Turning Traditional Donors into Social Investors: Revolutionizing the Online Microfinance Platform l a a j b e P Development Solutions Direct Online Relationships, Definitive On-the-Ground Results by Rob Krieger and Jessie Margolis
Online microfinance platforms have significantly enhanced the ability for capital to reach millions of poor people across the globe Example: Credit: kiva.org The microfinancesocial impact philosophy:Providing loan capital to small private sector enterprises uses the power of incentive-based capitalism & the free market to increase GDP & living standards in poorer regions of the world.
However, current online micro and small business lending platforms fall short on turning traditional donors into true social investors Issue #1: Financial Statements Issue #2: “The Pitch” Do not sufficiently encourage the ability of each individual micro/small businesses to control and interpret basic financial information. Issue #3: Lender Fragmentation Do not allow prospective lenders to get a sense of the communicative skills of the entrepreneurs. Issue #4: Micro vs. Small Using many different lenders to finance one micro/small business project disconnects each individual lender. Issue #5: Mentorship Concentration on micro lending doesn’t capitalize on the advantages that come with cooperation and specialization of labor. Do not take advantage of the business knowledge that a developed-world lender may be able to provide.
The Solution . . . l a a b e j P Development Solutions Online business to business connections for the developing world: Fueling sound business growth through direct due diligence, financing, and mentorship Francisco: Organic Coffee Farmer For Example: Credit: stonyfield.com Cross-Continental Interconnectedness . . . . . . through high bandwidth communication A single business in the U.S. lends to a single business in the developing world, through funds from the business’s Corporate Social Responsibility (CSR) program.
Pajebal Provides Solutions to the “5 Issues” l a a b e j P Solution #1: Financial Statements Development Solutions Solution #2: “The Pitch” Small business leaders and entrepreneurs with the most potential work with theirlocal MFI and Pajebal to ensure their financial literacy, and they must post statements online for lender review. Solution #3: Lender Fragmentation Small business managers must post a video pitch, that presents their business and defends their need for financing. Great for investor analysis and for developing entrepreneur’s presentation skills. Solution #4: Micro vs. Small Business to Business Lending: The lender is compelled to monitor progress because: 1) the direct mentorship bond; 2) the entirety of a loan—a few thousand dollars—is coming from one source Solution #5: Mentorship Increased efficiency of specialization of labor and cooperation that comes when we encourage and finance small to medium businesses as well, moving beyond the micro phase. U.S. business takes on a consultative role for the developing world business, via online communication—a combination of an online portal, Skype, and email.
Innovative Thinking: Compare & Contrast to Other Players in the Field a l a b e j P Development Solutions Pajebal will offer a high bandwidth solution to online micro/small business finance that is not currently present in the market MyC4 does raise funds for small business (not just “micro”), and does suggest that they have financial info of prospective borrowers online. However, they fund each borrower from a multitude of lenders, do not have videos for each borrower, and do not offer direct lender-borrower mentorship. The niche of the Acumen Fund and other social venture capital funds is different than Pajebal—we occupy the in-betweenspace between them, and online platform intermediaries like MyC4 and Kiva. The Hoop Fund is functionally quite similar to MyC4, whereas Vittanalends funds for school tuition, not for business. Rethink Impact proposes a video pitch approach, however: 1) the videos will be made by actual U.S. NGOs and social businesses that desire to raise grants from institutions—it’s a different business model; 2) The company is not yet operating.
Innovative Thinking: Compare & Contrast to Other Players in the Field a l a b e j P Development Solutions a l a b e j P Financial Statements “The Pitch” No Lender Fragmentation Micro vs. Small Mentorship
Feasibility: Program Characteristics that will ensure our plan works a l a b e j P Development Solutions Pairing of area of expertise to the area of capacity building need. Matching management/communication styles, as well as with regional interests. Requiring slightly greater initiation time and initial fiscal investment to generate more measurable long-term social impact. Targeting mid-sized corporations that are committed to engaging in both financial and capacity building support. Loan Funding Sources: U.S. Company CSR participants. Operational Expenditure Funding Sources: 1) CSR partner membership fees 2) In-country interest rate of up to 5% 3) Individual and institutional donations and grants
Feasibility: Learning from a Potential Local Partner a l a b e j P Development Solutions “My company has had a big Kiva account for a while, but most employees haven’t seemed to care about it. If this could build a better connection beyond the people managing the loan and giving advice, getting the whole company aware of the impact it was having and the progress of the business, that would be awesome.” Translation However, potential concerns were brought up, which we addressed. . . Loans vs. Grants We will fund at least one bilingual relationship facilitator per MFI, who is a resident and national of the country being served. Expected Engagement If loan extension is not in accordance with the company’s CSR program, a grant can be made instead, which will effectively act as a revolving loan fund. Expertise Level Will be agreed upon by the two sides before formal engagement and disbursal of funds. All communication is recorded. Lenders/mentors are not meant to be international business development experts. They are there to provide added value and vigilance, to amplify Pajebal’s on-the-ground training.
Feasibility: The Guatemala Pilot: Projected Financial Statements a l a b e j P Development Solutions First Year Income Statement for Pilot Revenues Member fees from CSR partners of 20% of loan outstanding*: $ 24,000 Interest Revenue of 5% of loans outstanding (paid by MFI): $ 6,000 Private Donations and Institutional Grants**: $ 24,000 TOTAL REVENUES $ 54,000 Expenses Salaries (3 Guatemala staff plus 1 U.S. intern): $ 34,500 Website Development $ 6,000 Other General and Admin Expenses $ 7,500 TOTAL EXPENSES $ 48,000 Change in Net Assets $ 6,000 *Membership based off of total loans outstanding of $120,000. This comes from 25 different CSR partners totaling 30 different loans amongst them. Average loan size is $4,000 (30 * $4,000 = $120,000) **Pajebal currently has some modest private donor support, which we seek to increase. Additionally, we receive pro bono services from a premier global law firm.
Feasibility: The Guatemala Pilot a l a b e j P Development Solutions Pre-Loan Extension Phase Steps Post-Loan Extension Phase Steps Build U.S. corporate relationships through partnership and membership. Add one more employee to Guatemala staff (total 3) and one U.S. paid intern. Upgrade current website to accommodate new lending model. Select initial small business borrowers from Pajebal’s existing MFI partners. Guide potential borrowersin developing their financials, and video pitch. U.S. companies select businesses Matched partnership Introduction. Lender & borrower establish goals and define the terms of their relationship. Pajebal stands as a support and resource during this process. Maintenance of regular & consistent communication about practices and progress, through Skype and email. The Lender provides feedback. Progress assessment: working with borrower & lender to evaluate & set/reset goal achievement after each quarter.
Scaling a l a b e j P Development Solutions Learning from Existing Companies Kiva’s and myC4’s scalability success provide some evidence for our own. Our project will certainly provide more “bang for the buck”—more measurable social impact per dollar spent—thus financial backing is warranted. First “Scale Deep” Then “Scale Out” We will move along the learning curve with each solid, inter-company relationship we help to form and nurture. There will likely be many repeat lenders after the initial couple of years. The idea, therefore, is to “scale deep” at first, partnering with various U.S. companies , but sticking with only two or three MFIs in one country. Oncewe have accumulated sufficient knowledge and skills through deep scaling in Guatemala (2 to 3 years), we will be prepared to “scale out.” Planting Seeds Currently have substantial, long-running MFI relationships in Guatemala. Recent work in India on a consulting project for the MFI the BASIX Group Standardization vs. Local Adaptation Standardized: 1) The website and exchange platform; 2) 4Step Process of relationship facilitation (slide 11) Localized: 1) Flexibility within the 4 Step Process; 2) Branch scaling in Central America; affiliation and/or dissemination scalingelsewhere
Scaling: Post-Pilot Organizational Chart (5 Years in) a l a b e j P Development Solutions
U.S. company, Pajebal, and MFI collaboratively chose social impact metrics. Potential Impact: Aligning Goals, Methodologies, and Strategy a l a b e j P Development Solutions 5. Gain input from Social Impact Assessment experts. Research best current methods 4. Reflect upon how metrics incentivize growth, quality and investment leverage. 2. Capacity building for small business metrics monitoring and evaluation. 3. Review of limitations, data accuracy and reflection of social value.
The word Pajebal is the original indigenous Kiche Maya name for the Guatemalan village that inspired our work. “Pajebal” means “at the snake’s tail,” or, “at the end of the line.” The people of Pajebal, and of all the Pajebals spread out across the developing world, have been at the end of the line for too long. Pajebal, Inc. exists to provide them with real business growth solutions rooted in sound business management, intelligent use of capital, and effective intercontinental business-to-business communication. a l a b e j P Development Solutions View the current state of the project at www.pajebal.org