Red Popular para BRILLA

The market share of major manufacturing companies comes from population in the bottom of the socialeconomic pyramid (low-income population) approx. 60% to 70%, at least.Given the fact that the major necessity of credit to alleviate problems associated with poverty are addressed to improve housing, and developing small business, these kind of companies have led this initiative, concerned with values of community solidarity and social responsibility. The programs Construyá (from Argos) and BRILLA (from Promigas) are an example.

Following this idea , Red Popular will leverage the initiatives by developing the strategy to reach more people and facilitating the access to lines of credit. RP is directly stimulating both sides of the market:

- In the consumer side, RP is a facilitator of access to financial solutions. It helps families reach a better standard of living, giving them the possibility to develop their own business, improve their housing (specially the floor), or acquire household appliances (electric / gas).

- On the other side, RP is engaging SMEs (distributors) with the initiatives: they’ve found a strategic allied which helps them grow their business, perceiving an increase in sales and an improvement in management of working capital. As an example:
- There are 40 new distributors of BRILLA.
- 795 new permanent jobs.

Red Popular is a network platform focused in the development of solutions designed for low-income segment, leveraged in the knowledge of SMEs (distributors) and its environment, aiming to:
- Allow formal financial institutions to reduce the cost of clients’ acquisition.
- Allow communities to reach a better standard of living. (Is one of the few available sources of funding to improve housing or developing their own business).
- Allow SMEs to increase their sales. (Diminishing portfolio risk and improving working capital management).

When comparing BRILLA and Construyá, RP has found defining aspects of success/failure in these initiatives:

- In terms of funding, BRILLA has perceived resources directly from its promoter, Promigas, while Argos turned to commercial banks.
- In terms of success, BRILLA has reached more than 300.000 users, is a national program and has placed more than US$ 107 million in loans in three years. Meanwhile Construyá, in spite of the enormous effort, has just reached US$ 5 in loan placement within the same period.
- In terms of sustainability, Promigas is considering selling the loan portfolio to a formal financial institution, to focus in the core business of the company. Argos is still on the attempt to find a partner to catalyze resources to its final clients.

a) Asymmetries of information
Red Popular makes easier the access to more economical resources of funding using electronic transactions to manage the program: it avoids the use of cash (use of electronic money) and builds a trustworthy database while it records the buying/paying habits of users.

b) Informality
RP aims to approach low-income population to formal banking: During credit scoring, RP leverages in the knowledge of SMEs about the community / neighbor, requiring minimum paperwork or commercial references. The SMEs knows paying habits of their customers, becoming the financial advisor of clients and acting as a loan generator.

c) Lack of financial capacity.
RP approaches these initiatives to financial entities stronger than NGOs.

d) Lack of SME access to skills / knowledge / markets.
RP trains distributors in financial skills to keep a healthy client’s portfolio.

E) Unavailability of financial products tailored to SME needs.
Along with Red Popular, distributors, who serve as providers to the initiatives, have growth in their business, perceiving an increase in sales, diminishing portfolio risk and improving in working capital management.

f) Lack of institutional capacity of financial intermediaries.
In Colombia, NGOs have limited funding resources and limited national coverage. Red Popular aims to provide the initiatives the capability to reach more people by connecting the program to financial resources offered by formal institutions, in order to have a wider access to cheaper funding.

g) High transaction costs for financial intermediaries to serve SMEs.
Red Popular is a platform with low transaction costs, with a network of over 60.000 P.O.S. in Colombia ready to serve these initiatives. Giventhat programs like BRILLA develop its operation along with its promoter business, this has allowed them to keep low operational costs:
- Lower costs in clients’ acquisition.
- Low cost of electronic transactions involved in the operation.
- No additional invoicing / distribution costs. (.i.e., BRILLA’s charges are included in Natural Gas bill.)
- The payment of loan charges can be done on the P.O.S.
- Usually, debt collection structure is the same for the initiative and the major company (i.e. BRILLA and natural gas business - Promigas).
- Sustainability of the program has been demonstrated thanks to the loyalty of the clients: portfolio at risk > 60 days ratio has been around 1.1%. This has been possible through the close relationship with the client, reasonable interest rates and long terms for debt.

h) Lack of competition / incentives for financial intermediaries to serve SMEs.
RP makes the development of an open market easier: it invites banks and NGOs to participate in the program under the same conditions.

I) Lack of financing to women entrepreneurs.
Red Popular can reach population segments that otherwise could hardly get a loan. This program promotes the development of new small/micro business: In Colombia there are few households with more than one wage earner. In lower socio-economic status, there are mainly informal workers. Most of them are woman head of families, who prefer to work at home while they take care of their children: ice-cream/pizza parlor, hairdresser’s, dressmaking, micro business centers (cybercafé), bakeries, coffee bar and small grocery stores are successful examples of micro business.