Impact investing, an investment strategy that generates financial returns while directing funds to entities providing goods and services to the poor, is making headway in Latin America, according to a report from Rice University’s Baker Institute for Public Policy.
These investments are often held privately, rather than publicly, and can be structured for any sector. According to Henry Gonzalez, author of the report, ‘impact investments’ is a new term in the market, and it intends to generate positive social and environmental impacts despite higher levels of risk. The climate for impact investing in Latin American is favorable, Gonzalez said.
Impact investing in the region, in the form of capital committed by funds, increased from $160 million in 2008 to roughly $2 billion by the end of 2014, according to the Global Impact Investing Network and JPMorgan’s latest annual survey. This represents growth by a factor of 12 in just six years.
Latin America not only weathered the recent global recession, it also is a contributor to the global recovery. In fact, overall poverty rates have dropped from 48 percent of the population in 1990 to around 31 percent today. What’s more, in the last decade the actual number of people living in poverty has declined from 221 million to fewer than 180 million, says Gonzalez.
Despite such remarkable improvement, says the report, income gaps are still wide, and impact investors can play an important role in helping millions of people acquire better housing, education, health services and access to credit.
In the past decade, there has been even progress in terms of strengthening institutions and reducing poverty, although there are still outstanding challenges in both democratic governance and income distribution.
“More flow of private investments along with public policies and regulatory frameworks will set the right incentives to achieve sustained and prosperous global economic and social growth,” the report added.