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IDB backs base-of-the-pyramid business models in Latin America and the Caribbean

Projects aim to boost income and improve quality of life of low-income people with companies, governments and NGOs

The Inter-American Development Bank (IDB) is teaming up with companies, governments and non-governmental organizations in novel projects to generate new business models that provide low-income people in Latin America and the Caribbean with quality goods and services, improved earning opportunities and enhanced living standards.

About 360 million people in the region, or 70 percent of the population, are underserved and pay very high prices for services such as health, education and housing. Over the past three years, the IDB has invested over $150 million to develop profitable business models to improve the delivery of such services and products for the base-of-the-pyramid, a $500 billion a year market in this region. Projects backed by the IDB also aim to find ways for small scale producers and merchants to enter the formal economy and participate in more profitable and sustainable value chains.

“Our business models aim to integrate the poor into the formal economy, improve their quality of life and promote greater social inclusion,” said Luiz Ros, head of the IDB’s Opportunities for the Majority Initiative (OMJ), which was launched three years ago to support projects to meet the needs of the low-income segment. “By giving the poor access to high-quality goods and services at an affordable price through the private sector, the Bank is helping alleviative poverty in the region.”

Each OMJ project undergoes a rigorous evaluation that stresses economic and financial viability as well as the targeting of investments to benefit low-income populations. The IDB also promotes partnerships to learn from others’ experience and to mobilize additional resources from third-party investors.

Examples of our work:

Building Housing Solutions in Paraguay

Visión Banco, a leading financial institution in Paraguay, provides microloans for microenterprise and consumer goods to about 140,000 clients. Now, with the help of an OMJ partial credit guarantee, it is launching a new line of loans its clients can use to purchase, build, or improve their homes. Through a collaborative partnership with the international nonprofit Habitat for Humanity and a governmental financial development agency, Vision Banco will be able to provide technical assistance and financial literacy courses to the borrowers of these new loans.

Credit and Training for Food Microentrepreneurs in Brazil

In Brazil, people who produce and sell simple foodstuffs are called “transformadores” for their skills in transforming raw ingredients into meals and snacks. With OMJ’s support, Sao Paulo-based wholesaler Tenda Atacado is giving these microentrepreneurs new tools that will save them time and money. Working capital loans will allow them to buy supplies and equipment, and training programs will teach them how to grow their businesses. Safe and secure homes are now within reach of the poor, thanks to innovative partnerships.

Expanding Markets for Small Farmers in Mexico

Getting larger companies to incorporate low-income producers into their supply chains is a powerful way to break the cycle of poverty. Small producers can gain access to dependable clients and working capital, as well as other benefits, such as production of higher value-added or better quality products, financial services, training, and modernization of production processes. Sabritas, a leading Mexican snack foods producer owned by PepsiCo, has decided to take action to partner with small scale sunflower producers in a project backed by OMJ.

Investing in Innovative Funds

Through OMJ, the IDB has made significant investments in two major social funds to support business focused on the base-of-the-pyramid. The first is IGNIA, a venture capital firm based in Mexico that invests in small and medium-size companies in Latin America. The second is Global Partnerships, based in Seattle and Managua. Its Social Investment Fund 2010 funds programs that offer additional goods and services to the low-income clients of microfinance institutions.