The Brazilian Task Force on Social Finance (FTFS) has aligned 15 recommendations for the advancement of Social Finance in Brazil. One of the levers is the expansion of capital supply, bringing more resources to the field of Social Finance and Impact Businesses, reaching R$ 50 billion/year by 2020. One of these recommendations consists of the expansion and capitalization of Revolving Social and Environmental Funds (RSF). See below the article by Rob Packer* and Leonardo Letelier** on the challenges for the expansion of this financing mechanism:
The RSFs represent an important part of the impact investments portfolio of individuals, foundations, institutes and the BNDES itself, to which the recommendation is originally intended. Borrowing attributes of philanthropy (the resource enters the Fund as a donation) and Impact Investment (the resource comes out of the fund as a loan or investment), the RSFs offer the flexibility and the possibility of investments that would not be done in another way – in situations where the risk is disproportionate to the return – but with a not inconsiderable probability that the capital will return to the fund, “recycling” the capital originally donated.
The challenges for the expansion of RSFs come from the same place of their benefits: by staying “midway” between philanthropy and impact investment and show broad flexibility, those seeking a simplified solution do not identify themselves with this 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 the right instruments, even if a little more refined. In addition to the BNDES, which is actively studying this alternative, even more foundations and individuals are seeking SITAWI – which operates three of these funds with more than 30 accumulated loans – to evaluate this strategic option.
As part of the effort to implement the other recommendations of the Social Finance Task Force, by the end of 2016, a group of foundations and institutes created an RSF for experimenting mechanisms of Social Finance. We believe that the expansion of RSFs in the country – from the current scale of millions of Reais to a tens of million scale, with more actors establishing Revolving Social and Environmental Funds – will facilitate the entry of those who want to experience the Impact Investing from resources and the mentality of Philanthropy and, at the same time, expand the types of capital available for Impact Business and, with it, the social and environmental impact in Brazil.
We believe that the expansion of the Revolving Social and Environmental Funds in the country will facilitate the access of those who want to experience an Impact Investment from the resources and the mentality of philanthropy and, at the same time, broaden the types of capital available to Impact Businesses and the consequent socio-environmental impact in Brazil.
* Rob Packer is Social Finance Manager at SITAWI Finance for Good
**Leonardo Letelier is founder and CEO of SITAWI Finance for Good
This material composes the Report “Advance of the recommendations and reflections for the Social Finances and Business Impact Strengthening in Brazil” produced by the Social Finance Task Force – FTFS, of which SITAWI Finance for Good is the executive board member together with the Instituto de Cidadania Empresarial – ICE.