Impact Bank’s good ideas to bring capital to social impact initiatives in Brazil

Anyone who accesses the new website of Impact Bank, the Brazilian fintech that provides end-to-end solutions to social impact businesses and where profit does not come first, is faced with great photos and educational explanations of all the services provided. “ [With the website] We want to show who we really are,” says Gabriel Ribenboim, co-founder and CEO of Impact Bank, in an interview with LABS.

Created in 2021, at the height of the pandemic, by Gabriel and Ian Lazoski, Impact Bank derives from and works together with Welight, a certified B Corporation that facilitates fundraising by NGOs and social impact initiatives in Brazil. Ian founded Welight in 2015, and Gabriel is also the company’s CEO.

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“Welight provides technology and customization for these campaigns and receives funding from over 70 countries. We have cases of people wanting to donate larger resources, so we needed to look for international transaction routes, remittances — a very complicated universe for the third sector,” says Gabriel.

His experience helped him spot the opportunity and get Impact Bank off the ground. A biologist by training, Gabriel worked on several fundraising initiatives for environmental conservation worldwide, such as Fundação Amazonia Sustentável, before arriving at Welight.

“I learned a lot about balancing potentials and desires of traditional peoples and making resources flow to the right place; to make this greater purpose of containing deforestation and reducing poverty happen.”

The digital wallet and the financial arrangement to receive funds from outside the country were the seed of Impact Bank. “We understood there that we had an opportunity to take financial products and services to those who are underserved or do not have access to it at all; [to create] a fintech to facilitate all this process and bring added value to those involved in impactful initiatives.”

With typical financial products, such as a digital wallet and POS terminals, in addition to other less obvious ones, such as securitization funds (the so-called FIDCs) aimed at social associations and cooperatives and designed to mitigate risks, Impact Bank’s primary goal is to facilitate the flow of capital between those who want to invest in impact initiatives and themselves. This is what Gabriel calls “sector 2.5”, composed of companies and businesses with a social and environmental purpose.

In this context, profit is secondary.

A good example of the ethos applied to practice is the transformation fund, which collects a small percentage of various transactions mediated by Impact Bank, without the client – ​​the NGO or the social impact business – even realizing that they are contributing to a more significant cause.

This percentage comes out of Impact Bank’s commission. “We see this as a fixed cost, something intrinsic to our business model,” says Gabriel

By February 2022, the transformation fund had already raised BRL 3.8 million.

Impact Bank is not even close to breakeven, “like all good startups in their initial phase,” Gabriel jokes. However, the primary accounting metric of the fintech, i.e., the cash-burning of investors’ money, shows evolution. “We are reducing more and more how much of these contributions we use to maintain the operation,” he says, referring to $1.3 million raised in two seed rounds so far. Eyeing a Series A round, Gabriel says that Impact Bank intends to invest in “big blocks of growth,” a strategy the CEO cannot detail yet.

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Partnerships and risk mitigation

One of Impact Bank’s most strategic moves is working with ‘HUBs’ – organizations that already work aligned with the fintech’s mission, such as associations and cooperatives. Their only problem is always access to credit.

“They manage to develop their entire chain, but when it comes to raising capital for entrepreneurs, cooperatives or associations to leverage their business, there is still no inclusive financial system that recognizes their importance or willing to take on this risk.”

That’s where Impact Bank comes in. Its solutions, such as international remittances and credit funds, create what the CEO calls a “de-risking mechanism,” that is, arrangements with safeguards to attract and make investments effectively flow.

One of these arrangements is the FIDC, a securitization fund, for credit rights. “It has quotas — senior, mezzanine, subordinate quotas — and each one has a different risk exposure level, so the subordinate [quota] takes on the first risk; if the default risk grows, it goes up that [aforementioned] scale.”

In the case of Impact Bank’s philanthropic FIDC, the fintech itself is inserted as a layer prior to the traditional ones to absorb and mitigate the systemic risk of the operation. It’s what they call – and the MacArthur Foundation too – as ‘catalytic capital.’

“It’s almost like a subordinate [quota] that absorbs the first risk of the fund. Its role is to mitigate the risk to leverage private capitalists willing to put resources into the FIDC, with more security, so that we can have funding to lend.”

In this sense, Impact Bank’s operation falls into two steps: unlocking capital and making it flow. “Our purpose is precisely that: to strengthen these actors so that we can collaborate for a transition to a more resilient and regenerative economy,” explains Gabriel.

The fintech’s first FIDC, about to be launched, is the Food and Forest FIDC, focused on food and environmental conservation in sustainable production chains.

“[Working with HUBs] is a strategy to get started quickly, with a qualified portfolio and within an architecture that delivers cheap credit, stimulates impact generation, and attracts capital from different sources.”

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Impact even on institutional communication

The photos that illustrate Impact Bank’s new website were taken by JCRÉ Facilitador institute, created by Júlio Cesar Lima in Jacarezinho favela, North zone of Rio de Janeiro, to offer professional courses in beauty, fashion, and sports for young people and adults in the region.

Gabriel praises the institute’s work: “An incredible organization that works with few resources and lot of impact.” From the production to the models in the photos, everything was done by residents of Jacarezinho, a poor and stigmatized community of over 37,000 inhabitants.

The choice of JCRÉ Facilitador for the job is in line with Impact Bank’s mission, to make resources available, so that good initiatives extend their impact on society.

Impact Bank reached 10,000 customers in its first year of operation. “It’s a number growing very fast with this HUB strategy,” says Gabriel. “A single organization is capable of bringing in 500 new customers.” The fintech’s goal is to multiply its current customer base tenfold over the next two years.

It is in the ‘gap’ of the more traditional arrangements that Gabriel sees room to grow. He believes that people are tired of banks and willing to participate in “a more inclusive, fair and regenerative system.”

In addition, some places and businesses do not interest banks within their profit logic. “When it comes to impact, it’s not necessarily a money-making operation the way the banks want. But we are creative enough to make it financially sustainable.”

Translated by Fabiane Ziolla Menezes