The problem

Since its inception in Bangladesh in the 1970s, microfinance has become a major part of the development canon, seen as an efficient way to get money directly into the hands of those who need it most, spurring entrepreneurial activity amongst a market traditionally ignored by mainstream financial institutions and hence reliant on hand-outs rather than investment. 

With its tremendous success, however, has also come criticism, particularly regarding the creation of burdensome debt for clients and the lack of substantial macroeconomic growth in the countries where microfinance is most readily available. Recently, these critiques have become more pointed, with estimates that around 80 percent of ‘microcredit’ institutions are now more similar to the loan sharks they were supposed to replace, extracting rather than creating wealth, and deriving signifcant returns on their loans.

The idea

First established in Argentina in 2004, The Working World manages a revolving loan fund to support the creation and growth of worker cooperatives. The organization’s mission is to provide an alternative finance model featuring the provision of low-interest, no-collateral credit to meet the needs of democratic business structures, in the process striving to create broader wealth, well-being, and opportunity for a greater number of people.

While inspired by the microfinance revolution, The Working World is more accurately a community development fund. The organization designs investments that create and grow cooperative enterprises in marginalized neighborhoods, building lasting relationships with the businesses it serves and tailoring resources to their specific needs and capacities over time.

Worker cooperatives represent a valuable alternative to more traditional business structures. All members of a cooperatively-run business share the labor, decisions, responsibilities, profits, and ownership shares. The result is a democratic workplace that encourages active participation and shared wealth creation.

The Working World’s financing model only requires that cooperatives pay the organization back with the revenues investments generate. Upon return, all investment money is reintegrated to the locally-based revolving loan fund to be overseen by the cooperatives and the community it serves.

Potential impact

Rather than creating debt, The Working World practices an alternative form of non-controlling equity in which the investor shares the risk and sees returns only if real wealth is created. This means that instead of being incentivized to aggressively push passive loans, the organization makes responsible investments in projects that will improve clients’ bottom lines.

To date, The Working World has over 550 loan projects supporting more than 60 businesses in Argentina, Nicaragua and the United States. The rate of return has been 98 percent on a total of US $2 million in loans disbursed. This represents a tenfold reinvestment of the organization’s original start-up capital. Perhaps more importantly, The Working World’s targeting of small and medium-sized companies rather than individual entrepreneurs in cottage industries has created genuine (and sustainable) job growth, instead of fuelling a cycle of one new entrepreneur displacing another with no aggregate impact.

Social Value

As noted, The Working World aims to contribute to both an economic and social impact through its client relationships, by supporting the development of ‘recovered’ workplaces. Democratic worker control puts into practice the idea that every contributing member of a business should have a voice in the decision-making process. Worker-owners meet in regularly scheduled assemblies where business decisions are either made consensually or delegated to smaller working groups. 

Cooperative assemblies have proven to be an effective forum for making strategic business decisions and resolving internal problems before they fester. This working climate also encourages a sense of pride, equality, and responsibility that strengthens the businesses where it is practiced, leading to efficiency gains and improved profit margins.

At the end of the three-year period from Jan 2012 to Dec 2014, The Working World’s goal is to become 70 percent self-sustaining through interest derived from the organization’s social investment projects. As a clear indication, moreover, of the social value the project is delivering, The Working World has engendered sufficient trust and endorsement from its target populations that the cooperatives it works with in Argentina have begun investing their own savings in its fund so that this capital can be lent out to other businesses.

www.theworkingworld.org