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Entrepreneurship

Village money

by Carolina Carias

In depth

Depending on local customers: rural retailer in Honduras.

Depending on local customers: rural retailer in Honduras.

Too often, people who belong to economically disadvantaged villages invest and spend their money in ways that keep their community poor. Experience in Honduras shows that this need not be so. Local economic development can start with assets that are already there.

Poverty does not necessarily mean that people don’t have access to money, the problem may just as well lie with the flow of money within a given place. Too often, such flows remain too small for local markets and entrepreneurs to thrive. In such settings, local shop­keepers struggle to make a living by selling to local clients, and the outlook is bleak for all people concerned.

In Latin America, current approaches to getting local economic development started tend to distract attention from local trade, thus creating new dependencies. An alternative approach is delivering promising results however. It is called “Apreciando lo nuestro” (APLN), which means ­“Appreciating what is ours”. APLN aims to re-direct monetary flows towards and within disadvantaged communities. The idea is to keep their purchasing power ­circulating as long as possible within an economically disadvantaged locality.  

Current aid-agency approaches to promoting economic development usually support end-consumers through training activities or microfinance schemes. Both may occasionally create dependency dynamics between the target groups and development agencies, which is not how it is supposed to be.

In contrast, the APLN approach focuses on maximising the use of existing assets in order to enhance local economic activity. It does not rely on implementing agencies granting funds to economically disadvantaged people. Rather, the emphasis is on considering and relying on what is already there.

In this sense, pre-existing assets are the capacities, resources and activities with which people make a living, including natural, social, physical, economic, financial and human assets. In the context of APLN, existing assets transcend the concept of money being the main pre­requisite to promote entrepreneurship. Business and trade can also rely on family relations or particular technical, traditional or ancestral knowledge, networks, idle resources and many other things.

The approach is being promoted by the non-governmental Social Trade Organisation (STRO), which was originally established in the Netherlands in 1970. The organisation promotes innovations for local economies, offering impoverished communities solutions that increase their purchasing power through new forms of money and credit. Today, the STRO network  includes various Latin American initiatives that are supported by research and funds from several European organisations. STRO has been active in Honduras since 2003 – and in 2008, the APLN approach was created.


The APLN idea was born when an STRO worker observed small-town people in the Yoro region of Honduras forming long queues at a local bank to collect remittances from relatives abroad. Such money is really a form of outside aid. As the long lines at the bank were normal, it seemed reasonable to devise a people-centred approach to local economic development, with each individual becoming an agent for change.  Even poor people can make a difference by modifying their economic behaviour and relying more on assets they already have. They are not merely consumers who depend on money from outside.
 
APLN is implemented in a three-stage process:

  • First of all, the inward and outward mone­tary flows are analysed.
  • Next, community workshops raise awareness for local money flows, boost “economic literacy” and identify potential business opportunities.
  • Finally, specific workshops tackle important topics such as quality control, networking, smarter use of money and local market assessments.  



Economic literacy

The economic literacy workshops make people aware of the fact that the cause of their problems is not necessarily the lack of money, but the community’s patterns of spending money outside their own loca­lity. Role-play helps to convey the idea.

The New Economics Foundation in Britain has come up with the metaphor of the “leaky bucket”, which has proven quite useful in APLN workshops. People are invited to think of their community as a bucket. Water going into the bucket symbolises all types of revenue the community gets, but the bucket has leaks that make water flow out fast, symbolising money spent outside the locality. A brief group analysis indicates that although there is money coming into the local economy, it does not circulate locally, because expenditures are made elsewhere.

However, it is precisely the lack of local spending and investing that keeps eco­nomically disadvantaged villages poor. The more often money changes hands within a village, the more income is generated. On the other hand, no matter how much water is poured into a bucket, it will be empty fast if the water streams out through leaks at the bottom. In the same way, the locality will stay economically marginalised unless the money circulates within it.

The message is that the behaviour of each individual matters. Everyone can be an agent for change. For example, even people with low income levels have choices about where to buy their staple foods. A supermarket in nearby town may be cheaper than the local store, but if ­people join together to make bulk purchases at the local store, the prices can be lowered and the money stays in the local circuit, without anyone spending more money than they can afford.

It is important to rely on accurate data. Otherwise, a place’s economic potential cannot be assessed properly. STRO is in favour of collecting data for a baseline. In one case, data for a specific village showed that only 19 % of households’ total income was spent locally, whereas 19 % was spent in distant regions, and 62 % was spent in the nearest big town. The reasons were the unavailability of specific products or services in the municipal area as well as lower quality and higher prices.

The way forward is to identify market niches and opportunities and promote local entrepreneurship on that basis. For example, if people do not buy underwear locally simply because no local store has such goods on offer, it may be promising to start such a store. Once workshop participants understand things like this, they will begin to consider new business ideas seriously.
 

The power of local consumers

APLN promotes consumer consciousness. The idea is to make people aware of the impact of consumption patterns. To achieve that, the following exercise has proved useful in community workshops. One person is asked to share how much he or she spends daily on bottled sodas. This figure is multiplied by seven days a week, 30 days a month and 12 months a year. The total figure is compared with how much he or she would have spent on freshly squeezed natu­ral juice at local stores.

Actual figures indicate that buying local beverages tends to be about 30 % cheaper and that the difference, over one year, can amount to 14 % of the annual minimum wage as established by Honduran law in 2012. Examples like these are very effective for changing people’s be­haviour.

Once everybody understands the benefits of making money circulate longer within a locality, people usually start spending differently. For example, after an APLN workshop shortly before Christmas 2009, inhabitants of the village of Cuyamapa  decided to buy more presents locally. Sandra Montes, the owner of a local recycled-clothes store, sold all her entire stock in the next few days. She says that was quite unusual.

A local partner organisation is promoting APLN in Honduras. So far, 4,580 persons attended economic literacy workshops. Some 140 new businesses were initiated in a two-year period (2009 to 2010), of which 90 % started without any financial support from outside. Moreover, some 190 new business ideas were underway in late 2012.

In the experience of the organisation concerned, APLN is more effective than more conventional approaches to entrepreneurship promotion, as 30 % more businesses were still in operation after one year of implementation. STRO statistics show that local circulation of money has increased by 16 % in places where APLN workshops were held in Honduras.
 
Currently, four institutions in Central America are taking the APLN approach, developing contextual tools to fit specific contexts. In the words of APLN client Celia Cárdenas “every person has to find an activity to use what is already available”. Instead of relying on monetary resources from outside, the ­pre-existing-assets approach strengthens people’s self-reliance and self-confidence. It is most relevant for promoting economic development at the local level.


Carolina Carias works in Honduras as a freelance consultant for the non-governmental Social Trade Organisation from the Netherlands.
[email protected]
[email protected]

Links:
http://www.apreciandolonuestro.org/
http://www.socialtrade.org/