Tuesday
March 16
2010

Francisco Noguera

Latin America in the Spotlight, Part 2: Luiz Ros from IDB’s Opportunities for the Majority

Part 2 of NextBillion’s Latin America in the Spotlight features Luiz Ros, an advisor to NextBillion and Manager of Opportunities for the Majority (OMJ), an innovative initiative led by the regions’s most prominent multilateral organization, the Inter-American Development Bank. Make sure to read Part 1 of this series featuring Paula Cardenau from Ashoka.

NextBillion.net: Luiz, please share with our readers a bit about OMJ and the partners you work with.

Luiz Roz: The needs of the low income population in Latin America and the Caribbean are so extensive that new investment approaches are required from the public and private sectors. In an effort to find new market-based strategies that improve the lives of those left behind, the IDB launched the Opportunities for the Majority Initiative (OMJ) in July of 2007. By “majority” the IDB refers to some 360 million people – around 70 percent of the Latin American and Caribbean population – who live on less than US$300 per month.

OMJ promotes and finances private sector business models that develop and deliver quality products and services, create employment, and enable low-income producers and consumers to join the formal economy. This process in turn has a multiplier effect in stimulating overall economic growth and raising the incomes of this long-ignored segment of society. In only two years of operation, the initiative has surpassed $100 million total in approved loans and guarantees. Our target is to invest 250 million dollars in over twenty projects by the end of 2010.

We have also brought a diverse group of partners to the IDB, as clients and also as co-funders and advisers. For example, we organize annual Strategic Partners’ Dialogues, hosted by IDB President Luis Alberto Moreno, at which leaders in the BOP sphere, including multilateral development institutions, business executives, NGOs, academics and investors learn from each other and form new alliances. Last year we launched a virtual version of this dialogue, MajorityMarkets.org, which offers information about the most effective projects and business models engaging with the BoP in Latin America and the Caribbean.

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

Luiz Ros: The legacy of serious difficulties faced by low income Latin Americans can also be perceived as something unique about LAC as a market for Base of the Pyramid strategies, in the sense that it represents an opportunity for collaboration among public and private sectors and civil society to make a positive impact. The pioneering work of institutions such as Ashoka, AVINA, and The Rockefeller Foundation to promote the emergence of social entrepreneurship in the region is now proving valuable; their initiatives have generated projects that have grown to fruition and reached scale.

Similarities in culture and language across the region also set it apart in a favorable way, if compared to other developing regions, as do the diverse business environments we find from Mexico to Peru, from Guatemala to Chile, which create great opportunities for sustainable business models. Lastly, Latin America has reached a relatively stable political scenario that is advantageous to overcoming common coordination failures.

NextBillion.net: Please tell us about one or two examples of social enterprises or projects supported by OMJ?

Luiz Ros: Several of the projects supported by OMJ represent new directions for microfinance. For example, Peru’s highly effective microfinance networks are supplementing public solutions to the persistent housing shortage there by offering mortgage and home improvement loans. El Salvador’s state-run low-income housing fund, FONAVIPO, is working through microlenders to make home ownership attainable for a segment of the population that never would have been eligible for traditional mortgages. Also in El Salvador, FIDEMYPE is reaching microenterprises that are so small they were not previously able to access microcredit services. And “Mejora tu Calle”, devised by Mexican cement company CEMEX, allows residents of low-income neighborhoods to pool their microloans together to help pay for paving their streets.

Other projects show how existing institutions can serve as distribution channels for additional services. The Global Partnerships Social Investment Fund 2010 will use the network of microfinance institutions in the region to move beyond working capital loans and provide needed health, education, and insurance services to their clients. In Mexico, Mi Tienda, a network of stores in low-income, rural areas, is able to offer job training and a variety of services along with basic food and household products.

OMJ is also supporting projects that serve as incubators for entrepreneurship in Latin America and the Caribbean. Peru’s Mibanco is reaching out to support female entrepreneurs through loans and training. Chile’s Banco de Credito e Inversiones is helping microentrepreneurs by innovating in the use of non-financial information available through suppliers’ distribution networks, to build credit histories and gain access to a wide array of financial services. And the IGNIA Fund is leading the way in demonstrating that investing in companies that serve the BoP can be profitable and socially responsible.

These projects are unique in many ways, but they have something in common: the demonstrated the power of partnerships. Each individual project also adds to the priceless store of knowledge and experience OMJ is developing on what works best when engaging with the base of the pyramid.

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

We need for efficient ways of reaching thousands or millions instead of hundreds. Scale is crucial when we are talking about close to 360 million people in poverty. On the search for scale, we at OMJ have found platforms.

This strategy takes advantage of existing platforms provided by utilities, conditional cash transfer programs, cell phone providers, logistics companies, or even NGOs, to massively provide additional goods and services that serve the needs of the BoP. To illustrate the possibilities here, there are over 300 million cell phone subscribers in Latin America, and in Brazil alone the conditional cash transfer program, Bolsa Família, benefits over 11 million families.

Another great example is the program Financiación Social. It is sponsored by Empresas Públicas de Medellín (EPM – Public Enterprises of Medellin), the second largest provider of electricity in Colombia as well as supplier of water, sewerage, natural gas, and telecommunications services. Analyzing its 1.7million customers, EPM concluded that many of its low-income clients were underachieving in terms of economic and social advancement: they paid their bills on time, but were excluded from credit markets and the formal banking system. Lack of access to formal financing was a handicap for 75% of the population of the city and forced many citizens to resort to informal loans to buy basic necessities like refrigerators or home improvement supplies.

So EPM established a trust, Financiacíon Social, managed by two large Colombian banks. The trust screens and evaluates the credit profile of customers based on their utility payment records and other available data, and those who qualify receive a credit line to purchase goods like refrigerators, computers or building materials for home improvements. A network of 170 retail outlets has agreed to honor the credit line, and customers using the credit option receive bills for their purchases along with their monthly EPM utility bills.

Its target is to bring an additional 190,000 households into the credit markets by 2015. The IDB is supporting the program with a $10 million loan from its OMJ financing facility and the IDB’s Multilateral Investment Fund is expected to provide a grant to support refinements in the credit rating system so it may be applied to customers with very low incomes, who traditionally represent a high risk for financial institutions.

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

Luiz Ros: We have a strong project pipeline for 2010, and at the end of the first quarter we already have 14 projects on track for approval by the end of the year. These projects include support for new fortification techniques in El Salvador, incremental housing in Guatemala, community infrastructure in Ecuador and innovations on contract-based agriculture and an educational credit program both planned for Mexico.

A number of strategic themes are emerging as core topics for future work. For example, the Corporate Leaders Program that will begin later this year marks the first step in a more deliberate and targeted approach to working with large corporations, who are in a unique position to help scale up BOP activities if the right solutions can be found to meet their highly specific needs. We also see important opportunities opening up in the field of nutrition and food security, and expect new projects to arise in this area as a result of our current work with the Global Alliance for Improved Nutrition and the FEMSA Foundation in the program Mapping of the Potential of Private Sector Nutrition Solutions in Latin America and the Caribbean, the results of which will be available soon. Lastly, we’re exploring the role of market-based strategies in crisis response and longer-term crisis recovery, which is also emerging as a topic of great importance after the earthquakes in Haiti and Chile.

NextBillion.net: Thanks Luiz for sharing OMJ´s news with the NextBillion community.

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