Are coconuts the key to development along Colombia's coast?

Most of the population on the Colombian Caribbean coast lives in poverty, and 17% lives in extreme poverty. There's little formal employment in the region, and many families make less than $3 per day. Coconut farming is one of the few economic opportunities available to Colombians living along this coast, but with yields contingent on weather patterns, it’s a tenuous occupation.

Coconut production also leaves communities with piles of unusable coconut shells, which if not disposed of properly can pose environmental and health hazards, giving home to poisonous snakes if left in piles, contaminating watersheds if thrown out to sea and polluting the air if burned. In 2012, a company called Cocotech was founded to solve the dual problems of underemployment and environmental contamination faced by coconut farmers in Colombia’s Caribbean coastal region.

They did so with a model that buys coconut shells from impoverished coastal communities and recycles them. Cocotech transforms shells into substrates for use in agriculture and horticulture, simultaneously reducing the environmental risks in the region while bringing employment and additional income to families in desperate need of resources.

Despite garnering awards for its model and impact, because of Cocotech’s size as neither a large corporation nor a micro-enterprise, the company is too large for a microloan but too small for investments from traditional financial institutions. As a small to medium-sized enterprise, or SME, it operates in a financial ‘missing middle,’ whose growth requires innovative financing from nontraditional sources.

In Cocotech’s case, one of those sources is Agora Partnerships, and another is Kiva’s community of lenders.

Agora Partnerships is a nonprofit organization that works with early-stage social businesses across Latin America that are too large to be considered micro-enterprises, but too small for investments from traditional financing institutions. These for-profit businesses are finding innovative ways to solve social and environmental challenges, but lack access to the knowledge, networks, and capital they need to grow their businesses and their impact.

Agora supports social entrepreneurs as they scale the size of their ventures as well as their impact by connecting them to catalytic capital. As a direct partner for Kiva, they’ve helped deploy over $200,000 in loans, with a 0% default rate as of mid-2018.

Organizations like Agora that support social entrepreneurship are critical to growing the economies of developing countries, which are often comprised primarily of a mix of large corporations and micro-enterprises, rather than SMEs. High-income countries, on the other hand, owe more than 50% of their GDP on average to SMEs, which also account for 60% of employment in those countries. Those figures for low-income countries are fractions — at just 17% of GDP and 30% of employment.

This gap in the development of SMEs in poor countries relative to rich countries — the missing middle — exists because financing businesses that fall within this category can be expensive. Microfinance institutions typically do not have the capacity to offer SMEs financing, while banks, impact investors and even governments or multilateral agencies focus on larger loans because due diligence costs for SMEs are prohibitively high.

But Agora has shown — in 7 different cases funding loans for 6 different social enterprises — the impact nontraditional financing can have in supporting SMEs.

PowerMundo is one example of an Agora-affiliated social enterprise’s success raising funds on Kiva. In just 2 days at the end of 2015, close to 1,000 Kiva community members came together to lend $30,000 to the company, whose mission is to increase energy access for low-income, off-grid Peruvians. The investment helped PowerMundo deliver life-changing solar products that improved the health, savings and income opportunities of their beneficiaries.

The Kiva loan enabled PowerMundo to increase their inventory of solar systems, expand their distribution network and develop key partnerships. PowerMundo used the funds specifically to purchase 4,356 solar products, as well as make investments in advanced pay-as-you-go (PAYG) solar home systems. This had a ripple effect of empowering beneficiaries of PowerMundo services to make small, cost-effective investments over time to own the systems they used. Not only did vulnerable, off-grid Peruvian communities have energy access, they also had an asset in their name.

Colombia-based Aflore is still another example of a social SME utilizing a Kiva loan for good.

When Aflore became Agora’s very first loan in 2015, the company had provided approximately 350 loans for home improvements, education, debt rehabilitation and working capital for small businesses throughout underbanked communities in Latin America. They had a network of 250 informal advisors that made Aflore’s financial products available to the communities in which they lived.

As of 2018, after repaying their second Kiva loan in full, Aflore had provided 6,500 loans worth $3.2 million, and had grown their network of informal advisors to more than 3,800 individuals committed to helping their communities and acting as role models in managing their personal finances.

The loans were crucial in helping Aflore continue its operations in a period when their business model was still being refined. Of Aflore’s historical clients in 2018, 60% were women, and 30% of those women were head-of-households.

In addition to helping raise funds on Kiva, Agora supported these businesses through the Agora Accelerator, an 8 month program in which selected businesses receive customized consulting services focused on driving investment into the company, access to a global community of investors, mentors, and peers, and opportunities to network with and pitch to investors. Agora has facilitated more than $14.5 million in financing to dozens of businesses that have participated in their Accelerator program. Cocotech could be the organization’s next success story.