Latin America and the Caribbean (LAC) is a region of contrast. Most of its countries are consideredmiddle-and high-income, yet the region remains the most inequitable in the world. While the recentpandemic has increasedextreme poverty, Oxfam estimates that the region produces a new billionaireevery two weeks. At the same time, the region has the largest amount of unused arable land, but losesabout 3 million hectares of forest each year.
In addition, small and medium-sized enterprises generate 67% of jobs, yet receive only 12% of credit(compared to 25% in other regions). For example, in 2019, approximately 47 percent of small businesses(5 to 19 workers) in the formal sector did not have a bank loan or a credit line. Moreover, if the businessis owned by a woman, this number reaches more than 50 percent. Financing for organizations and socialentrepreneurs is even scarcer.
These figures give us an idea of the opportunities and risks that exist in Latin America and the Caribbean.For this reason, it is essential not only to ensure that organizations and social enterprises have access tofinancing so that they can scale, but also to ensure that their solutions really generate the expectedchanges.
This toolkit seeks to showcase a range of financing instruments that are considered innovative becausethey not only go beyond traditional instruments (around 80% of impact investments in the region usedebt or equity), but also have the potential to generate incentives to drive impact, mobilize resourcesfrom actors that usually do not invest with impact in mind, and allow greater flexibility for providers andrecipients of capital
We believe that the impact ecosystem in LAC is ready to experiment with these tools and there isgrowing evidence to prove it. The region was a pioneer in experimenting with social impact incentives(SIINC) in Mexico; Colombia issued the first social impact bond in a middle-income country; Brazil hasexperimented with performance-based contracts for social enterprises; and the region accounts for 16%of all blended finance transactions globally, among other examples
Latimpacto will continue to work to raise awareness of these instruments in the region, systematizesuccess stories, and share lessons learned. This toolkit is a first step, and we invite ecosystem actors tobe part of this journey