COVID-19 has brought significant social and economic challenges for the region. According to the Economic Commission for Latin America and the Caribbean (ECLAC), “The coronavirus disease (COVID-19) pandemic has severe health effects and serious implications for economic growth and social development. It has arrived in Latin America and the Caribbean in a context of low growth (…) and, above all, of marked inequality and vulnerability, with growing poverty and extreme poverty, weakening of social cohesion and expressions of social discontent.”
The pandemic has revealed the consequences of a historical social inequality gap and, at the same time, has brought about the worst economic downturn since the Second World War. Its effects on strategic philanthropy and social investment initiatives are not only seen in the short term, but they will also have consequences in the medium to long term.
The pandemic has helped raise more interest in investing for impact. On the one hand, companies, family offices, and investment funds have supported social initiatives that they would not have funded previously. They have done this by applying the same rigor as their other investments. Foundations have also had to rethink how to make their grant-making yield more and, accordingly, they have been more strategic upon starting to try out other types of financial instruments.
Below are some of the ecosystem's responses in light of the current challenges and the effects they are having on their interventions.
The relevance of traditional philanthropy as an immediate response to the crisis
In the short to medium term, there was an important focus on meeting the most vulnerable communities' basic needs, providing them with food, water, cleaning items, among essential products and services. Traditional philanthropy has been particularly relevant in the critical response, but also private companies, financial institutions, philanthropists, foundations, family offices, public agencies, and individual persons have offered their support in the form of donations to respond to the emergency. Nonetheless, one of the main challenges for the region is how to apply other models, such as investing for impact, that focus beyond responding to immediate emergencies to achieving lasting systemic change.
Specific support for social purpose organizations
Investors for impact have responded to the current crisis by offering debt alleviation by being flexible with payment schedules and/or reducing payment amounts. Additionally, emergency funds and credit lines were created in order to support the continuity of SPOs.
That is the case of Fundación Sofía Pérez de Soto in Colombia, which provided flexibility in their loans during the crisis, and created a fund to help their supported businesses with payroll payments. Similar alternatives have been implemented by organizations of the ecosystem, like Yunus Social Business1, which has offered terms and grace periods to the organizations they work with, in addition to special support in financial and non-financial terms.
Non-financial support has also been important during this crisis. In many cases, SPOs have been provided with constant support by means of training and/or mentoring. This has facilitated the restructuring of business models or the reorganization of the SPOs. That is the case of Fomento Social Banamex in Mexico, Fondo Inversor in Colombia, or Conexsus in Brazil, who have provided support in business management. Fundación Argidius in Guatemala, besides providing additional grants to the organizations, has financed mentoring for organizations that need it.
1 This organization is not part of this report’s study cases.
Economic recovery alternatives
While the response of the organizations of the ecosystem has focused on addressing the first effects of the emergency, the sector has already developed initiatives to fuel economic recovery. Two outstanding cases are “CoVida20” in Brazil and “Fondo CoVida20” (see the Banco de Galicia case) in Argentina. Both are financing programs for impact enterprises that commit to maintaining employment during the pandemic by offering very favorable commercial loans. Unir y Dar Mx in Mexico, the economic recovery plan of Fundación Santo Domingo in Colombia, or Reactívate by Fundación WWB are other initiatives that seek to support social businesses and SMEs, especially in remote regions.
Greater impact though public-private partnerships
Greater collaboration has been one of the positive side effects of the pandemic, and has happened at different degrees: from actors who support one another to facilitate the development of their initiatives, to partnerships between public and private actors that provide joint solutions that would otherwise not be viable or would not have had the same impact. One example is the development of ventilator prototypes in order to treat the most severely affected cases caused by the virus. In response to this need, public and private companies, as well as financial institutions, have joined efforts to manufacture ventilators at a low cost to increase existing capacity. One of the significant cases in the region is InspiraMed, an initiative led by Ruta N in Colombia.
Also, in Colombia, the Colombia Cuida a Colombia initiative, connected different public and private actors so as to collect donations to meet the basic needs of vulnerable communities.
In Brazil, partnerships between companies, businesspeople, and philanthropic institutions materialized emergency funds or credit lines that provide low-interest loans to SME’s that, because of the suspension of their operations, could not sustain their revenues and payroll. Conexsus, for example, launched a direct credit line to be repaid within 24 months, with a grace period of up to 12 months, along with providing business management support. In turn, Lab Habitação created a new initiative in order to support already-accelerated social businesses, by means of an emergency fund called “Volta por Cima.”
In Mexico, partnerships started to form between organizations that had not been collaborating before the pandemic. These partnerships formed new networks and to exchange ideas on how to rebuild the country. That is the case of Fundación Quiera, which joined a collaborative effort to diagnose problems generated by the pandemic and produces useful information for the sector.
Even though these collaborations are born in an emergency context, they have created communication channels and interaction among actors with shared interests that can facilitate future joint efforts.
Opportunity or crisis? A difficult prediction
In the long-term, there is uncertainty about what resources will be available for investing for impact, as a consequence of capital destruction caused by the pandemic. However, a large portion of the ecosystem actors consulted for this report are optimistic and believe that this is precisely the? time to strengthen investing for impact initiatives and show their relevance for the future. These types of initiatives will be crucial for repairing the social fabric in the region in the medium to long term. The increasing use of mechanisms such as guarantees and repayable grants also allows to increase the financial resources available by allowing reinvestment.
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