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Impact Investing: Does intent matter?

Impact investing in Latin America and the Caribbean was highlighted at the the IDB’s annual meeting in Bahía, Brazil. One of the first sessions of the day began with the story of a loan officer evaluating the credit profile of “Helena” – an intelligent, ambitious student seeking a university loan and representing many others like her in the region. Thanks to a bank loan, "Helena" would have a chance to further her education and strengthen her economic opportunities. But is this impact investing?

Impact Investing: Does intent matter?

[caption id="attachment_827" align="alignleft" width="320"]Students benefiting from university loans in Mexico. Photo credit: Flickr. Students benefiting from university loans in Mexico - a form of impact investing. Photo credit: Flickr.[/caption]

Jozef Henriquez, Head of Syndications in the Structured & Corporate Finance Department, who spoke, went on to explain, “Unless the bank’s mission is to close the social gap, we cannot qualify this as an impact investment.”

He then shared the example of FINAE, a financial institution based in Mexico that seeks to expand student loans so that more low- and middle-income students graduate with degrees and training in hopes of strengthening technical capacity and earning potential.

What distinguishes FINAE is intent. FINAE seeks to solve the social deficit of few students having access to university loans while also having financial return expectations.

The impact investing discussion is growing globally and in Latin America and the Caribbean. The region is ripe for investing. Seventy percent of the population is at the base of the pyramid, and a sustainable energy financing gap exists of $40 billion per year.

Private sector financiers and government-run funds are joining forces with entrepreneurs, incubators and accelerators to deploy innovative financial products to achieve social, environmental and financial returns. With impact investing’s growth comes even more players and different interpretations of what “impact investing” actually means. Each seeks a varying degree of social or environmental benefit combined with financial profit. More examples illustrating that a tradeoff between the two no longer exists are emerging.

The IDB Group’s private sector has long taken a leadership role in impact investing – ever since its earliest private sector operations in the 1960s. Examples of current IDB Group projects that are considered “impact investments” offer financing for renewable energy, sustainable agriculture, student-loan programs, low-income housing, microenterprise and SME financing. The IDB Group also seeks to enrich the ecosystem for impact investing. We prioritize awareness-raising and participate in thought leadership and technical groups that seek to standardize measurements, metrics and ratings.

In the coming weeks, the IDB Group will play an even greater role in this space, as we seek to analyze our conviction that intent does matter. Why does it matter? What difference will that make for poverty reduction and economic development? And how will we measure it?

The IDB Group will engage in several activities to answer these questions and advance our work. We are conducting an impact investing portfolio overview. This tagging exercise will examine our work through an impact investing lens to begin to bring selectivity and a systematic approach to the way forward. Preliminary results will be available mid-May.

Stay tuned! 

Escrito por

Elizabeth Nicoletti

Elizabeth Nicoletti maneja comunicaciones ejecutivas y participación de partes interesadas en BID Invest, donde cubre proyectos complejos de infraestructura con asuntos de riesgo contextual y reputacional además de liderar las comunicaciones para la Oficina del Gerente General. Antes trabajaba en la Vicepresidencia del Sector Privado y Operaciones sin Garantía Soberana como una redactora de discursos, y en la División de Mercados Financieros del Banco Interamericano de Desarrollo (BID). Antes de llegar al Grupo BID, Elizabeth trabajó en la Corporación Financiera Internacional (IFC, por sus siglas en inglés) en Washington, DC, la Fundación Chol-Chol en Temuco, Chile y el Centro Internacional de Investigación de la Mujer (ICRW, por sus siglas en inglés) en Washington, DC. Elizabeth cuenta con una maestría en economía internacional de Johns Hopkins University, School of Advanced International Studies (SAIS) y es licenciada de Georgetown University de Washington, DC.

Financial Institutions

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