Francisco Noguera

Latin America in the Spotlight, Part 1: Paula Cardenau from Ashoka’s Social Business Initiative

If you have any ties to the Spanish/Portuguese speaking world and have an interest for social enterprise, then I’ll bet you’re as excited as I am about the conferences taking place this week and next: The Miami Social Enterprise Conference and the ANDE Latin America Conference. NextBillion is a partner to both, and we’ll bring you Latin America in the Spotlight, a series of interviews and articles that introduce some of the most active players in the region’s emerging social enterprise industry.

So off we go with the first interview in the series featuring Paula Cardenau, who leads Ashoka’s Social Business Initiative and is also a Staff Writer with NextBillion en Español. A big thanks to Paula for taking the time to answer our questions! Please tell us a bit about Ashoka’s Social Business Initiative

Paula Cardenau: Ashoka is the global association of the world’s leading social entrepreneurs-men and women with system changing solutions for the world’s most urgent social problems. Since 1981, we have elected over 2,000 leading social entrepreneurs as Ashoka Fellows, providing them with living stipends, professional support, and access to a global network of peers in more than 60 countries.

72% of Ashoka Fellows generate revenue that accounts for roughly 25% of their budget. Among them, there’s an ever growing group that has decided to start-up social businesses as a vehicle to scale up their innovations and have a wider social impact. Thus, with the invaluable support of Artemisia, we have become an incubator of social business, providing services that range from working out the business idea and business model, providing support for the business and investment plans, opening opportunities with access to capital, and providing support for implementation.

The social enterprises we work with range in size and legal schemes, but they share a common feature: the product or service they deliver brings a direct benefit for low income communities in areas like education, health, energy, sanitation, nutrition, or they include disadvantaged communities in their value chain as producers, suppliers or distributors. In your opinion, what sets Latin America apart in the social enterprise space? What makes this market unique?

Paula Cardenau: The increase in poverty rates and environmental challenges such as the access to clean water in Latin America are an urgent call of action, and social enterprise has the potential to contribute. An asset we have as a region is Latin America’s strong tradition of community self-organization to address social issues, as well as our strong social capital at grass roots levels. Still, we have a long way to walk to build adequate environments that enable the emergence of social enterprises that leverage this asset. Critical barriers that need to be addressed range from the scarcity of human capital that combines a “double” social-commercial profile, the difficulties to access to capital, and the absence of regulations for social enterprises. Could you share one or two examples of social enterprises in your country and the impact they are having against poverty and/or environmental degradation?

Paula Cardenau: Greg van Kirk says that “Poverty is only a symptom of a wider problem: lack of access to essential services and products”. In order to enable this access, he created the MicroConsignment model by which he reaches isolated rural communities with health care-related goods and services. Key to the model is that local women become entrepreneurs who sell those products and services in their communities using a consignment mechanism.

The majority of them are women who had no other opportunities to generate additional household income. Only in Guatemala, 175 local women entrepreneurs have successfully sold over 35,000 products like eye glasses, wood-burning stoves, seeds/growing techniques, water filters and energy-efficient light bulbs- in over 1,800 remote village campaigns at affordable prices, and creating gross revenues of 330,000. The model is being replicated in Ecuador and Nicaragua, and has plans to expand to Argentina and Egypt.

Through Lumni, Felipe Vergara is managing the first profitable education investment fund. His “Human Capital Contract” eliminates the risks to both students and investors that otherwise deter private investment. In exchange for education financing, these legally binding agreements require students to pay a fixed percentage of their income over a pre-determined number of months after graduation. For students, human capital contracts do away with the need for collateral and the threat of burdensome debt associated with traditional loans. The effect makes unemployment and underemployment less ominous, but also allows students to pursue their dreams. As for investors, they essentially purchase equity shares in students’ post-college financial success.

Lumni operates as a node, facilitating win-win financing opportunities between Universities, private investors, and students. It provides education opportunities in Chile, Colombia, Mexico, and to Hispanics in the US. The Latin America human capital funds generate an average return of 7,5%. Repayment rates do not exceed 15 % of an annual salary, with the average period for payment set at 60 months cumulative so that a student is not obligated to pay when he or she is not employed. So far, Lumni has worked with around 1,000 students, and they expect to rise this number to 3,500 this year. Looking forward, what do you see as the biggest challenge for social enterprise to take off in the region?

Paula Cardenau: Access to capital that truly meets the needs of social enterprises is one of the main challenges they face. The fact that they are socially driven has direct implications in the way their business model is structured, so they cannot be funded with the same logic of a traditional business. Creative financial tools need to be implemented; among other things, it needs longer time horizons, exit strategies that enables repayment to investors from the cash flow of the business and not from buy-outs, lower return expectations and financial structures that include loss guarantees to mitigate risk and attract traditional investors. Are there any exciting new projects that you’re working on and can tell our readers about?

Paula Cardenau: With a group of Ashoka Fellows and other partners we are starting to design a Loan Fund for Social Enterprises. It is still in a very preliminary stage so I am not in a position to provide details, but the idea is that this fund will attract soft investors but also grants that can serve as loss cushion. This fund will provide loans with an interest rate below market and a repayment period starting in year 3 at the minimum.