Social Impact Companies, Projects, and

Event Proceedings
Social Impact Companies,
Projects, and Entrepreneurship in Mexico
U.S.-Mexico Chamber of Commerce,
Northeast Regional Chapter
New York | 1 November 2013
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On November 1, 2013, A.T. Kearney’s New York office hosted a conference on behalf of the United
States-Mexico Chamber of Commerce Northeast Chapter (USMCOC-NE) to discuss the current
business and investment opportunities related to social impact projects, companies, and entrepreneurship in Mexico. This conference continued a series of events that have been jointly conducted
by A.T. Kearney and USMCOC-NE. Previous topics have included Mexico’s optimal positioning as
a nearshoring destination, Mexico’s role in NAFTA-centered supply chains, Mexico’s competitiveness in the global economy, the importance of human capital development to Mexico’s future
competitiveness, and Mexican innovation, entrepreneurship, and venture capital financing.
Applying private-sector principles for
resource allocation has increased both
social and financial returns.
This event provided an open dialogue about what is being done in Mexico to make a positive
impact on the living conditions and economic opportunities for those at the bottom of the
socioeconomic pyramid through the application of sound business and investment principles.
Attendees heard from a distinguished group of entrepreneurs, investors, and philanthropists
who are making a difference in the Mexican social impact space. These individuals shared their
experiences and opinions in a pair of panel discussions.
The day’s discussions made it clear that while the social-focused projects in Mexico are helping
those at the bottom of the socioeconomic pyramid and bringing returns for investors, much
more work remains to be done to elevate the poor above a subsistence-level standard of living.
Government efforts, which for too long have doled out funds that have only made a short-term
impact, have been eclipsed by the work of private-sector social groups that are bringing
disruptive, lasting change to help make Mexico a more productive society. The application
of private-sector principles for resource allocation is increasing both social and financial returns.
This document summarizes the content delivered by the panelists, along with responses to the
question-and-answer sessions that followed.
Panel One: Social Company Visions and Goals
Moderator: Ricardo Haneine, partner, A.T. Kearney
Panelists:
• Javier Delgado, general director and CEO, Fondo de Capitalización e Inversión del Sector
Rural (FOCIR)
• Martha Smith, president, U.S.-Mexico Foundation
• Luis Velasco, investment committee president, Promotora Social México
• Mayra Hernandez, head of corporate responsibility, Banorte
• Al Zapanta, president and CEO, U.S.-Mexico Chamber of Commerce and U.S.-Mexico Cultural
and Educational Foundation
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Following a brief welcome and introduction to the day’s program by USMCOC-NE Executive
Director Alejandro Ramos, the panelists responded to several prompts from Haneine regarding
the achievements their organizations have made, what must be done to increase Mexicans’ social
well-being and economic mobility, and what the panelists are doing to aid this transformation.
Javier Delgado, FOCIR
In 1994, FOCIR established a trust fund to support loans to small farmers in Mexico, which has a
rural poor population of 53.4 million. By developing a new system of incentives to encourage
banks to make these loans, FOCIR helped increase loan activity in the fund’s first year, with
500,000 farmers receiving loans. That number tripled by 1998.
FOCIR continues to find innovative ways to help small farmers, such as introducing intermediaries to the due diligence process to better determine which farmers are lower risk lenders, and
getting non-bank operators engaged in lending activity. In 2014, a new FOCIR program will use
grants to create investment funds that will be pooled with funds from private investors to invest
in a wide range of projects in the social sector, including farmer assistance.
Making real change for those at the bottom of the socioeconomic pyramid takes time and
investment, along with a willingness to work in new ways. The government’s shift away from
providing grants to making investments appears to be a move for the better, as the capital
remains in circulation to help more farmers. While most of these farmers strive to advance
beyond subsistence-level living, opportunity, technical assistance, and funds are all needed for
them to move ahead. They need to learn to become more entrepreneurial, and a supporting
ecosystem must be established to help them do so.
Martha Smith, U.S.-Mexico Foundation
Funding Mexican philanthropy, including projects centered on social entrepreneurship and the
impact investing space, is one of the three primary work streams of the U.S.-Mexico Foundation
(UMF). The UMF has been supporting the development of the ecosystem needed to help increase
social entrepreneurship by engaging impact investors and funds interested in investing and
assisting incubators and accelerators. The UMF supports organizations working to improve the
Mexican educational system by raising matching funds on both sides of the border to mobilize
funds toward impactful, innovative social initiatives.
A recent “mapping” project undertaken by the UMF identified 750 actors working in the social
entrepreneurship space and helped identify gaps. This effort was of interest to the 238-year-old
nonprofit organization Nacional Monte de Piedad, which moved into this space by investing
in a $100 million impact investing fund that is currently forming. In the summer of 2013,
Nacional Monte de Piedad put out a call for proposals from social entrepreneurs that attracted
14,000 entrepreneurs competing to become part of a 100-member social enterprise incubator
and accelerator.
Those involved with the USMF remain motivated by the need to improve the socioeconomic
standing of the 50 million Mexicans living below the poverty level who have not reaped the
benefits of the North American Free Trade Agreement (NAFTA), which has helped make Mexico’s
economy the 14th largest in the world. Progress is being made, but disruptive thinking that
forces more major change is a must. Education is crucial for opening up opportunities and
increasing social mobility for Mexico’s poor. Partnering and building scalable models that bring
economic, social, and environmental returns are central to UMF’s mission.
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Luis Velasco, Promotora Social México
Since its founding as an organization for Mexico City earthquake relief in 1985, Promotora Social
México has expanded its mission to philanthropic venture capital via its investments in Banco
Compartamos, Latin America’s largest microfinance bank. By engaging in this philanthropic
venture capital activity, Promotora Social México keeps funds flowing to try to break the cycle
of poverty. Banco Compartamos has grown steadily since it first started making small loans
in the early 1990s, and went public in 2007 to increase its liquidity. It now has 2.5 million clients
in Mexico and continues to grow its lending vehicles to increase the number of people who
can benefit from loans.
Promotora Social México approaches social investing as venture capitalism rather than philanthropy to maximize results; social development follows from economic development. It rigorously
studies grant proposals and only awards grants when they meet its threshold for productivity.
It is focused on developing an ecosystem to incubate entrepreneurial efforts, supporting people
throughout their development while taking a business approach to social investing.
Promotora Social México approaches
social investing as venture capitalism
rather than philanthropy to maximize results.
In one example of how disruptive change can come about, Promotora Social México has worked
with Mi Tienda, which forms relationships with small, rural “mom and pop” stores to help them
offer better products and operate more effectively. Mi Tienda sells nonperishable goods to these
stores and teaches the owners how to move past the subsistence model, in which the store
inventory represents the entirety of the owners’ wealth, into a business model with managed
cash flow. This allows Mi Tienda to empower people to become small business owners and even
open additional stores to break the cycle of poverty. By buying individual units of goods rather
than the bulk goods that these store owners have traditionally purchased, shopkeepers avoid
spoilage issues and can diversify their product offerings. As they learn to buy direct from
producers, they can even sell goods at lower prices, increasing the buying power in their
communities. Mi Tienda is rapidly scaling up in its ability to help stores modernize to increase
business opportunities and expects to help more than 8,000 store owners do so within five years.
Promotora Social México keeps the individual at the center of its strategies while leveraging as
many different organizations as possible to build this support system. Loans and direct public
aid are both part of the picture. Publicly held lending institutions such as Banco Compartamos,
nonprofit organizations such as Mi Tienda, and the Mexican government all play a role in
Promotora Social México’s work. No single body can do it alone.
Mayra Hernandez, Banorte
On both the investor and entrepreneur sides, social entrepreneurship is consolidating in Mexico.
Business is proving to be a force for doing good through both philanthropic and profitable
activity. Banorte exemplifies this, offering funds that invest in social entrepreneurs and funding
a foundation that supports women entrepreneurs. Many small efforts are underway, including a
new fund for social entrepreneurs that trains them and puts them into competition for investment.
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But while much has been done, more remains to be done. Mexico needs:
• The will to collaborate and time to implement new projects
• A new corporate perspective focused on building networks and working more cooperatively
• New legislation akin to the U.S. Community Reinvestment Act, which encourages financial
institutions to meet the credit needs of their local communities to further their development
Banorte’s foundation partners with corporations and influential individuals to make it a vehicle
for change as well as a platform to help clients learn about the need for help, with a special
emphasis on mobilizing funding from high-net-worth individuals.
Al Zapanta, U.S.-Mexico Chamber of Commerce and U.S.-Mexico Cultural
and Educational Foundation
Following the creation of NAFTA, in which the USMCOC played a central role, the USMCOC
undertook a range of initiatives to help implement and deepen the agreement.
A joint effort between the U.S. Senate, the U.S. Department of Commerce, and the Mexican
Presidential Office established and funded the creation of an environmental database for all
31 Mexican states to remove barriers to doing business in Mexico. Seven principles of environmental stewardship for industry were established and put to use in the creation of clean
production centers that helped small- and medium-size Mexican companies and entrepreneurs.
New microfinance activity funded these efforts. The Departments of Labor from both countries
also collaborated on research into the most used job classifications along border areas to
allow workers from Mexico and the U.S. to perform work across borders.
USMCOC also developed the U.S.-Mexico Cultural and Educational Foundation to better
leverage the potential of its corporate members to focus on cultural and educational programs
in both Mexico and the United States. It has focused on areas of high potential leverage,
including cross-border internship programs to make students from both sides of the border
better aware of the potential for future collaboration and trade and to grow future NAFTA
business leaders. The Connect Mexico program for small- and mid-size businesses has also
been established to better connect more than 6,000 Mexican companies and encourage
entrepreneurial efforts.
Panel Two: Perspectives from Social Entrepreneurs
and Fund Leaders
Moderator: Alejandro Ramos, executive director, USMCOC-NE
Panelists:
• Rocio Cavazos, global social investment funds, Deutsche Bank
• Tanya Beja, industry and institutional relations, IGNIA Capital
• Leticia Jauregui, director general, Communities of Social Entrepreneurs
• Renée Niño de Rivera, international social entrepreneur
• Guillermo Jaime Calderón, executive president, Grupo MIA
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The day’s second panel emphasized the practical aspect of working in the social impact sector
through the experiences and perspectives of funds that invest in social impact companies, an
incubator, and entrepreneurs.
Rocio Cavazos, Deutsche Bank
Deutsche Bank created its first social fund, which invests in microfinance, in 1997. The
company’s total social investment portfolio, which stands at $800 million spread across 42
countries, seeks both social and financial returns through its investments in microfinance,
affordable housing, healthcare, education, energy, and agriculture. Much of this activity takes
place in the form of fund structuring and management, whereby the bank structures funds and
invests in some of the riskier tranches while seeking additional investors to mobilize as much
capital as possible. Eleven of these investment funds have launched, supplemented by the
bank’s direct lending, client advisory, and advocacy activity.
The day’s second panel emphasized the
practical aspect of working in the social
impact sector through the experiences
and perspectives of investors.
Deutsche Bank was one of the first sponsors of the Smart Campaign’s Client Protection
Principles. The principles call for all microfinance financial services providers to design
products and delivery channels in such a way that they prevent over-indebtedness, act in a
transparent manner, price responsibly, treat clients fairly and respectfully, keep client data
private, and provide mechanisms for complaint resolution.
To be considered a social-impact-focused organization, an entity must show clear support for
an explicit social mission and demonstrate high ethical standards in dealing with customers,
employees, and suppliers. The bank categorizes impact investments into three categories:
• Those that sell products and services to low-income, underserved populations to address
specific needs
• Those that seek to have a community impact by reinvigorating a community through investment
• Those that engage in project financing, such as commercial bank investments in infrastructure
to enhance living conditions
The bank’s due diligence efforts include the same sort of debt capacity evaluation that any
business would undergo, along with verification that the current shareholders have both the
commitment and the access to additional funding need to support young, growing social
enterprises. Potential investees must have a strong business plan that demonstrates how
they are fulfilling a clear market need and be measured against the bank’s social scorecard.
Mexican social enterprises are a key marketplace for Deutsche Bank, and it continues to
examine a wide range of enterprises and entrepreneurs as well as potential investments and
investors to advance the standing of those at the base of the socioeconomic pyramid. The bank
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is developing two new global $100 million funds that will likely include investments in Mexican
microfinance, housing, education, and energy social enterprises.
Tanya Beja, IGNIA Capital
Based in Monterrey, venture capital firm IGNIA supports the founding and expansion of highgrowth social enterprises in areas such as healthcare, education, and housing to serve the base
of the socioeconomic pyramid in Mexico. This base consists of the 70 percent of Mexico’s
population that earns less than $3,000 annually. IGNIA looks to invest in enterprises that use
innovative, disruptive business models to bring quality goods and services to this underserved
population and has made early-stage investments in eight such companies to date.
When considering an investment, IGNIA uses a stage-gate process that starts with a macro
consideration of the needs of the industry that a company is in, followed by an examination
of the entity’s business model. The management team is also heavily scrutinized; with expectations that an investment will typically be held for seven years, the venture capital firm wants
a good fit with this team. IGNIA also looks for potential above-market financial returns under
the guiding principle that social impact and profitability need not be mutually exclusive. Finally,
the social impact is considered on an industry basis, with the goal of investing in potential
disruptors that can scale up and help create ecosystems that can grow an industry to make
a positive impact.
The fund’s initial group of investments includes Provive, which acquires, refurbishes, and sells
foreclosed homes in low-income housing developments while working with communities to
reestablish active neighbor participation in the revitalization process. Another investment,
Barared, is a correspondent banking network that delivers products and services through
telephone booths inside nearly 1,000 small stores, linking the formal and informal economies
while branching out to marginalized communities that do not have banks. Ver de Verdad
provides affordable eye-care services to Mexico’s low-income population.
IGNIA monitors the social impact of its investments through the use of two systems, IRIS and
GIIRS. IRIS is a taxonomy that standardizes terminology and metrics so that reporting on the social
aspects of projects can be readily understood and compared across industries. GIIRS is an impact
fund rating system that is allowing more capital to flow to higher impact, more efficient endeavors.
Leticia Jauregui, Communities of Social Entrepreneurs
Founded in 2008, Communities of Social Entrepreneurs (CREA) focuses on making a community
impact and driving systemic change by training and advising low-income women microentrepreneurs in rural and marginalized communities in the Mexican state of Zacatecas. CREA
drives systemic change by providing these women with the skills needed to run businesses
through a network of entrepreneurs who coach and mentor them to drive them toward longer
planning horizons and the economic growth to elevate their families out of poverty.
More than one-third of Mexico’s small businesses are led by women who face many barriers
to growing their businesses because of a lack of resources. While microfinance is bringing
capital to start businesses, there is a gap in terms of funding for growth as well as the kind of
coaching that CREA is providing. CREA trains women to become entrepreneurs and consults
with those who have already established their businesses, with an emphasis on manufacturing
businesses. To date, CREA has worked with 1,500 women, benefitting them, their families,
and their communities.
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In 2014, CREA will be launching a new strategic partnership to increase the number of states in
which it works. The organization is also collaborating with Stanford University and the Central
Bank of Mexico to develop measures of the financial returns it has helped to achieve to date in
order to demonstrate its impact and attract additional funding.
Renée Niño de Rivera
Since 2005, Renée Niño de Rivera has worked with the Fundación Legorreta Hernández in
Yucatan to bring high-end luxury fashion accessories handcrafted by Mayan women entrepreneurs
to market. Prior to launching this enterprise, Niño de Rivera spent several years researching
what to make and who to sell it to, opting to partner with the foundation after learning of the
skills of these Yucatan women. New York-based artists associated with the Parsons School
of Design teach women how to do the design work.
The foundation helps Yucatan women by hosting workshops on organizational, timemanagement, and quality-control skills. It also teaches them to use computers and cell phones,
which they use to communicate with Niño de Rivera’s company for tasks such as receiving
orders and emailing photos of their works in progress.
In undertaking this initiative, Niño de Rivera has kept the social business aspect first and foremost,
using all of the market insights and customer knowledge available to target socially responsible
“fashionistas” who want luxury products with a social awareness component. The scarves are sold
in high-end stores, and Niño de Rivera’s public relations efforts seek to place the products in the
hands of trendsetters who will wear and discuss the products to help build awareness. Products
also include a tag that explains the company’s mission and how the venture helps the women who
sew them. Future opportunities include plans to offer scarves in a range of designs and materials
and to get as many women in Yucatan as possible involved in their production.
Guillermo Jaime Calderón, Grupo MIA
In rural Mexico, most houses are built “informally” by individuals using substandard practices
and materials such as dirt floors and tin roofs. To help improve the housing stock for Mexico’s
rural poor, Calderón founded Grupo MIA in 2009 to build durable, reasonably priced homes.
Grupo MIA’s business model centers on three elements:
• Financial. Connect potential homeowners with government and non-government organizations to obtain subsidies or microloans (typically around $3,000 to be paid back over
seven years).
• Technology. Use construction systems that make it possible to build high-quality houses
quickly.
• Social organization. Organize individuals into a community of small working groups that
construct houses with one another’s help
The group’s efforts started in the area of Mexico City and have since spread to seven Mexican
states as well as Nicaragua and several African countries. Throughout its work, Grupo MIA
emphasizes accountability, profitability, social impact, and job generation, acknowledging
that it can be a challenge to balance them. With help from Grupo MIA, the housing situation
for those at the base of Mexico’s socioeconomic pyramid is beginning to improve, and the
established players in the traditional housing industry are taking notice and considering
moves into this space.
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Essential Points
The core messages developed during the event include the following:
• A number of profitable efforts are underway in Mexico to transform and bring positive benefits
for the good of all. Many corporations and individuals have helped, but much work remains to
increase incomes in Mexico, where too many people are living at the subsistence level.
• The commitment to social goals needs to be pursued in a manner consistent with profitability.
These social objectives are not sustainable without a profit opportunity to fund them.
• Returns are not immediate. Real social and commercial success depends on the ability to
generate enough profits to achieve goals over time.
• Private-sector social groups are having a deeper impact than government efforts. The private
and social sectors are making a difference and forcing change, being creative and disruptive,
and finding new ways to improve social mobility and well-being to make Mexico a more
productive society.
• Private-sector principles should be applied for resource allocation to maximize both social
and financial returns.
• It is crucial to continue building platforms. Single businesses have narrow impacts, while
platforms affect entire sectors and provide more leverage.
• Metrics are essential. Optimizing resources requires that they be measured based on the rate
of return of profit plus their social impact. Without readily grasped metrics, resources may be
channeled to those who can “sell” a project rather than to those who will deliver the greatest
impact over time.
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