Fair Street

Our Peruvian report takes place in Lima where we met Albina Ruiz, founder and manager of Ciudad Saludable. Throughout our interview with Albina, we were really impressed by her enthusiasm and by her optimistic vision of the future.

The initiative:

Waste management is a major issue in Peru. The funding that the different governments allocate to this matter are insufficient and are mostly concentrated on the richest neighbourhoods. The demographic explosion in the main cities has also worsened the situation. The Peruvian households alone produce 20.000 tons waste daily. Among this waste, only 60% are collected and 35% treated appropriately. In the poorest areas where private associations do not intervene, some streets look like open sky dumps, the air is unbreathable, and the waste negatively impacts the hygiene and the health of the communities.

The materials accumulated in these dumps represent however a source of revenue for the poorest people. Improvising themselves “recicladores”, some go around these open sky dumps looking for plastic or paper that they can resell for a small amount of money (+/- $2 per day) to an intermediary who sells these materials to a recycling centre. These “recicladores” work in really bad conditions, without gloves, protection masks and working pants. Moreover, the “recicladores” are regularly persecuted by the local police who do not accept their activity. Finally, as they work alone during the night, the “recicladores” are often victim of the violence of the local gangs.

Ciudad Saludable (Healthy City) is an NGO which favours the development of microenteprises that collect and recycle waste in Peru. Ciudad Saludable regroups “recicladores” formally by organising them within microenterprises. Practically, Ciudad Saludable helps them in the legal work needed in the creation of a company, provides them a logistic support and enables them to buy the tools needed for their activity by giving them access to microcredit at very attractive conditions. This relatively simple model has revolutionised waste management in Peru and has improved the living conditions of millions of destitute people.

The organisation of the “recicladores” has several advantages: firstly, by regrouping the output of their daily labour, the “recicladores” together a larger amount of waste that they can directly sell to a recycling centre at a much better price, not using any intermediary. This quantity effect is enhanced by the Ciudad Saludable’s financial support that enables them to acquire tools increasing their productivity such as trucks, motorised tricycles. Secondly, by providing appropriate equipment (helmet, gloves, working pants…) to its “recicladores”, Ciudad Saludable allows them to collect waste in better hygiene and safety conditions and in greater dignity.

Ciudad Saludable has also developed a master in environmental management in collaboration with “l’Universidad Católica del Peru” in Lima. The goal of this master where Albina Ruiz and some of her collaborators teach different classes, is to generalise waste management solutions in Peru.

In the mid-term, Albina Ruiz’s objective is to replicate her model of micro-entreprises to all cities of Peru and to other countries in South-America. Deeply affected by a recent trip in India, Albina Ruiz also made a priority of adapting her model to that country.

The 13 micro-enterprises launched by Ciudad Saludable employ 150 people. Ciudad Saludable operates in 60 Peruvian municipalities, enabling the collection of 100% of the waste in the areas where it is active. By collecting waste and favouring the adoption of respectful behaviours, Ciudad Saludable’s different micro-enterprises have improved the living conditions of 4 million people.

Ciudad Saludable’s work has also had a huge influence on the Peruvian government. Recently, the company has been an important actor in the creation of the first General Law on solid waste in Peru.

Through its master in environmental management, Ciudad Saludable has enabled more than 5,000 students to master in the field. Today, all these students have the skills to be the actors of the environmental change initiated by Albina Ruiz.

Financial impact

The micro-enterprises are managed by destitute people living in the neighbourhoods where they operate. These people generally do not have access to the loans of “classic” banks and find it therefore very difficult to finance the purchase of additional material. To tackle this problem, Ciudad Saludable has developed a microcredit program with the Canadian Bank Scotia Bank. As Albina found the normal interest rates proposed by the microcredit institutions way to high, (between 30 and 40% annually) Albina created a special fund that Ciudad Saludable guarantees with a deposit of $30,000 at the Scotia Bank. With the guarantee to be reimbursed and not having to deal with the follow up of the loans, Scotia Bank offers credit at a much lower annual interest rate (12%).

In 2006, Ciudad Saludable has obtained a $615,000 grant from the Skoll Foundation after having received the “Skoll Award For Social Entrepreneurship” awarding the quality of the innovations. This grant enabled Ciudad Saludable to gain scale, to improve the quality of its support to the micro-enterprises and to accelerate the expansion process to other countries of South America.

Ciudad Saludable, by developing innovative solutions, has met the challenge to create “healthy cities”. Now surrounded by a skilled and optimist management team, Albina Ruiz wishes to extend her model to all the Peruvian cities and to export it abroad.

Fair Street - Ciudad Saludable from Angalio Productions on Vimeo.

In the following interview, Jacqueline Novogratz, CEO and founder of Acumen Fund answers Fair Street's questions on the role of patient capital and the challenges of measuring social return.

1)     Could you shortly describe Acumen Fund? More precisely, could you tell us how it differentiates from other social investment funds?

Acumen Fund exists to help end poverty by changing how the world addresses it. We do this in two ways. We invest patient capital to identify, strengthen and scale business models that effectively serve the poor. And we champion and spread this approach as an effective complement to traditional aid, which can create dependence, or pure market approaches, which can bypass the actual needs of the poor.

 Acumen Fund focuses on a market-oriented approach to addressing problems related to poverty in the developing world, and in its use of debt and equity, as well as an investment model that relies on intensive due diligence and the use of metrics to ensure that each investment yields measurable social returns. We actively listen to understand who the poor are and let markets indicate what they need, in an effort to help people make their own decisions and solve their own problems

 Our long-term vision is that one day every human being will have access to the critical goods and services they need – including affordable health, water, housing, energy – so that they can make decisions and choices for themselves and pursue lives of greater purpose. This is where dignity starts – not just for the poor but for everyone on earth.

2)     Could you explain what a social return is? What are the different tools to measure it? What are the challenges in measuring it?

 It’s the measurement of this « social return »  that is so difficult – not just for Acumen Fund but for the nonprofit sector overall. We have a clear commitment to accountability and metrics, from ourselves as an organization and from all the investment enterprises with whom we work. So we continue to work to develop systems that help us better understand the real impact of our work, and how we can better support our investees. At the level of our individual investments, we assess our investments along four criteria: Financial Sustainability, Social Impact, Scale and Cost Effectiveness. We expect quarterly metrics from each enterprise on the corresponding financial, operational and social impact metrics.

 We employ an analysis called BACO (short for ”best available charitable option”), which is our tool for assessing the cost effectiveness of our investments. We designed it as a way for us to better understand and improve the effectiveness of our own work, not necessarily as a tool for the sector, although we are happy to see that others find it applicable.  We developed the framework because we found that absolute measures of social return are too hard to implement in practice, but we needed something to help us think about the marginal use of our philanthropic capital.

 Over time, we would love to see a world where the "output per dollar input" of a range of activities is made transparent and comparable. The question of standardized metrics is an incredibly difficult one, given subjectivity in values. With Google’s support, we have built a web-based tool to share portfolio performance data across our four international offices. Called Pulse, this system allows us to keep metrics data and insights reliable and available. We can then analyze this aggregate pool of data to identify cross-cutting principles—and to explore and communicate breakthrough insights into how to reach base-of-the-pyramid markets. Pulse is currently being beta tested by a number of peer organizations, and along with a standard set of definitions, has the potential for allowing for greater comparison and transparency across the sector.

3)     You said in the “Ted talk” that patient capital plus management support are more efficient than market and charity alone. Why is this combination more efficient in generating social return in the long run? 

 Poor people seek dignity, not dependence. Traditional charity often meets immediate needs but too often fails to enable people to solve their own problems over the long term. Market-based approaches have the potential to grow when charitable dollars run out, and they must be a part of the solution to the big problem of poverty.

 But the marketplace alone isn’t the answer either. Very low-income people are too often invisible to businesses and society. Building new models that provide these critical services at affordable price – in the face of high costs, poor distribution systems, dispersed customers, limited financing options and, at times, corruption – requires imaginative business solutions and partnerships supported by investors willing to take on a risk/return profile that is unacceptable to traditional financiers.

  Our approach is to invest “patient capital” – typically below-market investments that are accompanied by management assistance in enterprises with the potential to reach hundreds of thousands of individuals. We regard low-income as individuals as customers (even if they have no ability to pay) rather than as passive recipients of charity. We start with the market because we believe it the best listening device we have. From our investments, we gain insights not only about the poor as consumers but about where the market fails entirely. In these cases, we believe we can bring deeper insights about more efficient ways of delivering needed services to the very poor.

4)     In classical financial models, people usually build their portfolio looking for the highest expected return given a certain level of risk. Do you think social return will become a key investment driver in the future? Does paying attention to social return necessarily imply renouncing to some financial return?

 I don’t think the financial model that’s changing -- what’s shifting is the way many investors consider the definition of return. I think social return is already a driver for many people, who are seeking the highest expected return that combines both the financial and social. For Acumen Fund, while we operate as a venture capital fund, we seek to make a social impact with investments while achieving financial sustainability. With our earlier investments, we have generally sought the return OF our capital as opposed to a return ON our capital – however, our more recent investments have the potential for far greater returns.

After the fascinating discovery of the solar cookers, Fair Street made a second reporting in Cochabamba, Bolivia. We had indeed the chance to meet Martha Wille who manages Coronilla, a family business created more than 40 years ago. Through her actions, Martha made of Coronilla the perfect example of a company that beneficiates to all the actors of its value chain.

The initiative

Coronilla addresses issues that are directly linked to the political and social situation of Bolivia.

The bad living conditions of the Amerindians (60% of the total population) are one of them. Evo Morales’ accession to power triggered a lot of hope among this segment of the Bolivian population. Nevertheless, many still live in precarious conditions. As homeland for the majority of the Indian population, the Bolivian Altiplano, region of high plateau at heights of more than 3000 meters is particularly poor. There, people essentially live from agriculture, first sector of activity of the country, and earn unstable and little wages.

If it is the case of many poor countries, the situation of women in Bolivia is particularly worrying. In the 90s’, this problem was even considered as one of the plagues of the country. A study made in 1994 showed that close to 70% of the women endured domestic violence. Today, Bolivian women still suffer important discrimination compared to men. With their main task being house caring, they have a limited economic power and are therefore strongly depending on their husband. This isolation, combined to wife-beating prevents women from taking part to the development as they are too busy defending themselves.

At the root of the women marginalisation stands their low level of instruction that reduces their emancipation possibilities.

Fortunately, in the last 10 years, the situation of women has become a central preoccupation in Bolivia and many initiatives and laws that aim at improving their situation have appeared but a lot still needs to be made.

Founded in 1972 by Guillermo Wille, Coronilla has been a pasta producing company from its beginning. In the mid-90s’, the export market strongly contracted, putting the enterprise close to bankruptcy. Martha Wille, daughter of Guillermo Wille redynamised the company by diversifying the product range. If Guillermo Wille already paid attention to the well being of its employees, it is with Wartha that the second life of Coronilla as a social enterprise really started. Today, the company produces pastas and snacks mixing quinoa and a traditional andine cereal that makes them gluten-free.

Coronilla wants to fight poverty by having a positive impact throughout its value chain. As CSR (Corporate Social Responsability) is a relatively unknown concept in South America (even less in Bolivia), Coronilla wants to be a pioneer. In its buyings, the enterprise purchases its ingredients (quinoa, rice…) directly to destitute local producers, negotiates in their own language (Quechua or Aymara) and offers them price stability.

The employees also have a very important place in the company’s strategy. 75% of the employees are women and 10% are disabled. The working conditions are optimal in terms of hygiene and security and the enterprise provides its employees with the possibility to study or to follow complementary training. Finally, Coronilla offers support to the working families so they can put their children at school.

As there is very little demand for organic food in Bolivia, Coronilla only focuses on exportation. Today, the company exports to 11 countries in North America, Europe and Oceania.

As it buys its ingredients to local producers following Fair Trade principles, Coronilla provides a stable source of revenues to 1500 families allowing them to maintain a certain life standard. The company also has a positive impact on the lives of its 65 employees offering them trainings and wages above average.

Financial impact:

Since 1997, two organisations have contributed to Coronilla’s development

The first, SEAF (Small Enterprise Assistance Fund), has invested $400 000 (mix of capital and debt) through its fund « fondo Capital Activo de Bolivia », to finance its needs in working capital. More than the supply of capital, SEAF support helped Coronilla in improving its accounting practices and in transforming into a stock corporation. SEAF essentially professionalised the company. Coronilla bought back SEAF’s shares in 2004.

After SEAF’s help, Coronilla still only used 20% of its production capacity in 2004 and the enterprise needed capital to keep growing. Back then, Coronilla obtained a loan of €350 000 from the Dutch organisation Cordaid. This loan allowed Coronilla to double its exports within the same year. Today, Coronilla’s exports are close to $1 000 000 using 50% of the productive capacity. If the company has met a high growth in the last 5 years, it still enjoys important growth potential that should enable it to spread its fixed costs better and increase its margins.

By continuing to create value for all its stakeholders (producers, employees, shareholders and clients) Martha Wille is convinced that Coronilla is meant to be a major company in Bolivia.

Fair Street - Coronilla from Angalio Productions on Vimeo.

Our first report on the Bolivian soil takes place in Cochabamba. The interview with our entrepreneur, Ruth Saaverda has been incredible as we had the chance to attend a demonstration of the product in the Bolivian countryside in a community of miners.

The initiative:

Families living in rural areas in Bolivia usually do not have a proper access to gas and electricity. As a consequence, they are forced to use firewood for their cooking. UNICEF estimates that in developing countries, more than 80% of the wood is used to cook.  On average, this translates into a yearly consumption of 100kg of wood per month per family. This intensive use of wood, in addition to emitting destructive gazes such as CO2, considerably participates to the deforestation in these countries (10% of the deforestation could be avoided thanks to the use of solar cooking).

Cooking can also strongly complicate the lives of women if they do not have the appropriate technology. Women in rural regions are often forced to walk several hours per day to bring wood back home. This harassing task prevents them from working and from participating to the economic and social life.

Headquartered in Cochabamba, Bolivia, Sobre La Roca was founded in 1997 to produce and distribute solar cookers to the Bolivian farmers living in rural areas. The solar cooker is a thermal box constituted of different mirrors that reflect solar rays within the box. The good insulation of the box enhances heat conservation enabling temperatures of 150°C and therefore making it possible to cook all kind of dishes. Solar cookers are easy to build which allow Sobre La Roca to sell them at the attractive price of €50.

The Bolivian Altiplano, where Sobre La Roca’s activities are concentrated, is an ideal location for the use of solar energy: it is at more than 3000 meters of altitude and enjoys 300 sunny days per year.

Sobre La Roca has also developed complementary activities. It has launched awareness campaigns on the ecology and offers trainings to teach Bolivian families how to use the solar cooking and to improve their food habits. The company is in a growth phase: if up to now, Sobre La Roca has already sold 5000 solar cookers and educated more than 2400 women, it should reach the number of 10,000 solar cookers sold by the end of 2009.

Sobre La Roca’s life has not always been easy. In 2004, as the company was close to go bankrupt, Ruth and her husband conceded huge sacrifices which allowed Sobre La Roca to survive. Fully believing in the value of in Sobre la Roca, they went until selling their wedding valuables.

The use of the solar cookers has a very positive impact as it contributes to the environmental, social, sanitary and economic development. Firstly, solar cookers favour nature preservation as 500 cookers enable the preservation of 5000 acres of forest per year without any CO2 emissions. Secondly, solar cookers, given the time savings they allow, enhance the women social and economic emancipation. They can indeed allocate time to other activities instead of spending hours to collect wood and watch out the cooking of their dishes. Lastly, cooking with solar energy increases the nutritive value of the meals as it leaves more vitamins within the ingredients giving them a higher nutritive power.

Beyond its product, Sobre La Roca has a positive social impact throughout its value chain. The basic elements of the social cookers are built in a prison of Cochabamba as part of a reinsertion program for prisoners

Financial impact:

E+CO's support: During the first years, Ruth Saveedra financed Sobre La Roca with her own money. Her launching strategy consisted in offering 10 solar cookers to different farmers in order to measure their social impact and to promote the product. Then, the company grew through auto financing; the profits generated by the sales of its cookers were reinvested and allowed it to grow but at a limited pace.

After 7 years, Sobre La Roca had sold 2,500 cookers. However, the financial situation of the company became not sustainable as it had to renew its infrastructures with no capital to do so. The social investment fund « E+Co », believing in Sobre La Roca’s future and potential, backed the company with a $20,000 loan refundable in 3 years. This loan enabled Sobre La Roca to increase its production capacity and to reach a larger proportion of customers. The total impact of the loan is striking as it triggered a 300% growth of the production and gave the possibility to Sobre La Roca to convert into a small enterprise owning its own infrastructure.

E+Co’s support has been decisive in Sobre La Roca’s economic development and in the extension of its social mission.

The use of microfinance: The price of the solar cooker is 50€. While being affordable, this price remains too high for some people at the « Base of the Pyramid ». To cope with this situation, Sobre La Roca, collaborated with E+Co and created a fund that proposes micro credit loans. Moreover, Sobre La Roca is currently building a strategic alliance with FIE, a leading microfinance institution in Bolivia, whose broad network of agencies will ease the access to capital for many people and consequently ease the acquisition of solar cookers.

Fair Street - Sobre la Roca from Angalio Productions on Vimeo.

Fair Street had the privilege to interview Michael Chu, co-founder and managing director of IGNIA fund, one of the first social venture fund active in South America

Senior lecturer at the Harvard Business School, Michael Chu is an expert in social entrepreneurship and in the sector of the « Base of the Pyramid ». Graduated from this same business school, he worked for the private equity Kohlberg Kravis Roberts after having begun his career at the Boston Consulting Group. During six years, he was the CEO of Accion International, an organisation that aims at fighting poverty through microfinance. In collaboration with Alvaro Rodriguez Arregui, he founded the social venture IGNIA fund in June 2007.

Fair Street : Can you explain what is a social venture fund  (or more broadly a social investment fund)? How do they differ from classic venture funds? In your opinion, are social investments riskier than traditional investments? What are the criteria’s for a “good” social investment?

Michael Chu: In my view, in its most basic definition, a social investment fund is a fund that focuses its investments on enterprises whose activities are deemed to have a positive social impact. This is the key difference with classic venture funds, in which the primary purpose is financial returns. From there on, there can be many different types of social investment funds. The IGNIA Fund which I co-founded, for example, is dedicated to invest in commercial enterprises dedicated to low-income sectors which will generate high social impact due to their activities (e.g. healthcare, housing, education, basic services for the base of the socioeconomic pyramid and supply chains that incorporate low income producers) and also above average financial returns.

I do not think that risk is a defining characteristic that distinguishes social investments from traditional investments. There are risky and safe investments in both social and traditional sectors. To emphasize my point, with the benefit of hindsight it’s clear that owning a share of Citigroup was much riskier than a share of Compartamos Banco of Mexico, where the average size loan is still under US$ 500.

My criteria for a good social investment is an enterprise that is capable of generating high social return (e.g. providing access to primary healthcare for low income populations) together with the creation of outstanding financial return (e.g. IRRs (1) in the 30s%). IGNIA’s investment in Primedic fulfils exactly those characteristics.

FS: As a manager of a social investment fund, how are you able to find the balance between social impact and financial returns when making your decisions? Doesn’t one of these variables eventually end up taking precedence over the other?

MC: At IGNIA, finding that only one of the two considerations is met is precisely a reason why we would decline a deal. For us, it makes no sense to just generate financial returns. My partner Alvaro Rodriguez and I could have done that by just sticking to what we were doing after we graduated from business school. On the other hand, if we find something of high social potential, we believe that meaningful impact can only be obtained through massive scale, which requires not only one firm but a whole industry, for which outstanding financial returns are essential. So for us, high financial returns is not a “nice-to-have” but an integral component to our theory of change and social impact.

FS: How will the current crisis impact the access to capital for social entrepreneurs? Do you think that following this crisis, people will invest a bigger part of their money in socially responsible institutions such as Ignia fund? Might the current events represent an opportunity for social entrepreneurs to gain influence in the public debate over the fundamentals of a more sustainable economic model?

MC: The current crisis will make access to capital difficult for everybody. Having said that, the latest two rounds of investment of the three we have had in IGNIA have been subsequent to the meltdown of global capital markets. We hope to continue with more investment rounds in the near future until we complete our fundraising goal.

While I would like to think that the current crisis will end up redirecting capital markets towards alternatives like IGNIA, at the end of the day this will be determined really by the actual results delivered by IGNIA.

FS: The debate you had in Geneva with Muhammad Yunus has been widely commented on the Internet…Your view is that market-based approaches and commercials means should be applied to organisations addressing the Base of the Pyramid. Could you please tell us more about this?

MC: Winning over poverty requires four conditions: massive scale, sustainability across generations, continuous efficacy (a model that gets better every day) and continuous efficiency (a model that gets cheaper every day). NGOs, philanthropy, developmental agencies can start initiatives but cannot on their own deliver scale or permanence. On the other hand, Governments cannot deliver continuous efficacy and efficiency. Business, i.e, market-based solutions, is the only way humans have known how to deliver all four of the necessary conditions simultaneously and consistently. But this is accomplished not through one individual enterprise. Business delivers this through the creation of whole industries. And I know of only one way to create an industry: an economic activity and above average returns.

One caveat, though. If you use market mechanisms to address social issues, you must also understand that the only way to ensure through time that the benefits of the additional value created do not remain solely with investors and managers but continue to flow to those being helped is through competition — open, transparent and intense. Then prices will drop, product variety will increase and customer service will excel. This is the enduring lesson of successful commercial microfinance.

In Argentina, over half of the population does not have access to social security. Even those whose work status allows them to enjoy social security benefits often choose in addition to subscribe to a private health insurance. The Argentinean population thus has two options: either to resort to private healthcare systems, usually too expensive for the populations at the base of the pyramid; or to use available public services and consequently accept its inefficiencies and waiting lines that can last up to several days. This time spent waiting prevents the patient from working, and providing for the needs of his family.

The initiative:

CEGIN (Centro Ginecologico Integral) is a medical center founded by Jorge Gronda, which specialises in the provision of medical services to poor women from rural areas. The CEGIN center manages to offer quality services at half of the market price! In order to achieve such results, their strategy is based on the use of the economies of scale. The medical industry is faced with very high fixed costs (equipment, infrastructure…), whereas the additional cost of a new client is actually relatively low. The CEGIN center therefore targets a very large number of patients in order to spread its fixed costs. By working many hours and treating a large volume of patients (40 000 total), the center can thus guarantee a quality service whilst achieving lower rates of consultations. Rather than offering free services, the CEGIN approach is to charge the patient a low — but fair — cost. They have come to realise that the patient feels more dignified that way, and in consequence is treated with greater respect by doctors.

Five years ago, Jorge Gronda launched the SER system within the CEGIN center. It is a membership card that patients can purchase for 10 pesos (€2) per year which gives them access to the 60 CEGIN medical practices. By presenting this SER card, patients enjoy preferential rates in CEGIN centers that charge less than half of the market price for medical services (for example, an ultrasound scanner costs 20 pesos in CEGIN centers, instead of 50 pesos normally). The main idea behind the SER card, beyond increasing access to healthcare, is to create a network that will later allow its members to enjoy various advantages such as discounts in pharmacies. In the long term, Jorge Gronda’s ambition is to develop a system of “social franchise”, and extend the SER card’s field of action to various fields such as food, construction and transports. His aim is that necessary fundamentals for a decent life be accessible at low cost for all the people living at the base of the social pyramid.

The social impact of CEGIN and the SER is already huge. Nowadays, over 40 000 people are followed by the CEGIN clinics (including 20 000 through the SER network). Over 10 000 biopsies are carried out each year in CEGIN clinics, which is estimated to have prevented the development of more than 300 cancers.

Financial impact:

Financing: Gronda is currently finalising negotiations with a European fund. The financial contribution from this fund should allow the consolidation and extension of the SER network. The objective is to extend the number of members from 20 000 to 50 000 over the next five years. According to Gronda, such financial support from an external organization is vital in order to achieve this objective.

Microfinance: 80% of health problems can be resolved with a SER card and the consultations at half price that it allows. However, some serious problems require much more expensive surgery. In these cases, CEGIN uses the benefits of micro-credit in order for its clients to afford these operations. The most common operations they have to carry out cost on average 3 000 pesos (€ 600 +/-). A micro-credit fund financed and managed by CEGIN allocates credits equivalent to the costs of the required operations. These credits are usually reimbursed in ten regular payments. Gronda is a pioneer in the use of micro-credit for health purposes; considering that health is a basis for development, he believes that it is essential for people to have access to capital in order to extend their access to healthcare.

The SER system rests on a fundamental financial principle: diversification. Members of the network are at the base of its success and development. That is why, by extending the network, Gronda is consolidating it. With more members, the various risks are diversified and the global risk is reduced. This diversification that reduces the system’s profile of risk also plays an essential role in financing both the workings of micro-credit and the development of a micro-insurance system.

Fair Street - CEGIN from Angalio Productions on Vimeo.

The second report takes place at Bariloche, in Northern Patagonia. After a meeting in Buenos Aires with the director of Ashoka Cono Sur, we decide to change our itinerary and make a "small" 2000 km detour to Bariloche, where we meet Gustavo Gennuso. Gustavo has been living in Bariloche for 30 years. He moved there to study nuclear energy and continued to work in this field until 2000, while developing his social innovations. Gustavo Gennuso's ambition is to achieve profound social change. He wants to give the poorest members of society every opportunity to develop.

The initiative:

In 2006, Gustavo Gennuso founded ETV. Emprendimientos de Tecnologias para la Vida aims at developing, building and distributing technological solutions to improve the living conditions of the people at the base of the social pyramid. Currently, the main product developed by ETV is the Bomba de Soga, which pumps water. ETV's objectives are threefold: to harness the potential of technological innovations for the poorest communities; to provide work to young people from the Fondation Gente Nueva; and finally, to use some of the revenues generated by the sales of their products to fund the foundation.

However, at this stage, the profits generated do not yet allow significant progress towards the achievement of the third objective. Nevertheless, in three years of existence, ETV has already succeeded in reaching out to 300 families. The long-term objective is to have a direct impact on the lives of 150 000 people.

ETV products are made in the workshops of Gente Nueva, which employs a workforce of young apprentices.

Created 25 years ago, the Fondation Gente Nueva was the first social initiative launched by Gustavo. It aims to promote education and access to employment to those excluded from the traditional educational system. Helped by a network of primary and secondary schools, and the development of workshops and regional education programs, Gente Nueva wants to give each individual a chance to realize his or her potential. The schools of the Gente Nueva network are free, and the salaries of teachers, who are selected by members of the foundation, are paid by the State. Since its creation, the Fondation has welcomed over 5000 young people into its classes. It has also trained another 3000 young people through its regional education programs.

Financial Impact

In this case, the financial impact lies more in the role played by microfinance in extending the company's social impact than in direct financing.

Microfinance : Micro-credit is an innovation that has allowed millions of people to extract themselves from poverty. If access to capital can allow poor people to create a micro-enterprise, why should it not also allow them to buy products that will significantly improve their living conditions? Such is ETV's strategy. It is true that the targets of Gustavo's social business can often not afford to buy his products. The "Bomba de Soga" costs 700 pesos (+/- €140). People who earn an average of €2 per day can hardly hope to find such an amount. So, in order to extend its social impact, ETV uses the micro-credit formula to make its products more accessible. Thus, ETV's clients fund the purchase of a water pump with a micro-credit. This support from microfinance has a twofold impact: it extends ETV's social impact, but it also increases the future benefits of the company — and, therefore, the financial resources available to Gente Nueva, who can in turn accelerate social change through increased access to education. As micro-credit is not one of ETV's activities, they collaborate with different MFIs (Microfinance institutions) and NGOs from the regions where they are active (mainly Northern Patagonia and the Jujuy province). This collaboration with the microfinance sector is the only way to reach the targeted 150 000 people.

Financing: In parallel with its social vocation, ETV also aims to provide financial resources for the Fondation Gente Nueva. This type of model is fairly widespread among social enterprise initiatives: in order to avoid being dependent on donations, "business" solutions are preferred and "social businesses" are created with the aim of financing the non-profit side of their activity. The remainders of the profits are reinvested in the company in order to finance research for other new technologies.

ETV also benefited from various funds, essentially from philanthropic investors, in particular a Swiss "business angel" who has provided a credit on very favorable terms (but about which we have not received any other details). Today, ETV is seeking financial backing amounting to $74 000 (€54 833) in order to finance investments necessary for them to achieve the objectives of their business plan — specifically, for the launch of new technologies.

Fair Street - ETV from Angalio Productions on Vimeo.

Our first visit to a company takes place in Buenos Aires and starts off with an epic beginning…

As we are already 45 minutes late, our driver keeps stopping at every street corner to ask the way. After yet another stop, his engine caughs and dies… and will not start up again. We get out and push the car for 50 meters until the engine starts. According to the directions we received, we must now be close to our destination, so we chose to continue on foot…

We finally arrive at Etilplast where we are greeted by Walter, the cooperative’s co-founder. Although seemingly shy, Walter is indefatigable when it comes to talking about his cooperative, its objectives, the problems it tackles and his plans for the future.

The Initiative: 

Etilplast is a cooperative that currently employs 38 people. Under Walter’s drive, and that of his father, its members started by focusing on recycling plastic. They gradually extended their activity, and now treat various types of waste. Anything that cannot be recycled is sent directly to the rubbish dump, the rest is taken to the warehouse. There, the waste is sorted; after separation, cardboard and glass are sold as raw materials to other companies. Plastic, on the other hand, is redirected towards the recycling factory where, after treatment, it comes out as a raw material virtually indistinguishable from the original product.

If recycling has now become an evidence in most developed countries, Argentina, like many other emerging or developing countries, does not enjoy a waste sorting system at the national level. Waste and rubbish are not sorted because the population is not conscious of the consequences that poor waste management can have on the environment.

Therefore collecting waste in a professional way, sorting them and recycling is extremely innovative in Argentina and Etilplast is one the first company to do it in Buenos Aires.

Before starting Etilplast, Walter was a « cartonero ». In 2001, he finished high school, but the bankruptcy of his father’s store and the intensity of the Argentinean economic crisis rapidly made his job search futile. He then has little choice but to become a cartonero. In Argentina, cartonero refers to individuals who collect waste in the streets, essentially to recuperate cardboard. They then sell it and live off the proceeds of it. Cartoneros are held in low regard by society because of the degrading nature of their work and the majority of them suffer from social indifference. They are also exposed to extremely hazardous hygiene conditions, and suffer repression from both the police and organized crime groups. During the economic crisis that Argentina experienced between 1998 and 2002, the number of cartonero families increased dramatically ; according to the World Bank figures, over 100 000 new families began to live off this activity in 2000. 

Etilplast has two fundamental objectives. The first is to raise the population’s awareness of the environmental issue of waste management. Etilplast is not content with simply sorting and recycling, it aims at solving the problem at its source. They collaborate with several schools where they educate young students on the issue. The second objective is to offer destitute people (for who the only option is often to work as a cartonero) a status-enhancing job. Walter is proud of the fact that Etilplast has improved the living conditions of 38 families. 

Financial support: 

The cooperative has mainly self-financed its start. Most profits were reinvested into the company to improve its working practices and to increase its social impact. In 2008, Etilplast received a 600 000 pesos loan (around €145 000) from Oikocredit, a Dutch social investment fund that aims at financing SME’s and MFI’s. The credit granted to Etilplast has specificities that make it beneficial to the development of the cooperative; for example, Etilplast enjoys a two-year capital exemption,  which means that during the two first years they need only pay back interest, and they will begin reimbursements only in the third year. This exemption allows Etilplast to enjoy the full benefits of the credit before having to reimburse it.

Walter’s account was sufficient for us to measure the impact of Oikocredit’s contribution: “In five years of existence, we had managed to employ 20 workers and we collected the waste of approximately 2300 families. Following Oikocredit’s loan, in six months, we have increased our workforce to 38 employees, and we can now collect the waste of 1800 extra houses.”

Walter concludes the interview by telling us that “Etilplast’s vision is that nothing is impossible”. He has begun as a cartonero, and is now planning to replicate his model and extend it, in the hope that this will push political authorities to take appropriate measures.

Fair Street - Etilplast from Angalio Productions on Vimeo.

The current economic crisis, which began as a financial crisis, has called into question our entire financial system and its links to the economy. What is the role of finance? Its main purpose is to provide capital necessary to the development of economic activity. Most of us, as economic actors, feel the need for capital at one point or another. Thus, we are all financial actors as well, and we can measure the importance of access to capital in our everyday lives.

The role of the financial sector is to support the real economy. However, following the crash of the American real-estate bubble, the existence of a financial sector became apparent — a financial sector whose evolution had grown out of step with the economy. Fair Street aims at putting forth a different financial model, one that continues to serve the real economy by taking into account one of the key criteria when attributing capital: the quality of the entrepreneurial initiative. One type of initiative set itself apart by its quality: that of social entrepreneurs.

Social entrepreneurs have a considerable impact on development, as their priority is to tackle the most pressing challenges facing our planet, be environmental or social issues. Social entrepreneurs are all, in their own way, leaders, innovators and visionaries.

Although these entrepreneurs always demonstrate strong courage and determination, they rely on capital in order to achieve their desired impact. Taking a closer look at their financing strategies will allow us to reveal ways in which finance can participate in social and economic development.

Be it social investment funds, innovations drawing on collaborations with microfinance institutions, or governmental initiatives, what Fair Street wants to focus on is the impact that can be made by those providing capital. At a later stage, we will aim at identifying financial players who participate in this development, in order to determine where the impetus comes from.

Such is Fair Street’s intention: in a time of economic crisis when bad news seems to be coming from all sides, Fair Street wants to convey an optimistic message by presenting the principles of a more responsible financial sector and the fundamentals of a more sustainable economy.