Starting at Brazil’s most prestigious business school, Felipe Bannitz has launched a nationwide initiative to integrate university resources into the social sector, providing financial and technical assistance to microentrepreneurs through the first “junior bank.”
The New Idea
Felipe is transforming how major universities, their students and faculty engage with the social sector while also filling a critical need among emerging micro financial institutions for management assistance, capital, and technical support. His work bridges academic disciplines that encompass finance, microfinance, technology and innovation on one hand, and microfinance institutions with few technological resources to leverage sustainable and scalable businesses. Felipe has created a powerful partnership among universities, their supporters (including corporations and foundations) and the government, with community-based microfinance institutions providing for the financial inclusion of Brazil’s poorest communities. With the launch of Bank for Inclusive Businesses (BNI), Felipe has started a network-based expansion of his idea to many of Brazil’s leading schools of economics, business, and law.
BNI carries out a research and community outreach program that allows academic knowledge to travel beyond university institutions and engage the community at-large. It is a way to equip all beneficiaries with knowledge that may give them the potential to transform their social reality. As recent university graduates enter the labor market with a new vigor for local development, they become key multipliers of Felipe’s vision, and microentrepreneurs can sustain their inclusive business.
Other prestigious Brazilian universities in the areas of business, economics, accounting, and law are now assembling the conditions and resources necessary to create their own BNIs. Among them, 70 have launched their own technological incubators to provide full support to microentrepreneurs. Felipe dreams of these banks becoming staple features of Brazil’s higher education experience.
Students at elite universities have little contact with the social realities of Brazil, and yet they hunger for ways to engage and contribute to the anti-poverty agenda. Despite national policies encouraging universities to engage with local communities, few are able to—more due to inertia than any specific policy. University extension programs are not successful in truly fostering a connection with communities, and so either they are limited to internal courses, conferences or seminars, or they are only geared to benefit communities with top-down solutions—charitably “helping” people, instead of actually working with them and contributing to a significant life change.
In the meantime, community banks lack access to improved systems and greater flows of capital because of limited staff capacity and reduced contact with large government or corporate funders. Only recently has the government embraced microfinance, and this emphasis has allowed numerous institutions to crop up in support of the field. However, these programs cannot sufficiently access public financing and are far from reaching full institutional maturity, including establishing a financially sustainable infrastructure. In many cases, these institutions must offer interest rates above 3 percent, which makes their loans impractical for the population they want to reach. This factor also undermines the speed at which microfinance institutions can gain scale. Finally, some procedures to secure approval of loans do not match the technical reality of the borrowers. As a result, small and microentrepreneurs that own inclusive businesses find it difficult to access credit and thus expand their organizations and operations.
Community borrowers often lack the technical expertise and capital they need to develop the businesses that can lift them out of poverty. Extending access to credit and training for microentrepreneurs though, is growing consistently more critical due to the rapid increase in numbers—the vast majority of whom have not had formal preparation or the resources to scale in the formal economy. From 2011 to 2012, the number of Brazilian microentrepreneurs more than doubled to 2.2 million people. Yet according to one study, only 8.5 percent of microentrepreneurs have completed higher education, with 84 percent not having enrolled in college. 43 percent operate their businesses in their own home and 12 percent on the street. More than nine out of ten have no employees and have never sought a loan; of those who did, half had their petition denied. Making the infrastructure available to them through training and credit can deeply transform these businesses, empower entrepreneurs, and build the entire financial ecosystems around them. Supporting microenterprise is a clear, accepted and effective strategy for reducing social inequality in Brazil, especially now that the federal, state, and local governments have unveiled progressive public policies to advance poverty reduction. The demand exists now for sustainable microfinance solutions to take advantage of these public policy frameworks and cultivate microentrepreneurship.
Felipe is initiating a student-led, faculty-supported, movement by carefully launching it from a prestigious university, Getulio Vargas Foundation (FGV). Since 2005, he has coordinated the Technological Incubator of Popular Cooperatives (ITCP) of the FGV, which provides assistance for inclusive businesses in all regions of Brazil. In the program, 140 businesses have been incubated and US$9 million has been invested, benefiting more than 6,000 entrepreneurs. Felipe invites any organization that seeks the social and economic integration of excluded populations, as long as they possess certain characteristics such as self-management, decentralized authority, and fair redistribution of profits, such as cooperatives. Their activities range from jewelry made out of recycled materials to wooden furniture sold at accessible prices. He also encourages the formation of economic clusters among these groups to increase volume production by cluster, for instance, bringing groups together in the case of large orders.
Early in 2011, Felipe realized that the microentrepreneurs supported by the incubator were all facing a serious problem in liquidity, which inhibited their financial sustainability to the point that they might close. ITCP provided them with technical assistance in collaboration with the two companies within the university, the communication agency (Agesol) and the marketing agency (Mercosol), which opened up new marketing channels for the entrepreneurs. These companies identified new distributors, such as large corporations like Walmart, and tried to make them understand the special needs of these small providers. However, as inclusive businesses they were unable to meet their deadlines for loan repayment, lacking the necessary capital to sustain the organization in the intermediate time between selling products and receiving cash flow. Felipe reflected that these microentrepreneurs needed, beyond just loans, a close accompaniment to truly guarantee their financial sustainability in the future. With this he conceived the BNI, the first microcredit institution ever to be managed by students. Under the supervision of their professors, university students run all of BNI’s management and administration.
Felipe’s methodology for BNI is divided roughly into two main tactics. The first offers microcredit to small entrepreneurs and productive clusters quickly and with little paperwork. All the entrepreneurs must demonstrate is that that they have received purchase orders from companies and submit a contract indicating sales. Then, BNI extends them two lines of credit. The first and principle one is the directed advancement for production, with simple interest rates of 1 percent per month plus a tax that covers operation costs, and the possibility to repay in installments. The second line is the oriented productive advancement, with simple interest rates of 1.5 percent per month, calculated with scientific amortization, and a tax that contemplates the operational costs. This second line is an investment exclusively on the
production process and on projects, and therefore does not require a guarantee from the entrepreneur. BNI averages a first loan of approximately US$2,500 a year with an interest rate between 1 to 2 percent.
Students’ perform an analysis of the information provided by each cluster according to BNIs own credit policy, with approval from a weekly committee. They collect data through online forms and telephone or face-to-face interviews with the borrowers. During a site visit, they help the entrepreneurs fill an application to determine the economic viability of the loan. They establish the amount and deadline of the loan according to the needs of the business as well as its future estimated income. The students also help write business plans, with an emphasis on sales and boosting productive capacity, and provide legal counsel. Since the objective is to ensure the financial sustainability of the businesses, students also perform thorough follow-up throughout the course of the loan. As soon as an entrepreneur starts having difficulties in paying back the loan, they provide the best support possible to change that situation.
The BNI’s second course of action is the student’s development of systems improvements for community banks in conjunction with technology partners, such as engineering students from public universities, and with the support of the university’s resources. Many banks were created in partnership with commercial banks because of their penetration into the communities that most commercial banks do not have. However, after this initial support, they are left rather barren without the initial capital to lend or the expertise to establish a loan. Students therefore prepare elaborate control sheets that systematize the launch of the community banks and provide them with the necessary managerial reports that back their collective decisions. They provide free consultancies for the banks and, develop and consolidate social technologies solidarity finance. For instance, they implement solidarity rotating funds, organize solidarity exchange fairs, and help create social currencies. The BNI students also develop a business plan in conjunction with each community bank to calculate the volume of financial services that must be performed to ensure financial sustainability. They then bring in financial resources to increase lending operations, help improve communication materials to increase their potential for prospecting new clients, partners and investors, support new credit lines and more modern management structures, and also bring together potential investors and partners.
Felipe makes working in BNI appealing for the students, who see it as a non-financial compensation and recognition of their academic and entrepreneurial experience. The university even provides academic credit for participation. Because of high demand, Felipe designed a selection process for students to join the BNI.
Felipe is using the brand and platform of Getúlio Vargas Foundation to assemble a coalition of partners, which includes the government’s programs as well as big corporations such as Vale do Rio Doce, for which ITCP and BNI create income generation programs. He wants to capitalize on the resources available via government and corporate sectors that are looking for responsible intermediaries to assist them in their poverty alleviation efforts. This allows Felipe to leverage corporate and social networks, since they are increasingly channeling their funds toward market-oriented solutions to fight poverty. Since these are not projects with restraints on spending, they can cover operations and even generate a profit for BNI. Sponsorships range from US$10k to $50k to support new customers. However, even the operation costs of BNIs are especially low, since Felipe is relying on the free resources of students and faculty to fill a gap in needed technical services to microentrepreneurs and community banks.
Witnessing the incredible success at Getúlio Vargas, 12 other universities have joined the network and another 10 are in the pipeline. Currently, these 12 have managed to start more than 45 inclusive businesses, directly impacting 700 entrepreneurs, by lending approximately US$50k. Felipe has already created procedures to establish chapters at other universities with an online application which requires minimum participation but maximum guidance. After receiving letters of interest, the BNI team conducts an online training which includes digital materials that systematize the method with a number of technological packages. After the new branch is set up, they conduct planning, monitoring, and evaluation activities to ensure consolidation. Finally, they organize an annual conference among agencies to exchange experiences and integrate the students.
Felipe plans to launch chapters in Brazil’s 70 leading universities. The BNI is also planning to internationally expand by joining forces with institutions in Europe and the US to create branches in Africa. This international network will be created through the Young Bankers Program since a large number of international student’s choose Getúlio Vargas as their destination to create branches worldwide.
When Felipe’s father decided to quit his job as an IBM executive to start a company that sold electronic ID cards, he could not imagine the impact his decision would have on his son. Admiring his father’s lifestyle and worldview, Felipe ventured into the world of entrepreneurship at age 12. Along with a neighbor, he founded a line of chocolates. They bought all the ingredients themselves, prepared the bars, and sold them at school.
Upon entering high school, Felipe’s father advised him to leave his line of chocolates behind and focus on his studies. Felipe’s greatest goal was to enter a good university, for he believed that this would put him in touch with interesting and inspiring people. During this time, an event in his family left a major impact on how Felipe viewed the world. His uncle decided to leave home to live on the street. He was never seen again, but Felipe decided to engage in activities to fight poverty; to change the reality of Brazilian’s living like his uncle.
Felipe’s dedication to his studies had the desired effect, and he entered the School of Economics, Business and Accounting of the University of São Paulo. There, he came in contact with professors and classmates who helped him to understand the best ways to transform Brazilian social reality as he dreamed. Felipe also experienced important lessons about mobilization, fair-trade and local development as a trainee working with the Municipality of São Paulo, which was developing a participatory budget. He also took part in the University of São Paulo’s Incubator for Popular Technologies and wrote his senior thesis, while he spent six months living with an indigenous community in Bahia.
Felipe has received a series of awards, such as Instituto Claro 2010 Inovar Comunidade, for the development of inclusive businesses. When Felipe was invited to reorganize ITCP-GV, where he developed the BNI, he embarked on a new phase of his life, marrying his academic experiences with his passion for financial inclusion.