Here is updated information on our programs. If you’ve been following us for a long time, a lot of this will be familiar to you. If you’re just finding out about us (Hi!), this is the crux of what we’re trying to do and how we are trying to do it.
The Appropriate Infrastructure Development Group (AIDG) creates and incubates small-to-medium enterprises that provide underserved communities in developing countries with affordable, locally produced and environmentally sound technologies to meet their energy, sanitation and water needs.
We provide our businesses with financing in the $10,000 to $100,000 range. Recognizing that capital is not the only barrier that prevents engineering talent/budding entrepreneurs in emerging markets from forming such businesses, we also provide business training, technical training, legal assistance as well as help navigating government bureaucracy.
By operating in the missing middle, i.e. providing more funding than a micro-finance institution, but less than mid-scale investor, we target a level of service provider that is vital to the development of local economies. Our businesses can create jobs and deliver services that can be transformative for families and communities, but that are too large for an informal sector micro-entrepreneur and too small for a major government development initiative.
We have three primary programs: Incubation, Education, and Outreach. While these three programs have a high level of interdependence and rely heavily on each other for execution, the core of AIDG is the incubation program. We currently maintain operations in Guatemala and Haiti.
The goal of AIDGâ€™s incubation program is the creation of independent locally owned enterprises that can serve the infrastructure needs of impoverished communities using appropriate technology and market mechanisms. Currently the focus of this program is the formation of enterprises in the arenas of Energy, Water and Sanitation. Future arenas under consideration include Communications, Housing, Transportation and Agricultural Processing.
The incubation program relies on a 2-3 year agreement between AIDG and a locally owned formal sector company (either pre-existent or that we help entrepreneurs form) that combines technical training, investment, and service contracts. After the incubation period a member of AIDG’s team retains a seat on the business board of directors for a standard board term. We operate the program through five steps, Talent and Opportunity Identification, Program Related Investment Lending, Tools and Equipment Provision, Training and Research, Contracted Services:
I) Talent and Opportunity Identification
The identification of talent and local business opportunities in the small-scale infrastructure sector is one of the areas where AIDG sets itself apart from other SME lenders. Our community partnerships with civil society, community leaders and local university and business groups, formed through our outreach program, have given us a tremendous network of referrals for local talent and potential business opportunities. We have leveraged these networks to create a catalog of unmet community needs/business opportunities as well qualified human resources who can solve these problems.
As we expand the number of enterprises we can support and the number of businesses we incubate, we anticipate that our opportunity and candidate stream will only grow. We foresee significant growth in our enterprise incubation both in replicating businesses we have experience with (e.g. establishing another stove manufacturer in a new region) or expanding to meet new demands brought to us by our constituent networks (e.g. establishing a producer of no head hydroelectric systems for the Peten).
Market opportunities and technologies are reviewed in group meetings and are scored in a competition matrix based on price point, market demand assessed through community surveys, cost saving impacts for communities, viability within local material streams, and manufacturability. Technologies are tested up to a year through outreach projects and community feedback before they are placed into consideration for an enterprise.
Individual candidate or enterprise vetting is accomplished through a multistage interview process. Local human resource and business conditions influence the decision of whether to go work with a group of entrepreneurs of a previously established business. For example, XelaTeco was founded with electrical and mechanical engineers who were underemployed in industries ranging from weaving to beer bottling. They were coalesced into a new company because there were no local renewable energy companies that could be strengthened into doing micro-hydroelectric systems. By comparison, where we are based in Haiti, the pool of qualified entrepreneurs is more constrained, partially due to limitations of the educational system. There, we are looking to train several existing enterprises who engage in traditional sanitation work in the installation of Biogas systems. Additionally, the legal process for establishing a formal sector business in Haiti is 3 to 4 times longer than it is in Guatemala.
II) Investment Lending
We provide our businesses with financing in the $10,000 to $100,000 range. The amount of the loan depends on the scale and scope of the enterprise. The interest rate (fixed) of most AIDG loans ranges from 0% to 5%. The lent capital is divided into a series of disbursements granted over the incubation period. No interest is accrued until the end of the incubation period. The companies having the option of paying down the principal at any time.
The loans have very generous repayment terms and schedules to accommodate the enterprises we support, which operate in difficult market environments. Since our goal is enterprise success and not fund return, loans made by AIDG are intentionally below market rate. We attempt to use the loans as an extension of our training for the enterprises, to help them develop their revenue sources and the fiscal discipline to be able to approach larger investors as needed for future stages of expansion. For those future stages of funding we hope our PRI fund will to allow AIDG to act as a guarantor with local capital partners, such as banks or other SME lenders such as E+Co, Acumen Fund, S3IDF, Agora Partnerships or Root Capital.
With XelaTeco, our first enterprise, lent capital was derived from AIDGâ€™s unrestricted funds/donations. We are in the process of attracting funding to build a restricted program related investment fund. We are building the fund initially with donations and grants. We hope eventually to fulfill SEC requirements to be able to attract social investors seeking returns. This fund is not for general operations use, though provisions have been made such that the board can vote for emergency disbursements in case of fiscal crises that pose a threat to organizational continuity. Loans from this fund will be presented to the board for approval quarterly.
III) Tools and Equipment Provision
Most of the enterprises that we aim to incubate require some level of specialized equipment (e.g. foundries, milling machines, computer aided circuit design software). AIDG provides an equipment grant of $2,000 to $25,000 of either purchased or donated equipment to help the enterprise get itself on its feet.
IV) Training and Research
Our training services are at the core of our incubation program. It is easy to find a welder or civil engineer or electrician in Guatemala, but pulling those individuals together into an enterprise than can install a village scale hydroelectric system requires technical training, aid in negotiating legal processes and training in business and project management.
Our training involves direct mentor pairing between members of our internship program and member of the enterprise. To date this has revolved around skills assessment and skill building exercises in both technical and business realms, ranging anywhere from electronics to accounting. We are in the process of developing a standardized training curriculum for each skill set. Additionally, we are working with teams of experienced professionals who can come to the field for shorter terms and give very specific skills based training to augment the intern mentorships. For example we are bringing down experienced foundry workers to improve XelaTecoâ€™s metal casting skills. We also contract local experts to give trainings where appropriate, for instance on Guatemalan Tax Law and Health Care requirements.
We retain legal services to start the enterprises but have found many of the barriers to enterprise formation in the bureaucracy are reduced the more contact you have with the officials. By incubating many enterprises we develop an advantage in corporate filings, shipping and receiving, telecommunications provision, etc. that an individual entrepreneur entering the formal sector for the first time would not have. Leveraging the same local vendors across multiple companies also gives us an advantage in securing better pricing and deals for the new enterprises.
AIDG also acts as a research and development arm for our incubated enterprises working to solve individual technical challenges based on customer feedback and ideas about product improvement.
V) Contracted Services
Much of AIDGâ€™s outreach work is accomplished through the contracting of our incubated enterprises to perform infrastructure projects in local communities. This both provides us with real world environments to train business team as the enterprise is getting started. It also builds awareness of AIDGâ€™s work and programs in the region and serves direct charitable purposes for schools, daycares, orphanages and other community organizations. During the 2 to 3 year incubation period of AIDG businesses, the enterprises are responsible for implementation and product delivery while AIDG acts as project manager and monitors project quality on contracted work. Outside of this period, the businesses do both project management and execution.
Occasionally we will contract the incubated enterprise to work in partnership with another NGO for the pilot or demonstration phases of a potentially longer-term contract for our enterprises. For instance, we are funding a portion of a solar installation by XelaTeco at a radio station in partnership with another NGO that maintains a network of 140 community radio stations in Guatemala. The pilot should lead to a significant long-term contract for the enterprise.
The Education program relies on AIDG bringing down experienced engineering and business students and professionals to work directly with our incubated enterprises. We have a steady stream of graduate students from Stanford, Harvard, Tufts, MIT, Berkeley, Michigan Tech, and other institutions who commit 3 to 9 months working on with our enterprises on skills building and novel technology research and design. This educational exchange goes both ways, building skills in our incubated enterprises as well as educating the university students about the challenges of working in resourced constrained environments in developing countries.
Our research work primarily revolves around adapting appropriate technology solutions to local supply chains and the introduction of technologies that are established in other regions, but are new to our areas. For example there are millions of biogas systems throughout India, but only a few dozen in Haiti. Unfortunately a standard fiberglass dome KVIC biodigester design from India cannot be reproduced in Haiti due to a poor supply chain for fiberglass. Interns prototype and develop new or adapted designs that can be taken to production quality by our incubated enterprises.
This focus on design around local materials and teaching engineering students to adapt to local conditions has attracted the attention numerous groups doing more traditional design at the bottom of the pyramid work in the states. As a result we have worked with EWB San Francisco, Humdinger Wind Energy, UC Berkeley, and MIT D-Lab on multiple design projects. Our community partnerships through our outreach program have given us numerous locations to field test emerging technologies and evaluate real world effectiveness.
AIDG is working to try and strengthen its physical resources in Guatemala to have a proper test and development center for students and groups interested in design for the other 90%. We hope that as our incubation program grows we will be able to leverage research done in this center across multiple enterprises and multiple regions.
AIDG’s outreach program is aimed at providing services to communities and community organizations. As stated earlier, the vast majority of our outreach work is accomplished through contracting of our incubated enterprises. The work contracted by our enterprises helps us leverage volunteer resources effectively and guarantee high quality results to our constituents. For example stoves contracted from and manufactured by XelaTeco can be installed by a TecoTour team and then put through performance and community feedback testing for model design revision by engineering interns. Short-term visiting engineers generally lack the real world production and construction sills that we work to develop in our incubated businesses. The workmanship also has the guarantee and consistency of the incubated enterprise.
Additionally we will do outreach in response to natural disasters. After Hurricane Stan, we contracted XelaTeco to produce several hundred emergency camping stoves to be distributed with food aid and to perform electrical repairs in residences hit by flooding and mudslides.