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Editor’s Note: Daniel Gonzalez is an advisor to NextBillion and a key leader in Latin America’s emerging social enterprise industry. In this interview, he shares some of the projects he and AVINA are currently working on. Stay tuned for more interviews in this Latin America special, a wrap-up of the Miami conference and coverage from next week’s ANDE Conference in Nicaragua.

NextBillion.net: Please tell us a bit about AVINA and the partners you work with

Daniel González: AVINA is a private foundation created in 1994 by Swiss entrepreneur Stephan Schmidheiny to contribute towards a prosperous, integrated, compassionate and democratic Latin America that is inspired by its own diversity and built on a form of citizenship that positions it globally according to its own model of sustainable and inclusive development. In 2008, AVINA disbursed over US$17 million in social investments throughout Latin America, bringing the total disbursement to over US$317 million.

AVINA acts as an adviser, co-investor and facilitator on the ground – employing its resources, local presence and relationships with thousands of allies to develop and roll out strategies for change. AVINA develops its national strategies in 12 countries and regional strategies for the Amazon, Recycling, Sustainable Cities, Inclusive Markets, and Water. Some of AVINA’s current international allies include the Interamerican Development Bank, the Bill and Melinda Gates Foundation, the Skoll Foundation, the Global Philanthropy Forum, and the Tällberg Foundation, among others.

Regarding Inclusive Markets, AVINA is part of a broad collaboration and learning network with organizations like FUNDES, WRI, Ashoka, SEKN and the UNDP/Growing Inclusive Markets, among dozens of close national or local partners and as part of a movement of hundreds of organizations in Latin America. In 2009, AVINA invested USD $2,9 MM in its Inclusive Markets strategy in 20 initiatives in 7 countries and 8 regional investments.

NextBillion.net: What sets Latin America apart in the social enterprise space? What makes this market unique?

Daniel González: In terms of need, Latin America is the region of the world with most economic inequality based on income. 46% of its 586 million inhabitants live in poverty (CEPAL, 2007). Poverty should be understood in a more comprehensive way than just income, but these figures are helpful to understand the scale of the solution that is needed.

Now, in terms of opportunity, SMEs are responsible for 25%-40% of employment as well as 15%-25% of the total production of goods and services in Latin America (CEPAL, 2007). Some publications conclude that if micro, small and medium enterprises are considered, they represent 99% of all businesses and 70% of employment in the region. The Johns Hopkins Comparative Nonprofit Sector Project estimates that 53% of revenues in civil society organizations in the world come from fees, and this situation is more present in Latin American countries where social entrepreneurship is thriving. The potential of the Latin American market and the current role of communities at the base of the pyramid, social enterprises, and micro, small and medium sized enterprises in the economy suggest a large enough potential and scale to impact tens of millions of people currently in poverty.

Social and technological innovations in social entrepreneurship, ’new’ or knowledge-based economics, connectivity among others are also emerging from Latin America. Because the region has a wealth of natural and social resources, low population density, basic infrastructure, rule-of-law, and strong institutions that are developing inclusive businesses and markets, Latin America is a unique place to demonstrate that it is possible to generate wealth in a equitable, accelerated, innovative and sustainable way. The value chains that will be more competitive in the 21^st Century will leverage technology and provide solutions to climate change, migrations, poverty, population growth, generation changes and other barriers to sustainable economic development in the world. Some of these value chains have to do with ecosystem services, remittances, tourism, services, sustainable energy, food production and other promising sectors where Latin America has potential or advantage.

Another way to get a glimpse of the potential is observing the projects already being developed by many companies. Basic services and needs represent a billion dollar opportunity in Latin American markets, according to The Next Four Billion (2007).

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.

Daniel González: Business development or scaling-up social enterprises is only one of three objectives in AVINA’s Inclusive Markets strategy. Between 2007 and 2009, AVINA has strengthened over 100 inclusive businesses in Latin America. To generate a demonstrative effect that can influence decision makers, AVINA provides “tailor-made” services to 4 high-potential businesses and will reach 10 of these in the next three years. Two of those four businesses are Guayaki and Inversor.

Guayakí produces organic, shade grown and fair trade yerba mate – a powerful rainforest tree – in the Atlantic Rainforest of Eastern Paraguay, Southern Brazil and Nothern Argentina, with small farmers and indigenous communities. The company’s mission is to restore 60,000 hectares by the year 2020 with a profitable business model. They are working presently with 6,000 hectares and have become the largest providers of organic yerba mate to the US market in the last 10 years, providing inclusive employment and income to 250 Latin American families. Guayaki has received numerous awards and certifications for its environmental and social impact. Its income has grown at a rate of 35% and its sales for 2009 are at an estimated US$10 million dollars.

Inversor is a Venture Capital Fund focused on developing the Impact Investing market in Colombia. It looks for financial returns while creating social impact investing in Small and Medium Sized Enterprises (SMEs) in Colombia. Inversor invests in sectors like basic services, infrastructure, supply chains employing low-income producers, inclusive businesses and clean energy, among others. The Fund expects to raise up to USD $20 million and make investments in the range of $125K – $1M. The fund’s preferred return will be a 9% annual rate over capital disbursed by investors.

Corporación Inversor, the General Partner (or fund manager), was created after analyzing lessons learned in a previous micro-capital fund. During the first five years of this pilot, the fund generated 515 new direct and indirect jobs with expected gross IRR of 7.3%. Moreover, 19% of the total capital invested (USD $115 K) are returns and paid loans re-invested.

Based on the success of that pilot, leading national and international firms partnered to found and strengthen Corporación Inversor. The first step to scale up the project was to incorporate it within the formal financial system and regulatory measures regarding venture capital funds in Colombia. Inversor has raised around US $2 million dollars and will begin its investments later in 2010.

AVINA is interested in collaborating with other organizations that operate successful business models that can be scaled-up in the next 2-3 years and that have the potential to change the status-quo of the value-chain they operate in because of their triple bottom line results.

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

Daniel González: Two of AVINA’s objectives to develop inclusive markets respond to some of the biggest challenges: a shift in paradigm and business development.

In terms of paradigm shift, we realize that no individual person or institution has the solution or ’the right’ perspective to build successful companies in the 21^st Century. Moreover, individuals and institutions from diverse backgrounds and interests need to build new symbols and meanings for the role of business in society. This will only be achieved with examples of what this means, rather than speeches and papers. In order to reduce cultural, ideological, educational and other social barriers to inclusive businesses, it is critical to influence the way in which the industry and markets behave through communication and mobilization strategies. Based on hard evidence and proven business models, some of these strategies can include institutionalizing inclusive business in business school curricula, mobilize thousands of practitioners through the Internet, influence millions through mass media outlets, and mobilize key decision makers in workshops, meetings and events.

In terms of business development, the participation of more and more companies is needed to develop and change markets, even though important international and national institutions have already identified and systematized hundreds of inclusive businesses. Evidence is the main tool to mobilize decision makers, financial resources and influence public policy, so high-potential businesses need to be accelerated to generate a demonstrative effect and other promising business models need to become visible to reach critical mass. In addition, many organizations struggle with the process of identifying, evaluating and supporting businesses. If leading organizations agree on standards to present and share knowledge about each company, inclusive businesses will have a better chance of success.

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

Daniel González: Society and life, complex and dynamic as they are, find their own way to evolve from emerging forces and patterns. AVINA’s Inclusive Markets strategy considers macro conditions, emerging solutions, the voices of every stakeholder it’s linked to, and its own capabilities to design its strategy and role in a collaborative process with internal and external actors. We need your help to do so! Since managing complexity is a challenge, we invite other institutions to helps us design and implement one of the three objectives of our inclusive markets strategy.

In fact, no single organization can develop an opportunity for systemic change in Latin America. Even if a single organization could strengthen thousands of single businesses, macro, policy and other efforts to improve the business environment are also necessary. Further collaboration, coordination and partnerships are needed to improve the business environment in areas like:

• Design strategies for sector innovation and development (like impact investing, housing, recycling, water, energy to name a few).
• Mobilize hundreds of millions of dollars to inclusive businesses or impact investing funds, that help micro, small and medium enterprises grow
• Formalize partnerships to promote and develop inclusive businesses and markets at a national and regional level, focusing on collaboration on the ground and going beyond knowledge exchange and building social capital
• Influence national or municipal public policies

With many of our regional and national partners and contacts we are carrying out conversations to further our role in inclusive market development. We hope to hear from the NextBillion community.