Social Investment and Impact: Case Studies and Trends in Latin America
BBVA Microfinance Foundation
Productive Finance
BBVA Microfinance Foundation
Productive Finance
Regional / Foundation
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The BBVA Microfinance Foundation (BBVAMF) promotes the inclusion and sustainable development of vulnerable entrepreneurs in Latin America and the Caribbean by offering a comprehensive range of financial products and services as part of its Productive Finance methodology. It applies ESG criteria, with a special focus on the social component. It also applies an impact measurement model that measures vulnerability, business progress, financial health, and well-being. A unique methodology that adapts to the needs of the entrepreneur in order to mitigate the effects of poverty.
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Overview
The social and economic crises that emerged due to the COVID-19 pandemic aggravated both monetary5 and multidimensional6 poverty indexes in Latin America and the Caribbean. Although monetary poverty in the region decreased from 45.5% to 27.8% from 2004-2014,7 this progress stalled from 2015-2020. By the end of 2020, the percentage of people in the region living in monetary poverty had climbed to 33.7%, a figure that decreased slightly to 32.1% in 2021,8 primarily thanks to the development and growth of micro-, small, and medium-sized enterprises (MSMEs).
Based on data published by the Economic Commission for Latin America and the Caribbean (ECLAC), in 2018, MSMEs represented 25% of GDP in Latin America and were responsible for creating 61% of formal employment opportunities.9 However, MSMEs still face significant barriers that restrict their ability to contribute to the region’s economic development, including limited access to bank financing. According to ECLAC estimates, only 25% of formal MSMEs were able to access credit over the past decade, and the majority of this financing was provided to medium-sized companies.10 MSME’s restricted access to bank financing is generally attributed to limited access to information and the high risks associated with funding these types of enterprises, along with high financing costs and limited/insufficient guarantees.11
Microfinance institutions (MFIs) have emerged as a way to address MSME’s and low-income entrepreneurs’ limited access to traditional financing. MFIs provide low-income households with ongoing access to quality financial services, with a particular focus on financing activities that generate stable assets, stabilize consumption, and directly contribute to overcoming poverty.12 Within the microfinance ecosystem in Latin America and the Caribbean, BBVAMF’s innovative model is focused on strengthening financial inclusion as a way to reduce poverty in the region.
Founded in 2007, BBVAMF is a non-profit organization that is completely independent in governance and management from the BBVA Group and whose purpose is to promote access to a wide range of financial and non financial services that contribute to the development of small-scale economic activities.14 Through its initiatives, BBVAMF seeks to contribute to inclusive and sustainable social development and improve the standards of living in the countries where it operates.
BBVAMF has focused on Latin America since its inception, establishing and holding a majority stake15 in MFIs15 located in five Latin American countries: Colombia, Peru, the Dominican Republic, Chile, and Panama. For the past three years, BBVAMF has been recognized by the Organization for Economic Cooperation and Development (OECD) as one of the largest private providers of philanthropic development financing in Latin America.16
The decision was made to focus on Latin America and the Caribbean as part of BBVAMF’s commitment to ending poverty by using a more comprehensive understanding of poverty and vulnerability to support low-income individuals and households develop productive activities in order to create the greatest possible social impact.17
The BBVAMF operating structure consists of four stakeholders:
I) BBVA Group - The founding organization of BBVAMF
II) BBVAMF - Responsible for setting up a group of MFIs and contributing to the transformation of the microfinance sector in Latin America and the Caribbean
III) MFIs - Responsible for contributing local knowledge, experience, and commitment
IV) Clients - Diverse entrepreneurs from across the region18
As part of its Productive Finance model, BBVAMF provides financial services, training, and support so that people in vulnerable conditions can establish productive, profitable enterprises and improve their lives.
BBVAMF MFIs focus on maximizing entrepreneurs’ social and economic impact by supporting the following three strategic priorities:
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Economic, social, and digital inclusion: BBVA MFIs focus on offering options that increase vulnerable communities’ access to financial services while also taking into consideration the opportunities and challenges that come with the digitalization of financial products and services.
Gender equality and women’s empowerment: Approximately 60% of the enterprises that receive support from BBVAMF microfinance institutions are women-led, and many of these women are heads of their households.
Environmental sustainability: In recognition of the outsize impact that climate change has on vulnerable peoples and communities, BBVAMF offers services that support entrepreneurs as they adapt their businesses and investments to increase their productivity while also protecting the environment.
BBVAMF has two business lines: i) create a group of innovative and sustainable MFIs in Latin America that include sectors of the population that are generally excluded from the traditional financial system and ii) support the general transformation of the microfinance sector in Latin America. Both business lines are reflected in BBVAMF’s Theory of Change (Figure 1), which outlines how BBVAMF impacts not only the entrepreneurs it works with, but also their families and extended households.
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5 Monetary poverty indexes measure the number of individuals or households living below the poverty line. Although each country uses different criteria to establish the relevant poverty line, it is frequently calculated based on the total cost per capita of the minimum expenditure basket. For more information, click here.
6 Multidimensional poverty indexes measure the magnitude and depth of the multiple, simultaneous deprivations that individuals and/or households face and that aren’t necessarily reflected in an income-based measurement of poverty. This can include access to education, health, and living standards. For more information, click here.
7 Development Bank of Latin America (2022). 5 Milestones of Latin American Development in 2021 Retrieved from: https://www.caf.com/en/currently/news/2021/12/5-milestones-of-latin-american-development-in-2021/
8 El Espectador (2022). ¿Cómo está la pobreza en América Latina? Esto dice la CEPAL. [Update on Poverty in Latin America based on ECLAC Data] Retrieved from: https://www.elespectador.com/economia/macroeconomia/como-esta-la-pobreza-en-latinoamerica-esto-dice-la-cepal/
9 ECLAC (2020). Mipymes en América Latina: un frágil desempeño y nuevos desafíos [MSMEs in Latin America: Weak Performance and New Challenges]. Retrieved from: https://repositorio.cepal.org/bitstream/handle/11362/44148/ S1900361_es.pdf?sequence=1&isAllowed=y
10 Ibid, p. 42.
11 Ferrero (2011). Eliminando barreras: el financiamiento a las pymes en América Latina [Eliminating Barriers: Financing SMEs in Latin America], p. 12. Retrieved from: https://repositorio.cepal.org/bitstream/handle/11362/35358/S2011124_ es.pdf?sequence=1&isAllowed=y
12 Consultative Group to Assist the Poor. (2017). Advancing Financial Inclusion to Improve the Lives of The Poor. Retrieved from: https://www.cgap.org/sites/default/files/organizational-documents/CGAP_Annual_Report_FY16.pdf
13 These include loans, deposits, insurance, payments, and more.
14 The shareholder structure of each MFI is available online in the ‘Organization - Shareholders and Board’ section of each MFI’s respective webpage, available here.
15 Financiera Confianza, Bancamía, Microserfin, Fondo Esperanza, and Banco Adopem
16 BBVA Microfinance Foundation (2022). For the third consecutive year, BBVAMF is considered first foundation in contribution to development in Latin America and second in the world. Retrieved from: https://www. fundacionmicrofinanzasbbva.org/en/for-the-third-consecutive-year-bbvamf-is-considered-first-foundation-in-contribution-to-development-in-latin-america-and-second-in-the-world/
17 BBVA Microfinance Foundation (2015). Code of Corporate Governance, p. 8. Retrieved from: https://www. fundacionmicrofinanzasbbva.org/wp-content/uploads/2019/07/Code-of-Corporate-Governance-BBVAMFG.pdf
18 BBVA Microfinance Foundation (2017). Social Performance Report 2016. Retrieved from: https://www.fundacionmicrofinanzasbbva.org/informe-2016/pdf_en/BBVAMF_Social_Performance_Report_2016_ MEASURING.pdf
Innovated aspects
BBVAMF’s operating model is grounded in three innovative approaches: i) measuring the social impact generated by each of the five MFIs, ii) implementing its proprietary Productive Finance methodology, and iii) developing and implementing initiatives for entrepreneurs in conditions of vulnerability.20
IMPACT ASSESSMENT
In 2011, BBVAMF launched a social impact assessment model to help fulfill the Foundation’s purpose and support the social performance management framework used by each of the five BBVAMF MFIs. The results of each indicator are then used as feedback to adjust BBVAMF’s strategy and value proposition in order to better respond to clients’ needs. This model includes four impact metrics: poverty and vulnerability, business progress, financial health, and well-being (which includes health, education, and living conditions, among other factors).
In 2021, as part of its efforts to obtain a “more precise”21 understanding of the standard of living of the entrepreneurs it supports, BBVAMF established a partnership with Sophia Oxford (now Wise Responder Inc.)22 to create an internal impact assessment framework that could be used to measure certain facets of the multidimensional poverty experienced by its entrepreneurs. Each MFI prioritized specific dimensions from the broader framework based on their relevance to the local context, comparability with other countries, and potential impact on the MFI’s value proposition. The final Internal Multidimensional Poverty Index includes three dimensions and nine indicators, as outlined in Figure 2. A client is considered to be living in poverty when they live in a household with a deprivation total of 33.33% calculated using the Internal Multidimensional Poverty Index.
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The implementation of the Index began in 2021. As part of the initial implementation stage, a questionnaire was designed to help each BBVAMF MFI create an “ad hoc index [that is] comparable with the national indexes tracking those dimensions.” Representative samples were identified within each country, and a total of 9,102 entrepreneurs were ultimately selected and surveyed. The results of the survey showed that 24% of entrepreneurs who receive support from BBVAMF live in households experiencing multidimensional poverty, with the highest rates reported in the Dominican Republic and Peru. Education and health were the most frequently reported dimensions, while the most frequently reported deprivations were “Years of Schooling,” “Sanitation,” and “Access to Water,” followed by “Housing Materials” and “Access to Internet.” In the future, BBVAMF plans to implement the Index survey as a sort of census to try to make predictions about individuals and households, design interventions that reduce deprivations, and reduce poverty across the dimensions included in the Index.
PRODUCTIVE FINANCE
Each BBVAMF MFI implements the Productive Finance methodology, focusing on long-term relationships that contribute to the well-being of local entrepreneurs and, by extension, their households. BBVAMF entrepreneurs participate in an empowerment process that includes access to diverse financing instruments—including loans, insurance, and savings products—as well as additional non-financial resources, including training and capacity-building initiatives, support networks, and guidance and support focused on digital transformation and adapting businesses to the impacts of climate change.23
The core focus on long-term relationships is part of BBVAMF’s efforts to acquire an in-depth understanding of the potential of the businesses and entrepreneurs it serves. The organization’s research and analysis initiatives that integrate concrete variables (such as those mentioned above in the BBVAMF impact assessment methodology) and intangible variables (such as willingness to pay, perseverance, commitment, responsibility, and imagination, among others). These initiatives help BBVAMF MFIs to strengthen their position as not only capital providers, but also as channels for accessing financial services and non-financial resources.
The BBVAMF model leverages two strategies. The first is social impact assessment, which is used to provide a detailed, systematic, and periodic analysis of the changes that entrepreneurs experience in their business and quality of life as a result of their relationship with MFIs,24 connecting BBVAMF’s core value proposition with its social purpose. The second is digital transformation and connectivity, which are used to facilitate access to digital financial services solutions and provide entrepreneurs and employees with training in technological skills, taking advantage of expanding Internet coverage in the regions where the BBVAMF MFIs are active.
EDUCATIONAL INCLUSION
Providing training to low-income entrepreneurs is one of BBVAMF’s core areas of focus. In 2021, more than 500,000 entrepreneurs received training from BBVAMF MFIs, mainly focused on financial literacy, business management, and digital skills. BBVAMF has established virtual education platforms that offer entrepreneurs free access to specialized education and training on digital skills, business development and management, social capital, and tips on how to build a stronger business. Additionally, Bancamía (Colombia), Financiera Confianza (Peru), and Fondo Esperanza (Chile) have been especially active in implementing educational inclusion initiatives, outlined below.
In the second half of 2021, Bancamía, the BBVAMF MFI in Colombia, launched Facilitamos su Progreso, a virtual financial education platform for entrepreneurs focused on financial health as a cross-cutting strategy for business sustainability, with a particular focus on efficient resource management to increase stability, quality of life, and well-being.25 The platform features video content, infographics, audio content, short readings, and practical exercises focused on four main areas: financial education, digital education, empowerment skills, and business strengthening.26
The platform modules are divided into segments, allowing entrepreneurs to access and progress through the content based on their existing knowledge and the evolution of their business. The platform also provides relevant content for rural micro-enterprises on crop expansion and rotation, agribusiness techniques, production chains, and ways to adapt to climate change.
In June 2022, Financiera Confianza launched the Confianza Academy in Peru,27 a free virtual tool to help local entrepreneurs grow their businesses.28 The tool focuses on two main areas: (i) healthy finances, including proper money management to achieve the objectives of each enterprise and (ii) digital business, where users learn about the possibilities and benefits offered by the digital environment to enhance the success of their businesses. The courses offered as part of the Academy help users improve their emotional management and personal skills. Through this initiative, Financiera Confianza supports the ongoing progress of all its entrepreneurs, increasing their ability to grow their businesses, accomplish their goals, and improve their lives and the lives of their families. The plan is to expand the content offered on the platform to include specialized courses for women entrepreneurs, migrants, and agricultural producers.
Fondo Esperanza, the BBVAMF MFI in Chile, uses an ongoing training model that responds to the learning needs and rhythms of the entrepreneurs it serves. Trainings are offered via the Entrepreneurship School, a two-year certification program for micro-entrepreneurs featuring educational modules focused on empowering entrepreneurs, family well-being, business development, and social capital. Recently, additional content has been added on developing digital skills and using new technologies to reduce the digital divide.29
20 For more information on the education initiatives implemented in these five countries, click here.
21 BBVA Microfinance Foundation (2022). 2021 Annual Report, p. 7. Retrieved from: https://www.fundacionmicrofinanzasbbva. org/reports/2021/pdfs/2021/annual-report-activity-2021.pdf
22 Created as the non-profit partner of the Oxford Poverty and Human Development Initiative (OPHI), SOPHIA Oxford is an incubator creating commercial applications of the world-class multidimensional poverty methodology for the private sector and capital markets. For more information, click here.
23 Ibid, p. 12.
24 Ibid.
25 BBVA Microfinance Foundation (2021). Nueva plataforma virtual de educación financiera para microempresarios colombianos [New Online Financial Education Platform for Colombian Micro-Entrepreneurs]. Retrieved from: https:// www.fundacionmicrofinanzasbbva.org/nueva-plataforma-virtual-de-educacion-financiera-para-microempresarios-colombianos/
26 With a particular focus on topics such as payroll, accounting principles, team management, effective communication, and business monitoring
27 For more information, click here.
28 Financiera Confianza (2022). Academia de Confianza: emprendedores en Perú ahora cuentan con formación digital, gratuita y libre [Confianza Academy: Entrepreneurs in Peru Can Now Access Free Online Training]. Retrieved from: https://confianza.pe/confianza/noticias-confia.php?id=137
29 BBVA Microfinance Foundation (2022). Día Internacional de la Educación: garantizarla a lo largo de toda la vida, clave para un futuro más equitativo [International Day of Education: Ensuring Life-long Education is Key to a More Equitable Future]. Retrieved from: https://www.fundacionmicrofinanzasbbva.org/dia-internacional-la-educacion-garantizarla-lo-largo-toda-la-vida-clave-futuro-mas-equitativo/
Lessons
BBVAMF is committed to driving development in Latin America and reducing the rates of monetary and multidimensional poverty and its consequences by providing appropriate products and services to low-income entrepreneurs who have been traditionally marginalized from the financial system.30
BBVAMF has effectively established partnerships with multilateral cooperation agencies, local governments, and non-governmental organizations, successfully building an ecosystem that maximizes the economic and social integration of vulnerable communities and households through the design and implementation of interdisciplinary initiatives, interventions, and strategies. Its biggest contribution to this ecosystem is its solid social impact measurement and monitoring methodology, which it has used to adjust its interventions and strengthen knowledge about the nature of entrepreneurs in Latin America and the Caribbean.
"As an organization with a social purpose, we needed for decision making and the design of the strategy, not only financial information, but also regular metrics that ensured the achievement of our social purpose."
Stephanie García Van Gool
Director of Impact Assessment, BBVA Microfinance Foundation.
The main challenges currently facing BBVAMF are primarily tied to the impacts of the COVID-19 pandemic and the ongoing economic recovery. As noted previously, poverty has increased in Latin America in recent years. BBVAMF is committed to adapting its mechanisms and platforms and designing new strategies, including digitalization, banking penetration, and financial inclusion, to address the worsening of monetary and multidimensional poverty in the region.
As part of its efforts to support the ongoing economic recovery from the COVID-19 pandemic, BBVAMF has progressively adapted its lending policies to the higher-risk scenario to enable orderly growth and recovery and channel government-guaranteed funds to micro-enterprises in disadvantaged populations. It has also provided solutions to support its most affected customers, including designing appropriate and sustainable options to manage payment deadlines and offering different recovery rates with more flexible payment formats.31
Lastly, one of BBVAMF’s core near-term focuses is developing and implementing strategies and initiatives that support environmental sustainability. BBVAMF is committed to creating an environmentally friendly corporate culture and using green inclusive finance to integrate a focus on ecological risks and improve the value it offers to entrepreneurs, partners, and broader society.32 As part of these efforts, BBVAMF calculated its carbon footprint in each of the five countries where it operates and has offset the emissions generated based on the Greenhouse Gas Protocol standards.33 The Foundation has also facilitated environmental training and awareness-building spaces for entrepreneurs, employees, and the general public. One of these initiatives is a Model Farm that is used to help teach rural entrepreneurs about topics such as climate change mitigation and adaptation strategies and digital training. These initiatives have helped create a knowledge community focused on topics such as eco-efficiency and green finance, climate change vulnerability and adaptability indexes, and environmental and social risk assessment systems, among others.
30 The figures published by the OECD do not include disbursements in Chile, as it is not a recipient country of official development aid according to the criteria established by the Development Assistance Committee (DAC). BBVA Microfinance Foundation (n.d.). About the Foundation Retrieved from: https://www.fundacionmicrofinanzasbbva.org/ en/institutional/about-the-foundation/
31 For more information, visit BBVA Microfinance Foundation (2022). Annual Report 2021, p. 20. Retrieved from:
https://www.fundacionmicrofinanzasbbva.org/reports/2021/pdfs/2021/annual-report-activity-2021.pdf
32 BBVA Microfinance Foundation (n.d.) Environmental Sustainability. Retrieved from: https://www.fundacionmicrofinanzasbbva.org/en/sector-development/environmental-sustainability/
33 GHG Protocol provides standards, guidance, tools, and training for private and public sector operators to measure and manage greenhouse gas emissions. For more information, visit https://ghgprotocol.org/about-us.