OM Participant Jennifer's Blog on The Working World
Today I had the opportunity to finally visit The Working World: La Base, an organization that provides small loans to employee cooperatives and recovered factories. I had previously read quite a bit about the organization online; however I was very excited to be able to learn more about the work that they do firsthand from one of their members.
I was fortunate to schedule a meeting with Julian, one of La Base’s four employees in Buenos Aires, and spent some time with him chatting and learning about how the organization works. Julian began to tell me the story of how The Working World: La Base came to be: Upon seeing a documentary about the recovered factory movement in Argentina called The Take, Brendan Martin, an economist from New York who had previously studied employee cooperatives, approached the producers of the film with an idea of how to apply his knowledge of financing in order to help the recovered businesses. Martin’s idea was to go beyond the traditional realm of microfinancing and provide loans to groups of uncollateralized workers as opposed to poor individuals.
The mission of the organization (in a nutshell) is to help and support cooperatively-operated businesses. This is done by providing small loans to cooperatives, without any repayment guarantee or collateral, to provide them with access to capital so that they can produce. I asked Julian about how specifically the money is distributed to the cooperatives. He noted that La Base does not simply hand over the cash to the cooperatives. They want to ensure that each loan they provide is for a viable project. Therefore, La Base’s team works very closely with the cooperatives in order to assess the projects which are funded, and rather than give the money directly to the cooperative, they actually use the funds to directly pay for materials or supplies that the cooperative needs, thereby reducing the potential for friction or competition among the cooperative’s employees. For example, if a cooperative approaches La Base for a loan in order to buy a new machine for their factory, the La Base team will work with them to assess whether a new machine is truly necessary, or perhaps if the money could be better spent by fixing five existing machines. From there, once the cooperative assembly and the La Base team agree on an outcome, La Base will then write a check for the amount and send it directly to either the machine manufacturer if they decide to purchase a new one, or to the machine-repair company if they decide to go that route. Once the cooperative begins to receive an income from the invested fund, they begin repayment.
This method of direct payment and project approval ensures that the La Base team knows exactly how the loans are being used, which is vital when providing loans without collateral and without guarantee of repayment. Julian explains to me that the La Base team does this because they want to ensure that the idea of microcredit is successful. In order to continue providing access to capital for cooperatives, they depend greatly on repayment of loans, however they do not enforce this notion and indeed only receive repayment when the businesses generate a profit. Moreover, the team truly wants the cooperatives to succeed so assisting them with deciding which projects are worth the investment and are more likely to be successful benefits both parties mutually. Their ultimate goal is to help the cooperatives and ensure that they are always better off than when La Base intervened.
The loan process is quite systematic, as Julian explained to me, and each one requires much time to get it rolled out initially and to follow up on it as well. With currently only four full-time employees working in the Buenos Aires office of the organization, one can imagine how hard they must work in order to follow through with all of the projects.
La Base has loaned to cooperatively-operated businesses of all sizes and in all industries. The loans have ranged anywhere from $1,000 AP (or approximately $250 USD) to $80,000 AP (or about $20,000 USD). Although the organization began loaning to recovered businesses, it now provides loans to both recovered and newly formed cooperatives, with each receiving approximately 50% of funds. Individual businesses also tend to reapply for loans from La Base and some have received as many 40 small loans from the organization. This allows La Base to be more lenient with the loan approval process with these particular businesses because they are confident that the cooperative will continue to repay the loans, and also provides a natural incentive for the business to do so because they are aware that they will likely require another loan in the future.
Julian explained to me that there is currently about $880,000 AP (or about $200,000 USD) in the La Base Fund, $200,000 AP of those which were recently handed over to the organization by another group called the Red GrafĂca, which is a cooperative network comprised of approximately 18 different graphics company cooperatives in Argentina. The organization had recently received a government grant and felt that investing the grant into the La Base fund would be a great way to reinvest the money continuously for the purpose of helping cooperatives.
Advertising and marketing are not necessary for La Base, as most of the new clients they acquire are referred to them through other cooperatives and word of mouth. However, I asked Julian about whether they were seeking more investors for La Base in order to increase not only the number of loans that they are able to provide, but also the amount of the loans themselves. With a 98% repayment rate, finding potential investors does not sound like a difficult task. However, as Julian explained, at an 18% interest rate, ROI is much smaller than it would be in other industries. The value proposition to offset this low return rate for potential investors is the added social benefit that their investment will generate. Therefore, potential investors must be willing to sacrifice a high personal capital gain for positive social benefit.
One of the key points that Julian emphasized during our conversation is that the idea of cooperativism is not just a temporary solution to poverty, rather it is an economically viable movement that can create self-sustainability. La Base is a grand part of this movement. By providing small loans that are paid back once an income is generated, that capital is then reinvested into the next cooperative which again pays back the debt once an income is generated and so forth. This creates a chain of financial support to cooperatives which continues to grow with each loan. La Base is the only known microfinancing organization in Argentina that lends specifically to cooperatives and is therefore a vital part of this movement. With their help, employee cooperatives are now able to generate incomes and participate in a competitive capitalist economy.
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