Pajebal will create mutually beneficial business-to-business connections between U.S. firms and Guatemalan small businesses via relationship-based lending, mentorship, and high-bandwidth web communication.
Current web-based developed-to-developing world lending platforms use many individual lenders to finance each one of their website’s featured micro/small businesses. Although these platforms satisfy a large portion of the personal (non-corporate) market, there exists a segment of corporate lenders in the U.S. who, through their Corporate Social Responsibility programs, would like to be more connected to their loan recipient. Similarly, certain micro/small business borrowers would benefit from a closer connection to their supporters. Pajebal will directly connect the social lender to the developing-world borrower. We will provide an alternative platform that creates impact through strengthened lender-to-borrower relationships and capacity building, connecting developing-world small businesses to ideas & insights of the global business world.
Francisco & María are high-potential organic Guatemalan coffee farmers that are in need of a loan and some business guidance. Their local savings & loan (S&L) cooperative has only a mediocre understanding of their needs & potential.
Pajebal is a nonprofit corporation that meets the needs of both Francisco & María, and Quality Organic, through our new model. Francisco & María have the entirety of their loan funded by one U.S. company, Quality Organic, having Quality Organic also serve as their mentor. They interact monthly through high bandwidth forms of communication such as website business pitch/update videos, and Skype. Simultaneously, Pajebal’s Guatemala staff builds the capacity of the local S&L, who serve as key operational partners. Pajebal is: intercontinental business-to-business connections, with both economic and intercultural benefits, that will fuel the entrepreneurial spirit in the developing world.
Guatemala currently faces many challenges, having a poverty rate above 50%, some of the most extreme income & opportunity inequality in the world, and one of the world’s highest murder rates. The World Bank’s Guatemala Country Briefing states that “inequality and poverty - especially in rural and indigenous areas- are among the highest in the region” and that “according to the Human Development Index (2010), Guatemala ranks 116 among 169 ranked countries and in Latin America is only ahead of Haiti.” Poverty among indigenous groups, which make up 38% of the population, averages 76% and extreme poverty is at 28%. (CIA World Fact Book). From 1960 to 1996 Guatemala was engaged in a civil war in which 200,000 people were killed. Amongst those killed were many innocent indigenous Guatemalan villagers of the western highlands who were often tortured as well by the Guatemalan army and paramilitary forces. Although many years have passed since the peace accords were signed, and the massacres of the war in the western altiplano stopped, these events still define part of the experience of being an indigenous villager in these Guatemalan communities.
Five members of the Board of Directors of Pajebal—an existing nonprofit corporation founded in 2009—each have at least two years of experience living and working in poor village & town communities in Guatemala, gaining a deep understanding of these realities. In particular, they have understood and assessed the continued weakness in the administration & financial management of the businesses and organizations in these communities, which is a substantial factor of the poverty and delinquency problem in Guatemala.
Yet Guatemala is also a nation of great beauty in many regards—its land, its Mayan culture & traditions, and its diverse people (23 different Amerindian languages are spoken there). During Pajebal’s founder’s Peace Corps service he noticed these contrasts of, on the one hand, the great beauty of the Mayan culture & traditions and the great openness and kindness of their peoples, yet on the other hand their people’s lack of understanding of many basic business & accounting concepts necessary to run successful businesses. There was a lack of connection to ideas of successful business & management practices of the world outside their community. Therefore, through Pajebal’s new model we seek to: (1) improve the business acumen of high-potential Guatemalan business leaders (the ones with the ability to successfully create sound employment for others in their community), and (2) leverage off the unique & intriguing cultural beauty and friendliness of the Guatemalan Mayan peoples, and allow U.S. company employees to emotionally gain from the connection.
National Connection between Guatemala and the USA
Existing business and personal connections between Guatemala and the Unites States are strong and persistent. Pajebal can leverage off of this mutual cross-border interest between citizens and businesses of both countries. The United States is Guatemala’s main trading partner—exports from the United States to Guatemala increased by 15 percent in 2010, to $4.4 billion (over 10% of Guatemala’s GDP). (All data in this section provided by export.gov). It is estimated that approximately 150 U.S. firms have a presence in the Guatemalan market. Over 36% of Guatemala’s 2010 exports were sold to the Unites States, by far their largest purchaser. Remittances are almost entirely from the U.S.—in 2010, Guatemalans living in the United States sent an estimated $4.1 billion in remittances (11% of GDP). And it is estimated that 1.4 million Guatemalans live in the United States—10% of Guatemala’s population!
The Target Customer Groups and Our Value Proposition
In Pajebal’s model there are three key target customer groups: 1) the high-potential Guatemalan small business entrepreneurs; 2) the U.S. company lending & mentoring partners; 3) the Guatemalan savings & loan (S&L) cooperatives.
When reading this section it is important to keep in mind that when assessing the benefits of Pajebal, the importance of our training services in Guatemala by our Guatemala staff is of the utmost importance. The small business borrowers and savings & loan cooperatives that we will work with will in fact have significantly more contact with Pajebal’s educated and dedicated staff members working daily in Guatemala than they will with their U.S. company lending & mentoring partners. Therefore, Pajebal’s staff of Business & IT Analysts and Bilingual Relationship Facilitators has the key role of interpreting (both linguistically & culturally) the insights coming from the U.S., making the best and most feasible ideas locally adaptable. The U.S. company is an overall guide & mentor that provides a unique and critical outside perspective on sound business practices and international markets. Their role is not, however, to micromanage the Guatemalan businesses.
What our business-to-business connection model does for the small Guatemalan businesses is create added value by fostering: (1) adequate pre-investment project analysis, (2) subsequent monitoring & collaboration, (3) maximum transparency, and (4) a unique, outside, global perspective. Our model is quite distinct from nonprofits like Kiva and MyC4, therefore satisfying a different market segment. By Pajebal providing an alternative to lender fragmentation and instead having each loan come from one source, the lender is more compelled to monitor progress and to truly care about what’s going on with the small business borrower. Furthermore, the loan is funded from an existing Corporate Social Responsibility (CSR) program of an established U.S. company, so we leverage off of the U.S. company’s: i) industry expertise, and ii) employees that already are accustomed to working together. By requiring pre-investment video pitches to be posted on Pajebal’s website, we add value in two ways: first, we provide the potential lender the opportunity to truly assess their confidence in the small business in question, and second, we allow for the Guatemalan small business manager to practice the essential business skill of pitching and explaining one’s business (see sample videos at www.pajebal.org). Through mentorship by the U.S. company’s employees, we not only provide the Guatemalan business with a unique outside perspective and global connection, but also allow for the U.S. company to learn from some of the region’s best Guatemalan entrepreneurs. It’s a two-way business & intercultural exchange. Furthermore, Pajebal will leverage of off tools such as the World Council of Credit Union’s (WOCCU) financial monitoring ratio system, as well as Pajebal’s two years of operational on-the-ground experience with Guatemalan savings & loan institutions. This will allow for Pajebal and our U.S. partner companies to combine forces to guide the small businesses to improve their accounting & financial transparency, a major area of weakness for micro, small, & medium enterprises (MSME) in Guatemala.
More specific to the U.S. companies, they would experience their own unique value creation through their partnership with Pajebal. Pajebal’s founder was able to study and confirm this value creation potential through a two-term independent study he did in 2011 at the Fuqua School of Business. His findings concluded that there were three key areas where Pajebal will most profoundly meet the unmet needs of a segment of mid-sized socially conscious companies (many of them B Corporations) in the Raleigh/Durham area. The first area of meeting unmet needs is in increased employee engagement & morale. Through Pajebal, U.S. company employees would rally around a small business in Guatemala, feeling a pride in their own company for connecting them to something that allows for a deeper life reflection during the work day—a positive mental break from the daily grind, even while you’re still at the office. Additionally, the Mayan peoples of western Guatemala have a proud & accomplished, yet often overlooked pre-Columbian history & culture that has a way of drawing in Americans once they are initially exposed. 2012 will be a particularly opportune year in that Pajebal can leverage off of all the media hype about the Mayan peoples, which will take place due to a 5,125 year cycle ending in the Mayan Long Count Calendar on December 21st (the “Mayan Doomsday”). We will steer the associated energy towards increased awareness of the contemporary efforts to develop the economies of Guatemalan Mayan communities.
The second area where we will meet currently unmet needs of the socially-conscious U.S. companies is in the benefits of leveraging off of no-interest loans in addition to grants. The potential corporate partners interviewed in Raleigh-Durham liked the idea of having a percentage of their Corporate Social Responsibility (CSR) budget channeled to investments in which they have the right to receive their investment principal back at the end of a pre-specified term. This is not the norm when allocating CSR funds to nonprofits, which primarily receive donation/grant funding. And the third area of meeting currently unmet needs is in steady, long-term employee connectedness. To use an anecdote in order to explain this sentiment, one potential U.S. company partner commented to us that many of their CSR initiatives were “remember when” events that did not allow for a sustained relationship. This U.S. company leader was quite intrigued by the continual and “live” progress reports that Pajebal would provide.
Beyond the specific companies that were interviewed in Raleigh-Durham, there is a substantial national market for strategic corporate partnerships through CSR budgets. Charitable giving by U.S. corporations was estimated at $15.3 billion in 2010 (Giving USA). Giving to international affairs rose an estimated 15.3% in 2010, the largest % increase for any subsector. Additionally, there are now over 500 B-corporations in the U.S. spanning over 60 different industries with annual revenues totaling $2.9 billion. Certified Public-benefit (B) Corporations are a new type of corporate entity which uses the power of business to solve social and environmental problems—they are the major target for Pajebal’s U.S. company partners. At the close of 2008 there were 125 B-Corporations, meaning a 300% total growth rate in the number of existing B-Corps over the last three years.
The Savings & Loan (S&L) Cooperatives
Pajebal works closely with local Guatemalan S&L cooperatives, utilizing them as key partners for various operational functions such as loan analysis, loan contract extension, collections, and information management. Additionally, Pajebal makes a strong commitment to directly train our savings & loan cooperative partners to ensure the stability of the credit environment. Our training services are in five intertwined areas: 1) credit, risk, default, and economic analysis; 2) accounting; 3) deposit growth and expansion; 4) business administration; 5) information technology.
Savings & loan (S&L) cooperatives of the villages and towns of western Guatemala form a very integral part of the communities they operate in, from both a business and personal perspective. There are over 600 nationally registered cooperatives in Guatemala, with 192 of these being savings & loans (INACOP National Census). In the province of Totonicapán, where Pajebal’s main partner savings & loan cooperative, CODICAP, is located, there are headquarters for 12 cooperatives that engage in savings & loan activities. These 12 manage a total loan portfolio of Q383 million (Q denotes the Guatemalan currency, the quetzal) ($48 million). Country-wide, savings & loan cooperatives in Guatemala manage Q4.4 billion ($540 million) in total loans. S&L cooperatives in Guatemala represent a substantial portion of the financial services providers that serve the 51% of the population that lives in poverty.
There are two Guatemalan national governmental organizations that oversee cooperatives, INACOP and INGECOP. INACOP provides legal & general administrative advice to cooperatives, while INGECOP focuses on financial audits and provides more specific guidance in financial statement generation and accounting. Pajebal works closely with both of these government agencies—in fact, the head of INACOP’s provincial office for Totonicapán is Pajebal’s Representative Agent in Guatemala, and is on our Board of Directors. Regionally, INACOP and INGECOP have been two of Pajebal’s biggest supporters from the beginning, citing their own lack of personnel and inability to meet the needs of the cooperatives. They also highly regard Pajebal’s unique expertise in business administration and information technology that fills a large gap in the potential to build S&L capacity. It is also noteworthy that INGECOP does not have sufficient personnel to even do one audit for every cooperative annually, much less to offer a more intimate form of capacity building services to these institutions.
CODICAP, R. L. is an example of an S&L cooperative that has benefitted substantially from receipt of Pajebal’s training services. Pajebal ensures that the engine of the business growth of these village communities—their savings & loan institutions—is sound, stable, and continually improving.
In the short- to medium-term, Pajebal is very Guatemala-focused regarding its economic development mission. Guatemala is the country that our Board of Directors and Advisors have a deep understanding of and connection to—we know Guatemala, we love Guatemala, and thus we will be most successful in creating social impact if we focus our efforts on Guatemala. Yet over a longer-term horizon (beyond three years), Pajebal’s model, if proven successful through our pilot and initial years of operations, could be scaled up and implemented in other countries across Latin America and the world. The essence of this model has the potential of being successful across the world—for example, it is quite reasonable to envision, say, Bangladeshi high-potential entrepreneurs forming business-to-business partnerships through a Pajebal-like model with socially conscious Dutch companies. Yet, again, we qualify this by stressing that for now, because we understand the landscape specifically in the U.S and in Guatemala, we will focus on this niche connection for at least three to five years before considering scaling beyond those borders. We must get our focus-area right first.
If another organization catches wind of our idea and implements the model in other countries before Pajebal does, we do not see that as a negative nor as a threat to our competitive position. In the world of nonprofit social enterprise our philosophy (and the philosophy of many) is that what is most important is to maximize social impact globally, and not necessarily to be directly in charge of all related projects that create that maximized impact. If our idea influences other social entrepreneurs and organizations to create similar models that increase social impact in other parts of the world, then we would see that as a successful scaling up of Pajebal’s model, even if those other models weren’t under the legal & administrative control of Pajebal. When a social investor invests in a nonprofit social enterprise such as Pajebal, the value of the return is based on how much social impact can be created per dollar invested, even if a portion of that impact was only sparked by Pajebal, and never directly controlled by Pajebal.
Pajebal’s Progress & Accomplishments to Date
Pajebal, Inc. is a 501(c)3 nonprofit corporation registered both in the U.S. and Guatemala. The work we have done in Guatemala to date sets us up for successful implementation of our new model. We currently have a staff of three working in Guatemala—A Business Analyst, an IT Analyst, and an Economic Development Volunteer from Germany. Pajebal was founded in 2009 by our project leader, Rob Krieger, a current Fuqua MBA student and Peace Corps Fellow. Prior to founding Pajebal, Rob spent two years living in a Guatemalan village—the village of Pajebal—working full-time for our later-to-be main partner savings & loan cooperative (CODICAP, R. L.). Pajebal receives pro bono services from the global law firm White & Case, LLP and from the Guatemala law firm Mayor y Mayora, S.C. Pajebal won first place in the popular vote and third place in the judges vote ($1,500 cash prize) in the 2011 LiquidNet Impact Challenge, a national social business plan competition.
Regarding regulatory hurdles, it can be quite difficult and time consuming to get a nonprofit organization—or any business entity for that matter—registered in Guatemala. In the World Bank’s most recent Doing Business In study they ranked Guatemala 165 out of 183 countries in the “Ease of Starting a Business” category. After an over two-year process, in 2011 Pajebal Inc. was finally recognized and registered by all necessary Guatemalan governmental bodies (entities originally registered elsewhere are particularly difficult to register in Guatemala). This reflects a huge regulatory advantage for Pajebal, for if we are to receive the Duke Start-up Challenge funds we can concentrate on operations, rather than on months to years ofregulatory hurdles like other developing world-focused start-ups may need to. Additionally, our demonstrated perseverance in the registration process shows Pajebal’s commitment to its work and social mission in Guatemala.
Despite the modest successes Pajebal has had to date, we are not adequately funded to be able to pilot our new model (total revenue in 2011 was under $25,000). We are now looking to raise institutional grants (including competition prize money) so that our new model can be piloted—a minimum of an additional $55,000 is needed in order to carry out the one-year pilot, which would bring the annual budget to roughly $77,000. We refer to the $55,000 as the “minimum” because this does not include funds for the hiring of a full-time Executive Director, which is not necessary for the pilot phase (the pilot can be overseen directly by the Board), but would be ideal to have if Pajebal can secure this level of funding (see Financial Projections on the following page). If the pilot is successful, our intentions are to scale up operations in the following years in Guatemala and the U.S. through increased institutional grant funding.
Pajebal will receive funding through interest-free loans, as well as from five different revenue sources.
Interest-free loans from U.S. Company Partners. We’ll begin operations with 5 to 8 US company partners each extending between 3 to 5 loans. The average loan will be roughly $4,000.
(1) Membership Grants by US Companies. Our company partners will also extend an annual membership grant to Pajebal of 5% of the estimated annual revenues of each small business that they are lending to.
(2) Interest in Guatemala . 5% interest from our deposit accounts held at the savings & loans cooperatives.
(3) Donations from the general public. Pajebal has received a modest amount of donations from the general public (under $40,000 historic total), and will continue to engage in marketing efforts to receive such funds.
(4) Institutional Grants. We seek to raise capital from foundations, and from competition prize money.
(5) Consulting Revenues (beginning in year 4). After sufficient experience has been gained by Pajebal’s staff and directors, we will consult for for-profit Guatemalan corporations on both their social impact initiatives, and general business insight for markets outside of the capital city.
Projected Org Charts (3 Years)
The Duke Startup Challenge Team
Rob Krieger is a second-year MBA student and Peace Corps Fellow at the Fuqua School of Business, and is completing a Certificate in International Development Policy at the Sanford School of Public Policy. He served for two years as a Peace Corps Small Business Development Volunteer developing CODICAP, R. L., a savings & loan (S&L) cooperative in the western highlands of Guatemala. Rob earned his B.A. in Economics from Duke University, and subsequently completed the twelve-month Corporate Management Training Program at North Fork Bank. This past summer Rob did his MBA internship in Strategic Planning in Brazil for Deere & Company, the world’s largest manufacturer of agricultural machinery. Rob is founder of Pajebal.
Jessie Margolis is a third-year dual degree student at the Fuqua School of Business and Nicholas School of the Environment. She received her B.S. in Political and Environmental Sciences at Tufts University. After college, Jessie worked as a manager at Education First, an international education company that offers cross-cultural learning programs around the world. Subsequently, she worked in India and Peru to support two sustainability-focused development projects. This summer Jessie interned at Johnson & Johnson working on a procurement sustainability project, and will return to work with the company after graduation.
Alex Ambroz is a second-year student at the Fuqua School of Business. He worked for five years at Morgan Creek Capital Management, a $10 billion investment advisory firm with offices in New York, Beijing, Hong Kong and Chapel Hill, NC. He received his BBA, with honors, from the University of Massachusetts, Amherst and also spent three years in the U.S. Army. This past summer Alex worked at J.P. Morgan.
By creating mutually beneficial business-to-business connections through web-based evaluation, financing, and mentorship, Pajebal will provide an alternative solution for those social lenders, and small business borrowers, whose specific needs are not fully being met by the platforms that currently exist in the marketplace. If we receive the minimum venture grant funding that we require, we can begin to meet those unmet needs.
Starting March 21st, vote for Pajebal on the Duke Start-Up Challenge Facebook Page! And be sure to join us for the Grand Finale on April 20th at 7:30pm ET in Geneen Auditorium at the Fuqua School of Business, or live on Duke's Ustream Channel. RSVP for the event on Facebook