sitawi‟s SSL Fund July 2009

sitawi

institutional

presentation

Social Innovation

Summer School 2009

Recovery Through

Innovation

sitawi 1

• Brazil is the 8th country with the

greatest social inequality in the

world, where ~50 million people

live below the poverty line**

• 76% of the urban population and

only 17% of the rural population

have basic sanitation, while only

a third of the sewage collected

receives some treatment

• There remains only 8% of the

Atlantic forest, and Amazon forest

has only ~ 60% of its original area

• Every year, over 20.000km2 of

forest are devastated in Brazil, and

only in December of 2007 1.922km2

of forest were shattered

• Brazil is the 4th country with the

greatest number of endangered

species

• The illegal traffic of sylvan animals

in Brazil is worth more than US$ 1,5

billion a year, removing 38 million

specimens from nature… only 10%

of survive until they reach their

final destination

* Citizen sector organizations

** Income inferior to US$1 per day

Source: INPE; Press clippings; Cepal; IUCN; Renctas; IBGE; sitawi

CSOs* in Brazil, 90% of which have less than 5 employees, are not properly

equipped to combat the country‟s huge social and environmental challenges

sitawi 2

Scaled up, sustainable

operations

• But most CSOs, even best ones, do not have access to adequate funding

to augment its social impact

– Too big for unsecured micro-finance loans (US$1.000 at 2-4% p.m.)

– Too small for development banks subsidized credit lines (US$10 MM at

~0,5% p.m.)

– Too risky for traditional commercial bank loans (4-6% p.m. with collateral)

Their virtually single funding source – grants from large corporations‟ foundations

– allows limited professionalization and social impact

• CSOs can access grants for

initial growth

• CSOs can establish small-

scale business operations

Small-scale

operations

Professionalized

operations

?

sitawi 3

To improve their scale and self-sustainability and enhance social impact, CSOs

need access to balanced funding sources and adequate management capabilities

* Business model with revenue generation in an attractive market/segment in terms of social impact and number of clients

** Impact observed in a sample of over 100 families in 2006

Source: Saúde Criança Renascer; sitawi

Large scale CSOs with

multiple funding sources

and potentially self-

sustainable

CSOs with revenue

generation and less

dependable on

grants

CSOs highly

dependable

on grants

• In order to attain this evolution CSOs need…

…a potentially self-sustainable business model*

…business skills and convergent social and business mindset

…access to different funding instruments

Example: Saúde Criança Renascer

• Works in development of families who had their children

hospitalized, reducing the recidivism ratio

– Reduction of hospital costs in ~73%**

– Improvement of family income in ~46%**

• Has its own gift brand, whose sales generate revenues to the

institution

– Products with excellent acceptance and high market potential

– Dependence of 2 non professionalized sales channels, generating

turbulence in the business and restricting production

– Do not have proper resources nor expertise to expand business

sitawi 4

The Supported Social Loan represents a bridge between traditional sources of

financing and the social sector circumstances...

Citizen Sector Organizations

• Limited capital,

dependent of grants

• Low-scale

operations, without

real guarantees

• Seldom

professionalization,

with few business

skills

Traditional financers

• Plenty of capital

and multiple

funding

instruments

available

• High return rates

and/or need of

collateralization

• Limited

understanding of

the third sector

Supported Social Loan

Allocated resource volume in Brazilian market, R$ billions, 2007

7-10

1.800 • Access to capital with low

interest rates

• Discipline for business plan

implementation and monitoring

• Advice to assure business plan

impact and future loans to other

CSOs

sitawi 5

…representing access to affordable credit and to a more structured decision

making processes

What do we offer?

Loans between R$100.000 and R$400.000

– Interest rates of 1-1.5% p.m. (market ~3.5-5.5%

p.m.) and flexible repayment period

– Collateral is desirable, but will not restrain credit

approval

Formal business plan monitoring process

– Periodic reports with business’ key performance

indicators

– Predetermined interaction schedule

Business advice by business/social

convergence experts

– Support on strategy, sales, operations...

– Increase in financial sustainability and social

impact

Capital

Discipline

Advice

To whom do we offer?

Structured market and

business vision

Prepared to incorporate

business monitoring and

advice

Revenue generating

operations, ideally

presenting surplus

Proven social impact

Similar models

already operating

in other countries

sitawi

There are already some SSL success cases and the outlook

for SSL seems very attractive

6

A recent survey by

sitawi identified

other 100+ potencial

clients for SSL

Davida / Daspu

Davida

• CSO that fights for prostitute’s human rights and

improved life quality

• Example of impact: number of prostitute

organizations nationwide increased from 3 to 34

since 1992, year of Davida foundation

Daspu

• Social apparel brand launched in 2005 to generate

revenues for Davida, making it more sustainable

• In the last 3 years, Daspu has been experiencing

financial and management dificulties

Objectives and characteristics of the loan

• Revamp Daspu sales through injection of capital

and improvement of management capabilities

• Two SSLs, summing R$ 25k, fully repaid in 8

months

Results

• With sitawi’s support, Daspu:

‒ rebuilt its main sales channel (online store)

‒ enhanced its participation in fashion events

‒ reviewed its strategic planning

Aliança Empreendedora / Solidarium

Aliança Empreendedora (AE)

• CSO that foments communitary enterpreneurship as

a means to relieve poverty and improve life quality

for low income populations

• Example of impact: 1,800+ micro-enterpreneurs

trained by AE tripled their family income

Solidarium

• Social entreprise associated with AE foments the

value chain for social products manufactured by low

income populations

• Solidarium already has contracts with large retailers

(e.g. Walmart) to distribute social products

Objectives and characteristics of the loan

• R$ 150k loan to finance acquisition of raw material,

enhancing Solidarium’s productivity capacity

• Loan already fully paid

Results

• Guarantee contract with Walmart is fulfilled

• Increase AE social impact (more trained micro-

enterpreneurs and thus higher income for the

involved communities)

sitawi

The Supperted Social Loan is in its structuring phase and there is still a long path

before it is fully adopted as a market instrument

7

Supported Social Loan expected evolution

First loans

First success cases

Initial financial return

New loans and cases

Creation of a SSL

fund with grants from

supporters

Large-scale pilot

ensuring a diversified

spectrum of

experiences

Proven Supported

Social Loan model

Growing demand in

social sector for such

loans

SSL model becomes a

typical market

instrument

Structuring

2 years

Pilot

2-3 years

Expansion

3-7 years

More volume and

more variaty of

resources for

social impactFundacion Avina

already supports fund

with grant of R$ 400k

sitawi

sitawi‟s model ensures that 100% of donated resources are dedicated to generating

social impact; operational budget comes from interests paid and consulting fees

8

grants

SSL

SSL

Interest on

SSLInterest on

non-disbursed

funds

Fees

sitawi business model

sitawi – capital discipline

advice for social impact

Supported

Social

Loan (SSL)

fund

Operational

budget

Consulting clients

CSOs investees

Supporters

100% of

donated

resourses

Strengthens

sitawi‟s profile and

market presence

sitawi

In the long-term, sitawi and its supporters will have several options on how to

transform social finance in Brazil

“Itaunibancositawi”

• sitawi is “incorporated” by

major Brazilian bank

• Supported Social Loan

and other proven social

finance instruments will

grasp credit portfolios of

over R$ 50 billion

• Diversification of resources entry

options (e.g. several risk-return

levels) and exit options (e.g.

performance contracts)

• sitawi becomes manager of a

fund distributed among asset

managers and family offices

• Strenghtening in advocacy to

alter legislation and make model

feasible

“Charity Bank route”

• sitawi becomes a regulated retail bank

• Client’s deposits and investments will be mainly used

to diversify/amplify social financing instruments

“Social Sector Credit Coop”

• Greater CSOs self-sustainability will allow them to invest in a

collective credit fund

• Resources will be mainly used and managed by affiliates,

embedding social investing in the social sector

9

Sofistication of instruments and

creation of a fund for SSL

sitawi

Additionally, sitawi offers consulting services in social-related issues, having

already supported several well-known Brazilian CSOs and companies

10

Highly qualified

professionals

Solid

undestanding of

business/social

interface

Capacity to

leverage broad

network

sitawi„s projects portfolio

• Assessment and repositioning of social

investment portfolio

• Support the negotiation of partnerships and

investments in social initiatives

• Strategic (re)structuring of social initiatives

• Building a social enterprise

• Modeling an organization’s financial performance,

its operational and social initiative

Consulting services can be

hired either for specific

projects or as a

programmed strategic

support (retainer)

• Alignment of governance,

structure and decision making

in organizations

sitawi

sitawi has recently launched a survey to map the impact of the financial crisis

in the Brazilian social sector

"The social sector beyond the crisis", a survey on the

impact of the financial crisis in the social sector in Brazil

11

sitawi

CSOs‟ fundraising capabilities and budget for administrative structure were

rated as the dimensions most affected by the crisis

12

* Difference between sum of answers and 100% refers to "no change" responses; sample of 28 CSOs countrywide

Source: "The social sector beyond the crisis", a survey on the impact of the financial crisis in the social sector in Brazil (sitawi, unpublished)

How did the financial crisis impacted each of the following aspects of your organization?

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Administrative structure

Fundraising Support social projects

Mainstream social projects

Non-financial supporters

Perc

en

t o

f re

sp

on

den

ts t

hat

ch

ose o

pti

on

*

Reduction greater than 50% /extremely affected

Reduction of 40-50% /very affected

Reduction of 30-40% /affected

Reduction of 20-30% /moderately affected

Reduction of 10-20% /slightly affected

Reduction of up to 10% /barely affected

Increased despite the crisis

sitawi

CSOs (and almost everybody else) are optimistic about Brazil bouncing back

from the crisis

13

How would you describe the current stage of the

financial crisis in Brazil*?

4%

36%

21%

39%

0%1. It is going to get much worse

2. It will get a bit worse before

getting better

3. We are at the bottom and the

outlook is going to improve

from now on

4. We've passed the bottom

and already heading towards

recovery

5. We've far passed the bottom

and will soon recovery to

pre-crisis standards

* Sample of 28 CSOs countrywide

Source: "The social sector beyond the crisis", a survey on the impact of the financial crisis in the social sector in Brazil (sitawi, unpublished)

In your opinion, how long will it take for your

organization to recovery to pre-crisis standards

in project execution and institutional strenght*?

0%

32%

46%

21%

18%

14%

46%

21%

Institutional strenght

Project execution

Less than 6

months

6-12 months

12-24 months

More than 2

years

sitawi

Even if CSOs perceive fundraising as the main thrust for recovery, most understand

that strategy, management skills, and business operations should play a major role

14

-80% -60% -40% -20% 0% 20% 40% 60% 80% 100%

Access to cheap credit lines (loans) as an alternative to diversify the organization's funding sources

Merger with other social organizations to gain scale and share know-how

Structuring of organization's governance system

Creation of a cost and cash flow system to support the organization's financial management

Development of management tools (e.g. Performance indicators pannel) to support decision taking

Creation or improvement of a social enterprise to generate income to the social organization

Trainings to improve business and management capabilities of organization's current leaders

Definition of a clear estrategic vision for the organization, including priorities and action plan

Development/improvement of internal fundrasing structure

Not relevant

It's relevant and I could implement it internally

It's relevant and I could implement it counting solely on volunteers

It's relevant, but I would need professional help to implement it (e.g. Consulting)

Looking forward, how do you perceive the relevance and ease of implementation of the factors below in helping your

organization recovery from the crisis*?

* Sample of 28 CSOs countrywide

Source: "The social sector beyond the crisis", a survey on the impact of the financial crisis in the social sector in Brazil (sitawi, unpublished)

sitawi 15

sitawi – capital discipline advice for social impact