By Leigh Morgan, a former senior executive in the biopharmaceutical sector and volunteer with Bamboo Finance. This article was originally posted on Bamboo Finance, adapted and republished with permission.
Despite substantial government and philanthropic funding, the United Nations estimates that 53 percent of Guatemalans live in poverty, and 13 percent in extreme poverty. This is especially true in rural communities, and access to basic health care resources remains very challenging. Progress has been slow in developing innovative strategies to drive positive change, but there is reason to be optimistic about the future.
Entering the social impact sector, with profit
Claudia Luna, General Manager of Guatemala’s Farmacias de la Comunidad pharmacy chain, is leading her company’s Tiendas de la Salud (TISA) venture, which aims to help address these vexing issues. The venture is pioneering a new business model to enable rural, poor Guatemalans to have better access to medicine and essential health care products.
As Luna explains, “Very few companies here have the ambition and have taken the risk to work in the social impact sector. This is consistent with our company’s social responsibility philosophy, and we expect it to be profitable.”
The TISA venture illustrates how a company—Farmacias de la Comunidad—can enhance its competitiveness while simultaneously advancing the economic and social conditions in the communities in which it operates. In this way, TISA promotes ‘shared value’ by identifying and expanding the connections between societal and economic progress.
The business model
Entrepreneurs own and manage local microfranchise health stores, filling a badly needed public health and market niche. Microfranchise models, broadly defined, are small businesses run by entrepreneurs at the base of the socio-economic pyramid that can be easily operated and replicated. Using proven management strategies tailored to local needs and customs is key to their success, Farmacias de la Comunidad brings years of successful business practice to TISA, and local franchise ownership assures on-the-ground awareness of health needs.
There are currently 36 stores, mostly located in the northern highlands of Guatemala. Luna’s goal is to expand to rural communities across the entire country.
Partners bring different skills to the table
Mercy Corps, a global non-governmental aid agency, and California-based Linked Foundation hatched a plan in 2008 to establish the original TISA business model. From the beginning, the aim was to successfully pilot the approach and then transition the TISA micro-franchises to a Guatemalan corporation for ongoing management and expansion across the country.
Linked Foundation Founder Dorothy Largay explains, “We had a vision to be a catalyst for market-based solutions on women’s health issues in Latin America, leveraging our grant capital and partnering expertise. Mercy Corps shared our interest and had deep roots in Guatemala—but they lacked funding to pilot the the micro-franchise concept.” Out of this shared vision and matching of resources, TISA was born. The first Tienda entrepreneurs were recruited and trained in 2009, and the model grew rapidly. Stephanie Skillman, Mercy Corps' TISA project leader during this time, recalled:
We bought discounted product from Farmacias de la Comunidad, and as TISA expanded so, too, did the volume of business we brought to our supplier. Over time the company got more and more involved, realizing the potential to grow their business into an untapped market.
This past summer, Farmacias de la Comunidad established a corporate foundation, called Farmamuni, with the sole purpose of managing the TISA program and expanding micro-francises across Guatemala. Linked Foundation's Largay couldn’t be more thrilled. “Through Farmamuni, Farmacias de la Comunidad has demonstrated a deep commitment to TISA, and they bring tremendous operational experience that will help entrepreneurs grow their businesses."
Boosting bottom lines
Luna is quick to note that her company sees TISA as benefiting their bottom line. “We see a clear upside for the company, in terms of increasing volume of selling more product. We are able to keep margins high by having TISA entrepreneurs accessing inventory from our existing network of 400 pharmacies across the country.”
Another way to keep costs low is bringing in other corporate partners. Luna has recently brokered deals with Western Union, local telecom companies Claro and TIGO, and Banrural, a rural development bank. Banrural will be the primary lender to TISA store owners, offering market-competitive loans for the initial USD$875 that franchisees need to set up a small health store out of their homes. Western Union will enable remittances to flow into the rural communities for the first time, and mobile phone options will be offered at all stores. Mobile access will facilitate real-time inventory management and connect franchisees with Farmacias de la Comunidad’s 24-hour product information helpline.
Delivering social and financial value
Success will be measured on sustainability of existing tiendas and expansion into new communities. Luna notes that TISA is the first of its kind in Guatemala. “Traditionally, aid assistance is usually short term only and the government does not have budget to adequately improve health care access and ensure that the poor have basic medicines. We are filling a much-needed niche.”
The partnership between the Linked Foundation, Mercy Corps, and Farmacias de la Comunidad highlights the potential of using market-based solutions to tackle issues related to poverty.
Mercy Corps and Linked Foundation did the upfront work with local entrepreneurs to establish the business model, demonstrate profitability, and then find a corporate partner who shared their passion and values. Farmamuni, together with the new corporate partners, aims to bring the concept to scale across the country.
Patience, a steady focus on both financial and social outcomes, strong leadership, and an ability to work across the corporate, NGO, and philanthropic sectors has positioned TISA well to capitalize on its growth opportunities.
This post was also republished on NextBillion.