Impact investing in Latin America and addressing the ‘missing middle’

(Credit: Unsplash)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Justin Schwartz, Managing Director , IMPAQTO Capital & Michelle Arévalo-Carpenter, CEO, IMPAQTO


  • Impact investing has existed for more than a decade, but its role in post-pandemic reconstruction gives it a whole new level of relevance.
  • Impact investing has grown more than tenfold in a decade in Latin America to $25 billion, with 65% of investors having made their first investments in the region after 2010.
  • There is a “missing middle” of impact investment, centred on investment size of $10,000-$500,000, which is a key funding stage in the development of every company.
  • As 2021 begins, business leaders across Latin America are musing over the challenge that Professor Klaus Schwab laid down as part of the Great Reset, which emphasises that “the pandemic represents a rare but narrow window of opportunity to reflect, reimagine and reset our world”. What future can business leaders expect to have agency over, after a year of so much instability and ambiguity? Impact investing, and in particular investing in small and growing social enterprises, might hold the answer.

    Our generation of business leaders is creating a new paradigm of how capital can support a more equitable, sustainable future. Impact investing has existed for more than a decade, but its role in post-pandemic reconstruction gives it a whole new level of relevance. As our colleague Ted Levinson of Beneficial Returns describes it, traditional investing is moving money into the future we predict, while impact investing is moving money into the future we want.

    Impact investing in small business

    Impact investing has grown more than tenfold over the past decade in Latin America as highlighted in our “Second Wave of Impact Investment” study published in 2018. Reports from GIIN and ANDE show that more than $25 billion in impact-investing assets are focused on Latin America, with 65% of investors having made their first investments in the region after 2010.

    Early-stage social enterprises will be crucial to the post-pandemic economic and social reconstruction in Latin America, given that they lie at the intersection of two key themes. First, social entrepreneurs serve a fundamental role in building a better world post-Great Reset as they create profitable companies that contribute positively to their communities and the planet. Second, small businesses are vital to the region’s economy, and thus it is these companies that will determine the economic future of the region.

    Small and medium-sized businesses have a fundamental economic role in Latin America, though their funding needs are often overlooked, with the IADB showing that these businesses create 67% of employment in the region but receive only 12% of total credit. This funding gap is a key barrier to accelerating economic growth, which can be driven by social enterprises like Cusi, a nutrition startup that sustainably sources superfoods like quinoa at fair prices from 35 smallholder farmers. The company is growing quickly, but needs financing to multiply its impact to hundreds of indigenous farming families over the next five years.

    Despite the demonstrated funding needs of small businesses, the first wave of impact investing in Latin America has focused on more established markets and larger companies, with 2020 data from ANDE showing that the average investment size among deals in the region is $1 million – an amount which leaves out the smaller businesses that struggle most to access capital.

    The “Second Wave” study identified this funding gap as a “missing middle” of impact investment, centred on investment sizes of $10,000-$500,000, which is a key funding stage in the development of every company. Funding before and after this range is more available, in the form of microfinance under $10,000 and institutional funding in the range of $1 million-$2 million and up.

    IMPAQTO Capital launches

    2021 is a crucial year for business leaders to create innovative financing mechanisms for the companies that will rebuild post-COVID-19. In the Andean region, IMPAQTO is pursuing this goal with the launch of IMPAQTO Capital, a new impact-investing fund providing flexible capital to early-stage social enterprises. IMPAQTO Capital seeks to demonstrate that moving capital to social entrepreneurs in the missing middle stage of their development can be both profitable and generate an enormous impact in the communities in which these companies operate as well as in the entrepreneurial ecosystem.

    IMPAQTO Capital is following in the footsteps of a few established impact investors in Latin America addressing the same gap, such as NESsT and Pomona Impact. Yet the region needs these financial innovations to become the norm rather than an exception. To be sure, many have avoided funding early-stage companies due to the high costs of running small funds like these and the added technical support that these businesses require. However, Latin American business and financial institution leaders must act to address the missing middle gap of impact finance and recognize the key role that these growing companies play in the economy of the region.

    What is the COVID Response Alliance for Social Entrepreneurship?

    The COVID Response Alliance for Social Entrepreneurship is a coalition of 85 global leaders, hosted by the World Economic Forum. Its mission: Join hands in support of social entrepreneurs everywhere as vital first responders to the pandemic and as pioneers of a green, inclusive economic reality.

    Its COVID Social Enterprise Action Agenda, outlines 25 concrete recommendations for key stakeholder groups, including funders and philanthropists, investors, government institutions, support organizations, and corporations. In January of 2021, its members launched its 2021 Roadmap through which its members will roll out an ambitious set of 21 action projects in 10 areas of work. Including corporate access and policy change in support of a social economy.

    For more information see the Alliance website or its “impact story” here.

    In 1972, Buckminster Fuller introduced a beautiful metaphor when explaining our ability to affect society as a whole: just as the trim tab is the miniature rutter that makes a whole ship change direction with a slight shift, investing in the next generation of businesses as we rebuild our economy can be the shift that realizes the world we want to create.

    As Prof Schwab would add: “so that everyone who is willing to ‘co-shape’ the future can do so”.

    the sting Milestones

    Featured Stings

    Can we feed everyone without unleashing disaster? Read on

    These campaigners want to give a quarter of the UK back to nature

    How to build a more resilient and inclusive global system

    Stopping antimicrobial resistance would cost just USD 2 per person a year

    FROM THE FIELD: India’s plastic waste revolution

    Integration of migrants: Commission launches a public consultation and call for an expert group on the views of migrants

    Human rights: breaches in Russia, the Rakhine State and Bahrain

    How upskilling could help cities rebuild after Coronavirus

    EntEx Organises 5 Summer Schools for Young Entrepreneurs across Europe in June/July 2014

    The female struggle in the face of medical devaluation

    ‘The welfare of the Libyan people’ the UN’s sole agenda for the country, says Guterres in Tripoli

    Dare to be vulnerable, and three other lessons in leadership

    How businesses can create an ethical culture in the age of tech

    The challenge to be a good healthcare professional

    Act now to prevent Desert Locust catastrophe in Horn of Africa: UN agencies

    The most unlikely innovators are changing ICT for development – it’s time we took notice

    What is environmental racism?

    Climate change: cutting the good by the root?

    Guterres condemns killing of Bangladeshi peacekeeper in South Sudan, during armed attack on UN convoy

    Venezuela’s needs ‘significant and growing’ UN humanitarian chief warns Security Council, as ‘unparalleled’ exodus continues

    More than speed: 5G could become the next big economic driver

    Asylum: more solidarity among EU member states and funds for frontline countries

    European Commission requests that Italy presents a revised draft budgetary plan for 2019

    Greener tourism: Greater collaboration needed to tackle rising emissions

    Juncker’s Investment Plan in desperate need for trust and funds from public and private investors

    Europe, US and Russia haggle over Ukraine’s convulsing body; Russians and Americans press on for an all out civil war

    The “Colombo Declaration” adopted at the World Conference on Youth 2014

    IMF: World cup and productivity

    Cameron postpones speech in Holland

    ‘Great cause of concern’ UN chief tells Security Council, surveying ‘bleak’ state of civilian protection

    1.1 billion people still lack electricity. This could be the solution

    5 leadership lessons I learned from doing my own ‘undercover boss’

    If we want to solve climate change, water governance is our blueprint

    The World Health Organization has called on countries to ‘test, test, test’ for coronavirus – this is why

    EU budget: Commission helps prepare new Cohesion programmes with Regional Competitiveness Index and Eurobarometer

    Catalonia secessionist leader takes Flemish ‘cover’; Spain risks more jingoist violence

    Marriage equality boosted employment of both partners in US gay and lesbian couples

    Europe had a record year for Measles – and it’s partly down to anti-vaccine campaigners

    From Policy to Reality: Discrepancies in Universal Health Care Systems across the EU

    AI looks set to disrupt the established world order. Here’s how

    Early healthcare investment is our best chance at healthy ageing

    The EU sides with China against the US; but has Germany capitulated to America?

    Preserving biodiversity vital to reverse tide of climate change, UN stresses on International Day

    Educate children in their mother tongue, urges UN rights expert

    Russia and the West to partition Ukraine?

    GDPR and the World Cup have these 4 things in common

    Your chocolate can help save the planet. Here’s how

    ECB embarks on the risky trip to Eurozone banking universe

    New rules to help consumers join forces to seek compensation

    Thinking like Leonardo da Vinci will help children tackle climate change

    Parliament approves EU rules requiring life-saving technologies in vehicles

    World Bank downgrades global growth forecasts, poorest countries hardest hit

    What we need is more (and better) multilateralism, not less

    International Women’s Day 2019: more equality, but change is too slow

    How to fix our planet: the pioneers fighting to bring nature back

    How China Mended My Heart

    Children are forgetting the names for plants and animals

    Labels for tyres: deal for greener and safer road transport

    Commission presents its response to Antisemitism and a survey showing Antisemitism is on the rise in the EU

    The Ecofin deceives the SMEs with the EIB €10bn capital increase

    Consumers suffer three defeats

    Sexual exploitation and abuse: latest UN quarterly update

    The economic effects of the COVID-19 coronavirus around the world

    New VAT rules in the EU: how a digital sea could have become an ocean

    More Stings?

    Speak your Mind Here

    Fill in your details below or click an icon to log in:

    WordPress.com Logo

    You are commenting using your WordPress.com account. Log Out /  Change )

    Google photo

    You are commenting using your Google account. Log Out /  Change )

    Twitter picture

    You are commenting using your Twitter account. Log Out /  Change )

    Facebook photo

    You are commenting using your Facebook account. Log Out /  Change )

    Connecting to %s