In Paraguay, a Graduation project pilot is being scaled up and is beginning to halt extreme poverty. Pilot participants, along with other families who have since joined a scaled-up version of the program, have begun to alter the economic trajectory of their region. The project also provides a compelling model for the global push to end poverty — the top priority of the 2015 UN Global Sustainable Development Goals.
The government of Paraguay launched Sembrando Oportunidades (Sowing Opportunities), a national program to combat extreme poverty, in 2013. In 2015, the program began integrating a Graduation element called Sembrando Oportunidades Familia por Familia (Sowing Opportunities Family by Family). This pilot uses the Graduation Approach of sequential interventions over the course of 18 months to increase and improve the productive, financial, human and social assets of rural households living in extreme poverty.
The program has surpassed the initial pilot model and is now working with 12,000 new families, toward a goal of reaching 25,000 families by 2017. Moreover, it is adding new elements, such as linkages with the private sector and social impact funds, to increase the reach and impact of the program.
The Graduation Approach helps families graduate from extreme poverty in a sustainable and progressive manner. This partnership between Fundación Capital and the government of Paraguay offers a compelling example of how the Graduation program can be integrated into public policy in any region of the world where poverty exists.
Through the combination of personalized mentoring and technological tools, Fundación Capital has to date developed programs, or is in the process of doing so, with six countries — Brazil, Colombia, Honduras, Mexico, Paraguay and Tanzania — where these programs have been or are being built into a national promise to end extreme poverty. These methodologies center on exploring and defining how to integrate Graduation Approaches with national social protection policies to reach the greatest number of families possible.
Leveraging the private sector
The energy and success of these initial projects have propelled expansion among the collaborative partnerships to include the private sector, a new element to the overall Graduation Approach.
Paraguay’s business community has begun supporting the small business efforts of these micro-entrepreneurs. With the leadership of the Secretaría Técnica de Planificación de Desarrollo Económico y Social, the lead agency for Sembrando Oportunidades, the Public Private Council (PPC) was born to search for practical solutions to provide strategic advice and coordinate public investment on poverty reduction.
The PPC identified a number of challenges confronting small-scale producers, primary among them the practical business concerns of how to find seed capital and how to find markets for the products. In response, the PPC created the Social Trust Fund, an investment trust to mobilize venture capital to support the productive enterprises developed by participants. Now, in addition to the five “classic” Graduation components, families can also connect with businesses to produce needed goods and sell them at a fair price.
So how exactly does this work? Potential business ideas are presented to the PPC, which then evaluates the business model and opportunities, before identifying businesses interested in buying the end product and investors interested in supporting the project. This creates a Social Trust Fund for that round. For example, the first iteration of the program focused on chamomile, for which an international market was identified, and which has the added benefit of being a winter crop that can be grown in otherwise lean months.
Next they sign a contract with interested families and a business that commits to buying what is produced. Interested organizations will then invest in the bank-held Social Trust Fund, which is used to buy the inputs needed to launch the project so that families do not have to use their own resources to participate.
Moreover, participants are advanced money to cover their labor costs, so they don’t have to wait until harvest time to be paid. These payments, determined by an independent business contracted to supervise and audit the work, are done via electronic transfers, which help reach rural and poor families, advancing financial as well as productive inclusion, that is, the tools and skills to promote productive activities of individuals.
Once the goods are ready (in the case of chamomile, harvested, cleaned, sorted and prepared), the original contracted business collects then and pays the bank holding the investment fund. The final payments are then made to the families and, if there is a profit, this is shared with the fund backers. If there are losses, those same backers are the ones who absorb them, not the families themselves.
This is key to how the whole program works, where organizations and businesses interested in doing good absorb the risk from families living in extreme poverty who are least able to take such a potentially life-changing chance.
And who are these backers? Well, for the first round with Paraguay, investors include Grupo Pueblo (a superstore chain), Alquimia S.A. (an export company), and Fundación Capital itself.
These programs target two of the greatest bottlenecks facing the expansion of Graduation programs: cost and connection to markets. Seed capital for the small businesses started by program participants constitutes between 40 and 50 percent of the total cost of the program, and often time poor rural entrepreneurs lack ways to reach lucrative markets for their products. In Paraguay, the Social Trust Fund is helping to connect the poorest 99 percent with the richest 1 percent.
There are many other ideas underway within the PPC, including expanding into as many as ten other potential products, including tree farms that will have an added benefit of environmental protection agreements with investors.
At the center of this successful model is the full leadership and collaboration of the Paraguayan government, which has brought to life a series of partnerships that continue to grow and blossom.
Paraguay provides a powerful model, demonstrating the potential of the Graduation Approach, particularly when paired with social protection programs, government allies, and private sector investment. Such partnerships require creativity, patience, and adaptability — looking for ways to customize designs to specific contexts, to find shared value for all participants, and to build alliances in the pursuit of greater causes.
None of this can be done alone, but as the Graduation Approach itself posits, change is possible through the application of a range of tools and resources.