Opening presenter:

Welcome back to the Amazon Investor Coalition. Each week for the last six months jonah [surname unclear] and I have been hosting zoom calls with sometimes 40 odd people where we provide a platform for some of the brightest and most effective activists from around the world to share how they have been advancing forest friendly economic development in the Amazon region of south america. And we’re now producing these calls into a podcast series. On this episode, we have Leonardo Letelier. Leonardo is from SITAWI Finance for Good. It’s one of Brazil’s most active vehicles for impact investing.

In 2019 they released a landmark report about impact investing in the Brazilian Amazon. They also launched [platform name unclear], a crowd lending platform that funds sustainable Amazon businesses. Finding investment ready projects is no simple task. And their second investment round was finalized in hours. Join SITAWI founder and CEO Leonardo Letelier to hear their story.

Moderator:

So, Leonardo, please join us. You know why I have invited you to this call. You’re doing amazing things. Please tell us about yourself. And your work.

Leonardo Letelier:

Excellent. So thank you, everybody, for being here. Thank you, Jonah, for an invitation. Excellent. So I’m going to talk a little bit about little bit about SITAWI, try to be as concise as I can. So we are a nonprofit. We were founded in 2008. We operate something that in the us is known as [acronym unclear]. We call it philanthropic fund management. We also do impact investing and we try to structure social impact bonds we haven’t been very successful at that one. We are the most active impact investor in Brazil, in number of deals not in amounts.

We are impact-first, and we do mostly loans and we have a partnership with a consulting company that focuses on responsible investment advisory, that donates ten percent of the revenues to the nonprofit. And uses the SITAWI brand. So you might see a lot of things going on under the SITAWI brand. Some of it is run under the nonprofit arm. Some of it is run under the for-profit arm. And this is what we call Finance for Good. So we span all the way from philanthropy to social finance to sustainable finance. And I’m gonna focus a little bit more on the impact investing side, per Jonah’s request.

But I want to recognize also alex that’s on the call from usaid. We have a partnership our first staff was with USAID [wording unclear] in I think it was 2010 or something like that. But we’ve run some 40 plus funds and disbursed around 60 million reais. So when we extend a loan—and we mostly do, it’s not exclusively but it’s mostly loans. What we look for is recognized impact, ability to execute whatever they’re asking money for repayment potential, and ethical fiber. ” we’ve done 50 deals to over 40 organizations with 29 exits.

An exit for a loan is quite simple as they repay everything they owe. Out of the 29, 28 were straight loans, one was convertible. And we have I think two or three cases of default but none of them very recent. We are pioneering the crowd-. Lending space in Brazil. We created an online platform called [platform name unclear] that’s focused on impact investing, crowdlending.

Moderator:

Translate [platform name unclear] into English. Crowdlending? Okay, collective loan.

Leonardo Letelier:

Or, yeah, crowdlending. That’s what we use when we translate. We do it in rounds. So the first round was in June 2019. 5 million, 159 investors. It took us 58 days to raise all the capital some of that capital goes through the platform and some I’m gonna show you later through family offices or anchor investors. The conditions were one percent per month, monthly installments, 24 months in total. They had four months of no principal, just interest. Our second round was more recent was in march of this year just before COVID hit.

3 million. Again, some of it through the platform some of it indirectly. Same conditions, but it took us 24 hours to fundraise the whole amount and we ended up with a waiting list of 65 people, around 600,000 reais of demand for loans. And this is an initiative in partnership with PPA, which is also funded and led by USAID. Alex can tell you more about it.

Moderator:

I just want to ask one thing. Could everybody put themselves on mute except for those who are talking.

Leonardo Letelier:

So how does it work? We need subsidies, so donations to set up or customize the platform for all the staff that’s doing the operations, the management, marketing, origination, and due diligence,. And the monitoring of the deals. Also third-party suppliers, travel. This was before COVID. I assume there’s going to be some travel later on but probably less than we planned. And we also use in terms of subsidies some of that money for anchor investments in terms of seed capital. To de-risk retail investors or increase their average return. Or what you might have.

And when that money comes back it can be used in another round not necessarily the second round but a later round of the crowd lending platforms. And then we have retail investors. They put money, they get money plus interest through the platform. We have some family offices also putting bigger tickets and getting their money back as well. Some of these family offices or these investors on the top right can be the same ones providing subsidy on the far left and this money flows through the platform to what in Brazil we call impact businesses.

Probably the best translation would be social enterprises in English. But Brazil created its own lexicon tied to impact investments so we have impact businesses. Right? On the second round so the one that was focused solely on the Amazon. We had an open call run by PPA, with 201 applicants. Thirty-seven were interviewed. We did due diligence on eight and selected five which were the five you just saw that went into the platform. We had from 1,000 to 50,000 reais in ticket size. The average was 6,000, so the average was around 1,000 US.

And 80 percent of investments were up to 5,000. So the platform has a an operating model that’s geared towards providing access to impact investing to as many people as possible. To the retail investors so that he or she can invest with their with their values. But also start using that insights in the rest of their financial transactions. So when they go to a bank or when they invest with other players the idea is that they start asking more and more about what is happening to their money. We published a report, again funded by USAID, on impact investing in the Amazon.

And what are our planned next steps? In the second semester we’ll likely make one general round possibly we’ll make one Amazon round but it’s not set. This might slide to 2021. In 2021, we’re probably gonna do one or two Amazon rounds, one or two general rounds, and possibly one green round which might merge with an Amazon round. We have larger deals in coordination with the pilot fund that is under design and possibly will be launched in 2021.

Moderator:

Could you, just—you’ve touched on it previously could you explain how you originate the investment opportunities?

Leonardo Letelier:

So we have a we are part of PPA. This is done in partnership with ppa and ppa has a call for proposals for an accelerator that’s run by [organization name unclear].

Moderator:

Tell us what PPA stands for and what it is.

Leonardo Letelier:

[expansion of PPA unclear] Partners for the Amazon. It’s a USAID- funded and led initiative. For private sector engagement so this is what alex does that’s his day job. And Natura is part of that, [company name unclear], Coca-Cola, I think Beraca is as well a bunch of local organizations and also large national ones. And one of their initiatives is an accelerator that’s run by [organization name unclear]. It’s a local NGO. What we did is, within their program, we included our criteria and also tried to identify organizations that were more mature than the acceleration stage and ready to take up a loan.

But we also have our own network of partners in the region we also have an office in the region by the way. One of the programs we run in those philanthropic fund managements is in [place name unclear], and so we have partners on the ground with whom we can source deals.

Ruben:

This is Ruben. I was just curious if you can talk a little bit more about what the deals look like in terms of what the investments are used for if there’s any general [question incomplete].

Leonardo Letelier:

Yeah, so I thought we were going to have the have the numbers, which we don’t. It can be like 150,000 reais, 30,000 dollars, to a co-op as working capital. It can be changing the business strategy, the [strategy wording unclear] strategy. Of Tucum, that works with Indigenous arts so they used to buy and resell. Now they want to become a marketplace. In [company name unclear] juices it’s market expansion. And [company name unclear], also market expansion. So varied, typically shorter-term, more visibility of where the money is coming back. Not necessarily guaranteed, but we tend to be pragmatic in terms of who we lend to and where the money is going to come back from.

Alex:

Jonah, this is Alex. I’ll just comment on this as a complement to what Leonardo is saying. The ticket size that we have identified for those startups are really small compared to what one would think that you know maybe you a million dollars is it’s a lot of money to any of these businesses. So it wasn’t a surprise. But the study that SITAWI did for us, which Leonardo just showed, demonstrated that the real the real need for the Amazonian people those right there, are not in million figures. For them to be helped, they need small tickets and they we need to set up the right system so I think SITAWI has been able to do it very successfully.

And it’s still for us it’s a learning process we’re learning a lot because you know we’re doing this for the this is the second year we’re doing it. But we already have on our database 30 Amazonian startups that have been selected by our program the acceleration program, that is, just presented. But it’s it’s very interesting because you know it’s not in the millions. These people they really need some small amount that will make a really real difference in their lives and impact.

Moderator:

Okay, I want to open it up a little bit now so there is one issue that we haven’t talked about but it is going to be a big focus of this emergent coalition and that’s the question of rule of law. In order for the business environment to operate successfully the legal environment and the demilitarized environment needs to be in place. Dave, I want to—Dave Martin—I was gonna read off those pillars of rule-of-law work.

Dave Martin:

Hi, everyone. Sure. So I just want to start with saying this is a work in progress. Jonah and I understand the real significance and importance of rule of law when considering everything from conservation work to investing. So I’d like to invite everybody to join this group I saw that there was a question in the in the chat if we get if we’ve gotten started on this so feel free to reach out to me and jonah if you’re interested in collaborating on this. But when I was thinking about this and this was just kind of an off-the-cuff brain dump if you will but I you know I think it’s a good idea before we jump into anything is understand you know how you I even define the rule of law, what qualities a society has if it has a strong rule of law.

And you know I just for example right now on this call, I googled. There are many definitions out there but some of the ones that jonah and I are thinking about societal transparency and free press; enforcement capacity, like the ability to monitor what’s going on the legal infrastructure, [wording unclear]; trust in government and those enforcing the law you could also call that community buy- in. The quality of the laws themselves, everything from legislation process to stakeholder involvement. There are many more. And then of course the Amazon is a big place so certain regions will probably have you know more institutions or space that is really definitive of rule of law.

And layered on top of that, I would say that you know I engage in philanthropy myself when I work for Mongabay, which is an environmental journalistic outlet. You know you have to consider what organizations are working on these elements in an effective way, how to support that. Whether it’s through advocacy or legal assistance, applied technology, protected area creation, media production, journalism, community support and organizing,. It’s a big nut to crack so I’m inviting collaboration here.

Moderator:

And just to give context there are going to be four outputs of this emergent coalition. And one of them is going to be a survey where we ask a lot of the big funders in the Amazon conservation space what rule of law grant making are you doing. Because we think that we can point out needs, unmet needs, and inspire some donors to you know to fill in those needs. So that’s why categorizing is the first analyzing it.

Amy:

Jonah, this is Amy. Sorry to jump in just one question is are you also interested in some of the standardized indexes like Doing Business? That is a nice framework for looking at least on the investment side like doing business indicators that have been developed for Brazil. So that’s just one thing to look at. It’s not [phrase unfinished]; it includes rule of law in the case of things like you know processing paperwork to set up businesses and there’s a bunch of different indicators so that’s like one thing to look at. But on the governance side, there’s you know my background is more on the community based side so you know community governance how community decisions are made, how communities are engaged in the decisions around investment, around land use, around anything that impacts their resource and land rights.

And I’m not I don’t mean to be a one- issue-focused [wording unclear]. That community governance piece is really important,. In that it’s inclusive decision-making, participatory decision-making. And we do a lot of that in our community based mapping and land documentation. Work. So what kind of documentation communities have whether or not they have legal recourse,. What kind of disputes there are, whether or not how those disputes are resolved. That piece is really important because a lot of companies—USAID did a report a couple of years ago, saying that they looked at a whole series of investment vehicles and one of the biggest barriers was conflict, land disputes and conflicts.

Investment.

Moderator:

Are there other people who have rule of law questions or ideas.

Unidentified participant — Environmental Defense Fund:

I’ll just say, from EDF’s perspective, Environmental Defense Fund, we’ve been involved more on the Indigenous the indigenous land rights issue in helping a group of communities to defend their land rights including through legal actions and law enforcement actions. So that’s just one piece of this but something where we have a long history.

Moderator:

Can you just give us a little bit of color on the law enforcement actions have you guys been funding the training of local police forces, something like that.

Unidentified participant — Environmental Defense Fund:

Not directly but supporting I mean through other organizations and indigenous partner organizations helping them to have their own monitoring capacity being able to access satellite data on incursions, and then be able to connect that information with, for example the federal prosecutor’s office, so actions can be taken.

Moderator:

Okay, we have just a couple of minutes left we’ll have another phone call next week. We’ll have a larger phone call that is sometime in the future that’ll be one hour focused on one issue. I want to thank everybody for joining us. Amazing presentations. They’ll be packaged and made available for others. Any more questions about this process or from any of the speakers about rule of law.

Unidentified participant:

I had a question earlier for daniel it was about when you talked about NGOs that were not so good there has been a lot of discussion in the last year about NGOs that were acting in bad faith in Brazil and there was a lot that was not really true. It was a lot of rumor mongering and such. It’d be really helpful to know what were your real experiences and what are some ways people can actually really distinguish between the ones that have acted in good faith, the ones that are doing the really good work and that’s the majority in my opinion and belief.

But there are bad actors in every industry and in our space and when there’s one or two or three that are bad it makes everybody look bad. Right? It confuses people. It draws attention in a way that is not helpful and it really affects the cause. So it’d be really interesting. You don’t have to do it in this call but I was curious when you talked about it, but I didn’t want to take the presentation [phrase unfinished].

Daniel:

Of course. Do I have time for that?

Moderator:

Yeah, go for it.

Daniel:

Okay, so I think there are two aspects. One is the profile, which doesn’t have anything to do with being bad or good. And that was the most important aspect that we took into account to create a specific institute,. Which is the which is the market-driven perspective. So the experience we had was with good and bad NGOs that didn’t have market, let’s say, the market DNA. Or the willingness to [phrase unfinished]. So they were more interested on protecting and taking care of [phrase incomplete]. But if you want to serve a market you need to obviously take care but at the same time be competitive, be accurate, offer to the market the quality the market is looking to pay for.

So that’s a characteristic, not being bad or good. And the ones that we would that we also find not being as good and that’s not part of the characteristic but being part of the profile, are institutions that, obviously when the project is over and they need to justify themselves in a way that they need to find another project just to you know to continue and then the mission is gone. So they were—when, for instance, we had discussions where the first topic was when is the money coming in. You know so not about the objectives and the KPIs.

Obviously we need the resources to run the projects. But there are institutions that they try to justify themselves by just existing. And I believe that there are institutions that you know they were created, they have a mission,. And maybe they shut down because their mission is completed [end of sentence]. So that’s only my perspective: one part is being good or bad, and another thing is the profile and the characteristic.

Unidentified participant:

So in terms of what you needed for what served the purpose of the work you were doing within.

Daniel:

Yes, this market connection, yeah. Profiling, yes.

Unidentified participant:

Thank you for clarifying that. Thank you.

Moderator:

Okay great everybody let’s give an applause for everybody.

Unidentified participant(s):

Yeah, great job. Thank you so much. Thanks, thank you. Have a great week. Thank you for hosting.