012 No Ordinary Business with YCAB

The Highlights

·       Models of social enterprise:

1.  A trading activity that has no direct social impact generates profit and then transfers some or all of that profit to another activity that has direct social impact (e.g., a CSR programme).

2A trading activity that does have a direct social impact, but manages a trade-off between producing a financial return and social impact (e.g., buy one, give one away).

3. A trading activity that not only has a direct social impact but also generates a financial return in direct correlation to the social impact created (e.g., renewable energy enterprises).

·      Engaging in commercial activity to fund mission makes the social enterprise more independent and agile than if reliant on donations.

·       Many of the existing microfinance models perpetuate poverty instead of breaking it.  Impact needs to be tracked and a part of profit should be re-invested into mission.

·       Education and economic empowerment need to be targeted together. If you only focus on education and there are no jobs available, educated youth will become burdens on society. 

·       Going forward, we need to have profit and social purpose integrated in the world. Millennials and Gen Z only want to work in an environment that has meaning and purpose. Business has to adopt a triple bottom line approach to meet the needs of modern society.

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Gina: Today’s guest on No Ordinary Business is Veronica Colondam, Founder & CEO of a social enterprise called YCAB Foundation, based in and operating across Indonesia to educate and empower Indonesia’s youth.  Welcome to No Ordinary Business, Veronica!

Veronica:   Thank you, Gina. It is a pleasure to speak with you.

Gina:  Would you share a little bit about your background and how you came to be where you are today?

Veronica: There are two parts to my journey. The first story appears in my recently published memoir called, Journey to Impact. In the book, I shared my spiritual calling that happened on my twenty-sixth birthday. I was already a mother of two at that point in time and started to ask myself: “Is this what life is all about?” I realised that you need to do more outside of yourself for others. Then another question kept pounding in my head: “How do I want to be remembered? How can I leave behind a trace of my life?” These questions inspired YCAB.

But then around two months ago, I was invited to participate in the Kennedy School programme for the Schwab Foundation for social entrepreneurs. There were forty-one participants from more than twenty countries. On the last day, they held a class on public narratives and how to tell your story. The instructor asked us to go back to our childhood to identify what happened that connects to what we do today. Not everybody has a story, not everybody wants to open up about personal trauma, but somehow in my small group, there were five of us, I was reminded of something that I tried to forget. An event I didn’t realise until that moment that was defining. 

The unconscious connection I discovered is that I’m fighting for those who lack the opportunity for education because I too, was a school dropout. It’s that simple. I was the only one in my high school that did not go to university. The year I was planning to enrol was the year my father died. The morning I received a call from a university in Vancouver, Canada telling me that they accepted me in their programme, was the same morning my father died.  It was traumatic for me. I decided not to go because of my mother.  My mom was a housewife; she didn’t even know where my dad put his money, which bank. We had a lot of things to sort out and then my mom told me one day: ‘I was preparing myself to lose you to go to school abroad, but now I can’t handle that after losing Dad.’  

Through this class at the Kennedy School, I re-experienced the feeling of embarrassment, that disconnection I felt with my friends who pursued their studies. I felt ashamed. I felt like a failure. I never fully realised the impact of this difficult decision, until twenty-eight years later, through this class. I now see the one thing that unconsciously drove me toward YCAB’s mission: that I am here to help youth get access to education.  Around one year after my twenty-sixth birthday, YCAB was born in August 1999.

Gina:  What was the focus of YCAB at that time?

Veronica:  We initially focused exclusively on soft skills education, but by 2010, we began to realise that it was not sufficient. As a young mother, I initially thought about risky behaviours that youth commonly engage in.  We did a lot of soft skills training, leadership, self-efficacy, confidence development, how to help young people make smart decisions on issues of drugs, sex, dating, that sort of thing, bullying, all of that.  Eventually, we added acceleration courses like computer training. But by 2010 we realised we were missing something, that there should be an element of economic empowerment. 

Gina:  What inspired that realisation?

Veronica: My second child, Adelle inspired me. She was turning twelve that year and needed me to chaperone her and her friends to a community project that was primarily looking into how microfinance affects the life of the beneficiaries. In that journey, I learned a lot. I was moved by the potential of microfinance helping poor women become economically more stable through a very small intervention, access to capital of 50 – 100 dollars. 

This idea excited me, and I realised that we need to combine microfinance with the education platform in YCAB.  We saw that if there’s no economic support for parents to send their children to school, it’s less likely they will go. Going to school is never free, even if there’s no tuition. There are always transportation and meal costs, and the reality is only one in four kids who enter primary school will finish high school in Indonesia. So we needed to convince low-income mothers to send their children to school by supporting the micro businesses they run. 

Gina:  Is there tuition applicable to public education in Indonesia?

Veronica:  Technically there is no “tuition,” but there are approximately 300 dollars in costs annually for things like uniforms, outings, etcetera. To give perspective on how expensive that is, the minimum wage in Jakarta is a little under 300 dollars per month, depending on the exchange rate, and outside of Jakarta it’s about 100 – 120 dollars, so 300 dollars per child per academic year is a lot of money.

Gina: So you decided to launch a microfinance programme to help parents be able to afford these additional expenses?

Veronica: Yes, that was definitely it. When I saw the power of microfinance to double or triple daily income, I realised we could use it to give parents funds as a cushion to send their kids to school and to pay for all these things.  We started our microfinance programme in the communities where the YCAB learning centres are located. We are maybe the only microfinance programme that works in the urban poverty areas in Indonesia, but certainly, the only one that uses microfinance to educate the children of borrowers. Most microfinance programmes in Indonesia work in the rural areas, and they operate as traditional microfinance just like the informal banks. Moving forward, we want to focus on more integration of the education component with the economic empowerment. We hypothesised that microfinance alone won’t lift people out of poverty. When microfinance is combined with education this will have the chance of breaking the poverty cycle.

Gina: You’re supporting the family as a unit, parents through the microfinance giving them the access to resources that they can apply to their children’s education and working with their children to fill the gaps in their education?

Veronica: Yes, from this point going forward we are focusing on integrating the two, scaling deep into serving our communities. We feel it is essential to pay attention to the education of the 50,000 families that we work with rather than try to keep scaling on the education programme randomly outside our microfinance communities. 

Gina: And the microfinance is offered to the women of the families?

Veronica: Yes, only the women. We use the Mohammad Yunus group loan model beginning with 100 dollars up to 300 dollars. We’re working to bridge the gap between 300 dollars and what commercial banks are willing to lend. The standard starting point for bank loans is about 1,500 dollars. Microfinance, or what I call “nano-finance”, caps loans at 500 dollars, so there’s a gap of accessible loans between 500 – 1,500 dollars.  

Gina:  Do you have any idea why that gap exists?

Veronica:  I don’t know why nobody’s addressing that. For us, we’re a new player in the field and are experimenting with it on a case-by-case basis but are looking at standardising it into a legitimate financial product that is accessible to the poor.  We are studying the issue, working to understand why the market is not going there, what are the hurdles. Next, we want to learn from our clients, the borrowers, how to do it well. We want to be able to bridge that gap so we can provide funding until they’re bankable when they can access commercial lenders, like the banks.

Gina: Would you describe your evolution from being impact only to impact first as an organisation?

Veronica: There are three models of social enterprise. First, there’s a separated model where the business has nothing to do with the mission but supports the mission by raising revenue that is used to support the mission. This was the model we initially followed.  Second, you have an integrated model like Tom Shoes, sell one pair and give one away.  Lastly, microfinance is the embedded model because empowerment leads to education opportunity, and together, this whole operation is sustainable. This is the model we are moving toward.

Gina:  Would you describe your revenue model?

Veronica:  I came from an entrepreneurial family.  When we started YCAB Foundation, I set up a few operating companies to fund the Foundation because that was the only way I knew how to finance it.   

Gina: So you didn’t start with a donation based model?

Veronica: No, I didn’t even know how to fundraise until much later.

Gina: That is unique!

Veronica: It was just me, and I wanted to be responsible for my calling. I set up a company and then eventually we ended up with four companies that have nothing to do with the mission but they were able to make a profit and use it to fund the mission work of the Foundation.

Gina: I understand that in addition to the revenue you raise from the various businesses, you have various professional partnerships with companies providing pro bono services to the Foundation and you’re also a registered charity collecting donations?

Veronica: Yes.

Gina: How do you feel that as this system has evolved, what do you think that it’s done to make you a stronger organisation?

Veronica: We’re more agile than we would be if we relied solely on donations. We can accommodate a lot of other kinds of givers outside of the traditional philanthropic world, those who I call ‘shy givers’. These givers want to be part of impact although they’re not ready to donate. Now they can make an impact through loans. By loaning their money, which is invested it into our microfinance for education programme, they will receive both financial return and social impact. 

We also work a lot with companies who make grants or offer pro bono services or make donations as a part of their Corporate Social Responsibility (CSR) programme. For us, this is one of our streams of inexpensive funding as they require no payback, no interest, as long as their money is “invested” in us, usually between three to five years. 

As I said earlier, for the first ten years, I never actually did philanthropic fundraising. It wasn’t until some of my friends approached me and offered to help organise a fundraising event that we call Angel of Change Night. We’ve been hosting an Angel of Change Night every year since 2009. 

Gina:  So you were ahead of your time with your social enterprise business model!

Veronica:  We simply didn’t call ourselves social enterprise. We were not termed that way. I wasn’t aware of that terminology before, but during our second decade, we started to understand more about the social enterprise concept. It is important to keep all of our options open. However you want to come in and support our cause, you can.

Gina: What are some of the barriers to entry that you’ve encountered operating a social enterprise?

Veronica: Regulatory issues are a challenge. Indonesia does not recognise social enterprises. That’s why I’ve been working to introduce a social enterprise bill into law. It is coming up for voting by the members of our House of Representatives and, hopefully, it will be introduced and passed during this presidential term.

Gina: When is the election?

Veronica: April 2019. I have about three articles proposed to add to the social entrepreneurship legislation. We need that so that we can run the businesses and simultaneously do our philanthropy work to have everything under one roof, which is not possible currently. In Indonesia, we are all taxable, even non-profit foundations - we pay tax, corporate tax. The only difference is that because we are an education foundation, we pay taxes every four years, instead of every year, that’s the only break. And then donors, they don’t get any tax deduction… 

Gina: That doesn’t help facilitate philanthropy.

Veronica: We set up a 501(c)(3) registered charity in the U.S. to do two things: to get access to our U.S. based supporters and also to access a digital donation system.  At that point in Indonesia, there was no digital payment system, and so we contacted PayPal who would only work with U.S. companies, so the U.S. based registered charity facilitated donations. 

Gina: One of the concerns that I’ve discussed with others in social enterprise space is what the advantages and disadvantages are to have a legal definition of social enterprise. In light of your legislative efforts, do you feel there is a risk of potentially limiting that flexibility that you seek by creating a legal definition in the Indonesian law?

Veronica: We looked at the different models including the UK. The UK is quite mature, and in Indonesia, the characteristics of social enterprise are more like the UK model where the majority of profit must be invested into the mission meaning that there is less profit available for the shareholders. Definitely, there are pros and cons. We surveyed other social entrepreneurs in Indonesia. I would say one fourth are actually against to be legally recognised as a social enterprise. However, under the draft law, we are very inclusive; you can use any legal structure under the laws of Indonesia…

Gina: You’re not confined to a specific entity…

Veronica: No, you’re not confined. You can use a company or a foundation, even a cooperative or association and everything else allowed under our current law. 

The challenge we face is getting our corporate partners ready to support different types of entities.  For example, CSR money must go directly into accounts held by the foundation.  They resist transferring CSR funds into another company because it can’t be acknowledged as CSR. We need to educate them about new social enterprise structures, these new animals so that they are comfortable supporting them. For this, companies need to adjust the way they conduct their CSR; this is surely another struggle.

Gina: I imagine it’s a matter of raising awareness and challenging stereotypes of what it means to drive social change and can see the advantage of having social enterprise acknowledged in law helps people to recognise that there’s evolution in the social sector. It’s no longer only about the traditional non-profit and the for-profit.

Veronica: Yes.

Gina: What’s your vision for YCAB in five years?

Veronica: Today, YCAB operates in twenty-seven provinces of the thirty-four provinces in Indonesia.  We have about fifty education facilities in low-income communities. Going forward, we realised that it would be more efficient and cost-effective to offer scholarships to youth. With that, we are starting to move away from setting up education facilities and moving towards a scholarship model. Today we’re working with 50,000 families; we want to grow this to one million families to impact to four million people by 2025.

Two years ago, we got a license as a venture capital company, YCAB Ventures. This company now runs the microfinance business.  Our venture license gives us the flexibility to do three things: advisory, equity investment, create a fund to make equity investments. The Indonesian government wants the venture licensees to help SMEs, micro and small – medium enterprises in the form of equity. We’ve been making equity investments in other social enterprises outside of the YCAB Group. We are exploring establishing an impact fund to help the growth of our microfinance business and to fund other likeminded microfinance businesses that are willing to put aside some of their profits for education to break the poverty cycle.

Gina:  Do you feel that microfinance is helping to break the poverty cycle?

Veronica: Many of the existing microfinance models perpetuate poverty instead of alleviating it. I made a learning journey in Bangladesh and India, and I was heartbroken because most of the micro-financiers keep poverty perpetuated. There’s no intention of breaking the poverty cycle; they don’t even measure the welfare increase over time.

Gina: They don’t measure impact.

Veronica: No, they don’t. I talked to some of the companies about this and their response was: ‘We are bank.’ I realised I was wrong in my understanding. I saw it from social lens thinking that microfinance is actually for social purpose. It’s not, they’re simply finance companies, they’re banks. They said they are not mandated to measure impact.  From that I took away the need to make a difference, we need to do a different kind of microlending…

Gina: So you’re starting a revolution in the microfinance world?

Veronica: I hope so. I was invited to speak in Hong Kong by the International Finance Corporation (IFC) a few years ago, and there I learned about economic and formal education. The president spoke and underlined the importance of both, and when I talk about our model, of combining economic empowerment and education, she admitted that our approach was novel.   If the IFC starts to adopt this integrated approach then you are starting a revolution.

Gina: Yes, they can make significant change.

Veronica: I can only inspire you, I don’t know when it will happen and if it’s even possible for the IFC to take what they are already doing with education and economic empowerment and marry the two. I’m in the business of marrying the two because we want to look at welfare, we want to see change at the end of the day; not just keeping business as usual and perpetuating poverty. If you only focus on education and there are no jobs available, where are the youth going to go? They become a burden to society. We’re still experimenting at a small size, but we hope to grow this. 

We want to scale deep now. We want to track impact to assess if those who graduate from university contribute more money to the family or not compared to those who graduate from high school with vocational training or skills in English and we need to make the comparison…

Gina: You need to see what the outcome is.

Veronica: That will help us invest optimally, to determine what education level to target our focus for the greatest impact. 

Gina: If you could develop the model and continue to inspire and share that model at the level of the IFC or a similar sized organisation, your model could be replicated on a grander scale.

Veronica: I would love to do that. There are not many organisations in the world that do both. There’s a lot of those who are just doing the microfinance without paying attention to the education or vice versa.

Gina: What are your views on the interplay between doing well financially and doing good things for society? 

Veronica: Fundraising philanthropic capital is tiring. My family comes from business, my father was an entrepreneur, so that is the way I learned how to make money, how to fund a mission. The balance between the two (doing well and doing good) is important because it gives you independence and independence is beautiful. I find myself wearing so many hats now, from implementer to investor while running a social enterprise. I feel like it’s important to keep both alive. 

I think going forward it will be an integrated world because otherwise you cannot even hire Millennials or Gen Z since they only want to work in an environment that has meaning and purpose…

Gina: And is not harmful.

Veronica: Right! They are very choosy, this generation. They’re very independent in their thinking and mindset, and I think the world is going to be in a better state when everybody’s integrating their mission and business, business and mission. You have to adopt a triple bottom line approach. Having a triple bottom line business the only way you can create a better world.

Gina: I think that’s a beautiful note to end off.  Thank you so much, Veronica, you’re an inspiration and I really, I’m so excited that you have the opportunity to experiment and to innovate and explore and to share that with a wider community so that they can learn from that and challenge themselves to explore different approaches.  I wish you and YCAB the best!

Veronica: Thank you, thank you so much.

Gina: If readers want to reach you, what’s the best way? 

Veronica: Email me at veronica@ycab.org.