Pplaza de Armas in Lima, Peru. This article explores the challenges social enterpreneurs face in Peru.
Plaza de Armas, Lima Peru.

Latin America is a region characterized by creativity and constant transformation where entrepreneurial activities have spawned not just out of a necessity to generate income but also out of opportunity and driven by economic growth. According to the Global Entrepreneurship Monitor (GEM), within Latin America, Peru is one of the countries with the highest levels of entrepreneurship in the world. And based on Peru’s Tax Administration records, 99.5% of registered companies correspond to micro and small businesses. 

More recently, a new kind of entrepreneurship, namely social entrepreneurship, is taking hold worldwide, and Latin America has been no exception. These companies embed within their mission the achievement of social, cultural, community, economic, or environmental outcomes for the public benefit through the use of market mechanisms. They contribute to achieving the United Nations’ Sustainable Development Goals (SDGs). However, not only do they face the same challenges as their traditional-business counterparts but they also encounter the added challenge of retaining their social purpose in an increasingly competitive environment. 

With the goal  of promoting sustainable and inclusive economic growth and reducing poverty in emerging economies, the Asia-Pacific Foundation of Canada in conjunction with the APEC-Canada Growing Business Partnership recently launched an initiative that included four focus areas: technology & innovation, market access, human capital, and social entrepreneurship. One of the focus markets of this initiative was Peru, in which Carl Black, Investment Manager of Deetken Impact, conducted a detailed research project on social enterprises.  The findings of his research were presented in a study titled Financing for Social Entrepreneurship in Peru, which explores the obstacles and opportunities in financing social entrepreneurship in Peru. We summarize some of the key findings below.

Fabrics business in Lima, Peru.
Fabrics business in Lima, Peru.

What are the obstacles social enterprises face in obtaining financing?

We found that the obstacles to financing social enterprises in Peru include limited access to finance from commercial banks due to  high-interest rates, lack of guarantees, and, for early-stage social enterprises, a lack of financial track record and formality.  The Government of Peru offers some financing for early-stage companies through initiatives such as Startup Peru, but there is a need for more targeted funding for social enterprises. Furthermore, access to finance from international sources may also be limited due to limited willingness to provide local currency financing. 

Other obstacles faced by social enterprises include limited access to technology and insufficient training – according to one of the surveys carried out by the Asia-Pacific Foundation initiative, 86% of social enterprises interviewed don’t have adequate experience. Another common challenge is lack of formality. According to the Peruvian National Center for Strategic Planning (CEPLAN), Peru’s informal sector contributes 19% of the GDP of the country, above the Latin American average of 13.5%. The root causes for this prevailing informality include government regulation, taxation, and corruption. All of which make the cost of doing business more expensive, driving companies to informality. 

Women workers at the Piscifactoria, a sustainable trout farming company in Puno, Peru.
Piscifactoria is a sustainable trout farming social enterprise located in the region of Puno, Peru.

Opportunities for Change

We believe that the public sector has a crucial role to play in supporting micro, small and medium size enterprises (MSMEs), and more specifically social enterprises. In terms of their tax and regulatory framework, designing a differentiated corporate income tax treatment, and assessing and addressing the impact of value-added tax on working capital for companies often paid by customers after that tax is due, are two areas worth exploring. 

Government could also continue to support organizations providing business incubation and acceleration support such as: 

  • Educational initiatives that provide training and strengthen the founders and other key individuals in leadership positions at these companies; 
  • Access to technology to increase business efficiency; 
  • Developing impact indicators that allows these companies to measure their positive impacts and their contribution to the SDGs; 

It is essential that these initiatives support enterprises in different parts of the country in addition to the capital city of Lima to drive inclusivity and deepen impact. In terms of filling the financial gaps, the public sector could offer financing mechanisms that absorb some of the initial risk which allows them to attract other private and foreign investment that are aligned with the mission of social enterprises, including impact investors.

The social entrepreneurship ecosystem in Peru is still young and developing, with key support ecosystem actors emerging and developing roles as organizations who focus on supporting and guiding social enterprises in early stages of their development and beyond. It is imperative that this ecosystem continue to evolve and grow, such that collaboration increases and key gaps are identified and met, including through strategies and initiatives that align the strengths of government with the needs of the market. 

Social enterprises are an emerging force that have a compelling role to play in the sustainable development of Peru and to assist the country in achieving the SDGs.  The development of the ecosystem will be a complex process but the success of that development could have important benefits for job creation linked with the improved provision of services across sectors for the benefit of the public, including in education, healthcare, sanitation, waste disposal, and financial inclusion, among others.  Government has an important role to play in any social entrepreneurship ecosystem, including through putting the right incentives in place, supporting the right support infrastructure and addressing important financing gaps. Deetken Impact invests in social enterprises across Latin America and continues to collaborate with partners to support the emerging ecosystems in Peru that connect social enterprises with impact investment for the achievement of the sustainable development goals. 

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Magali Lamyin, Director of Communications and Development for Deetken Impact

MAGALI LAMYIN

Director of Communications and Development

 

Magali brings extensive market intelligence, business development and marketing experience from her work at the Central Bank of Mexico, the Canadian Institute for Market Intelligence, and the IESE-PWC e-Business Centre in Barcelona. She also co-led national marketing campaigns for businesses in the hospitality and early childhood education sectors for almost a decade before joining Deetken. In her current role, she is responsible for leading Deetken Impact’s communications, marketing and branding strategy. She is also involved in the due diligence process for project selection with an emphasis in Mexico.

Magali holds a BA in Economics from Mexico's ITAM and a Master's degree in Economics from the University of British Columbia.

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Jose Lamyin, Managing Partner Deetken Impact

JOSE LAMYIN

Managing Partner

 

José has extensive experience as a business advisor for clients throughout Canada, Europe and Latin America in mining, telecommunications, and finance. Prior to co-founding The Deetken Group, José worked for Teck Cominco in Peru and Canada and Deutsche Bank in London (UK). José has spearheaded much of the strategic growth of Deetken Asset Management since inception and is currently focused on investment selection.

José received his BS in Engineering from the University of British Columbia and MBA from IESE School of Business (Barcelona). Born in Peru, José is fluent in English and Spanish.

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Alexa Blain, Managing Partner Deetken Impact

ALEXA BLAIN

Managing Partner

 

Alexa is responsible for finance, operations and investor relations at Deetken Impact. She brings over 10 years of experience in financial consulting and asset management, with specific expertise in company and investment analysis, business valuation and securities/corporate finance. Prior to joining Deetken, she spent three years with African Alliance, a pan-African financial services group, where she focused on expanding the firm’s retail financial services operations as well as on the origination and negotiation of new capital. In addition, Alexa has six years of asset management experience with the Canada Pension Plan Investment Board, the Macquarie Group and the Ontario Teachers’ Pension Plan.

Alexa is a CFA Charterholder. She has also completed an MA in Financial Economics and an Honours BA in Economics, both at the University of Toronto.

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Fernando Alvarado, Head of Deetken Impact Sustainable Energy

FERNANDO ALVARADO

CEO

Honduras Renewable Energy Managers (HREM) and Caribbean Renewable Energy Managers (CAREM)

 

Fernando Alvarado leads the General Partner and Investment Advisor of two clean energy and energy efficiency project finance and venture capital funds: Honduras Renewable Energy Financing Facility (H-REFF) and Caribbean Basin Sustainable Energy Fund (CABEF), which he structured and runs with a combined target capitalization of $100m.

Development Investment Banker with 28 years of international credit and investment experience and 18 years of direct experience assessing diversified renewable energy portfolios in Latin America & the Caribbean. He has participated in more than 50 syndicated credit and investment transactions for renewable energy projects in excess of $250 MM. He led the creation, structuring, fundraising, legal closing and portfolio construction of several specialized renewable energy funds.

Costa Rican, based in San Jose, Mr. Alvarado has an MBA in Banking and Finance cum laude from Universidad de Costa Rica.

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Carl Black, Portfolio Manager Deetken Impact

CARL BLACK

Portfolio Manager

 

Carl is a Portfolio Manager with Deetken Impact focused on analyzing and working with MSMEs, social enterprises, and renewable energy developers in Latin America and the Caribbean. His main responsibilities include supporting business development, managing technical assistance projects, leading investment due diligence, and monitoring portfolio performance. Prior to joining Deetken Impact, Carl worked for five years as a consultant, advising public sector clients an non profits in Canada and financial services companies in Latin America. He started his career at the Bank of Canada, where he researched issues related to household and business credit. 

Carl completed an Honours BA in Economics at the University of British Columbia. He also holds an MSc in Economics & Development from the University of Oxford, where he earned distinctions in quantitative and development economics.

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Cristobal Aguirre, Investment Analyst at Deetken Impact

CRISTOBAL AGUIRRE

Investment Analyst

 

Cristobal has over 6 years of experience in the asset management industry, where his responsibilities have ranged from asset allocation and portfolio management to risk analysis and software development. Before relocating to Canada, Cristobal worked as a senior investment analyst in AFP Habitat—Chile’s largest pension fund—where he led the tactical asset allocation and macroeconomic research for emerging markets.

Cristobal is a CFA Charterholder, and completed a BA in Economics at Universidad de Chile.

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Chad Parsons, Senior Investment Analyst at Deetken Impact

CHAD PARSONS

SeniorInvestmentAnalyst

 

Chad has worked as a consultant in business and technology for 20 years – often helping clients with their business transformation initiatives.    He has worked with start-ups, government, and established businesses to further their product and service offerings with a balanced approach.   After pursuing a research degree on leveraging technology for social and economic development; Chad has found a valuable alignment of his background with Deetken’s innovative impact investments. 

Chad completed a BS in Engineering from the University of British Columbia and has a MSc with distinction from the University of Manchester (UK).

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