Accion Ambassadors Blog

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Community Banking: Risks and Repayment

Community banking, explained beautifully by Charlene Nemson, is supposed to be one of the safest ways to lend money. In Paraguay, where financial inclusion is very uneven, this type of product was only offered by foundations and NGOs until a couple of years ago. As the market is becoming more competitive, the banks and the financial institutions, or financieras, try to innovate to accomplish their goals.

One of the financieras that incorporated this product to their portfolio was Financiera el Comercio. Traditionally, this type of product does not incorporate other types of guarantees, just the joint guarantee from each of the group’s members. Their word is usually enough. However, the alarming growth of the non-performing loan (NPL) ratio in the last couple of months, particularly in the cities, has led to the Financiera’s overhauling of its processes.

This product should teach people to invest and save and become more accurate with finance. The idea is that once people get financial aid, they can develop their business and eventually earn their own personal loans. In the last couple of years, accentuated competition has brought money into communities traditionally excluded from financial services–but the informal economy in Paraguay is very important, and it has proven difficult to create healthy financial literacy around that. As a result, many people have become so comfortable with existing financing mechanisms that they are not changing their bad habits as quickly as we would hope.  It doesn’t help that people in the cities know that microfinance institutions do not have a real guarantee or pressure to make them pay, so they get too relaxed about their obligations.

How can the Financiera convince people to repay their loans?

Lending Group

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Once upon a time, there was a hill…

Loma Sign

Asunción is one of many cities claiming to have been built on seven hills. Thanks to microfinance, one of these hills, Loma San Jerónimo, has now become “the first touristic neighborhood of Asunción,” according to SENATUR (the Paraguayan National Tourism Secretary).

The initiative was born inside SENATUR’s 2008/2018 Tourism Development Plan, which sought funds to rescue the history and traditions of this neighborhood. The implementation would be easy, SENATUR suggested, and the office asked Financiera el Comercio (with which they had collaborated on “the best toilets on the road” campaign previously) if they would be interested in offering microcredits within the neighborhood. SENATUR would provide the promotion, ideas, and capacity-building in the area. The Financiera el Comercio immediately accepted the challenge.

The neighborhood was packed with interesting business ideas, and, as a result, Financiera el Comercio soon supported 27 new customers – 21 of them women. The initiative has been so successful that some of the customers have already begun to ask for a second loan in order to improve their businesses. Plus, the Financiera el Comercio has also organized a fair at Loma San Jerónimo this month to celebrate the Microentrepreneur Day, in which all microfinance customers of Financiera el Comercio of the central region were welcome to participate.

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Where milk comes from

Last week we left behind the bumpy streets of Asunción to take a surprisingly well-paved road that crosses the countryside and is itself most often the only trace of human existence for miles.  Cows dotted the horizon as grass spread out for miles in every direction. Our destination? Alto Paraná.

The landscape gradually changed as we approached the Brazilian border. A flourishing economy appeared before us, as could be seen by shiny billboards and new, large-scale farmhouses and agricultural shops. However, Luz and Daniel, the loan officers from El Comercio who were our guides for the trip, explained to us an entirely different reality. Just a few miles outside of Santa Rita, the economic center of the area where 80% of the population is represented by wealthy, Brazilian farmers, there lay some old, Paraguayan settlements, still yet to be touched by the region’s seeming development.

Delia Medlina at her farm with Luz, Daniel and Juan — and all feeling very welcome!

We stopped in the village of Tavapy to meet some of El Comercio’s longest-served clients. My first impression of Delia was that she was a humble person who was not afraid to show her true emotions. She was moved to tears upon receiving an international visit from myself and Juan, the other Accion Ambassador for El Comercio. But only a few minutes passed before she was smiling again and began to prouldy show us her animals and tell us about her dreams. This is her story. Continue reading


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Can’t buy me love?

Love, to most of us, is one of those things that just has no easy measure, similar to art or to happiness. Nevertheless, we insist on sizing and benchmarking it and we spend our lives trying to measure what we all really feel for one another. We might even use material things or actions – like diamonds and presents – to measure how much we love or are loved by some individual or group of people.

The standard measure for love?

Well when I first met with the Planet Rating team last week, my impression was that they were trying to achieve something as difficult as measuring love: Planet Rating was assessing Financiera El Comercio’s Social Performance.

Allow me to take a step back: Planet Rating is a French Social Impact rating agency, specialized in assessing Micro Finance Institutions (MFIs) and currently evaluating Financiera El Comercio. MFI rating agencies work similarly to ordinary rating agencies (the notorious Standard&Poors, Moodys, etc) and typically come up with a final grade based upon both quantitative (financial statements) and qualitative analysis (position in industry, management expertise, etc). No need to get into technicalities and scare away profane readers, precious and loyal so far!

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Adventures in Microfranchising

During the remainder of my Accion Ambassadorship at Fundación Paraguaya, I will be focusing on their microfranchise initiative.  So, why not dedicate my next few posts on this theme – the advantages, the challenges, and the evolving popularity of this model.

So, what even is Microfranchising?

“Microfranchising is built on the concept of franchising – the development of a turn-key business model, designed for replication, that is inherently less-risky than a standalone start-up enterprise.”  The above statement, which I found in a discussion on socialedge.org, successfully summarizes the key elements of this bottom of the pyramid business concept (or the BOP, as it is known within the industry)

This image is credited to Jason Fairbourne, director of the MicroFranchise Development Initiative at Brigham Young University and one of the thought leaders in the microfranchise space.

In other words, microfranchises have an established business model that enables their franchisees to hit the ground running. In the typical microfranchise, microentrepreneurs receive intensive training, pre-conceived  operational guides, and marketing and promotional materials. They are often provided with credit and/or customized funding, ongoing business support, and an incentive scheme to meet sales targets, ensuring long-term sustainability.

The assumption that microfranchises, as opposed to general microenterprises, are inherently less-risky stems from the replication of a successful business model. As a franchise, the product design has already been fine -tuned, the operating procedures adjusted to maximize efficiency, and supplier relationships established using the bargaining power of the larger-scale franchise. Additionally, as the microfranchise expands, microentrepreneurs benefit from growing brand awareness, product innovation, and increasing scale.*

Fundación Paraguaya and VisionSpring

Fundación Paraguaya’s first microfranchise experiment was the kit de lentes (or glasses kit). In 2007, the Fundación began a partnership with VisionSpring (http://www.visionspring.org), a non-profit social enterprise focused on distributing reading glasses to low-income communities. Following VisionSpring’s model, the Fundación has provided local vendors (mostly members of the women’s committees) with “a business in a box,” each containing 12 pairs of glasses of varying magnification, as well as cases, strings, booklets, and a briefcase. The vendors must raise enough capital (or take out a loan) to purchase the kit, which costs about 200,000 Gs, or about $44. They are then trained to perform vision tests and instructed in sales strategies.

The women earn about 20,000 Gs, or about $4.44 per sale.

One of the kits from Vision Spring.

Other microfranchises that the Fundación is currently trying to jump-start include jewelry-making kits, clothing kits,  anti-dengue kits (these contain a variety of mosquito repellents), as well as alimentos (food), such as bread filled with cheese, barbecued meat, empanadas, and others. Last Friday, I accompanied two other interns to Encarnación to see how they were conducting their market surveys. In the next few weeks, I will be designing my own survey and exploring new strategies to increase the sales of current “kits.

Why Franchise?

Ultimately, Fundación Paraguaya aims to use microfranchising to both diversify and amplify the earnings of its clients, providing them with an opportunity to stabilize their income and better provide for themselves and their families. Furthermore, microfranchising presents an efficient distribution method for needed goods (such as reading glasses and mosquito repellent), selling at affordable prices to those without access.

Microfranchising, however, also has specific challenges. It is essential to maintain low costs and low risk (since the potential franchisees have little extra income to invest) as well as cater to BOP consumers, who are extremely price sensitive.

A potential ice cream microfranchise considered by the Fundación, for example, was just too pricy. It seemed like a great idea to me – the climate in Paraguay is usually very hot, there is a cultural love for ice cream, and the foundation was planning to partner with a well-known brand. However, after exploring the actual costs, it became apparent that the high overhead and steep price structure would hinder the business’s success.

I am now investigating other opportunities, including a retail business for local artisans, and looking into strategies to improve the sales of reading glasses. Stay tuned!

And let me know what you think!  In your opinion, is microfranchising an effective way to create sustainable and scalable opportunities for microentrepreneurs?

* The information on microfranchising in this blog post was sourced from the book: Microfranchising: How Social Entrepreneurs are Building a New Road to Development, edited by Nicolas Sireau. I highly recommend it!


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Enough about politics, let’s eat!

I arrived in Asuncion, Paraguay just in time to witness the  impeachment of President Fernando Lugo last week. Though I don’t yet have a clear view on the implications of such drastic measure,  it seems that incoming president Federico Franco is managing well so far and the country remains peaceful. By the way, Mom, I’m fine!

But where to begin with my first blog post as an Accion Ambassador? I thought I would start with my favorite place, and the one I love to go to whenever I visit a new city: The market.

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Two pounds of that, please!

It is not just my love for cooking and my typical Italian habit of looking for mascarpone cheese (found it!) and good pasta everywhere I go, nor is it my curiosity of strange tropical fruits: I am firmly convinced that one can understand a lot from a country just by observing how people do grocery shopping. Actually, even more interesting is how people eat what they eat altogether, but that is a post for a another day (stay tuned!)

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The Escuela Agricola San Francisco.

The Agricultural School San Francisco in Cerrito, Paraguayan Chaco – a region ofter referred to as “the green hell” – lies just an hour and half away from the traffic and smog of Asunción. The school, founded in 1964 by a group of german missionaries, host today about 150 boys and girls between 15 and 18 years old. They come from low income families all over Paraguay (as well as from neighboring countries). When Fundación Paraguay took over the administration of the school in 2003 the mission was to transform it in a self sufficient institution. After five years the dream came true and now the school is financially self sufficient. Every year 50 kids graduate with a Technical Agriculture-Livestock High School Degree. They do not learn just agriculture, as classes include also accounting, psychology, administration, computer science. For this reason some of them are been hired by Fundación Paraguaya as loan officers; today is not uncommon to meet some 18-19 years old loan officers recently graduated from one of the agricultural schools. A very important aspect is that the students learn how to become agrarian entrepreneurs and after finis

The infrastructures of the school include, a part from the classrooms, an hotel (from which a large part of the earnings of the school come from), a pigsty, a stable for cows, a hen-house, a fish farm, a dairy plant and of course – we are in Paraguay – soccer fields.

The dairy plant in particular, is a golosos (sweet tooth) paradise: the most successful products are dulce de leche, vanilla yogurt and jam, sold in the shop on the highway just outside the school, as well as in the agro-shopping market in Asunción.

The success of the self-sufficient agricultural school is leading to the replication of this model both in Paraguay, where two other schools are active, and abroad. There is a plan to implement a partnership that will bring students from Mali to study in Cerrito.


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“Mi Pequeña Farmacia” Microfranchise project

Mi Pequeña Farmacia (My Little Pharmacy) is one of the projects currently being developed at the Fundación Paraguaya. Microfranchise is a tool that is being used to reach the goal the Fundación Paraguaya has set to itself: eradicate poverty, in its multiple aspects.

This project consists in the selling of a kit containing basic pharmaceutical products to clients of the entrepreneurial women’s committee program. The kit will contain first-need products such as disinfectant, Band-Aid, antifebrile, headache medications etc. Fundación Paraguaya is trying to supply those women with quality products at a low price, by getting pharmaceutical companies involved in the project. The women that will decide to participate in the program (called Promotoras de Salud – Health Promoters) will receive a loan to buy the products and a training on how to use the kit from the Fundación Paraguaya’s loan officers. The women can then resell the kits to their peers in the committee or in their local community at a higher, yet still competitive, price and make a profit out of it.

First Aid Kit

The project serves a dual goal: give a new source of income to the members of women’s committees and increase their health level as well as the health level of the people to which they will re sell the kits.

Healthcare is still a big issue in Paraguay, where 81.6% of the population doesn’t have a health insurance and only 31% of the population in the lower income quintile seeks medical advice when ill. This project will not only provide drugs and other pharmaceutical products, but also a first aid training on how to use them properly and how to heal wounds. This is expected to have a strong impact in areas where health services are scarce or not affordable.

The intensive training that “Health Promoters” will receive will stress the importance of seeking medical advice in the event of sickness.


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Comité de Agricultores

This week Nadia and I left Asunciòn for a two day trip in the countryside with the aim of learning more about the activities of Fundación Paraguaya.

We had the opportunity to assist to the reunion of “Comités de agricultores” a program that involves 21 groups countrywide. This groups, that differ in composition from one to another, are formed by men involved in agricultural activities. The purpose of our visit was to meet with these groups (based about 290 km from Asuncion) that were in the process of re-schedule their microloans. These farmers live in an isolated area, meaning that they cannot have a frequent interaction with the Fundación Paraguaya officers (but there are plans to open a new office in the area) and have difficulties to access the agricultural markets to sell their products, as many colleagues worldwide.

One of the groups we met, formed by sesame cultivators, was struggling both because the market price for their product dropped in the last few year from around $1.5 per kilo to $0.4 and because one group member was facing health problems. Their main activity is the cultivation of sesame on fields whose size is on average 10 hectares per family, as well as breeding animals for family consumption.

In the next video we see Lourdes Aguero from Fundación Paraguaya explaining and translating for us from Guarani to Spanish the issues emerged during the meeting with this committee.


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Visit to a “Comité de Mujeres” in Luque

Earlier this week along with the other ACCION Ambassadors we went to visit a women’s group not far from Asunciòn. Arriving in the city of Luque you immediately feel the pride of its inhabitants, as the loan officer accompanying us pointed out, often referring to their city as the “Republic of Luque”. After a bumpy ride on the local bus (naturally all blue and yellow – the city colors) we arrived in the neighborhood of Itapuami where the local women committee called Kuña Guapa – which in Guarani means “working women” – was waiting for us. Finally we were completely immersed in to the paraguayan countryside’s atmosphere. The en plain air meeting was surrounded by chickens, cows, dogs, pigs and by children playing soccer. The meeting, called “renovacion”, is a very important moment for the life of the group: it’s held every four months and it’s the moment when all the members discuss their problems, elect the president and treasurer, decide whether to continue with the next loan, accept new members, and most importantly, decide on the amount of the next loan.

The meeting was very informal and although some of the ladies were talking in a mixture of Spanish and Guarani (the local language spoken by 90% of the population) we were able to understand their many jokes.

While Mercedes, the loan officer, was busy with the paperwork we were able to meet five señoras. They told us about their work, their experience of forming a group and the role the loan from ACCION International’s partner, the Fundación Paraguaya, has in changing their lives and that of their families.

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