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Part 4 of Latin America in the Spotlight features Jimena Betancourt, Enterprise Development Manager at NESsT. Make sure t cath up on Parts 1, 2, 3, and stay tuned for updates from the Miami Social Enterprise conference, which starts this afternoon.

NextBillion.net: Please describe your organization and the partners you work with:

Jimena Betancourt: NESsT is an international nonprofit organization working to solve critical social problems in emerging markets through the development of social enterprises.

We take an engaged approach to developing social enterprises. Our main initiative, the NESsT Venture Fund, is a philanthropic investment fund providing long-term capacity building, technical assistance, and financial support to social enterprises instart-up and expansion phases. The Fund has adapted tools and process of private equity funds to the development of social enterprises in emerging markets. Our portfolio currently consists of more than 50 social enterprises to which we have provided long-term (5-7 years) capacity and grant investments. In Latin America alone we have a portfolio of more than 20 social enterprises, including a pipeline of more than 70 organizations. The NESsT Venture Fund operates in Argentina, Brazil, Chile, Ecuador and Peru.

NESsT also operates a consulting arm, NESsT Consulting, that provides professional training and consulting services in social enterprise development to clients worldwide. We work with foundations, nonprofit organizations, international organizations and corporations offering training and technical assistance on a variety of social enterprise topics, as well as in organizational sustainability and venture philanthropy.

Lastly, we involve hundreds of emerging market business professionals each year to provide volunteer advice and expertise to our portfolio of social enterprises. The NESsT International Business Advisory Network (IBAN), for example, is a group of individuals -- many with personal and/or professional ties to the regions in which NESsT operates -- that provides pro bono advice and assistance to NESsT on a strategic level.

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

Jimena Betancourt: There are interesting contradictions related to social enterprise in Latin America. On the one hand, there are no regulatory or legal frameworks recognizing social enterprises, and social enterprise is generally not part of any public policy debate. Although civil society organizations can sell products and services, they often have to pay income tax and there is no recognition of the many positive effects brought by them

Furthermore, social enterprise lacks visibility and is generally not well known or understood.

However, there are great demands on the part of Latin American civil society organizations for social enterprise development support. They recognize the need for training, technical assistance and financial support to develop enterprises and ensure that they enhance their social mission. This fact is evidenced in the results of social enterprise competitions announced by NESsT which draw hundreds of applicants at a regional level.  

Another interesting element of LA is the diversity among countries. Colombia and Brazil have sophisticated social enterprise sectors, while other countries less. In countries like Ecuador, social enterprise is not generally widespread among CSOs. In Central America it is a new concept that NESst is working to develop.

NextBillion.net: Could you share sha one or two examples of social enterprises supported by NESsT and the impact they're having?

Jimena Betancourt: Examples of two social enterprises in Chile that are supported by NESsT, under the NESsT Venture Fund later-stage portfolio are:

ONG Forestales, for instance, promotes the conservation sustainable management of native forests in Chile. Their social enterprise Ingenieros Forestales, which developed a firewood certification program and buys certified firewood from small producers for a fair price and resells it to customers in the southern city of Valdivia. The enterprise, currently being replicated in 5 other Chilean cities, contributes to the local economy and helps to improve air quality and educate consumers about damage caused by illegally harvested wood.

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

Jimena Betancourt: I see three mayor challenges: The first and biggest one is the lack of support and awareness of social enterprise as a financially sustainable tool. The lack of education among the CSO community of social enterprises as self-financing alternatives is something that needs to be seriously addressed.

There is also very little donor funding available for social enterprises in Latin America.  Unlike Europe, where the European Union is actively promoting and supporting social enterprises, funding for Latin America seems to be totally off the radar screen of international cooperation assistance and national governments.  

Lastly, a major road block is that social enterprise is not integrated into the region's public policy agenda.                       

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

Jimena Betancourt: We continue to work with the social enterprises we support under the NESsT Venture Fund initiative.

We're currently running Social Enterprise competitions in five countries simultaneously,expanding the Fund to the Brasilian State of Bahiaand also advancing RAMP in Peru.    

Also, in response to the tragic events following the earthquake in Chile, NESsT has established the Levantando Chile Fund to support local Chilean organizations that are channeling assistance to communities on the ground. Levantando Chile will support both immediate assistance and long-term reconstruction efforts in Chile.

Through NESsT Consulting we're developing consultancy in venture philanthropy for donors and corporations; we're also developing social enterprises to serve BoP markets and to support the financial sustainability of environmental conservation efforts. We also work on several capacity building projects that have a focus on social enterprise development as self sustainability strategy.

And although NESsT is growing in an organic manner, we don't to spread our resources too thinly when it comes to broadening our horizons beyond Central and Eastern Europe and Latin America.

In 2007 we added Romania, which is now our biggest program, and we added Brazil and Argentina last year. The goal now will be consolidating and growing our existing markets.

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.

NextBillion.net: 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. 

NextBillion.net: 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.

NextBillion.net:  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.)

NextBillion.net:  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. 

NextBillion.net: 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.

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.

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!

NextBillion.net: 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.

NextBillion.net: 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.

NextBillion.net: 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.

NextBillion.net: 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.

NextBillion.net: 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. 

Dear NextBillion Reader:

Since 2005, NextBillion has strived to provide news, analysis and information on the "base of the pyramid" (BoP) sector.  We are now the most-visited BoP site on the web, with more than 40,000 unique visitors per month- thanks to you.  And we don't want to stop there. In an effort to improve our editorial coverage and our technical functionality, we ask that you spend 5 minutes to complete this short survey.  We will use your responses to improve NextBillion so that it can better serve you.

Take the NextBillion Readers' Survey here.

Thank you for your time!  If you have any questions about the survey or about NextBillion in general, please e-mail info@nextbillion.net.

This week, we welcomed four new people to the NextBillion team: Maria Zheng, Andrew Eder, Bryan Farris, and Adeena Schlussel.  Watch for their contributions and insights! 

 This week, staff writers took new looks at how enterprises can intervene in education and early childhood to create new security and prosperity into the future:

What Social Businesses are Doing to Fight Terrorism

New staff writer Bryan Farris examines a topic often discussed in the media from a new angle - before education steers people towards radicalism or towards economic opportunity, the education must be paid for.   Credit and financial services for the poor and for student loans offer an alternative to large flows of funding from Islamist sources. 

Reversing the Cycle of Poverty: Targeting Early Childhood Development

Manuel Bueno highlights the critical nature of early childhood in determining long-term individual outcomes - and by extension, economic outcomes.  He asserts that early childhood is an overlooked market for base of the pyramid businesses.

The Bottom of the Pyramid: A Disruptive Force to be Reckoned With?

Mark Beckford argues that base of the pyramid markets are tailore made for the generation of disruptive technologies and approaches.  If it's not seriously cheaper and better than existing products and services, it probably won't succeed.  A powerful insight on why we are seeing so much polycentric innovation.

Feedback from Our Readers: NextBillion Readers' Survey

We're looking for your feedback to make NextBillion better, more responsive to its audience, and a more enjoyable read for you.  Please take a moment to fill out this survey.

We added some great upcoming events to the Take Action page.  Get excited for Sankalp 2010, India's larges social enterprise forum.  Readers of NextBillion know the sheer energy and breadth of new social enterprises in India - be part of it May 4-5 in Mumbai. This week, watch for reports from the Social Venture Capital/Social Enterprise Conference in Miami, Florida!

We also posted some fantastic jobs.  If you missed them:

The Center for Tropical Agriculture in Cali, Colombia has an open-ended call for recent graduates to apply for internships with their global programs on agriculture.  English and a 6-12 month commitment is required.

Ashoka's inspiring Housing For All initiative - tackling one of the biggest, most complex issues out there - is hiring a director for its Brazil program.  The position is in Sao Paolo.

News

This week a we posted a story that caught my eye at the intersection of social justice and market-oriented development.  Waste collectors - individuals that serve as the waste management system in countless urban areas in developing contexts - are vulnerable to their livelihoods being taken away by new modern municipal collection systems and particularly waste-to-energy incineration projects.  It's a thorny question, because large-scale waste management is a clear need.  A situation in Delhi illustrates the role that waste collectors may play in waste management that is a leap ahead of landfill dumping, even - there a friend has been involved in a community effort that has organized waste collectors to separate organic waste and divert this to local fertilizer and compost needs, even Delhi parks.  It saves the city huge fees in trucking organic waste miles (which makes up the vast majority of urban waste in India) out of Delhi.  And even the tiny margins on collecting and sorting organic waste can provide an income stream for waste collectors.  Organic waste in open landfills is a huge source of methane, a serious greenhouse gas, so there is real value being created by diverting organic waste from open landfills.

It may or may not scale, but the possibility for organic waste to join recyclables in the diverted waste streams creates real value.  Or perhaps waste collectors can be integrated into supply chains that sort waste according to highest value - local compost, recyclables, waste-to-energy projects, large-scale landfills with methane capture that can generate carbon credits. 

The venerable Self-Employed Women's Association in Gujurat got its start organizing self-employed people in Ahmedabad, like waste collectors, to give them a semblance of power in the markets that determined their livelihoods. No matter how the waste management systems evolve - through large-scale systems or community-scale sorting - the livelihoods of the waste collectors should be kept in mind. 

Around the blogosphere:

For San Francisco readers, from the Acumen blog: "The San Francisco for Acumen Chapter will be having its Wine Tasting Event on 25th March, at the SNOB Wine Bar & Lounge from 6.30pm - 9.30pm." (ed. note: Lest you get the wrong ideas, SNOB stands for Sonoma, Napa, Or Beyond.)

The Solar Electric Light Fund is partnering with Partners In Health to put solar panels on all of its clinics - including in Haiti.  As noted in the Economist, expect to hear more about solar for Haiti as Richard Branson's Carbon War Room pushes it as a major piece of Haiti reconstruction and development at a UN donor conference later this month. 

And finally, China is to India like Wal-Mart is to Target?  You'll have to read it to see if you agree. 

The last few weeks have been unusually busy at NextBillion. You've seen several new names, topics discussed, and the diversity of perspectives represented in our pages continues to expand. Moreover, the site's managing partners (Acumen Fund, WDI and WRI) recently met for a planning session where we discussed several ideas that get to the heart of our site's goal: bringing value to our readers and being the web's primary resource for analysis, news and opportunities related to market-based approaches to poverty alleviation. 

Lots of exciting ideas and lots of work, to be sure, but all of this has been accompanied by several conversations with a growing base of contributors. Today I'd like to introduce you to four new members whose name you'll see more and more often in NextBillion: Maria Zheng, from the University of Michigan, Adeena Schlussel from Acumen Fund, Andrew Eder from NextBillion's partner Technoserve, and Bryan Farris from Bain & Co.

While Maria will join as Editor, Andrew, Adeena and Bryan join as Staff Writers. For more information about their backgrounds and interests I encourage you to visit their profiles. Please join me in welcoming all of them!

I read a brilliant article 'Design Thinking for Social Innovation' published in the Winter 2010 edition of the Stanford Social Innovation Review today. The article is inspired from the work of IDEO, a global innovation and design firm, and is authored by Tim Brown (CEO and President of IDEO) and Jocelyn Wyatt (IDEO's Social Innovation Lead).

The article talks about the need for human-centric design to solve complex problems and takes one through the key elements in the 'Design Thinking' process. Through examples of the water treatment centre run by the Naandi Foundation in Hyderabad, India to the Mosquito Net distribution program in Africa, it brings out the importance of design thinking in every aspect of creating and delivering a product or service.

"The design thinking process is best thought of as a system of overlapping spaces rather than a sequence of orderly steps. There are three spaces to keep in mind: inspiration, ideation, and implementation. Think of inspiration as the problem or opportunity that motivates the search for solutions; ideation as the process of generating, developing, and testing ideas; and implementation as the path that leads from the project stage into people's lives." says Brown and Wyatt.

Inspiration is the first step towards creation of a product or service. Observing how things and people work in the real world (which might require living with local communities) is very helpful for drawing inspiration. The example of the use of the positive deviance initiative, where the problem of malnutrition in Vietnam was solved by discovering the solution within the same community, is a good one of drawing inspiration.

In the Ideation space, the authors highlight the importance of letting ideas flow (while deferring judgment) till the end of brainstorming sessions. Organizations often restrict choices while ideating on projects, which is easier to do in the short-term. However, divergent thinking and more ideas are what lead to disruptive solutions and are beneficial in the long-run. It is also advisable to have multi-disciplinary teams when collaborating. 

The last space is Implementation, which is the key to the creation of the final product or service. In this space, prototyping is extremely important. Testing within a small and well chosen sample set of users can help create a revolutionary product.

If you want to learn Human Centric Design (HCD) and use it for innovation, you can use the IDEO designed HCD Toolkit, which helps organizations understand people's needs in new ways, find innovative solutions to meet these needs, and deliver solutions with financial sustainability in mind. The toolkit was created in collaboration with the Gates Foundation and non-profit groups IDE, ICRW and Heifer International.

Early childhood development (ECD) is a term used to describe the personal growth of a child until the age of 6. During this period the brain of a child continues to develop and form neural connections – a process that started during the pregnancy. Adequate nutrition, cognitive stimulation and care strongly influences the extent to which a child’s health may develop to their fullest potential, as well as her cognitive and social and emotional abilities (Young, 2002).

Unfortunately, in many low-income countries, poverty also begins at birth. Children from low-income families are much more likely to be malnourished, live under unhygienic circumstances and receive low levels of education. A shortfall in early childhood development will have irreversible consequences on individuals’ future lifetime opportunities. This will reverberate later in life in the form of lower quality jobs, lower wages, shorter life-spans, worse health and lower cognitive abilities, thus perpetuating an intergenerational cycle of poverty.

Return on investments in early childhood will be higher than returns to investments made later in life.  Firstly, because beneficiaries have a longer time to enjoy the rewards from these investments; secondly, because investing on, for instance, better health or education has a stronger impact on young children than on any other population segment, even if the amount of years was the same. Therefore, supporting ECD generates a positive impact that will have a stronger impact on the individual’s wellbeing than at any other later stage of her life (Recent Nobel laureate James Heckman, has studied this topic extensively, see for instance, Heckman, 2006).

To assist ECD, the child’s family environment is pivotal, hence ECD interventions should at least also consider the child’s mother (as I suggested in a previous post) or at least the child’s primary caretaker. The parental environment and family income of a child are, moreover, far more decisive in promoting human capital and school success during early childhood than in later years (Vegas and Santibañez, 2010).

Although ECD is a very multifaceted concept (at the end of the day everything may have an impact on the child’s development), a recently published book by the World Bank suggests prioritizing 3 goals:

1. Enhancement of a child’s development early in life, including her cognitive and social and emotional development, physical growth, and well-being;
   
2. Enhancement of a mother’s antenatal care with services and information to strengthen the probability of delivery of a healthy baby;
   
3. The education of parents and/or caregivers in better parenting, health, and hygiene practices, as well as providing them the opportunity to participate in the labor force.
   

In other words, at the child’s level there are three main and interdependent needs: nutrition, education and health. At the family level, and especially for mothers, health and education about how to take care of a baby are essential. Therefore adequate ECD programs should ideally be multi-sectorial (straddling more than one industry) and target the child and her family. Along these lines, the most successful ECD programs are:

1. Conditional Cash Transfer (CCT) programs: CCT programs transfer money (in cash or in kind) to families in exchange for them to comply with certain conditions. These conditions normally revolve around children's education and health, such as school attendance or regular vaccinations. In Latin America, where CCTs have been successful, it is estimated that they have benefited more than 15 million poor families and over 60 million low-income people.
2. Parenting Programs: These programs try to educate parents in childrearing and child stimulation techniques and often also include child preschool programs that have been found to significantly affect long-term educational attainment.
3. Nutrition and supplementation programs: This third type of programs have been mainly geared to improve the children’s physical wellbeing and growth as well as stimulating better cognitive outcomes. For instance, subsidized milk and milk fortification programs for children and lactating women have been massively popular and successful in places like Colombia, Mexico or Guatemala.

Unfortunately, the role played by the private sector in ECD is minor at best. Such a state of affairs stems partly from the belief that nutrition, education or health for infants and young children are sectors better taken care of by the public sector rather than by private enterprise. Moreover, scandals such as in Nestle’s baby-feeding formula have not encouraged BoP firms to try to tackle this set of unmet needs for fear of a public backlash.

This represents a missed opportunity for BoP businesses. I believe that businesses operating in low-income markets would have three main advantages over state–run programs as far as ECD programs are concerned. Firstly, many BoP businesses have accumulated a very high degree of trust and legitimacy at the local level. This high status enables them to more convincingly sway families into changing the way many children are brought up and improving their health and hygiene standards.

Secondly, most BoP business are hierarchically flat in order to decrease operational costs to a minimum and be financially sustainable. This means that a smaller portion of investments in ECD programs would be devoted to the maintenance of business structures and a greater portion would end up on the hands of those who need it most. This is a serious problem in many state-run programs where often a big percentage of the money devoted to development is diluted after passing through the hands of several public organizations (even when there is no corruption).

Thirdly, the integrated nature of ECD programs, and the fact that the most effective interventions include components that are usually the domain of different government sectors (such as education, health, welfare, and labor), makes it complicated to implement and sustain them at the public level. However, most of the most successful low-income businesses exploit hybrid business models. The fact that they straddle more than one sector often represents a strength rather than a weakness or a source of difficulty in their business model.

As I have argued before, it is time to extend the focus of BoP businesses beyond male adults and try to develop products and services targeted to other comparatively hidden population segments such as women and, as I have argued in this post, small children. By refocusing and growing our field of vision, private sector development will achieve increased legitimacy vis-à-vis other more traditional forms of aid and realize higher social impacts.

Imagine that you're a 13 year old, the oldest of seven kids, growing up in Pakistan in a poor family.  As you try to fall asleep each night, you wonder whether you'll have something to eat the next day and your back hurts because you spent the last week lifting and pushing wheelbarrows to help your mother and father with their work.

Rather than dream about one day becoming a professional athlete or a world famous musician, you look ahead and expect that you'll be doing back breaking work like your mother and father for the rest of your life.  Life isn't terrible though; you have a very loving, happy family and wonderful friends.  Despite that, you know that your parents are fighting a daily battle to make ends meet and you have a growing sense of responsibility to help provide for your younger siblings.  If you're struggling to picture the desperate scenario I've described, just think of young people in gangs across the U.S.; this situation is not so different from what a lot of poor people in America face.

In their 2009 publication, 'Emerging Markets, Emerging Models', Monitor describes how many children find themselves in a condition of poverty across the developing world.  The report goes on to portray an economic environment that would be very challenging for poor families to navigate: "...current low-end markets are informal, inefficient, exploitative, and often dominated by monopolists, quacks, or crooks."  As you would expect, parents in situations like this want nothing more than to offer their children a life better than their own.  In fact, Monitor reports that parents are willing to spend a large portion of income on education for their children:

Even in one of India's poorest states, Bihar, parents earning over Rs. 3,000 ($60) per month (or $2 per day) are willing to pay more than 10% of monthly income to send at least one or more children to private school.  

Unfortunately, families in desperate situations are prime breeding grounds for the next generation of terrorists.  Al-Qaeda, FARC, Hezbollah and others that have been labeled as terrorist organizations are generally among the most influential and powerful groups in their local geographies. 

As noted recently in the Washington Post, terrorists are often recruited from poor families trying to break out of the cycle of poverty: "For poor people in countries where economic prospects are bleak, jihad can be one of the few jobs available...Of the 25,000 insurgents and terrorism suspects detained by U.S. forces in Iraq as of 2007, nearly all were previously underemployed."  For instance, many in the Arab world perceive Hezbollah to be an organization focused on social development.  Similarly, in Pakistan, the Taliban often offers parents the best chance for their children to receive a decent education.  In Colombia, the FARC recruit fighters from a very young age. 

These groups have so much money (The Middle East Forum reported that, "the Saudi government has admitted to spending more than $87 billion over the last decade in an effort to spread Wahhabism") in areas where many people are struggling to get by, that they can recruit members by offering them a better life.  Families that face desperation and degradation are willing to make difficult choices in order to end their despondency. 

The situation is further aggravated in countries and regions that have been torn apart by wars and natural disasters, which may add to the financial and emotional desperation that some families face when trying to get by. In his book, Capitalism at the Crossroads, Stuart Hart describes what drives individuals to join terrorist organizations:

It takes a lifetime of neglect, despair, dashed hopes, thwarted opportunities, or worse-intimidation, exploitation and humiliation-to drive most people to such extremes.

Individuals facing severe poverty often feel an intense sense of desperation and are therefore willing to do almost anything to escape their scenario.  Though terrorist organizations are usually led by religious fanatics and fundamentalists, their member base generally comes from disenfranchised poor families who seek a better life.  Hart, who is known to be a thought leader on this subject, goes on to say, "Terrorism, in short, is a symptom; the underlying problem is unsustainable development."

The Solution

It is clear that in the long run, the solution to terrorism is to deconstruct the life circumstances that encourage members to join organizations like the Taliban.  This is not an easy task, but social entrepreneurs are working diligently to help.  In the same way that social businesses are just a part of the solution to global poverty, they cannot fix terrorism in isolation.  Social enterprise, while critical, is only a piece of the puzzle; the severity of the problem requires solutions to a number of challenges, including social, government and economic reform.  Still, the work of innovative change makers is crucial and important.  As an industry, we are working to create solutions for those who don't have all the tools they need to help themselves.  We are providing access to proper education, health care, sanitation, energy, water, financial tools, and so on.

Though nearly everything social entrepreneurs do is meant to contribute to more sustainable development, two sectors of work stand out especially in terms of their ability to combat the seeds of desperation that lead to terrorism: education and financial tools.  Education expands the potential of young people to improve their family's life and financial tools help families to better manage their money, thus alleviating situations of financial desperation.  

Education

Providing one's children with an education is a desire shared across nearly all cultures and it is crucial for bettering the world and opening new doors of opportunity.  As Monitor reports, "Parents generally prefer to send children to private schools [which are perceived as higher quality than public schools]: between 1993 and 2002, 80 percent of new enrollments in urban India were in the private sector."  Anyone who has read Greg Mortenson and David Oliver Relin's 'Three Cups of Tea' knows about the inspirational work being done by the Central Asia Institute.  The institute is building schools in remote regions of Afghanistan and Pakistan to promote education, especially for girls.  Doing so in the heart of the territory occupied by the Taliban and other extremists, the CAI is directly influencing the life opportunities available to those whom it reaches. 

Another social venture, Vittana, is enabling person-to-person micro student loans over the internet, which makes it possible for the poor to receive quality education and pay off the loan with their earnings later on.  Through two vastly different approaches, the Central Asia Institute and Vittana are providing education opportunities for those at the BoP.

Financial Tools

As is clearly demonstrated in the book Portfolios of the Poor, the world's poorest are always coping with uncertainty, especially with regard to cash flows and the timing of when they receive income.  Financial instability can make life very difficult and can certainly force families to make difficult decisions. 

The work of Grameen Bank and the microfinance industry have provided some of the tools required for families to manage their finances, but more work is necessary.  Currently, M-PESA and FrontlineSMS are building the capability for the poor to store money on their mobile phones and make payments via text message. 

As Rob Katz described recently, M-PESA can be extremely useful for both rich and poor to manage their money and cash flows.  Not only will this enable users to make digital payments and have another way of moving cash, it will allow them to keep more of their money safe rather than stashed at home or with money guards.  For those living in tiny huts in the middle of urban slums, you can imagine how difficult it is to store money safely at home.  Financial security provides stability, which helps enable the poor to avoid the degree of desperation that leads them to join forces with terrorist groups.

Though this post has only touched on social businesses in the education and financial services industries, unsustainable development can only be cured through the collective impact of solutions across all types of needs.  Ultimately, social businesses and entrepreneurs will help local communities rise out of poverty.  When this occurs, terrorist organizations as we know them may cease to exist.