OPINION: Social Entrepreneurship: Disrupting Traditional Capitalism and Driving International Development

Facebook unveiled on August 28 its first training center in Latin America in São Paulo that will offer coding, digital marketing, and entrepreneurial skills to thousands of young Brazilians. In the wake of a staggering economic crisis, the project highlights the opportunity that technology offers individuals not just to make a living but to make a real difference in the world. This center is an example of the rapidly-expanding economic sector of social entrepreneurship and impact investing, an industry that has taken the business and development worlds by storm. But what do these seemingly ambiguous terms really mean? What qualifies as “impact,” and who gets to decide if an individual meets those requirements?   At their core, the social enterprises created by impact entrepreneurs are businesses “that make money—but pursue a path greater than just profit.”  They are businesses that are socially and environmentally responsible, implementing market-based solutions to solve issues ranging from financial inclusion to clean energy. Like all entrepreneurs, however, these socially-minded individuals still need capital to get their fledgling ideas off the ground; it is this need that impact investors satisfy. Impact investing, as best stated by the Global Impact Investing Network, “challenges the long-held views that social and environmental issues should be addressed only by philanthropic donations, and market investments should focus exclusively on achieving financial returns.” For developing regions like Latin America and the Caribbean, this means that the social entrepreneurship sphere holds the potential to be the driving force for development.

International development strives to give countries the capacity to independently implement particular solutions for  particular problems. International aid, which is traditionally doled-out to certain humanitarian projects or emergency-relief efforts, is no more than a short-term solution to a short-term problem. Investing in social entrepreneurship is, conversely, a dynamic alternative that can simultaneously grow a country’s economy and resolve the environmental and social ailments that often keep such countries from developing in a sustainable manner.

The promise of this impact model to change the landscape of both business and development has led to an outburst of vibrant entrepreneurial ecosystems in cities ranging from Riyadh to Santiago. But the industry suffers from a lack of agreement over whom and what constitutes the sector. No two sources agree on the specific parameters for a social enterprise, nor for impact investment. In a world heavy with vague buzzwords like “impact” and “innovation,” this makes for misdirection and confusion, especially when it comes to funding.

In 2016, the Global Impact Investing Network estimated that a mere $6.97 billion was available for investment in all of Latin America and the Caribbean. To put this in perspective, Snap Inc., the parent company of Snapchat and a five-year-old Silicon Valley startup, is currently worth over two and half times that pool of impact-investing capital—which is spread over 33 countries. According to Reuters, however, significantly more funding is rolling into Africa, a region whose predicted growth rate over the next few decades has drawn-in hopeful—and wealthy—investors from all over the world. Nevertheless, the future for Latin America remains promising.

The region is slowly waking up to the untapped potential of impact entrepreneurship to change its social, business, and environmental landscapes. Accelerators and incubators focused on providing consulting services to social entrepreneurs have sprung-up across Latin America. Agora Partnerships, Uncharted, and Endeavor are all organizations changing the face of the industry by providing the necessary knowledge, networking, and capital for these startups to succeed. In a year, the capital available for impact investing has grown by 47 percent.

Global Impact Investing Network CEO Amit Bouri believes impact investing is the key to ensuring the development of a sustainable economy. This is all the more true for emerging markets like Latin America, where previously disenfranchised community members can take matters into their own hands and create businesses that provide livelihoods and lasting solutions to the world’s most pressing challenges.

Louisa Christen is a junior in the School of Foreign Service.