Connecting with Brazilian change-makers tackling social problems

April 2023

Key Points

  • About 140 million Brazilians are classed as low-income, with families earning less than £335 a month per person
  • That creates an opportunity for education, banking and healthcare providers seeking to combine social impact with growth over the long term
  • Investing in these firms can help them succeed, but may also involve ethical dilemmas

Please remember that the value of an investment can fall and you may not get back the amount invested.

Getting to Cantagalo’s hillside community involved a journey of stark contrasts. The nearest metro station is Ipanema, Rio de Janeiro’s glamorous beachside district that’s celebrated in song. Upon exiting, I walked past luxurious, gated apartment buildings before turning up a steep road and passing through police barriers. Suddenly I was in one of the city’s poorest quarters after what seemed like the briefest of transitions.

The place was buzzing. Children and stray dogs were everywhere. Workers were drilling holes and creating showers of metalwork sparks. Above, tangled power cables formed a web between packed, ramshackle homes. And all around, rubbish and other waste lay uncollected.

Areas like Cantagalo are sometimes called favelas. But many consider the term disrespectful and prefer comunidad.

In any case, foreign asset managers seldom visit. I went at the invitation of RioOnWatch, a not-for-profit organisation that empowers residents to document ways of life within the city’s poorer communities. It then shares this research with local decision makers and international development professionals.

Positive Change seeks to provide our clients with long-term growth by focusing on companies solving big, enduring problems. So this was an excellent place to test our assumptions about social development and to seek reassurance about existing and potential portfolio companies’ products and services.

For example, one local told me he wanted to use an educational app, but the price of mobile data prevented him from doing so.

Positive Change already invests in the US-based language and maths-teaching service Duolingo, for which this has implications. But I also had the cost challenge in mind when I paid an exploratory first visit to YDUQS, a publicly traded education specialist that targets students of all incomes. Its headquarters in another part of Rio looks a bit like a fort.

Brazil’s higher education system is expensive and serves the elite. In the past, YDUQS focused on providing in-person vocational courses to working-class students as an alternative. A government-guaranteed loan introduced by the left-wing President Lula in 1999 used to cover these. However, his successor radically scaled back the scheme as part of austerity cuts.

YDUQS subsequently switched focus to serving poorer students with digital classes, setting up hubs in rural areas, where it lends laptops and provides free wifi. The firm kept growing its revenues but more slowly than before.

However, with Lula’s return to power, there’s speculation that funding will flow back to the sector, favouring YDUQS and some of its contemporaries.

We haven’t made an investment decision on the firm, but our meeting gave me something extra to digest as I munched on a bowl of açaí during a visit to Sugarloaf Mountain. I’d previously sampled a powdered version of the Brazilian ‘superfruit’ in Scotland, where it’s sold as a health product. But I was startled at the earthy sweetness of the frozen pulped berries in this form. Brazilians are famous for having a sweet tooth, and I suspect the added sugar may have counteracted any benefits.

While Rio struck me as a free and airy city, São Paulo presented a more intense experience. It’s huge, packed with helipad-capped skyscrapers stretching as far as the eye can see. The 22 million people living in the city and surrounding metropolitan area make it South America’s most populous zone by a wide margin.

My key meeting there was with Nubank, an app-based lender operating in Brazil, Mexico and Colombia. Positive Change has been an investor since 2021.

Brazil’s traditional lenders are notorious for high charges that effectively exclude large swathes of the population from having accounts.


That encourages many to borrow from friends, relatives and neighbours – which can put those parties’ finances under strain – or to turn to loan sharks instead.

Nubank first disrupted the market with a no-fee credit card eight years ago before expanding into other financial services, including savings, investments and life insurance.

One of the things I wanted to understand better was its management’s intent: whether executives were genuinely committed to serving low-income customers, as well as the company’s rising number of wealthier clients. We want it to do both because by becoming more profitable it can serve more people on the lower rungs of the earnings ladder. The worry would be if Nubank were interested in attracting poorer account holders only to swell its growth metrics.

I felt a pang of doubt upon entering its headquarters. Every other object was purple, the company’s corporate colour – coffee cups, a pool table, a giant ball pit and the merchandise in its newly opened store. Meanwhile, many of its youthful trainer-wearing staff looked like they belonged more to a hip Silicon Valley startup than to a socially focused enterprise. But I was reassured by a conversation with the bank’s global director of ESG (environmental, social and governance).

Christianne Canavero discussed financial education plans to ensure that the firm’s most vulnerable clients were better informed about risks and opportunities. And she shared details of a third-party study the bank had commissioned to check that its products reduced inequality as intended.

When I mentioned that Positive Change had commissioned its own research into financial inclusion, it was also encouraging to hear that Nubank wanted to send a delegation to hear the results.

That led to a cramped meeting two days later at the offices of Plano CDE, the consultancy of academics we had hired to do the work. Officials from the country’s central bank also attended by video link. The focus was Brazil’s so-called CDE classes, roughly defined as individuals and families living on less than 2,000 reals (£335) per head a month. More than half of the country’s 217 million citizens meet the criteria.

Notable findings included that:

  • 50 per cent spend more each month than their income
  • 37 per cent have reduced their food shopping to pay off debts
  • 65 per cent seek investment information from online influencers

Surprisingly, the study also indicated that more than a quarter of this group intended to invest in cryptocurrencies over the following year, putting crypto ahead of stocks, pensions and government bonds.

Nubank’s app is among those that let users do so. There’s nothing inherently wrong with crypto. But this was an important reminder of the firm’s need to offer it and other products responsibly.

A subsequent visit to Jardim Ângela provided supportive evidence. In 1999, the UN ranked the São Paulo suburb as having the world’s highest murder rate. These days it’s safer and on the rise, although it’s poorly served by public transport, among other challenges.

© REUTERS/Rickey Rogers

One Nubank customer I met was João, a 27-year-old community worker with a young family, who was saving money for the first time. He mentioned he had watched clips of online influencers advocating crypto. But he seemed more intrigued by Caixinhas.

This innovative Nubank facility lets users automatically pay savings into digital ‘money boxes’. Users assign each to a different goal, and progress bars show how close they are to affording the purchases.

I also stopped in at the neighbourhood’s healthcare centre. It was well-staffed, and patients didn’t need an appointment. But the problem comes when it refers them to a specialist.

Brazil’s public health system is free but suffers underfunding, long waiting times and poor coordination. About a quarter of Brazilians instead pay for private care, primarily through employee health plans.

As part of my trip, I visited several private healthcare providers. If they offered plans that were more affordable to low-income families, it would help take the strain off the overstretched public system.

But there are questions about whether they can do so profitably in some of Brazil’s more remote towns and cities. Moreover, any investment into the sector threatens to exacerbate inequality. So it’s an ethical dilemma.

The trip to Brazil made me recognise that some things remain outside the scope of a large asset manager whose primary responsibility is to protect clients’ capital.

That said, I do believe it’s an exciting place to invest.

There’s an old bossa nova song, less globally famous than The Girl From Ipanema, that’s still played in Brazil’s cafes and bars:

O morro não tem vez
Mas se derem vez ao morro
Toda a cidade vai cantar

Loosely translated, it means: ‘The slums on the hills are easily dismissed, but if given a voice, the whole city will sing.’

It matches our philosophy that investing in dynamic companies providing long-term opportunities to some of the world’s most disadvantaged citizens can benefit everyone, including our clients.

Risk Factors        

The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication was produced and approved in April 2023 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

Potential for Profit and Loss

All investment strategies have the potential for profit and loss, your or your clients’ capital may be at risk. Past performance is not a guide to future returns.

This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.

All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.

The images used in this communication are for illustrative purposes only.


Important Information

Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs.

Baillie Gifford Overseas Limited provides investment management and advisory services to non-UK Professional/Institutional clients only. Baillie Gifford Overseas Limited is wholly owned by Baillie Gifford & Co. Baillie Gifford & Co and Baillie Gifford Overseas Limited are authorised and regulated by the FCA in the UK.

Persons resident or domiciled outside the UK should consult with their professional advisers as to whether they require any governmental or other consents in order to enable them to invest, and with their tax advisers for advice relevant to their own particular circumstances.

Financial Intermediaries

This communication is suitable for use of financial intermediaries. Financial intermediaries are solely responsible for any further distribution and Baillie Gifford takes no responsibility for the reliance on this document by any other person who did not receive this document directly from Baillie Gifford.


Baillie Gifford Investment Management (Europe) Limited provides investment management and advisory services to European (excluding UK) clients. It was incorporated in Ireland in May 2018. Baillie Gifford Investment Management (Europe) Limited is authorised by the Central Bank of Ireland as an AIFM under the AIFM Regulations and as a UCITS management company under the UCITS Regulation. Baillie Gifford Investment Management (Europe) Limited is also authorised in accordance with Regulation 7 of the AIFM Regulations, to provide management of portfolios of investments, including Individual Portfolio Management (‘IPM’) and Non-Core Services. Baillie Gifford Investment Management (Europe) Limited has been appointed as UCITS management company to the following UCITS umbrella company; Baillie Gifford Worldwide Funds plc. Through passporting it has established Baillie Gifford Investment Management (Europe) Limited (Frankfurt Branch) to market its investment management and advisory services and distribute Baillie Gifford Worldwide Funds plc in Germany. Similarly, it has established Baillie Gifford Investment Management (Europe) Limited (Amsterdam Branch) to market its investment management and advisory services and distribute Baillie Gifford Worldwide Funds plc in The Netherlands. Baillie Gifford Investment Management (Europe) Limited also has a representative office in Zurich, Switzerland pursuant to Art. 58 of the Federal Act on Financial Institutions (“FinIA”). The representative office is authorised by the Swiss Financial Market Supervisory Authority (FINMA). The representative office does not constitute a branch and therefore does not have authority to commit Baillie Gifford Investment Management (Europe) Limited. Baillie Gifford Investment Management (Europe) Limited is a wholly owned subsidiary of Baillie Gifford Overseas Limited, which is wholly owned by Baillie Gifford & Co. Baillie Gifford Overseas Limited and Baillie Gifford & Co are authorised and regulated in the UK by the Financial Conduct Authority.

Hong Kong

Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 is wholly owned by Baillie Gifford Overseas Limited and holds a Type 1 and a Type 2 license from the Securities & Futures Commission of Hong Kong to market and distribute Baillie Gifford’s range of collective investment schemes to professional investors in Hong Kong. Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 can be contacted at Suites 2713-2715, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. Telephone +852 3756 5700.

South Korea

Baillie Gifford Overseas Limited is licensed with the Financial Services Commission in South Korea as a cross border Discretionary Investment Manager and Non-discretionary Investment Adviser.


Mitsubishi UFJ Baillie Gifford Asset Management Limited (‘MUBGAM’) is a joint venture company between Mitsubishi UFJ Trust & Banking Corporation and Baillie Gifford Overseas Limited. MUBGAM is authorised and regulated by the Financial Conduct Authority.


Baillie Gifford Overseas Limited (ARBN 118 567 178) is registered as a foreign company under the Corporations Act 2001 (Cth) and holds Foreign Australian Financial Services Licence No 528911. This material is provided to you on the basis that you are a “wholesale client” within the meaning of section 761G of the Corporations Act 2001 (Cth) (“Corporations Act”).  Please advise Baillie Gifford Overseas Limited immediately if you are not a wholesale client.  In no circumstances may this material be made available to a “retail client” within the meaning of section 761G of the Corporations Act.

This material contains general information only.  It does not take into account any person’s objectives, financial situation or needs.

South Africa

Baillie Gifford Overseas Limited is registered as a Foreign Financial Services Provider with the Financial Sector Conduct Authority in South Africa.

North America

Baillie Gifford International LLC is wholly owned by Baillie Gifford Overseas Limited; it was formed in Delaware in 2005 and is registered with the SEC. It is the legal entity through which Baillie Gifford Overseas Limited provides client service and marketing functions in North America. Baillie Gifford Overseas Limited is registered with the SEC in the United States of America.

The Manager is not resident in Canada, its head office and principal place of business is in Edinburgh, Scotland. Baillie Gifford Overseas Limited is regulated in Canada as a portfolio manager and exempt market dealer with the Ontario Securities Commission ('OSC'). Its portfolio manager licence is currently passported into Alberta, Quebec, Saskatchewan, Manitoba and Newfoundland & Labrador whereas the exempt market dealer licence is passported across all Canadian provinces and territories. Baillie Gifford International LLC is regulated by the OSC as an exempt market and its licence is passported across all Canadian provinces and territories. Baillie Gifford Investment Management (Europe) Limited (‘BGE’) relies on the International Investment Fund Manager Exemption in the provinces of Ontario and Quebec.


Baillie Gifford Overseas is not licensed under Israel’s Regulation of Investment Advising, Investment Marketing and Portfolio Management Law, 5755-1995 (the Advice Law) and does not carry insurance pursuant to the Advice Law. This material is only intended for those categories of Israeli residents who are qualified clients listed on the First Addendum to the Advice Law. 

About the authors