The challenges for expanding and capitalizing Revolving Social and Environmental Funds

The Brazilian Social Finance Task Force – FTFS has lined up 15 recommendations for the advancement of Social Finance in Brazil. One of the levers consists of expanding the supply of capital, bringing more resources to the field of Social Finance and Impact Business, reaching R$50 billion/year by 2020. One of these recommendations is the expansion and capitalization of Social and Environmental Revolving Funds (FSR). Check out the article by Rob Packer* and Leonardo Letelier** on the challenges for the expansion of this financial mechanism:

The FSR represent an important aspect within the impact investment portfolio of individuals, foundations, institutes and the BNDES itself, for whom the recommendation was originally intended. Borrowing attributes from philanthropy (the resource enters the Fund in the form of a donation) and Impact Investing (the resource leaves the fund in the form of a loan or investment), the FSR offer flexibility and the possibility of investments that would not otherwise be carried out otherwise ? in situations where the risk is disproportionate to the return ? but with a non-negligible probability that the capital will return to the bottom, ?recycling? the capital originally donated.

The challenges for the expansion of the FSR come from the same place as its benefits: by staying ?in the middle of the road? between philanthropy and impact investing and offering ample flexibility, those looking for a simplified solution do not identify with the instrument. The good news is that, with the maturing of the Social Finance sector in Brazil, actors increasingly understand their own needs and how to translate them into appropriate instruments, even if a little more refined. In addition to the BNDES, which is actively studying this alternative, more and more foundations and individuals are looking to Sitawi – which operates three of these funds with over 30 backed loans – to evaluate this strategic option.

As part of the effort to implement the other recommendations of the Social Finance Task Force, at the end of 2016, a group of foundations and institutes created an FSR to experiment with Social Finance mechanisms. We believe that the expansion of the FSR in the country ? from the current scale of millions of reais to a scale of tens of millions, with more actors establishing Revolving Social and Environmental Funds? facilitate the entry of those who want to experience Impact Investing based on philanthropic resources and mentality and, at the same time, expand the types of capital available for Impact Businesses and, with it, the socio-environmental impact in Brazil.

We believe that the expansion of Social and Environmental Revolving Funds in the country will facilitate the entry of those who want to experience Impact Investing based on philanthropic resources and mentality and, at the same time, expand the types of capital available for Impact Businesses and, with that , the socio-environmental impact in Brazil.

* Rob Packer is Social Finance Manager at Sitawi Finance for Good

** Leonardo Letelier is founder and CEO of SitawiFi Financeira do Bem

 – This material makes up the Report “Advancing recommendations and reflections to strengthen Social Finance and Impact Businesses in Brazil” produced by the Social Finance Task Force – FTFS, of which Sitawi Finance for Good is a member, together with the Institute of Corporate Citizenship – ICE, on the executive board.  

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