Leonardo Letelier is founder and CEO of sitawi, Brazil’s first Social Fund. He received one of the SOCAP/Europe Entrepreneur Scholarships. In this blog Leonardo distinguishes different understandings of impact and open-heartedly reflects on sitawi’s choice to invest in ‘real mission driven’ small and medium enterprises (SME’s).

By now, everyone has heard about impact investing, defined as investment achieving social impact and financial returns. While I believe that in some cases you can achieve both without compromise – what would be better than get rich and save the planet at the same time? – I argue that there are many more people (and funds being raised) with that marketing tagline than real opportunities.

Let’s get into that: first, all investment (actually almost all human endeavor) has social impact – in the worst case it is negative, but there is always something on that front – so what distinguishes these funds are intention and promise. Someone that raises “just another” microcredit fund is doing something clearly valuable, but is not at the forefront of innovation. Many microcredit funds are being raised on commercial basis which means that profit is the engine and social impact, the wagon. That is an important distinction, because when all goes well, it’s easy to keep the “no compromise” speech. When it doesn’t, you do want to know which side of the “train” the fund will lean to.

At sitawi, we provide loans to social enterprises that are best described as mission-driven SMEs (most of them nonprofits with a business division) – clearly putting ‘social’ as the engine and ‘business’ at the wagon. We have lent R$1.3 million (US$800,000) with no defaults. Because that is a underdeveloped segment in Brazil, the operating model is grants-to-(below market)loans, with the benefit of “multiplied social impact” for donors (we turned our fund three time in the last two years). The endgame is not only that grants are multiplied and each loan has its own impact, is that we create a new way of financing social impact in Brazil, increasing 100-fold the amount of funds potentially available for the sector (R$10 billion in grants/year vs. R$1 trillion in the credit market). So our mission is to develop financial infrastructure for the social sector in Brazil, basically bringing more money and more types of money to the sector.

A fund that invests in “traditional” SMEs can claim social impact (jobs and taxes), another one that focuses on companies with a (higher-than-average level of) social impact, makes the same claim. We make the same claim! The first two return money to investors, we don’t. And all three of us do things that are quite different.

I believe we are in the toughest spot, but that was the our choice, so part of the blame of this communication mess is on us. And you, what would you do in our shoes? Suggestions (especially those that reflect our mission) are welcome!