July 5, 2024. A new approach to financing with entrepreneurs in southern Chile shows how field-based impact investing has better results than traditional philanthropy. VIVA Idea’s collaboration with Fundación Avina and Balloon Latam in the research of the Rural Development Fund project systematizes knowledge that can be leveraged in other projects and other latitudes.

The Rural Development Fund project, implemented by Fundación Avina in collaboration with Balloon Latam, arises as a response to the urgent need to support rural entrepreneurs in a challenging context accentuated by the global pandemic.

This fund, designed to channel economic resources to these communities, focuses on three specific regions of Chile: El Maule, La Araucanía and Los Lagos. These areas face significant socio-economic challenges, such as high levels of poverty, limited access to education and health services, poor infrastructure, and a prevalence of informal labor that limits access to credit.

Verónica Fisher of Fundación Avina explains that the Rural Development Fund not only provides financial resources, but also creates a bridge for entrepreneurs to access credit on preferential terms, something that would otherwise be impossible due to the restrictions of the traditional banking system.

“This fund grew and was implemented during the pandemic because of the urgency of a structural situation. Entrepreneurs did not have access to any credit or subsidies from the State due to the informality in rural areas. With this loan, we were able to create a bridge that would allow them to access preferential rates that are not available in private banks,” said Fisher.

The Rural Development Fund has enabled entrepreneurs not only to survive during the pandemic, but also to reinvent themselves and adapt to new market conditions. “We want to achieve this because it is the only way to drive development, accompanying them both in their growth as entrepreneurs and in the development of the communities where they are inserted,” Fisher added.
This comprehensive and collaborative approach has been crucial to the project’s success, focusing efforts not only on financing, but also on capacity building and community development.

Felipe Symmes, VIVA Idea’s research and academic outreach leader, highlighted the importance of the Rural Development Fund during a field visit to these regions. “We observed that 85% of entrepreneurs consider their enterprise as the main source of income for their households. However, due to the pandemic, many had to stop or reinvent their businesses, facing unforeseen costs and investments. In addition, the structural conditions of informality in rural Chile prevent the majority of the population from accessing credit,” said Symmes.

The fund emerged as a mechanism to channel economic resources to rural entrepreneurs, strengthening their projects in a challenging context due to the global pandemic. This fund focuses on three specific regions: El Maule, La Araucanía and Los Lagos, where Balloon Latam has developed relationships and social capital with rural communities.

These regions face significant challenges in terms of poverty, access to education and health services, poor infrastructure, and high levels of unemployment and informality. According to data from the National Socioeconomic Characterization Survey (CASEN) 2020, the income poverty rate in La Araucanía was 17.4%, the highest in the country. The regions of El Maule and Los Lagos have lower income poverty rates than La Araucanía, but still significant.

Despite the differences, the three regions face significant challenges in terms of access to and quality of education and health services, poor infrastructure that limits access to economic opportunities and services, and high levels of unemployment and underemployment with high levels of informality due to structural problems where the state is largely absent.

The fund is characterized by evolving from an exclusively “impact first” fund (2021-2023) of USD 300,000 (and USD 120,000 for fund operations) to a second version of the fund (2024-2025) that integrates philanthropic “impact first” investors and “finance first” investors (which is still raising resources but aims to reach USD 1 million). In Fund I, funds were provided by four main family offices that assumed the risk associated with the delivery of the loans and financed operations from a philanthropic perspective, in some cases requiring return of capital. These family offices include the Martigues group, the Torca group, LDG Investments and the Prisma group. In Fund II, more investor groups became involved with more investment options, ranging from exclusively philanthropic to “finance first” possibilities.

Preliminary results of the ongoing research have revealed several key learnings. First, impact investing in Latin America involves investing in areas of extreme poverty and informality that do not meet traditional banking standards and address structural problems.
Second, innovating investment instruments to address these problems requires combining philanthropic investments with “finance first” investments.

Finally, collaboration between investors with different objectives is based on the trust generated in Balloon Latam and Fundación AVINA, rather than on trust between the investors themselves.

Fisher stressed the importance of this collaborative research. “We are managing to observe significant impacts on people, but we are adding an impact study to be able to also analyze the mechanics and achievements, and to have the scientific and academic backing of that work done,” he explained.

“Being this project very collaborative with other organizations, one of the most important articulations is with VIVA Idea, precisely to carry out an impact evaluation of this project. It helps us a lot to start documenting everything that is possible from a scientific and academic angle that supports what we observe in the field,” added Fisher.

VIVA Idea’s research, using the action-research methodology, not only seeks to generate knowledge, but also to contribute to the direct impact while investigating the process. “Our research processes seek to contribute knowledge to the impact of the projects and processes investigated and, in addition, to bring this knowledge to the international scientific community through publications in scientific journals and presentations at international congresses,” said José Valverde, executive director of VIVA Idea.

For Valverde, collaborative work is the most fruitful because it takes advantage of the capabilities of each organization involved insofar as it can contribute to the impact and knowledge of the impact from its own experience and capabilities.

In addition, both VIVA Idea and Fundación Avina are members of the VIVA Ecosystem, organizations founded by Stephan Schmidheiny that have a vision of involving the work of social organizations and the private sector in models of impact investment and collaboration that achieve better results than philanthropy or traditional assistance that by suspending funds forces organizations to close operations.
The Rural Development Fund represents a key initiative to support sustainable development in Chile’s rural communities, combining philanthropic and financial efforts to create lasting impact.

The collaboration between Fundación Avina, Balloon Latam and VIVA Idea is fundamental to document and scientifically validate the results, thus strengthening the impact investment model in Latin America.