Impact Investing’s Role in Puerto Rico’s Economic Recovery

Since approximately 2006 the U.S. territory of Puerto Rico has been mired in a persistent recession which has now escalated into an all-out fiscal, economic and demographic crisis of unprecedented proportions. Although the effects of the crisis are being felt most intensely by the island’s 3.4 million residents, its impact has also reached beyond the island’s shores.  

Many stateside businesses operating in or otherwise connected to Puerto Rico are also feeling the economic strain. As the government of Puerto Rico works to address its recurring structural budget deficits and massive debt burden under a law recently enacted by Congress and the President, the Puerto Rico Oversight, Management and Economic Stability Act, the Minority Business Development Agency (MBDA) has been at the forefront promoting impact investing as a means to leverage private sector capacity to address societal challenges while also generating economic activity. 

In partnership with the Federal Reserve Bank of New York and the Opportunity Finance Network, MBDA has been working to bring together private and non-profit participants based in Puerto Rico to discuss ways to support the growth of the impact investment ecosystem in Puerto Rico, and to explore the potential for Community Development Financial Institutions(CDFIs) to contribute capital to the ecosystem. The first event in this initiative was a roundtable discussion titled “Unleashing the Power of Impact Investing in Puerto Rico” held in New York in August. The roundtable took place in anticipation of an upcoming conference in Puerto Rico titled Demystifying Impact Investing: Positive Social Impacts and Market Returns which is scheduled for early October of this year.

Impact investing produces specific beneficial social and environmental outcomes in a self-sustaining way that also generates profits. Such a strategy could be extremely helpful in Puerto Rico’s  path to economic recovery. While there is a small but growing impact investing ecosystem in Puerto Rico, MBDA believes there is ample room to increase awareness of this type of investment strategy within the island and to identify new and innovative contexts in which it can be effectively used.

A significant challenge to the expansion of impact investment in Puerto Rico is the limited access to capital, with traditional bank lending heavily constrained by the sluggish economy and other sources such as venture capital and private equity still relatively scarce. 

Through the U.S. Department of Treasury's CDFI Fund, mission-driven financial institutions in Puerto Rico can work to invest federal dollars alongside private sector capital taking a market-based approach to supporting the island’s economically disadvantaged communities.

By expanding the number of CDFIs in Puerto Rico and engaging private sector and non-profit partners to employ impact investment strategies the potential exists to inject new sources of capital into island communities that currently lack access to financing. This can help Puerto Rico reap the benefits of both the positive social or environmental outcomes as well as the increased economic activity. From MBDA’s perspective it is clear that impact investment has a substantial role to play in Puerto Rico’s economic recovery.