Challenges and opportunities for social enterprises [Part 4/5 Perspectives in Impact Investing series]
Note from Global Partnerships: This is the fourth installment of our "Perspectives in Impact Investing" series, which presents the variety of perspectives of different actors in the impact investing space. Read:
- Part 1: How wealth advisors can facilitate impact investments by Cynthia Muller, Senior Director of Impact Investing, Arabella Advisors
- Part 2: 4 ways to use grant funding to catalyze innovation and de-risk early-stage enterprises by Richard Gomes, Head of Policy and Advocacy, Shell Foundation
- Part 3: Investing for social and financial returns by Loren Rodwin, Managing Director, Overseas Private Investment Corporation
Part 4: Challenges and opportunities for social enterprises
by Sebastian Africano, Founder & Managing Director, Luciérnaga LLC
Luciérnaga LLC is a wholesale distributor of Barefoot Power and Greenlight Planet household solar lighting and charging products to Latin America with a current focus on Central America. We aim to be the lowest cost provider of inventory to organizations that serve rural, off-grid communities throughout the region – providing short lead times on purchases, full-service logistics, local customer service and convenient warranty support.
While rural families in off-grid areas represent our ultimate market, our target customers are the organizations and networks that serve these communities already. By ordering high-quality product in bulk to a central warehouse, then re-exporting to customers in any country in the region, we can benefit from low unit costs that come from a streamlined supply chain. We pass those savings along to customers importing to any country with proximity to Central America, adding convenience and efficiency to a fragmented, redundant and competitive marketplace.
For a young social enterprise, capital and the terms attached to it are the principal fuel for growth. Many start-ups see this as a catch-22, where we need to demonstrate impact to attract capital, but we need capital to generate that impact. The flexible terms one needs to prove a risky model are often inversely related to the terms and interest rates pegged to inherently risky social ventures.
To the extent that we’ve had conversations with allocators of impact capital, the most helpful have been those willing to engage in a candid discussion around our capacities and limitations, and the gaps that exist for us to fit their risk profiles. Even more valuable are those conversations that lead to a sustained exchange and brainstorming of how to craft a mutually beneficial relationship.
Social enterprise accelerators such as the ones offered by Agora Partnerships, Santa Clara University’s Global Social Benefit Institute and The Unreasonable Institute, to name a few, provide a great venue for those early, objective conversations to happen. It allows the entrepreneur to voice questions and concerns openly, and also to begin visualizing the range of the types of investors and investment terms (potentially) available to them.
At Luciérnaga we are fortunate to have the support of our incubator and parent company Trees, Water & People (TWP) to lower immediate capital needs, and to broaden our fundraising options. After 16 years of work in Central America, TWP has built infrastructure, partnerships, networks and rapport in the region, which all serve as assets to Luciérnaga’s growth. Likewise, in the US, TWP has built a vast donor pool, an impressive track record and brand equity, which are also beneficial to its subsidiary, Luciérnaga LLC.
So far our capital needs have been met from within our immediate network. Luciérnaga LLC was born of a pilot project funded by the US Department of State’s Energy and Climate Partnership of the Americas, due to expire at the end of 2014. We then began working with high net-worth TWP donors to craft an “impact-loan” opportunity, whereby they lend Luciérnaga operating capital in $25,000 increments, on 1 year terms at 3% simple interest. This provides donors that have trusted us with their funds for years a new way to generate social impact at a more significant scale, and with the opportunity of recuperating their investment.
Regardless, the time will come when Luciérnaga will need more capital than can be raised from our network, and reaching out to impact investors will be the logical next step. To prepare, we are currently participating in Agora Partnership’s Capital Advisory Services, investing in the consulting support we need to ensure we enter our next investment conversations confidently, well-informed and well positioned to succeed.
(VIDEO) Solar lights have the power to improve lives
In a solar-light illuminated office, Danny Stokley, Green Technology Fund officer, explains why solar lights are important in developing countries.
On his trips to visit Global Partnerships' (GP's) partners, Danny often witnesses the impact that solar lights can have on families.
On a recent trip to visit MiCrédito, a GP partner in Nicaragua, Danny traveled with them to the verdant but rural region of Monte Fresco. There, he met Maritsa Jarquín (pictured right), a MiCrédito client. She has lived in the same rural community for her entire life, relying on agricultural production for income to support her 13 kids. She now supplements that income by selling solar lights.
She also purchased one solar light for herself, which is much brighter and less expensive than her two previous lighting solutions: kerosene lanterns and battery powered flashlights. Maritsa uses her solar light every night to illuminate her kitchen, where she cooks for her family over an open fireplace. GP’s investment in our partner MiCrédito’s solar light initiative helps mothers like Maritsa improve their household finances and quality of life.
If you enjoyed this post, you might also like:
Our 3-part blog series on our investment in solar technology
- Part 1: Solar lights have the power to illuminate homes & improve lives discusses why we are investing in solar technology.
- Part 2: Solar light solutions -- reaching the last mile lays out the current solar technologies & solutions available on the market, and how they can be delivered to remote communities.
- Part 3: What social enterprises need to connect poor families with affordable solar lights describes the challenge in delivering solar tech to last-mile communities.
What Social Enterprises Need to Connect Poor Families with Affordable Solar Lights (GreenTech Series, Part 3)
We hope you enjoy the third and last installment of our GreenTech Series. If you like what you’re reading, please subscribe to our blog via email. Click to subscribe.
In case you missed it:
- Part 1: Solar Lights Have the Power to Illuminate Homes & Improve Lives (click to read)
- Part 2: Solar Light Solutions – Reaching the Last Mile (click to read)
by Peter Bladin, chief program and impact officer, and Danny Stokley, GreenTech Fund officer
In Part 2 of our GreenTech series, we discussed the various types of solar products that have emerged to provide lights and other appliances to families living off-grid. Given the impact and strong demand for these products, combined with affordable price points and financing options, why doesn’t every family living off-grid already have a solar panel on their roof?
The main reason is that this industry has just begun to emerge, and distribution takes time. While well over 10 million solar lights and solar home systems have made their way into the developing world, this represents only a small fraction of the households that could benefit from solar products. Value chains connecting manufacturers of solar lighting products to off-grid homes often literally cross the globe, and while the development of market linkages in recent years is encouraging, access to capital, particularly debt financing, remains a major obstacle at all levels of the value chain.
Solar Light Distributors Face a Working Capital Challenge
With strong consumer demand for solar lighting products, one of the main challenges for social enterprises that are trying to reach the most remote populations with solar lamps is the lack of working capital available to purchase products.
Most new generation solar products (small solar lights up through small home systems) are manufactured in China. Social enterprises that have made a business out of selling these products rarely receive flexible credit terms, and typically must make payments in full before the product leaves the port. Overcoming this hurdle is a major growth challenge for startup social enterprises, particularly those working with families that live in remote communities outside the energy grid.
Larger systems have the added complication of requiring end-user financing to become affordable, as most clients living off-grid are also among the poorest. The two most common mechanisms, a loan from a microfinance institution (MFI) or a Pay-As-you-Go (PAYG) model, typically last anywhere from six months up to three years. The length of time from product purchase to when the customer actually pays for it in full can easily be 2 years or more. In some cases a financing entity (such as an MFI) will absorb the end-user financing piece from distributors, but even then the lag time from purchase order to arrival in country is typically 3-4 months.
Long lead times require solar distribution companies to order product long before they have sold their current inventory, causing a persistent capital crunch. As a result, distributors often do not order enough product to consistently meet demand, and have scarce resources to invest in a salesforce to drive future demand. This situation impedes growth, and represents the greatest bottleneck in the supply of solar lights today.
Debt Financing – The Missing Piece of the Solar Light Puzzle
While socially motivated equity investors exist for solar light distributors looking to raise early stage seed capital, there are few entities offering working capital loans to growing social enterprises. The challenge with many small solar light distributors is that they are thinly capitalized and have inconsistent earnings. Local banks often charge prohibitively high interest rates, require term lengths inconsistent with distributor needs, or simply won’t offer working capital to these entities with few, if any, assets to borrow against. Without other options, many of these enterprises grow using personal resources or end up selling equity in their company. Meanwhile, they do not build business credit that can pave the way for future loans from banks and other commercial lenders in the future.
It’s clear that commercial capital is not yet ready to pour into this space. However, with a high-impact product and a clear market bottleneck, this challenge represents a terrific opportunity for impact investors. Offering debt financing to solar enterprises would not only help them grow, it has the potential to catalyze the sector, allowing emerging distributors to establish creditworthiness, an aspect strongly correlated with the success of small businesses. Bridging this financing gap will be the first step in proving the commercial viability of lending to solar distribution companies, and will almost certainly result in more solar lights improving the lives of off-grid families.
As an impact investor, Global Partnerships is committed to raising capital to invest in debt financing for social enterprises focused on off-grid solar. We have only just begun, but to date we are working with three partners in the Americas:
- In Haiti, we are supporting a marketing and awareness campaign of a solar light distributor, providing catalytic capital to help them increase their distribution footprint.
- In Peru, we recently offered a line of credit to a solar light distribution company, which will allow them to order from manufacturers in larger quantities, reducing their costs and freeing up working capital for in-country operations.
- In Guatemala, we are negotiating support for a promising young company piloting a PAYG model.
In addition, we are in discussions with leading manufacturers about creative ways we can provide working capital to their distributors, exploring concepts such as a trade finance fund or buyback guarantee. This is a new area for Global Partnerships, and the investment instruments and risk profile differ from those we are accustomed to with MFIs and cooperatives. However, we see an opportunity to leverage our expertise in debt financing to help a high-impact sector reach the point of being commercially investable. Once a social enterprise reaches that milestone, the potential for social impact is enormous.
If you enjoyed this blog post, you might also like:
- What's the Challenge in Getting Solar Technology to Poor Families? (click to read)
- Three Challenges in Bridging the Energy Gap in Nicaragua (click to read)
We hope you enjoyed the third and last installment of our GreenTech Series. If you like what you’re reading, please subscribe to our blog via email. Click to subscribe.
Solar Light Solutions – Reaching the Last Mile (GreenTech Series, Part 2)
If you like what you’re reading, please subscribe to our blog. Click here to subscribe.
by Peter Bladin, chief program and impact officer, and Danny Stokley, GreenTech Fund officer
In Part 1 of this series, we discussed the reasons that Global Partnerships (GP) decided to focus on supporting solar lights in place of other green technology solutions available to families living in poverty. In Part 2, we outline the solar product categories available in the market today, and distribution models that exist to provide them to off-grid families.
It is important to note that we are focusing exclusively on residential-sized, off-grid systems, which by definition exclude larger, village-level applications of solar technology. While we have seen a few promising examples of community solar projects, most are funded through grants or subsidies. We look for products and solutions that make financial sense at the family level, as we believe this is the fastest way to reach scale.
Below, we highlight some of the existing solar light products along with potential distribution models.
Portable Solar Lights
In the early 2000’s, the first solar lighting companies focused on Base of the Pyramid (BOP) customers began to emerge, producing small solar products designed for affordability and durability. These pioneers paved the way for a new industry that continues to grow and develop. By proving that solar could be made affordable for off-grid families in the developing world, they showed that these high social impact products can be distributed through a sustainable business model. Small solar lights ($10-$16; pictured left), and slightly larger solar light/cell phone chargers ($40-$90) are portable, and meant to replace one kerosene lamp with a relatively rapid payback even for the poorest families.
With prices that many BOP families can afford to pay in cash, and requiring little or no maintenance, these solar lights can be distributed through small stores or individuals already selling other consumer goods. Living Goods utilizes this strategy in Uganda, promoting solar products through a reseller model, which gave rise to a distribution channel that now consists of over 1,000 entrepreneurs.
One of GP’s microfinance partners in Haiti, Fonkoze, has organized a similar network through their village banks. By connecting leaders of borrowing groups, known as center chiefs, with a local solar importer, they provide their clients with an income generation opportunity that has brought over 30,000 solar lights to off-grid Haitians. The key to these models is that local families, whether store owners or microentrepreneurs, are involved in the distribution channel. This provides livelihood opportunities for residents, and builds upon their knowledge of the local market. GP continues to support this initiative in Haiti, and has begun replicating the model in other countries in the region.
Solar Home Systems That Improve Lives
In recent years, larger products designed for off-grid families have begun to emerge, both from new manufacturers and as new product lines from the early industry leaders. These Small Solar Home Systems (SSHS; pictured left) are designed to be “plug and play,” and come with 2-4 LED lights, a power box with 1-2 USB outlets, and enough capacity to charge cell phones and other small appliances such as a radio. SSHS prices range from $150-$300.
There are also custom-built Large Solar Home Systems (LSHS), which range from $400 up to over $1,000, depending on functionality and size. This solution is by far the most difficult to transport, install, and maintain, but has the greatest capacity. Most installations come with a large lead-acid battery (picture a car battery, though the technology is slightly different), 2-6 light bulbs, and a couple of standard electrical outlets. If built with an inverter, this system has the capacity to power several appliances such as a radio, fan, or television.
With these larger variations, client ability to pay becomes a major barrier. Very few families living off the grid in a developing country have the cash on hand to purchase products costing hundreds of dollars, making some type of financing essential. One method is through a microfinance loan, which can be paid off over 6 months to 2 years with financial savings realized by eliminating money spent on kerosene, battery powered flashlights, diesel generators and phone charging. GP supports initiatives of this type through partners in Nicaragua and Honduras.
Innovation in Financing for Solar Technologies
Another way to solve the up-front cost challenge is through a Pay-As-You-Go (PAYG) mechanism. In this model, a solar company installs the system for a small fee, and customers pay in advance for activation time, similar to the way many are accustomed to using pre-paid cell phones. This model is much closer to a utility model, where new generation solar companies are essentially selling a service, often through mobile payments. This is most often offered through a “rent-to-own” model, and after 1-2 years of payments, the shut-off mechanism deactivates, and families then have access to unlimited free energy for the life of the product.
M-Kopa was one of the first to utilize Kenya’s mobile payment network to coordinate PAYG solar, and Simpa Networks has created their own SMS based payment platform to achieve the same result in rural India. In the Americas, early adopters are looking at offering the same functionality through a service model, with the customer making PAYG payments over the lifetime of the product in exchange for unlimited maintenance.
As the industry matures, we believe that the PAYG model will be a major segment of the market. While the nature of the business is very capital intensive, turning one-off sales into a user base creates a consistent revenue stream that the company can borrow against to fund future growth. In addition, customer payments in this model are directly tied to maintenance. This requires much more interaction with the end user, and a greater focus on timely, diligent customer service. Finally, this model provides a path for customers to climb the “energy escalator,” allowing families to progress to greater amounts of productive energy (ex. larger panel) with a relatively low transition cost.
Our thesis is that people will be best served by having choices – both through varying product capacity and flexible payment options. Solar, like most consumer goods, is not a “one size fits all” type of product. Off-grid customers have varying needs and ability to pay, and anything we can do as impact investors to build value chains that accommodate those needs will help accelerate this sector. Most off-grid families, understandably, are eager to buy larger and more powerful solar products, but many do not have the ability to pay the full up-front cost today. We hope to see innovation continue around long-term financing that makes larger systems affordable, while keeping in mind that even the smallest solar products replace the use of kerosene, resulting in a tremendous social impact.
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If you enjoyed this blog post, you might also like:
- Part 1: Solar Lights Have the Power to Illuminate Homes and Improve Lives
- Part 3: What Social Enterprises Need to Connect Poor Families with Affordable Solar Lights
Solar Lights Have the Power to Illuminate Homes & Improve Lives (GreenTech Series, Part 1)
Over the next couple of weeks, we'll be providing an in-depth look at our emerging work in the GreenTech space. In part 1 of our 3-part series, we talk about why we decided to launch our GreenTech work with investments in solar lights.
Many basic technologies that enable everyday tasks still remain out-of-reach for millions of people in poverty. For example, an estimated 1.3 billion people live without access to electricity. About 3 billion people use dangerous and toxic open fires or poorly ventilated stoves to cook daily meals. Nearly 800 million people lack access to clean water. We believe that making those technologies accessible will empower families to lift themselves out of poverty. So, of all the available technologies, why did we decide to invest in social enterprises that can connect people in poverty with affordable solar lights?
Doing our homework
When we launched our Green Technology Fund in September 2012, we took a hard look at the existing technologies emerging in the developing world. In analyzing these products we primarily looked at two things: the value that the product provides for the poorest families; and the potential for scale to reach as many of those families as possible in a sustainable way. In order to determine scale potential we considered: ease of adoption of the technology (user training, maintenance, etc.); household demand for the product; and the existence of a large market for the technology.
The technologies we examined included, among others:
- cooking solutions that reduce or eliminate the burning of biomass and reduce indoor air pollution, such as efficient cook stoves;
- community and household level water filtration products that decrease the prevalence of waterborne illnesses;
- solar water heaters that provide hot water for bathing and household chores;
- biodigesters that produce fertilizer to increase crop yields and produce methane gas for cooking fuel; and
- solar technologies for illuminating homes and powering household appliances like cell phones and radios.
While all the products we examined have potential for positive social impact, many of them are currently too expensive or not in high-enough demand among poor households to be market-sustainable. This has resulted in distribution channels fraught with subsidies and donations, which hinder the long-term potential for sustainable solutions and scale. In just one example, a 2012 World Bank report stated that in Guatemala “most improved stove programs have subsidies of 80 percent or higher of the stove cost […] and it is unclear how these independent programs will affect national efforts at stove commercialization.”
The impact of solar lights
Solar lights, however, are compelling from an impact and scale perspective. We believe solar lighting products will soon replace kerosene lights and candles for the nearly 1.3 billion people without access to electricity grids. Eliminating these dangerous and costly lighting methods through solar light technologies improves family:
- health: because they no longer rely on antiquated kerosene lamps that emit harmful smoke, which has been equated to smoking two packs of cigarettes daily;
- productivity: because their days are extended so that they can work, manage household chores and study after sunset; and
- finances: because they no longer need to pay for costly kerosene fuel, which can account for 10-25 percent of household expenses for the poorest families.
Solar lighting technology is an obvious improvement for poor families. In most cases, a family’s only consideration is whether they can afford it. Fortunately, innovations in product design and financing mean that most solar products on the market today have fairly low switching costs, and actually cost less over time than kerosene or candles. Furthermore, according to the Lumina Project at the U.S. Department of Energy’s Lawrence Berkeley National Laboratory, “users of kerosene lighting pay [between 150 to 600-times] more per unit of useful energy services than do those in electrified homes.”
There is demand for solar lights in developing regions of the world. For example, to support one of our partners in Nicaragua, we funded market research to determine demand for solar products among the rural poor. The results showed that 93 percent of off-grid households surveyed* expressed an interested in purchasing a solar product.
In 2013, we invested in MiCredito, a microfinance institution (MFI) in Nicaragua that makes solar lights affordable and accessible for families living in remote areas. It does so by recruiting, training, and offering financing to microentrepreneurs to become resellers of solar lights. As a client of MiCredito, a solar light owner and a solar light microentrepreneur, Pablo Alejo knows firsthand the benefits of the products he sells. Pablo uses a Sun King Pro solar light on a daily basis, which allows him to:
- continue working around his farm throughout the evening;
- help his children study at night; and
- eliminate the need to buy kerosene, thus saving money.
As an added benefit, Pablo is able to supplement his household income by selling solar lights. He explains, “Solar lights are a good business [because] the products work well. I use mine every day.”
Looking ahead — potential for scale
Our research shows that we are at the beginning of an explosive growth in solar products aimed at the off-grid poor in developing countries. Several key global players and standardized rating systems are beginning to emerge, increasing product quality and variety, and reducing prices. Many believe the impact of solar lights is so compelling that “The Next Wireless Revolution” could be in off-grid electricity. Furthermore, the ability of some solar products to charge cellphones has actually turned out to be another key driver in solar product uptake.
With strong demand from BOP families and a rapidly developing global supply chain, solar lights are expanding opportunity for millions living in poverty worldwide. That’s our mission at GP, and it is the reason we have chosen to focus our investments on solar lighting at this time. We plan to continue monitoring the green technology space, and may expand our approach as other technologies develop. However, out of all the products available today, we feel that solar lights are in the best position to achieve massive scale and impact.
*397 households in rural Nicaragua were surveyed in the market research study we conducted with FDL.
In our next blog post in this series, we will go into various types of solar lighting products and applicable distribution channels that can address the last mile challenge. Read it here.
Opportunity: The Value of a Chance
by Enrique Godreau, III, board member, Global Partnerships
In honor of the International Day to Eradicate Poverty (October 17, 2013), we wanted to share remarks from Enrique Godreau, III, keynote speaker at our 11th annual Business of Hope Luncheon, held on Oct. 8, 2013 at the Westin Hotel in Seattle. He spoke about the value of having the opportunity to create a successful life for himself, and how people living in poverty around the world also deserve to have a chance at success.
As a kid living in Puerto Rico, I often swam in its warm surrounding oceans. While looking for the next larger wave to body surf, the current would pull me further and further out. And when I had to swim back in, it was only then, fighting the invisible forces of nature, that I knew that I had swam too far. I took chances, and as a result, struggled to make it back to shore.
All of us here have stories to tell of chances we took while young. And many of us have stories to tell of the chances we are taking today. We take chances in business. We take chances with relationships. We take chances when we take that new job. Every day, we make decisions that consider the possible outcomes, and we choose to take a chance.
Now, stop for a moment and imagine a world where there are no chances to take. A world that because of where you were born, when you were born, or the circumstances that you were born into, that your life is choice and chance free. Where that sacred geometry of chance combines to say, "No, you don't have a chance."
I have lived a life that could easily have been chance free. This in spite of the fact that I had two parents that gave all they had, and didn't have, so that my brother and I would have a chance. As a Hispanic going to school in the South Bronx in the early seventies, there were few chances to be had.
As a fourth grader, I remember crying all the way home because a 6th grader had forced me to take a puff of a cigarette. With urgency, I apologized to my mother believing I would die of cancer by morning. “If only I had a chance,” I remember thinking; “I would go to a better school.” Ultimately, I got a chance, made some choices, and changed my life.
In 2005, Mike Galgon, a member of the board of directors of Global Partnerships, approached me about a nonprofit organization he was involved with. That organization was Global Partnerships. He told me that they were thinking about a different model for supporting the organization’s mission. Mike asked if I could meet with the Chief Investment Officer and comment on the idea. Ten minutes into the conversation, I was hooked. Even to a geeky, computer scientist turned entrepreneur, the concept seemed innovative, simple, and scalable.
The gift of Global Partnerships’ concept is based on leveraging our relationships with microfinance institutions (MFIs), built with the support of many of the donors and investors in this room, to create a distribution platform for a suite of life-changing services. Across five funds, Rick Beckett, Global Partnerships’ President and CEO, and his incredible staff have developed a sustainable model for helping people living in poverty that otherwise would have few chances. People that live on less than $2 a day. People that lay awake at night wondering how they can get a break, how they can get a chance. And with that chance, the opportunity to make a different life for themselves, for their families, and for others.
In April of this year, the Board of Directors of Global Partnerships took a week-long trip to Nicaragua and Honduras. The purpose of our visit was to meet with some of our MFI and cooperative partners and their members in those regions. What was most striking to me about the trip was reaffirming the tremendous, life-changing value of a chance. When we met with Elma and Olivio who run a pharmacy, a convenience store, a pool hall, an auto garage, and grow coffee in their 2 acres of land so that they can feed and educate their immediate family, I witnessed the value of a chance. When we met these women who told me in Spanish, “Take our picture, because we are the prettiest things here,” outside of a women’s health clinic providing their inaugural pap smear, I witnessed the value of a chance. When we visited with Raphela in her home in the hills of Nicaragua and toured the land that she, her husband, and 7 kids harvest, allowing many of them to go to school, and even some to build cinder block homes, I saw the value of a chance.
And take a close look at this picture. Hanging from the ceiling is a solar light that had been installed just 30 days prior. This family had owned this property for years and years, yet it was the first time that they had an electric light in the house. Though Edison’s first demonstration of the electric light bulb was on December 31, 1879, this family got theirs last April thanks to the support of one of our MFI partners. This solar light also charges their cell phones. Before they had this charging capability, they had to walk an hour into town, pay up to 4 US dollars, and waste the better part of a day charging phones.
Global Partnerships' Impact and Catalytic Investment model has been consistent, and frankly, executed better than many for profit companies I know.
They thoughtfully test the viability and sustainability of a new service. They identify and fund partners to enable a distribution channel. And finally, they assess the impact and refine the operational model as needed.
For nearly 20 years, Global Partnerships has been singularly focused on one mission, providing opportunities for people living in poverty. The brilliance of what Paula and Bill Clapp founded is an organization driven by shared values and a shared vision that harnesses the power of shared responsibility and shared opportunity.
As we dine together in this room, I ask you to join with the Global Partnerships’ family and take advantage of this opportunity to help us give many, many more people a chance. One of the persons that we collectively help may be the one with the insight that finds the cure for cancer, that advances our understanding of the laws of physics, or that dramatically increases agricultural yields. Providing opportunities to those that don't have them actually gives all of us a chance to realize a better life.
Earlier, Margaret mentioned that we have a very special guest with us. Florinda Salinas, an Honduran wife, mother, and entrepreneur is here to tell us what the value of a chance has
meant to her and to her family. Let’s watch this brief video and learn a bit more about Florinda. Thank you.
What’s the Challenge in Getting Solar Technology to Poor Families?
by Danny Stokley, Green Technology Fund Program Officer, Global Partnerships
“I’m sorry,” offers Alicia, the co-founder and president of Buen Power, a social enterprise that sells solar products in off-grid communities surrounding Cusco, Peru, “We don’t have any more of that model in stock.” Francisco, a farmer from Acchauata, has hiked for two hours, and then taken a two hour bus to reach the Buen Power office in Cusco, essentially dedicating a full day just to buy two d.light products. Unfortunately, due to the challenges of a global supply chain, Buen Power has just sold out of the model Francisco is requesting. This is not just bad for business; it’s heartbreaking for Francisco and the families who would benefit from this technology.
Francisco is part of a network of entrepreneurs who buy small solar lights from Buen Power and resell them in their home communities. Buen Power is a small, entrepreneurial, mission-oriented social enterprise. They spend a great deal of time working in off-grid communities and finding creative ways to reach the most remote villages with solar energy. Buen Power is connected with many of the industry leading manufacturers of affordable off-grid solar products, and have developed an innovative last-mile distribution network (i.e. distribution to those who live in the most remote, rural regions). Still, they struggle to find the working capital to keep up with demand.
THE CHALLENGE: LACK OF WORKING CAPITAL
One of the main challenges for social enterprises, like Buen Power, who are trying to reach the most remote populations with solar lamps, is the lack of working capital available to purchase products. It’s really that simple. The smaller, more affordable solar products are usually manufactured in China, and importers often have to pay in full before they ship. In addition, the largest manufacturers prefer to work with importers that can place orders for a full container (typically $100k and up). This means distributors have to invest large amounts of capital 3-4 months before they even have a product to sell which presents a major challenge for startup social enterprises, particularly those who work with more remote populations.
DEMAND IS THERE; THE INVENTORY IS NOT
The most troubling part of this is that the demand, typically the biggest obstacle when selling products to poor customers, is strong. Replacing kerosene with solar light is an obvious improvement that most off-grid families immediately recognize. At the end of the day these products are practical for families – helping them lift themselves out of poverty by extending their work day and study time while also saving them money. One thing is for sure – if someone is willing to travel for an entire day to buy a product with such enormous social impact, we must find a way to keep up with inventory.
CAPITAL CONSTRAINTS ACROSS THE VALUE CHAIN
Our research has shown that capital constraints hinder all levels of the solar light value chain, and I got a chance to witness this first hand in Peru last month. From manufacturers that are reluctant to offer credit to importers to last-mile resellers like Francisco who could sell many more lights with access to a small loan, lack of working capital sector-wide is a recurring theme. To address this challenge, we are currently in discussions with manufacturers, distributors, and microfinance institutions involved in the supply chain, and are committed to leveraging GP funds to increase access to solar lighting products that have the potential to change lives.
Light Up Hope on October 8
We hope you'll join us for this year's Business of Hope Luncheon (BOH) on October 8, which will highlight our early-stage Green Technology (GreenTech) work. Your attendance will help support our GreenTech work, which aims to connect families that live in rural, un-electrified areas, with access to affordable, renewable energy solutions, such as solar technologies.
Currently, our GreenTech initiative includes new investments in social enterprise partners in Honduras and Nicaragua; our partners have developed business models that allow rural families to purchase affordable solar solutions. Solar technologies have the potential to help increase family incomes, boost educational achievement, improve health, and reduce negative impacts on the environment.
Our BOH guest speaker, Florinda Salinas, is an example of the benefits that solar technologies can offer (her story is below). Please click here to learn more about or register for BOH. Jane Stonecipher, a GP board member and BOH event co-chair, would also like to share with you 3 reasons to attend BOH (click to watch).
Meet Florinda Salinas, this year's featured BOH guest speaker
A pile of utility poles lay on the ground one block from Florinda Salinas’ house in rural Santo Domingo, Honduras. They have been there for months, maybe even years. Florinda explains that the poles are intended for an electrical expansion project that will connect her town to the nearest energy grid. She then laughs and says, “I will believe it when I actually see light bulbs glowing in town.” Electricity will not be coming to Santo Domingo any time soon.
Roughly 1.4 million people, or 40 percent, of Hondurans living in rural areas do not have access to a reliable and affordable source of electricity. This means not having enough light to work or study at night, spending limited and often unstable income on expensive and unhealthy sources of energy such as kerosene, and difficulty charging electronics like cell phones to conduct business or keep in touch with loved ones. Through hard work, Florinda qualified to receive a loan to buy a solar home system through Global Partnerships’ (GP) partner, COMIXMUL, a cooperative that provides women with savings and credit products and access to health services/education and green technologies.
With the solar home system, Florinda and her husband Oscar save money on kerosene costs and can continue weaving hammocks after dusk; the Salinas’ hammock business is their main source of income, so maximizing work hours is critical. They can also charge their cell phone, which they use to communicate with their wholesale hammock buyer and keep in touch with their eldest son, who is studying on scholarship in Tegucigalpa, a city over 100 miles away.
Additionally, their younger sons, Edras (8), Edson (10), Lester (15) and Eric (17) can now study under bright solar powered lights. Florinda, who only attended school until the sixth grade, is certain that education is the key to her sons’ success. “I want my kids to become professionals. I don’t want them making hammocks. I want a better life for them,” and having the solar home system helps light the way forward.