Table of Contents
Patrimonio Hoy
project from Cemex - to bring affordible housing to the poor of Mexico
Based on concept of a "tanda": a system developed by the poor in Mexico, where 10 people woud pool their money together at about $100 mexican pesos per week for ten weeks. Each week, one perons would receive $1000 mexican pesos to spend on their home. Each member would contribute for the entire period, even after they had personally received their money. In this way, the system was based on community trust and personal integrity
Patrimonio Hoy took this idea, and built upon it. The idea was to enable people to raise enough money to build one room for their house. The PH system was divided into seven cycles of 10 weeks (total of 70 weeks to build one room). Groups of 3 families were put together for this time period, with each contributing approximately $10 mexican pesos per week. Different from the tanda system, however, all families received materials at the same time.
In essense, this program entails people giving their own money to Cemex, who holds it for awhile, charges high interest rates, and gives the money back in the form of construction materials (40% of which is cement coming from Cemex). Cemex in turn negotiates very good prices as they cut out the traditional retailer.
But, rather than waiting the full 70 weeks to receive the materials, Cemex offers the clients credit by giving the materials to the groups after only 2 weeks. The rooms are then built, and the payments continue until the end. PH found default rates way below 1% per year, as poor people were happy to receive the rates that were better than loan sharks, and the rooms were completed that might never have been built. Also, paying off one loan qualified them for another. Many clients end up building many, many rooms to their homes.
In essense, the operation is a financial lending operation.
Effective annual interest is estimated to be 89% per year, with an additional 15% VAT (value added tax). While this was better than the alternatives of up to 5% per day, it was still potentially politically polarizing. On the other hand, CEMEX was taking a large risk on people with little or no credit history, and they were engaging in many many small individual loans, each with lots of paperwork, and support required (such as house design, architect, etc).
Learning:
as Cemex got better at managing this system, they reduced the office requirments down from a handful, to just one architect per office.
Key innovation:
getting money deposits directly from Mexicans living in the USA. Cemex set up "Construmex" to accept remittance payments directly from relatives in the USA. Money transfers went to CEMEX directly...who would then pass on that equivalent in materials to the family (after some threshold had been established). The benefit for families in the US was that they knew for sure that the money was going to good purposes (and not to alchohol, TVs, or other wasteful things).
Idea:
why not set up a money transfer system like this for other immigrants in the USA? to Brazil? ARG?
Recommendations for future:
- expand Construmex to other countries - advance the learning objectives - learn about consumers in other locations
- internationalize with partners, or with joint ventures/ franchise ?
- expand credit "due dilligence" capabilities - rent out skill to other parties
More detail about PH:
In December 1999, CEMEX, a leading global building solutions company based in Mexico, launched Patrimonio Hoy (PH), a sales, distribution, and savings program intended to serve Mexico’s large self-construction housing market. CEMEX created the program with the dual purpose of alleviating Mexico’s housing crisis and creating value for the company. Patrimonio Hoy has proved to be a tremendous success, reaching more than 100,000 Mexican families in its six years of operation and intending to reach more than one million by 2010. The program emphasizes the promotion of social and economic development in low-income Mexican communities while also generating profits and growth for CEMEX. But conducting business with this traditionally underserved customer segment has posed some significant challenges for CEMEX.
Every key stakeholder has derived both direct and indirect benefits from participating in the program. Families served by PH gain access to credit, better living conditions, increased net worth, greater opportunity for entrepreneurship, increased confidence and agency, and improved savings behavior. Moreover, the program is now profitable, having generated net income of approximately USD$1.3 million in 2004 and total sales of USD$42 million since its inception. PH has also served to enhance CEMEX’s reputation as a socially responsible company. Finally, PH employees, who tend to come from low-income communities, have experienced direct economic benefits and personal empowerment through the program.
Mexico’s existing housing shortage is discussed and the program’s overall design described. An examination of the value created for PH's various stakeholders includes analyses of the benefits and costs to CEMEX as well as the benefits to distributors, promoters, customers, and the community at large. The program’s impact was assessed via a survey conducted with a random sample of 160 customers and conversations with numerous other stakeholders. The paper concludes with a discussion of the program’s expansion outside of Mexico.
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