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The following interview with IGNIA’s Álvaro Rodriguez closes our Latin America in the Spotlight Special. I personally admire Mr. Rodriguez and IGNIA’s vision; as you will read below, the fund is underway with investments that are potentially groundbreaking, helping to shift the paradigm around the role of business in our region’s development.

Download the PDF Summary of Latin America in the Spotlight series, where you’ll find this interview and six more with leaders of the Latin American social enterprise movement.

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NextBillion.net: Please tell us about IGNIA and the partners you work with.

Álvaro Rodriguez: IGNIA is an impact investing firm based in Monterrey, Mexico that focuses on social enterprises that serve or employ individuals in the base of the socio-economic pyramid (BoP). The fund’s key objectives are to identify promising entrepreneurs with scalable businesses that deliver high value propositions to the BoP, and support their rapid growth into enterprises capable of generating financial returns and social value.

We prioritize sectors that have a disproportionate impact on improving the welfare of the poor, such as health, housing, education, agriculture, and basic utilities. Both as investors and strategic partners, IGNIA works hand-in-hand with change making individuals and institutions that help make our mission possible.

NextBillion.net: In your opinion, what sets Latin America apart in the social enterprise space? What makes this market unique?

Álvaro Rodriguez: The Latin American BoP Market has been estimated at US$510 million, making it large and attractive segment in need of new products and service offerings. As opposed to Africa, Asia, and Eastern Europe, where over 60% of their respective BoP populations earn under US$2 a day and who still rely on government programs and philanthropic solutions, 61% of Latin America’s BoP earns US$2-8 per day. This higher income population is still living under poverty however and is not reached by traditional business models representing a market that is ripe for commercial solutions to poverty due to higher discretionary spending available for consumer goods, communications, entertainment, etc.

Latin America has been a pioneer in developing BoP focused business models that unite both commercial and social approaches. The success in the field of microfinance has been well documented, with industry leaders like Compartamos Banco in Mexico and BancoSol in Bolivia. A further example of this is Farmacias Similares, a Mexican low-cost pharmacy chain that has over 4,000 points of sale, mostly in BoP markets. In addition to its low-cost generic medicine offering, Farmacias Similares offers doctor consultations for close to US$2, thus making basic medicine available to the masses. Through this model, Farmacias Similares has close to 12 million clients per month and offers close to 3.5 million consultations per month.

NextBillion.net: Please describe one or two examples of social enterprises in your country and the impact they are having against poverty and/or environmental degradation. Preferably, they would be supported by / linked to yours.

Álvaro Rodriguez: IGNIA currently has four portfolio companies, all of which are striving to improve the lives of the base of the socio-economic pyramid population. An example of this is MeXvi, our most recent investment, a provider of integral solutions for self-construction of low-income homes in rural and semi-urban settings. In Mexico, 36% of new homes are self-constructed (mostly by BoP families), which results in average construction times of 5 years, high material costs, and low construction quality due to lack of technical know-how. MeXvi provides end users with accessible construction materials, design and technical assistance, so that the client can participate in the building of his or her own home to high quality standards under an affordable, versatile, fast and safe construction system.

NextBillion.net. Looking forward, what do you see as the biggest challenge for social enterprise to take off in the region?

Álvaro Rodriguez: The current generation of social entrepreneurs carries the burden not only of their individual success but that of industry creation. One of the key challenges for the sector is the ability to successfully develop BoP-focused industries. As these players develop, competition necessarily produces differentiation in the form of lower prices and higher value offerings, both of which benefit end-consumers. The current generation of social entrepreneurs needs to develop successful business models that will create a demonstration effect, which in turn will attract the attention of further entrepreneurs.

However, for social entrepreneurs to be able develop successful business models it is imperative to create the right mechanisms for them to access to capital and the right ecosystems that will help them face the challenges of reaching scale. By providing access to capital and providing technical assistance that allows for growth, the social entrepreneurial sector would be readily poised for growth. IGNIA hopes to be only one of many investment funds that are focused specifically on providing such support to the sector.

An example of such dynamic can be seen in the development of the microfinance industry, which now has both the capital and ecosystems to attract entrepreneurs. This has resulted in a growing number of microfinance institutions and, as competition has increased, in lower interest rates, better service and wider product offering for the consumer.

NextBillion.net: Are there any exciting new projects that you’re working on and can tell our readers about?

Álvaro Rodriguez: We are in advanced negotiations with a company that provides low-cost post-paid mobile telephony services to the BoP. (Editor’s note: The negotiation with Finestrella closed recently and a press release of the transaction can be found here.)

While mobile telephony is widespread in Mexico, unbanked individuals (mostly BoP) have access only to pre-paid services and thus are left to pay exorbitant rates (6?12x the cost of a post-paid minute). The company we are negotiating with is a value-added reseller of post-paid mobile telephony services to unbanked BoP individuals. Access to post-paid plans results in access to more and better communications, through lower pricing per minute and services such as “friends and family” minutes. We are convinced this company can increase the reach and affordability of key working tool for the BoP.