addressed the very nature of social impact investment by asking how investors can find a balance between fostering social change while making substantial profit. Both Chu and da Victoria Lobo acknowledged that addressing the needs of the “Base of the Pyramid (BoP)” market is just as important as generating substantial returns. Da Victoria Lobo recognized the commercial value of developing long-term relationships with these clients, stating that short-term “trade-offs” must be made in order to build a client base that has room to advance and sustain itself in the future. Similarly, Newmark commented that the challenge of how to “monetize social impact investment” involves finding a balance between proving the stability of a business and generating the best profit.

Emerging Opposition and Barriers to the Growth

In a conversation about the barriers to growth of social impact investment, both Newmark and Calvacanti agreed that investors must constantly diversify their portfolios based on industry sector, country, social and cultural structures, and human development index. Calvacanti presented several examples of how these differences present varying challenges. In Brazil, there is a shortage of microfinance managers, which requires capacity-building programs. In Colombia, many small businesses benefited from microfinance and were ready to further their business development, but the right type of venture capital funds were not available. In Chile, the venture capital sphere is gaining popularity, but has seen little return.

Commenting on the risk factor of social impact investment, Da Victoria Lobo noted that first-time social impact investors prefer to extend credit to loan recipients in order to minimize risk. Yet this requires broadening access to and knowledge about credit by “educating institutions and governments that have never dealt with credit in the past.”

Looking Forward: Future Trends in Microfinance and Social Impact Investment

In terms of the future outlook of microfinance, Chu stated that “we don’t know who the leaders in microfinance are going to be in 10 to 20 years” since there has been no emerging leader in terms of microfinance institutions to this day. Across the panel, speakers agreed that, for social impact investment and microfinance institutions to sustain themselves, they must be built on a robust regulatory framework and platform. Although social impact investment and microfinance are in infancy stages, panelists generally agreed that the interest in this field is growing at an exponential rate. Newmark said that through continued reporting and evaluation, social impact investors will improve the performance and support structures of this growing field in the future.