Francisco Noguera

Latin America in the Spotlight, Part 3: Francisco Mej?a from IDB’s Opportunities for the Majority

Part 3 of NextBillion’s Latin America in the Spotlight features Francisco Mejía, a principal at the Opportunities for the Majority initiative introduced by Manager Luiz ros in Part 2 of this series. Mejia´s remarks shed additional light on some of the innovative ideas and projects supported by OMJ throughout the region.

Make sure to catch up on Part 1 and Part 2 of this series. Francisco, what would you add to the description of OMJ provided by Luiz Ros in his interview?

Francisco Mejía: The OMJ initiative started three years ago and made the IDB the first multilateral organization with a dedicated team and dedicated resources to support market based solutions to poverty. Our project portfolio (currently over USD100 million) and client base is very diverse. We are supporting entities that range from small community financial institutions in rural Peru, to large corporations.

We can provide debt (senior and subordinated), structured finance products or partial credit guarantees where we share the risk with our clients. In addition, we can provide non reimbursable resources to finance pilot projects, feasibility studies or impact metrics. In your opinion, what sets Latin America apart in the social enterprise space? What makes this market unique?

Francisco Mejía: In Latin America and the Caribbean, the poor are located primarily around urban areas; in average they are younger than a decade ago, and informal in their business activity. From a BoP strategy perspective, this means our targetpopulation lives in denser areas and has more access to publicly provided services than is tipically available in other regions. Hence, reaching them at scale is possible by tapping into existing networks and distribution channels that already permeate the slums, barriadas and favelas.

We have called this a “platform” strategy which can also be extended to less dense regions in the rural areas leveraging their own network capillarity and reach. For instance, in India, the success of Grameen Phone cannot be disentangled from the reach of the Grameen microfinance network. In Bangladesh, the scale for Visionspring’s reading glasses could not be achieved without BRAC’s network. Please provide one or two examples of projects OMJ has supported recently

Francisco Mejía: As evidenced in “Portfolios of the Poor”, low-income populations do have access to financial services, albeit informal and very expensive. In Colombia, for example, informal lenders charge rates as high as 280% p.a. Although acquiring a credit history is beyond the reach of the under and unbanked poor, the large majority have long payment histories with utilities or cell phone companies, transaction histories with suppliers.

Our financing of the “Social Financing” program of the local utility in Medellin (EPM) uncovers this hidden and dead asset and transforms it into formal credit, providing an innovative channel to bank the unbanked, while giving access to home improvement opportunities. (Editor’s Note: A detailed explanation of this model is provided by Luiz Ros here.) Looking forward, what do you see as the biggest challenge for social enterprise to take off in the region?

Francisco Mejía: The challenges are twofold. First, changing a mind set in the development community that sees poverty and the private sector as two terms impossible to utter in the same phrase; in fact, enterprise solutions can complement and enhance public sector solutions.

Secondly, changing a mindset in the private sector that sees low income markets as too risky, characterized by low margins, and financially unviable because of the need for low prices. Finally, understanding that poverty is too big of a challenge for any actor to go at it alone is necessary. Any new projects you’re working on and can tell our readers about?

Francisco Mejía: Let me share an example of the cement industry: In the developed world, most cement is sold in bulk while in Latin America evidence shows the opposite: cement is bought in bags, sometime as small as 20kg. At the same time, more than 60% of homes in Guatemala, for instance, have dirt floors. Cement might be boring: after all a bag of cement is a bag of cement, but having a cement floor has a huge social impact. The healthier environment provided by a permanent cement floor is associated with 36% increase in children’s cognitive standardized tests.
Providing access to cement floors and recognizing the incremental nature of most housing in Latin America represents a significant challenge for any cement company. One of the largest cement companies in the region is addressing this challenge and we are supporting them in this effort.