Friday
December 10
2010

Jenny Melo

Funding for Inclusive Businesses in Latin America: sitawi?s Perspective

Editors note: This post was originally published on NextBillion en Español. The original Spanish-version may be found here.

Funding for inclusive businesses (business initiatives that include the poor in different parts of the value chain) is a very important issue that concerns many entrepreneurs and organizations interested in developing initiatives of this nature. To take a look at the state of this field in Latin America, we consulted with some funds that operate in this region and learned their perspectives.

As part of this series, I interviewed Leonardo Letelier, CEO of the social fund sitawi, which was launched recently in Brazil. (Check out the additional video by Alex Guinet below).

NextBillion: What are some of the initiatives that sitawi supports and what kind of impacts do they make?

Leonardo Letelier: sitawi’s mission is to develop the financial infrastructure of the social sector in Brazil. We’re not focusing on the formal structure (for-profit organizations or nonprofits) but on the mission: social issues first, business second. This angle shows that our clients are principally social organizations that operate “small” businesses, even though we also have some “social enterprises” (according to the former definition). The financial instruments that we use are the Social Loan (“Empréstimo Social”), low-interest capital market, and strategic counseling.

We basically have two types of clients: organizations that use business operations to finance their social operations (with little integration between the two) and others in which the operation that generates revenues also generates social impact. An example of the second type is Caspiedade, which is a social attention center that has an arrangement with the government. We gave them a loan of exactly R$230.000,00 (approximately US$140,000) because the government always pays the conventions late. Since fiscal demands aren’t automatically delayed because the government delays payment, Caspiedade ran the risk of having to halt operations of their popular restaurant and leaving 1,500 people without low-priced foods. The loan from sitawi let them keep the restaurant open and has already been paid in full.

NextBillion: What do you believe is the actual state of the funding supplies in Latin America for inclusive business initiatives? What are the different models?

Leonardo Letelier: The funding supply is going to grow in two directions: On one hand, the funds for for-profit companies with some level of social impact are going to continue to grow, facilitating an increasing fraction of social impact in the core business. On the other hand, we are doing our part for operations with social aims and some level of income. I believe that the first effort is going to grow faster because the business’s financial models are already known (debt, equity, etc.) and the amount of funds seeking returns has increased exponentially with the success of the first funds. On the other hand, investing in the social field involves changing the mentality of many players-but that is our mission.

NextBillion: From your experience with sitawi, what have you found to be the main challenges for organizations that offer funding for inclusive businesses?

Leonardo Letelier: There are two big interlaced challenges; one is attracting capital with available information in terms of financial and social returns. For that, external incentives like the Beyond Banking of BID award-in which we are finalists in the “Socially Responsible Investment” category-are important for increasing the funds’ appeal. The other challenge is finding the right business model that is appropriate for the level of available capital. For example, in sitawi, since we have a staff with a lot of experience in consulting firms like McKinsey, we offer consulting services (paid) to businesses and foundations.

NextBillion: What is the best way to improve access to funds for new inclusive businesses? Do you think networking with other funds and investors is useful?

Leonardo Letelier: Networking with funds can allow improved methods and shared investment opportunities, if they are in the same area/theme/geographic focus. At the same time, most of the funds are small and are trying to develop their own visions and models of operation. At this moment, during which the most natural and serious thing to do is to focus inwards, networking requires conscious effort and external support.

Categories
Entrepreneurship, Impact Assessment
Tags
inclusive business, investment fund, social impact