Chapter 5
Using MicroConsignment to Open a Door to Economic Inclusion—Guatemala
If microlending met charity and had a robust baby, you'd have microconsignment.
—Onna Young
MUCH OF POVERTY HAS TO DO WITH LACK OF ACCESS AND opportunity. Billions of people around the world, especially those who live in the most rural and vulnerable communities, lack any means to obtain the vital services, goods, and technologies that many of us take for granted. Without access to critical items that could dramatically improve their lives, they stay on the margin, segregated from the rest of the world and unable to escape from the cycle of poverty.
The MicroConsignment Model (MCM) creates a system of economic security and sustainability by focusing on empowering people from the community to become micro-entrepreneurs who provide services and technologies to the underserved population they belong to. It's not a completely new idea—the consignment model of business has been around for years. But Greg Van Kirk's version takes an existing model of commerce and twists it just enough to open the door for the most impoverished people to walk through and gain a chance for a better life for themselves, their families, and their community members.
The result is that both seller and buyer attain the footing they need to sustain an improved standard of living. The mission of MCM is to create first-time access to life-changing technologies—stoves, solar lights, hearing aids, eyeglasses—for rural villagers through the creation of locally owned and managed, profitable social enterprises.
You Don't Sell Ideas, You Create Ideas That Sell
How did an international banker come to live and work in Guatemala and develop this model? The story starts awhile back when Greg Van Kirk read David Bornstein's book The Price of a Dream, about Mohammed Yunus, the founder of microcredit (and the first social entrepreneur to win a Nobel Peace Prize due to the widespread impact of the movement he started).1 The idea totally resonated with Greg (ah, the power of both an idea and a dissemination mechanism) and in his mind, it crystalized the application of blending business and social entrepreneurship to make an impact.
What Greg most came to appreciate was the power of counterintuitive thinking inherent in Yunus's model. Yunus had turned a problem into a solution. That showed Greg a path, a way to do things—the elegance of designing a fairly simple financial solution that could tackle widespread poverty in a way that he hadn't conceptualized before he knew about microcredit. Being in banking, he certainly understood how to solve financial problems, and the microcredit approach seemed like a good way to tackle them for a vast amount of the world's population. So at age thirty, ignoring all the strange looks from his colleagues, family, and friends, he decided to merge his financial acumen with his social passion. He quit his banking job and joined the Peace Corps.
Greg was assigned to a small mountain town in Guatemala, seven hours from the capital, that had been hard-hit during the thirty-year armed conflict that ended in 1996. After supporting a number of existing Peace Corps–initiated village improvement projects, he decided that what the village could really use to improve itself economically was a restaurant where Peace Corps volunteers, locals, and tourists could go. Starting a restaurant was off the Peace Corps menu, so to speak, but he was persuasive enough to receive special permission to proceed—though with no extra funding. This would have put a stop to most people's plans, but equipped with $4,000 of his own and an English-language cookbook—and with only microwave experience as a cook—Greg, along with local cooks and waiters, opened a restaurant to help bring new money into the village. From the start it turned a profit. With the glow of entrepreneurial success under his belt, he started complementary businesses: an Internet center, a trekking business, an artisan store, a Spanish-language school, and eventually a youth hostel. All of these tourist-oriented businesses were planned with and involved on-the-ground local help and management. The aim was to create local ownership as well as financial and administrative self-sustainability so that the enterprises could function on their own and support not only individual livelihoods but the town's all-around growth and well-being.
From the outset, Greg had challenged himself to devise a way to create local ownership, to find people who could understand the work and who shared the same core values. If he could be successful at accomplishing that, he was sure the enterprises he was building would prosper and thrive. Over time, he realized the secret of success was to set up localized companies and identify resident micro-entrepreneurs who would then become leaders of the business. Then, through their commitment and hard work, they would earn a share of ownership. He started by offering ownership of the restaurant to the cooks and waiters who worked there. To this day, ten years later, the businesses are all alive and well. They are prospering under local ownership and still attracting both locals and tourists.
One day, after donating profits from the tourism business to ten families to buy indoor cookstoves, Greg visited the villagers that had been lucky enough to get one of the new stoves. Greg was amazed at the positive impact the stove had on village families. Before getting the stove they had had to cook campfire style in their home on their dirt floor. Now they were able to work more efficiently by standing and having clean surfaces to work on. The new stove meant less wood (and thus decreased cost for fuel), less work, and no more inhaling smoke.
After observing this, Greg wanted everyone in the village to have a stove and reap the same benefits, but he realized that the donations route would never get them there. So he talked to a local mason who agreed to build a few stoves using a new and less costly stove design that Greg and the mason created. Greg consigned the construction materials to the mason so he would bear no up-front financial risk for having to purchase the materials. He then added a small margin onto the sales price so the mason could cover his labor and time and also realize a small profit. The last piece of the plan was the addition of a six-month repayment schedule for customers, so they could get a stove with hardly any money down. As they were now able to realize the savings on fuel costs that the stoves made possible, they could use that money to fund their repayments; and the stoves literally paid for themselves.
As Greg suspected, the first few stoves sold quickly. The series of small monthly payments resulted in ownership of the stove, profit for the mason, and repayment of Greg's investment money. The mason now had a brand new business venture he could grow. He could hire employees, sustain his business, and at the same time help his fellow community members get something that they had never had access to before. Equipped with a newly designed inventory-financing mechanism and with some small business training that Greg provided, the mason found that his eyes were now opened to an entirely new opportunity. He had become a new micro-entrepreneur helping people in his village, and Greg began to realize that maybe he was onto something.
Greg had discovered a new system for helping people sustain themselves by removing the burden of the risk and cost for the initial order of materials, the initial expenditure of time to create the product, or the buying of finished products. The costs to start a new business no longer had to be a barrier to market entry. People who had no money of their own to begin a business could now be presented with that opportunity. The MicroConsignment Model was born. Greg could now expand MCM from stoves to other goods and services. He and his team could now develop an entire group of micro-entrepreneurs who, as he envisioned, would make life easier and more productive for tens of thousands of people around the world. As of 2010, these micro-entrepreneurs have sold over 80,000 solutions; reading glasses, eye drops, water filters, vegetable seeds, and energy-efficient lightbulbs, solar panels, chargers, and lamps.
Profits Without Social Compromise
In 2004 Greg and partner George Glickley founded Community Enterprise Solutions (CE Solutions), a nonprofit social enterprise innovation incubator and implementation mechanism established with the goal of empowering business and educational entrepreneurs to make a difference in their communities. Its role was (and still is) to identify, train, equip, and support local entrepreneurs to provide sustainable solutions that address long-standing rural economic, health, and educational problems. CE Solutions aims to change obstacles into opportunities by converting traditional relief solutions into high-impact, locally owned and managed social enterprises and institutions.
The initial idea was to develop a complete system around empowering new micro-entrepreneurs to visit remote villages and sell products and services with a service provider approach. They would examine, explore, and familiarize themselves with needs of the community. Then, in collaboration with CE Solutions, they would figure out if there was an existing technologic solution that the villagers could use to fill the need. This would provide a service to the community, and as the micro-entrepreneurs visited more and more communities, they would identify more and more needs. Alternatively, when CE Solutions found new helpful products that were becoming available, the micro-entrepreneurs would go back to the community and see if there was a need and a market for them.
As an example of the MCM's bottom-up, solutions-oriented approach, two of its first entrepreneurs, Esperanza and Margarita, realized that quite a few people in the villages they visited were suffering from a similar eye condition. They identified a need to treat pyterigium, a noncancerous growth of the thin tissue over the white part of the eye (conjunctiva). There is no cure for this condition and the precise cause is not known, but it is aggravated by exposure to sun, dust, and smoke, all of which affect individuals living in the rural developing world. These two women identified the need for treatment and asked Greg and his team to help find a solution. As a result of this, these entrepreneurs have sold over 9,500 pairs of UV protection glasses to address this problem in remote villages.
Greg believed that MCM's simple feedback loop of information could help the women (the micro-entrepreneurs were almost always women) build a growing basket of solutions consisting of multiple products and services. You couldn't see up close anymore and now you can have an exam for reading glasses and then get the reading glasses to help you see better. You didn't have light, now you could have solar light. You were cooking on the floor and breathing in harmful smoke, now you can afford a stove with a chimney. As the market price of these products declines over time (as it certainly has with solar products) and as technology becomes more widely disseminated and more accessible, the MCM becomes more effective and more efficient. The value proposition, however, remains the same. Although people might have little money, they value these goods and services tremendously and because they perceive the need for them, they'll find the money to pay a fair price for them. In the end, the entire village prospers—not only because money is being generated among the villagers but also because productivity goes up as people now have the means to do better, stay healthier, feel better, and be far more efficient at what they are doing.
The system creates a multidirectional flow of information, which consistently helps improve the value of what is being offered and diminishes the risk for the micro-entrepreneur that the proposed goods won't be needed and bought. But the counterintuitive cornerstone of the system is that the micro-entrepreneur is not given a loan; instead, she is advanced resources as a tool for success. In other words, the micro-entrepreneurs don't have to think about the risk of having to pay for their first batch of products. They are able to buy a second batch of solutions with the money they made on the first one and incrementally, little by little, pay back the money for the first batch. To create long-term self-sustainability, CE Solutions created a local Guatemalan sister organization called Soluciones Comunitarias (SolCom). It not only buys the solutions-oriented products that are suggested by the women but pays for the first consignment of product and helps the micro-entrepreneurs disseminate it. And most important of all, at the end of all the sweat equity that the entrepreneurs put into their work, they can eventually share ownership of the enterprise.
The Power of Counterintuitive Thinking
Juanita Xoch was someone recommended to Greg as a possible micro-entrepreneur by the weaving association where she was working part time. She was shy and timid but interested in the work, so he trained her to introduce the concept of reading glasses to a group of villagers and then do eye exams for them. After her initial intimidation and insecurity passed, she ended up selling hundreds of pairs of glasses every month, doubling what she was making as a part-time worker.
Greg remembers Juanita as someone “who had gone from just being a weaver with a part-time job to now seeing herself more as a community leader.” Right after hurricane Stan hit in 2005, she used her money from selling eyeglasses to start buying food for people in her community. She had so many relationships built over time from selling her products that she had a distribution channel that other aid organizations did not. She knew where the people in her community were and what they needed. She was now a respected “bridge to the last mile.” She became a problem solver—not just for this one time but as future needs like this arose.
When asked how her life had changed since she began helping others through her work within the MCM, she didn't hesitate, explaining:
Before, I didn't earn enough money for family and I wasn't helping people, I just dyed yarn. Now I help people. I help my family with my earnings, I help people see better with our glasses, and I help rural people spend less money on firewood with our stoves. I like going to communities I have never visited before and learning about people living far away from the cities. I have learned about eyes; before I thought once you couldn't see, you couldn't see, but now I know that with reading glasses you can see again and continue your work. I like showing and teaching people this. Once a year I hold a meeting with the local mayors and we figure out ways we can work together and how I can go into different more remote communities. This makes me feel happy and proud.
Juanita learned to use a computer, send e-mail, and use Skype; she uses Excel, she uses Word. She has become a model regional manager, and her region became one of the most successful in the country. She has persevered, and she's helped thousands upon thousands of people in her region with access to solar lights and stoves and glasses and seeds—all kinds of daily necessities. She's become a leader, she owns shares in and is on the management team of SolCom. She's become an empowered independent woman on a mission to improve the lives of her countrymen and women.
There Are No Permanent Allies, Just Permanent Interests and Values
The key to Soluciones Comunitarias's success is aligning interests and building relationships. The MCM aligns all stakeholder interests by creating mutually beneficial relationships aimed at serving the community. The mission fosters teamwork and relationship building internally, as well as externally among the villagers. It is now owned by eight local Guatemalans who started as micro-entrepreneurs and now own 100 percent of the company. Juanita is one of the owners, along with Miguel Brito, who started off as a part-time waiter in the original restaurant enterprise and is now president of the company that owns it. All of the eight truly care about and believe in the long-term vision of SolCom and as owners they are incentivized to help it grow.
The MCM is the mechanism that creates this value chain of empowerment—empowerment through ownership, support, opportunity, and choice. The MCM demonstrates that when everyone is empowered, everyone wins, and that is the basis for everyone being able to create change. But what is fundamental is that empowerment is created by developing and offering intelligent and informed opportunities.
Greg and his team took the concepts of microcredit and microlending, deconstructed them, and flipped them over. They employed market forces to craft a win-win social business model where everybody has a role to play in the system and each one realizes benefits from the very beginning of their involvement. The model lends an outstretched hand to the most vulnerable rural communities by addressing the what (essential products and services), the who (rural villagers), the where (rural and remote areas) and by creating a how (the MicroConsignment Model); the result is a highly scalable local distribution network that works to diagnose and address the myriad obstacles confronting the most vulnerable families at the base of the pyramid. The MCM succeeds when the product, price, place, and promotion facilitate more access for people who have none, and when villagers buy what the entrepreneurs are selling and the entrepreneurs sell what their community needs and wants to buy. It is elegantly designed to fail if people aren't feeling that they are receiving value.
The Balance Between Impact and Sustainability
The MCM was designed to fill the gap for previously unknown or inaccessible products from the perspective of both the entrepreneurs and the villagers—their potential customers. MCM entrepreneurs engage in businesses where supplies never existed, perceived demand is highly unpredictable, and thus the environment is uncertain. The MCM is most effective when introducing the client beneficiaries to products and services that they need but never realized existed or never thought they could attain. Conversely, the micro-entrepreneurs would never have thought they could offer these services and products. They were mostly homemakers, often with limited education, and thought only doctors could provide reading glasses, or only men could provide stoves or solar light. Greg cannot count the times a woman has given him a “what are you smoking, gringo?!” look when he said she could start a business giving eye exams and selling reading glasses. “Who, me?” she responds. “Impossible!” “Yes, you,” he replies. “With training and on-the-job learning it's totally possible!”
As Greg often says, “As long as you put the heart in the model, it will succeed.” In large part, the heart is what guides the systematic approach of all of Greg's organizations. As MCM gets more widely known, organizations such as VisionSpring, which distributes reading glasses in poor communities worldwide, have adopted the MCM as a way to be more efficient with their distribution and be more empowering to their local entrepreneurs. In addition, they are also partnering with CE Solutions to see what other vision aids can be added to the basket of rural village solutions.
Since inception of the model, MCM entrepreneurs have executed more than 2,800 village campaigns and have sold more than 80,000 solutions. They have added glasses (2004), eye drops (2005), vegetable seeds (2008), energy-efficient lightbulbs (2008), water purification (2008), and solar panels with chargers and lamps (2010). Next, they will be adding drip irrigation systems. For the first time in their lives 24,500 people now have glasses, 6,100 have solar chargers and lights, 2,225 families have improved cookstoves, 750 have water purifiers, 5,100 have energy-efficient lightbulbs, and 5,900 have purchased vegetable seed packets. Greg calculates more than 120,000 direct beneficiaries with a direct economic impact of $2.75 million. And astonishingly, more than three hundred entrepreneurs have earned up to $2 per hour in a country where many people live on under $2 per day! SolCom in Guatemala is now profitable and staff have collectively earned in excess of $175,000. The model has expanded to Ecuador and Nicaragua, and in 2011 it began in South Africa, Mexico, Peru, and Egypt. To help spread and scale the model, Greg and his team have partnered with Miami University to create the Center for MicroConsignment, so others can learn how to replicate and even improve on the approach.
The MicroConsignment Model is built to fail if paternalistic or unscrupulous elements infiltrate. It involves an incredible value chain of players who help make the system work: donors, a parent NGO, product solutions providers, locally owned and managed social enterprises, micro-entrepreneurs (along with their families, peers, and communities), local mayors and community leaders, interns and volunteers, and end beneficiaries (the buyers). If there is misalignment, if any one of these actors fails or if someone is being ill served, the system will fail. It may work for a short bit, but it won't last. This nonlinear self-policing creates many gatekeepers who are responsible for letting the others in and out.
But the real brilliance of the system is that problems, needs, and solutions move up and down this human value chain simultaneously and continuously. And the MCM can be used to strengthen not only other Ashoka Fellows' projects but also the project design for anyone who has or wants a distribution system for what they are already building; they can look to this model as a way to enrich their existing plan and involve and engage many more changemakers than they ever thought possible.
While visiting Yoly Acajabon, the MCM's third entrepreneur, who is now another shareholder in SolCom, Greg became truly aware of what his work is all about:
I visited Yoly in her home, where I found her in bed and somewhat depressed. She had just had an operation and was in pain, physically and emotionally. She did not have that Yoly smile and “we will prevail” spirit I had gotten used to. I asked her how she felt, told her I was thinking of her, offered to help if I could, and tried to reassure her that she would be better soon. But none of this seemed to lift her spirits much. So I started to talk about our work together. As she began talking about the needs in her town for water filters and how we could best help meet them, she was transformed. She said, “Gregorio, I want to get out of bed as soon as possible and get out there and see if people will buy these. There is such a need!”
After leaving Yoly's house, I thought about what had happened and realized something that drives me now on a daily basis when work gets difficult. Yes, the MCM gives people access to things they need to improve their health and save money. It also creates income for women. But it is about much more than that. It gives women like Yoly a sense of purpose. It inspires hope. These are benefits we cannot quantify, and they will far outlive any of our measurable achievements.2
The 2010 earthquake in Haiti took an enormous toll on the people and the economy of the country. Because the MCM is, among other things, an elegant method for identifying people's needs and creating relevant solutions to address them, Greg recently accompanied a handful of Ashoka Fellows working in a variety of disciplines to a small Haitian town on the border with the Dominican Republic. The town lacks health care, water, electricity, and almost everything else, and the Fellows are collaborating in an effort to identify sustainable solutions to present and future challenges. They are coordinating and interconnecting their individual entrepreneurial approaches so they can, as a team, help rebuild the town in an economically, socially, and sustainably feasible fashion. Might the MCM become a tool to get people back on their feet and help reduce poverty in Haiti? Greg is confident that it will. From Latin America to Africa and now to Haiti, the MCM may just end up becoming part of the big solution to end world poverty. Stay tuned.