Five must read resources on impact investing in Peru

Spanish language version

Impact investing has been rapidly gaining traction in Latin America, and if anything the current world pandemic has accelerated the interest in directing capital towards the companies and projects that will build back better. Countless studies and white papers show that this requires a full ecosystem of actors working together towards common goals.

After a similar engagement in Colombia and supported by the Government of Canada, four partner organizations including Deetken Impact, SVX Canada, SVX Mexico, and Impacto have combined forces to work together to map the impact investment ecosystem in Peru and start engaging the ecosystem on actionable items. We will be seeking to leverage a variety of virtual tools and approaches to build engagement and understanding amongst active and interested stakeholders in Peru and beyond, from Medium posts to Zoom community convenings. Our work has launched with creating a usable and updatable map of the ecosystem and to do this, we started with the invaluable reports that pioneers and other leading organisations in and around Peru have published in recent years.

This post is a short summary of five reports that we find to be a good starting point for learning about impact investing and social enterprise in Peru. Please note that these are not the only resources available, and we cannot categorize them as the top resources, as there are so many individuals and organizations writing and thinking on impact investing and social entrepreneurship in Peru. But they are excellent sources of information that will give you a great overview of thinking on impact investing in the country from recognized and respected sources.

1. Reporte del Estado de Inversión de Impacto en el Perú by Elsa Galarza Contreras and Jose Luis Ruiz Perez

The article presents impact investing as a policy instrument for achieving the Sustainable Development Goals in Peru.

Key takeaways from this resource include:

  • Impact investment can directly flow capital into sectors and organizations that produce goods and services with the purpose of generating a social and environmental impact. This can be used as an alternative tool for achieving social and environmental policy objectives.
  • A political leadership that incorporates a sense of urgency among public actors, private companies and civil society regarding the Sustainable Development Goals could use impact investing as part of the range of alternatives that the State has to implement its public policies.
  • Creating financial instruments for the demand for capital, the supply of capital, and an enabling environment contributes to solving the challenges faced by impact generating organizations and investors.
  • Blended finance structures, which attracts capital flows with different risk-expected return profiles, can allow for a larger scale of financing with diversification, channeling it to impact-generating organizations.
  • The participation of the public sector can mitigate investment risks in the issuance of certain levels of guarantees with the national development bank (COFIDE) as structuring agent and trustee.
  • The disclosure of information on impact investing will seek to increase the transparency of investment results. The quantity and quality of investments are collected and analyzed to improve decision-making, reduce risk and create an environment of trust and collaboration.

2. Financing for Social Entrepreneurship in Peru by APEC Canada

This Deetken Impact report studies the obstacles and opportunities in financing social entrepreneurship in Peru using a combination of structured interviews, case studies, and secondary research.

Key takeaways from this resource include:

  • The report explains a critical obstacle that social entrepreneurs face. There is a need for more targeted financing to social enterprises. It is challenging for an early-stage social enterprise to access to finance from commercial banks due to high-interest rates, lack of guarantees, and a lack of financial track record and formality.
  • Additionally, the report sheds light on the opportunities for change. The public sector should play a role in in supporting micro, small and medium sized enterprises (MSMEs), and more specifically social enterprises in three key areas: first, the access to finance; second, the access to technology; and third, increasing performance benchmarking to the SDGs, which acts as an overarching framework to drive change.
  • Two alternative sources of finance can help social enterprises overcome their obstacles: blended finance with public funding mechanisms to catalyze impact investment; and alternative impact-linked financing instruments.

3. 2020 Survey of Entrepreneurs and MSMEs in Peru by The Asia Pacific Foundation of Canada (APF Canada) through the APEC-Canada Growing Business Partnership (ACGBP) initiative

This report summarizes the findings of a survey conducted to assess both the obstacles and the opportunities that shape the MSME and social entrepreneurship sector. The report then suggests concrete recommendations that the Peruvian government can undertake to boost this even more struggling sector because of the pandemic.

Key takeaways from this resource include:

  • More than half of survey respondents are unaware of several support initiatives available to assist their business. The report recommends marketing the accessibility of support initiatives, to make more MSMEs aware of these available resources.
  • The two most cited barriers to MSME growth and social enterprises’ success are the domestic government and financing, specifically insufficient state support for these enterprises and restrictive municipal bureaucracy.
  • The government can increase support by encouraging international experience, through online training on platforms like Peruvian Entrepreneur (Emprendedor Peruano) from the Ministry of Production and through recognition for MSMEs who do business abroad.
  • Another area of improvement for the government would involve developing government-sponsored specialized support for social entrepreneurship, using existing initiatives and partners in this ecosystem.
  • The Lima Chamber of Commerce’s Institute of Economics and Business Development has estimated early numbers of the impact of Covid 19 on Peru’s GDP. It anticipates a drop of 3.7 per cent in 2020 due to the pandemic.

4. Impact Investment Landscape for Women’s Health Spotlight on Colombia & Peru by Linked Foundation and William Davidson Institute (WDI)

This report provides a landscape for impact investment women’s health focused in Colombia and Peru in order to catalyze impact investment interest and capital to the most-needed areas of women’s health in Latin America.

Key takeaways from this resource include:

  • Despite moving from a low-middle-income to middle-high income country in the last ten (10) years, Peru still struggles to cater open access to basic services (I.e., Health and water sanitation) for rural areas and indigenous populations. Indeed, in Peru, the richest quintile of the population has 47 per cent of the country’s income while the poorest quintile has just 4%.
  • A wide wealth gap persisted as the overall percentage of Peruvians in poverty has declined from 37 per cent in 2006 to 15 per cent in 2017, the rate of rural poverty remained at a considerably higher than the average (44 per cent).
  • The health sector is highly fragmented in structure, funding, and delivery. The Ministry of Health delivers 70 per cent of care while the private sector caters to about eight (8) per cent of the Peruvian population, of which a few targets the poor. A quarter of the population, a quite striking portion of Peru, still do not have any health coverage.
  • The study mentions three key actors in the development and innovation of the health sector in Peru: First, the Universidad Peruana Cayetano Heredia (UPCH) an epicenter of healthcare innovation and dedication to communities in need; second, Innovate Peru an accelerator organization and its spinoff BioIncuba, the only incubator focused in life sciences; and ASEP the Peru division of ASELA (Asociación de Emprendedores en America Latina), which represents entrepreneurs at the public policy level through their social lab. Additionally, the Inter-American Development Bank (IDB) has been a supportive funder for the latter two organizations above.
  • The main opportunity identified in Peru for impact investing is around women’s health and primary care. The organizations working on women’s health take on different business structures, like health enterprises, for-profit companies, and non-profit organizations.
  • The fragmented nature of Peru’s healthcare system opens opportunities for innovation in meeting the needs of women in remote settings. Investing in women’s health is an indirect investment into advancing women’s empowerment more broadly.
  • Several entities identified in the health sector have not fully developed their business cases for investment. There are regulatory barriers for hardware healthcare innovations (i.e., medical devices are currently a challenge for innovators in Peru).

5. Impact Investing in Latin America: Trends 2018–2019, by the Aspen Network of Development Entrepreneurs (ANDE)

This report, published in September 2020, speaks to the state of impact investing across Latin America through data analysis from the years 2018 and 2019. The study presents data compiled from funds in Peru such as OXFAM Intermon, PG Impact Investments, Root Capital Inc., and AlphaMundi Group. The report trends are shaped following survey data derived from over 83 investors in the region who have taken the survey between March and June 2020, mid-pandemic.

Key takeaways from this resource include:

  • Impact investors in Latin America continue to rely majorly on traditional financing structures. Indeed, most manage closed-end funds, accounting for 42 per cent of the sample. And most deals used traditional debt or equity instruments, with debt alone accounting for 80 per cent of capital deployed in 2018–2019. A quarter of investor respondents use open-ended and/or evergreen funds that allow funds to access greater creativity and innovation.
  • Most deals in 2018–2019 were for under USD $500,000 and this proves the commercial viability of smaller investments in well-established ventures, past the early stage.
  • The most prominent areas for investment, which are also debt-reliant, are the microfinance or agricultural sectors, which have both well-established impact business models.
  • The vast majority (81%) of respondents measure the impact of their investments, and an increasing number use measurement tools like the GIIN’s Impact Reporting, the Investment Standards (IRIS+) system, and an alignment with the SDGs. The study notes the biggest challenges are in measuring outcomes and standardization.
  • Today, many investors have redirected their capital away from socio environmental projects to health projects in direct response to the pandemic and are working with reduced budgets.
  • The ANDE report collected the forthcoming challenges and risks anticipated in 2021. And they are presenting in descending order of concern: fluctuating or deteriorating macroeconomic conditions, availability of capital, political uncertainty, currency risk, and pipeline development because of the decrease in economic activity in some potential investees.

Questions and comments? Did we miss any resources? Please let us know by sharing questions and comments below.

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SVX is financial services firm & impact investing platform connecting ventures, funds, and investors to catalyze investment capital for impact. #ImpInv #SocEnt