Emergence of a new movement
Sarah Murray, for Financial Times
The region is becoming a leader in market­based solutions to poverty and environmental problems, says Sarah Murray New movement emerges to tackle poverty and environmental problems
With few tax incentives and a tradition in many countries of social services being delivered by government and the church, the philanthropic sector in much of Latin America is a poor relation to its counterparts elsewhere. However, when it comes to social entrepreneurship and innovative market-based solutions to poverty and environmental problems, the region is fast becoming a leader.

Philanthropy is certainly not absent from the region. And corporate giving is becoming increasingly prevalent. In Brazil, for example, prompted by a range of government mandates, large corporate foundations have been established by companies such as Natura, one of the region’s largest cosmetics makers.

However, compared with countries such as the US or some European nations, philanthropy in Latin America – particularly private giving – is generally under-developed.

While individuals such as Mexico’s Carlos Slim stand out, the tradition of wealthy entrepreneurs setting up organisations through which to make charitable grants has yet to be established.

“The American-style individual – someone who pulls themselves up by their bootstraps and sets up a foundation to give away their millions – is a very specific tradition, and it doesn’t really exist here,” says Sean McKaughan, chief executive of the Avina Foundation.

Moreover, legal codes, which often make it difficult for foundations to give money outside their country of origin, are one of the reasons the Avina Foundation remains among the very few regional foundations in Latin America. “Only two countries allow a national foundation to make grants across borders – Panama and Uruguay,” says Mr McKaughan. In many countries, burdensome procedures for securing tax-exempt status and the paucity of foundations and other grant-making organisations mean the community of non-profit groups and non-governmental organisations (NGOs) is not as robust as it is in other parts of the world.

Instead, many see great potential for change in the work of social entrepreneurs – companies approaching business with “triple bottom lines” of financial, social and environmental performance, and enterprises that are part of the region’s fledgling benefit corporation (or B Corp) community.

“There’s a real emergence of this new movement, says Lee Davis cofounder of NESsT, a non-profit group that promotes social enterprise in emerging markets and that is this month hosting the Social World Enterprise Forum in Rio de Janeiro, Brazil.

Part of the reason those working to advance human development and protect the natural environment are turning to business models may lie in the weakness of philanthropy in the region and the structural, historical and cultural barriers that obstruct the expansion of donor institutions and non-profit organisations.

However, a historically weak philanthropic sector is just one of many forces behind the growth of marketbased approaches to social and environmental problems in the region. First, despite rapid economic growth and an expanding middle class, extreme wealth disparities persist with many people still living in poverty and in need of basic services such as clean water, low-cost housing, healthcare and education.

These are services that many believe can be delivered using marketbased models adapted to low-income communities or supplemented by Continued on Page 2

Continued from Page 1 philanthropic or development funding.

In Lima, the Peruvian capital, for example, Juan Carlos Aguilar Macizo – one of the fellows at Ashoka, a non-profit group that supports social entrepreneurs – is piloting an innovative system of waste management that can be installed at one-third of the cost of traditional water and waste systems while also reducing urban water consumption.

The model is based on modest investments from the local community, who finance 40 per cent of the project costs – something Mr Aguilar believes will make the systems more sustainable since, as investors rather than passive recipients of “free” water, communities will have greater incentives to use and maintain the systems.

With many Latin American countries still developing basic social services, plenty of opportunities exist for social entrepreneurs to come up with these kinds of ideas.

“They don’t want to just recreate the old systems of the west,” says Raj Kumar, president of Devex, an online recruiting and information hub for the global development community.

“They’re leapfrogging the developed world, so Latin American countries are in a sweet spot for business models that make money but also have a social impact.”

For Dane Smith, managing director at FSG, a nonprofit consulting firm, this ties in with what he sees as a growing number of companies in the region that want to tackle social and environmental problems, not through charitable donations, but by adapting their business models to include low-income customers or bring small enterprises into their supply chains.

“In some ways this is an easier jump for companies in Latin America than for the US and Europe,” he says. “Because they recognise that in their economies, a substantial part of the market opportunity is going to be people from lower socio-economic classes.

When it comes to environmental issues, another factor driving the growth of social entrepreneurship is awareness of the importance of biodiversity, natural materials and ecosystems, not only to communities but also to businesses.

“You have a region that’s focused on natural resources and needs sustainable development of those natural resources,” says Bart Houlahan, cofounder of B Lab, a US nonprofit group that harnesses the power of business to solve social and environmental problems and whose B Corp certification system is being replicated in several Latin American countries.

The rapid spread of ideas – such as B Corps, which must place the same emphasis on delivering social and environmental returns as generating profit – is helped by the fact that Spanish and Portuguese are the region’s predominant languages, allowing innovations to cross borders more easily.

Moreover, global institutions have recognised the potential return on their development investments of funding social enterprise rather than initiating aiddriven programmes. Across the region, organisations such as the United States Agency for International Development and the Inter-American Development Bank have launched initiatives to promote the spread of social entrepreneurship and impact investments (those designed to help solve a social or environmental problem while also generating a financial return).

The extent to which social entrepreneurship is being embraced varies from country to country. Mr Davis highlights Argentina, Brazil, Chile, Ecuador and Peru as among those at the forefront of the movement.

In Chile, for example, government ministries and universities have created startup incubators.

“And Peru is high on the list in working with rural innovators that are setting up social entrepreneurship in agriculture,” he says.

Given the growing interest in this kind of approach, social entrepreneurship may even have the potential to reinvigorate the philanthropic sector as donors become more interested in working in partnership with business.

Of course, as in any region, philanthropy will always have a role in Latin America. Problems such as human rights violations or drug abuse are tough to tackle through marketbased models.

However, the question for savvy philanthropists is whether, in tackling many of the problems they hope to help solve, they could get more from their dollars by supporting entrepreneurs with smart ideas rather than by simply handing out charitable cheques.

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