Why Debt?

In 1977, thirty-three-year-old Mike Markulla was the first to invest in startup Apple Computers. That stake made Markulla a billionaire.

Twenty-five years later, Peter Thiel invested $500,000 in Facebook—and that check, too, turned into shares worth more than one billion dollars.

Why then does Beneficial Returns only provide debt to social enterprises

Investors like Markulla and Thiel have three avenues to earn a return on their equity: the company can go public, the company can be acquired, or the company can pay dividends. Beneficial Returns provides capital to social enterprises addressing poverty and protecting and restoring the environment—and we don’t think our clients are strong candidates for any of these outcomes.

Beneficial Returns operates in Latin America and Southeast Asia, where capital markets are underdeveloped. Last year, one company went public in Cambodia. None did in Guatemala.

It’s highly unlikely that one of our social enterprise clients will sell shares to the public through an IPO (Initial Public Offering).

Although the chances that one of our clients is acquired by a rival or a strategic buyer are higher than an IPO, it’s still a remote possibility. Companies providing clean drinking water or organising informal waste pickers to recycle plastic aren’t likely to have the resources to buy their competitors. And private equity firms looking to make a quick buck aren’t often hunting for their next deal in Chiapas or Mindanao.

Then there’s the prospect of dividends.

The majority of our clients are profitable social enterprises, but only marginally so. We have no businesses like Apple or Facebook in our portfolio—just nuts and bolts businesses buying from poor people (such as Aliet Green, the coconut sugar borrower), selling to poor people (such as Ilumexico, the household solar business), or employing poor people (such as Trofica, recycling plastic).

Our clients are trying to maximize impact rather than maximize profits.

In most cases, you’d have to wait decades to recover your equity investment via dividend payouts.

What we’ve found, instead, is that many social enterprises are well-suited to repay a loan.

They can take capital into their business, use it to grow their operations and their impact, and repay that capital with a reasonable interest rate to boot.

Our portfolio performance—$18 million lent to date and only $225,000 of loans written off—proves this point.

Debt is also appealing to us because it sharpens a social entrepreneur’s focus and demands constant discipline.

Every month, we expect a loan repayment, and planning for these cash outflows keeps our borrowers focused on their operations, helping turn good intentions into consistent execution.

It also acts as a signal: entrepreneurs who are willing to take on debt demonstrate confidence in their ability to generate revenue and meet market demand. That confidence—grounded in real customers and proven models—is precisely what we seek to support.

Most of the enterprises we support are already sustainable and cash-flow positive. They are addressing real problems of poverty in their communities. Debt aligns better with businesses that generate consistent revenues and aim to deepen impact rather than chase rapid scale.

Too often in my career I have seen social enterprises accept equity investments only to later discover that with those investments came expectations around growth and profitability that were incompatible with the entrepreneur’s commitment to social and environmental change.

Many social enterprises wind up with watered-down impact or fail entirely because they mistakenly thought equity was the ticket to easy money.

In most cases, our social entrepreneurs have already taken significant personal risks to prove their models. Founders have invested time and capital to demonstrate that their businesses work. What they need next is not ownership dilution, but growth capital to replicate and expand what is already effective.

Debt enables them to do more of what works, whether that’s buying organic rice from more smallholder farmers, launching more backyard egg operations, or processing more waste into energy and fertilizer—without altering the mission or control of the enterprise.

We don’t write checks and hope for a distant payoff—financially and in impact.

We expect steady recovery of our investment, and we hope for an equally steady growth in impact. We know this to be true because Beneficial Returns has scheduled obligations to repay our own investors.

The rise of Apple and Facebook—and Markulla and Thiel’s good fortune—make for great stories. But they have little relevance in the world of social enterprise, where progress is incremental and the prospect of riches is muted.

Ours is a field that rewards perseverance and grinding it out—the kind of work for which debt is not a compromise, but the right tool.