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Latin America Policy Journal

Topic / Development and Economic Growth

Including Latin America’s Poor in the Economic Boom: A Vision for New Solutions in the Market

Latin America’s economies are experiencing record growth. The continent’s middle class is expanding, and new jobs are flourishing in the global information economy. Yet, even as people are moving up from extreme poverty, 360 million citizens of Latin America and the Caribbean remain at what is known as the “bottom of the pyramid,” according to figures from the Inter-American Development Bank. Basic services are not available to them, and many other obstacles block their path out of poverty. They have no markets, no collateral, and no credit. Traditional development approaches have repeatedly fallen short in addressing these root problems and in providing solutions on the scale needed.

The Opportunities for the Majority (OMJ) Initiative of the Inter-American Development Bank (IDB) looks at these challenges and huge unmet demands with a new vision. Lingering social issues are more than public-sector responsibilities. They are private-sector opportunities. Millions of people in Latin America and the Caribbean living on less than US $300 a month represent a $500 billion market, according to figures from the Inter-American Development Bank.

Tapping that market is a great opportunity for the private sector to develop new products and business models. OMJ works with companies that see strategic advantages in engaging with Latin America and the Caribbean’s low-income population as stakeholders, suppliers, clients, and entrepreneurs.

We believe that development challenges must combine both public- and private-sector collaboration. To harness the capacity to improve people’s lives, partnerships are crucial. At IDB, we have learned that the best partnerships are not short-term or standalone projects. They are long-term commitments to share knowledge and create platforms for collaboration.

In five years, we have built a portfolio of thirty-three projects and corporate deals totaling more than $200 million under this unique initiative. Moreover, we have leveraged $1 billion from partners and other investors. Our approvals of loans have increased by more than 50 percent in the last three years, and total disbursements reached $10.6 million. Currently, thirty technical cooperation agreements are being carried out. Our work generates excitement from businesses across the continent, and investments will keep growing. In a short time, our initiative has gone from pilot to pioneer. As IDB and OMJ blaze this trail, others can benefit from what we have learned and invest in equally exciting opportunities.


Our projects bring affordable water, light, and banking to low-income communities off the grid and far away from bank branches. They allow the poor to borrow so they can build homes, educate them- selves and their children, eat better, and become healthier. They also incorporate small agricultural producers into lasting value chains and open markets to their products. And they bring financial democracy by backing institutions with cutting-edge techniques for giving credit to those outside the formal credit system.

For example, estimates show that the bottom or base of the pyramid spends almost $330 billion a year on housing. Using construction as a platform, OMJ finances strategies that are making inroads into this market. In Colombia, we finance Credifamilia, which partners with builders of affordable housing to give mortgages to low-income clients without credit histories or collateral. Credifamilia will originate an estimated 15,893 mortgages in five years. And in Peru, we are financing a network of microfinance institutions so they can offer housing loans and mortgages—mitigating their risk while extending their market penetration.

Much of Latin America’s population is engaged in microentrepreneurship, working on a very small scale. OMJ has incubated several projects that tap into that entrepreneurial spirit. In Brazil, Tenda Atacado is giving working capital to vendors who make meals and snacks to buy supplies and equipment as well as offering training for individuals to grow their businesses. Peru’s MiBanco is reaching out to support female entrepre- neurs also through loans and training. OMJ expects to benefit 10,000 and train more than 100,000 women.

Our projects are exciting and encourag- ing. Yet, compared to the possibilities of the mass market, they are still modest. We believe that our pioneering investments can be repeated and extended on a massive scale, becoming a real economic force to help improve the livelihood of a majority of our region’s population.


We at IDB wanted to pilot new approaches to solving poverty with private companies. So, we expanded our traditional focus on large lending to the private sector for infrastructure projects, capital market formation, trade finance, and small and medium enterprise finance.

In doing so, we founded OMJ in 2007 as a center of excellence whose aim is to capture and incubate new and practical ways for businesses to enter low-income markets in meaningful and sustainable ways.

As a small and nimble team operating within IDB’s Private Sector Group, our Opportunity for the Majority Initiative is the first and only operational base-of-the- pyramid business unit set up within a multilateral development bank. Through OMJ, IDB provides medium- and long-term loans and partial credit guarantees, as well as non-reimbursable technical assistance. Though small, OMJ’s team benefits from IDB’s large footprint and vast experience in the region to design new business models and support companies interested in moving into low-income markets for strategic reasons.

Our initiative became operational in 2008. First, the team studied publicly traded companies in eleven countries in Latin America and surveyed hundreds of top executives in thirteen countries who were already working with the base of the pyramid or who were interested in doing so. Later, we mapped private-sector companies and studied where private-sector solutions would clearly make a difference: housing, health, information and communication technology, and nutrition.

Backed by research, we started working with and funding companies and financial institutions, designing new business models targeted to the poor. These models are market-based, high impact, and strategic. They are meant to improve a company’s core business. To be eligible for financing, projects must engage multiple stakeholders, be finan- cially sound, and be able to move beyond the pilot stage. OMJ finds that companies typically do not need support to innovate products. Where they need support is in finding innovative ways of distributing their good or service. That is where OMJ’s expertise in penetrating low-income markets comes to bear.

We also learned that a model’s success depends on whether a company’s senior management is committed to moving into base-of-the-pyramid markets and has a creative and well-designed strategy to do so. Projects that meet our criteria and are financed can leap to the next stage, be brought to scale, then replicated across the region and beyond.

One example is Salvadoran family-owned pharmaceutical company ANCALMO. Thanks to OMJ funding, it is becoming the first local producer and distributor of micronutrient powders to tackle the alarming levels of child malnutrition in the region. After rolling out its new product in El Salvador, ANCALMO is in a position to sell to Guyana, Guatemala, Nicaragua, and the Dominican Republic. Governments there have resources to buy and distribute their micronutrients through conditional cash transfer programs, benefiting up to a million children. With experience produc- ing for children, ANCALMO will be in a position to manufacture a formula for pregnant women and target that under- served market.


Private companies take a risk when they enter low-income markets in part because the poor is largely unbanked and has no credit history. OMJ shares some of the risk by designing guarantees for pools of microborrowers. If a pool’s repayment dips below a certain percentage, the guarantee is triggered. This way, we can share risks with large corporations to support microborrowers who buy goods or services through installment payments. That is a new way of applying principles of microfinance to corporate deals so that firms can meet the needs of the poor.

A good example is OMJ’s partial credit guarantee of up to $10 million to expand the highly successful Patrimonio Hoy program, launched by Mexico-based multinational cement producer CEMEX. The program gives low-income consumers who are largely shut out of the traditional banking system access to microloans to buy construction materials. With its guarantee, IDB shares in CEMEX’s risk as Patrimonio Hoy scales up beyond Mexico to Colombia, Costa Rica, Dominican Republic, and Nicaragua, giving a million families the chance to improve their homes or build new ones.

In addition to providing financing, we forge partnerships to connect the private sector more deeply with underserved markets. To do it efficiently and afford- ably, OMJ connects businesses and utility companies, public agencies, retail operations, community savings and loans associations, homebuilders and nonprof- its. This innovative use of distribution channels is dubbed “cracking the code.” In cracking the code, we bring projects to scale much faster and more effectively than starting with a small pilot project that must be tested and brought to scale gradually. The right platform also ensures a company or financial institution connects with its target market.

Only business models that meet our specific requirements receive technical assistance. Assistance is meant to enhance and flesh out solid ideas and improve their penetration as they are rolled out in the market.

To ensure success, all projects are subject to a rigorous evaluation against IDB’s operating principles, credit risk analysis, environmental safeguards, and a score- card that weights innovation, social impact, and potential to scale and replicate. In addition to measuring economic and financial viability of projects, we evaluate the targeting of investments to benefit low-income populations in the IDB’s twenty-six borrowing member countries.

In addition, our initiative is a pioneer in measuring the social impact of our projects. A powerful new software system serves clients and IDB as they report on the social return of the portfolio. In addition, we measure social outputs and outcomes of investments through industry reporting and investment standards. Furthermore, each project’s economic rate of return is tracked, as is the project’s performance over the life of the IDB credit. Clients are required to report quarterly on indicators measuring a project’s commer- cial and social performance. All of this careful tracking makes it clear that the private sector has a unique and powerful role to play in development.


In supporting businesses that are helping to close the inequality gap, the IDB creates employment and enables micro- entrepreneurs and consumers to partici- pate in the formal economy. Through partnerships with companies and financial institutions, we offer businesses the chance to make effective contribu- tions to solving poverty’s challenges. The time has come to think about working on a significantly larger scale. In years to come, successes in Mexico will be adapted and replicated in Chile as well as the other way around. Seeing what the competition is achieving, companies will rush to develop base-of-the-pyramid business plans of their own. Pilot projects will be scaled up to reach millions.

Reaching the unreached is all about having the vision to recognize and act on the vast and untapped market potential of the base of the pyramid in Latin America and the Caribbean. Word of OMJ’s steady growth and project success is spreading, and our pioneering work is being adopted by the mainstream. As demand for doing business with low-income communities rises, bankers throughout development institutions are thinking differently about business models. The IDB is proving that engaging in market solutions for the base of the pyramid in Latin America and the Caribbean increasingly provides lasting benefits for investors and consumers.