Cemex has achieved extraordinary profitability through a shrewd strategy of targeting developing countries (Bangladesh, Egypt, Indonesia, Thailand, Philippines and countries in the Caribbean and Central and South America). Its forecasts show the world demand for cement through 2010 will grow by 4 percent annually in developing countries, compared to only 1 percent annually in developed countries.

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Low-income communities are a more stable market that is less affected by cyclical fluctuations of the economy

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The poorest residents of these developing countries represent a special opportunity for businesses. During Mexico's economic crisis in 1994, when the value of the peso crashed, Cemex noticed that the revenues from its big-ticket sales to traditional large-scale customers, and to middle- and upper-income individuals, dropped by 50 percent, but sales to its low-income, do-it-yourself homebuilder customers dropped only 10 to 20 percent.

Although the average value of a sale to a low-income customer is miniscule, their numbers are enormous compared to Cemex's better-heeled customers. This makes low-income communities a more stable market that is less affected by the cyclical fluctuations of the economy.

Cemex saw opportunities here: sales to the low-income market could offset its losses during economic downturns. And the low-income market offers the possibility of sustained growth that could offset erosion of Cemex's overall market share by international competitors.

Above this segment on the ladder of individual consumers are wealthy homeowners at the top, middle-class homeowners, and then low-income consumers who are part of the formal economy by virtue of having a regular job. These low-income consumers have the option of allocating deductions from their paychecks, matched by government subsidies, to help pay for their housing.

But do-it-yourself homebuilders who are outside the formal economy, living in burgeoning informal settlements, are left to fend for themselves. Significantly, they account for about 40 percent of cement consumption in Mexico and have potential to be a market worth $500-600 million annually – a conservative estimate according to Cemex.

But before it could successfully enter this market, Cemex needed to figure how to help do-it-yourself homebuilders overcome their resignation about not being able to improve their housing in a timely manner. Patrimony Hoy managers began by carefully studying the methods of the Grameen Bank, the organization that invented the concept of microlending – providing tiny loans to the very poor so they can launch their own businesses and become micro-entrepreneurs.

Grameen started in Bangladesh in 1979 and has disbursed roughly $3 billion to 2.4 million borrowers. Although they lack collateral, Grameen's borrowers have an excellent repayment record – at least 90 percent according to Grameen Bank figures.

Grameen discovered that women, who comprise 94 percent of its customers, are highly reliable borrowers. Cemex has adopted strategies it learned from Grameen, such doing most of its business with women and shaping business procedures to fit traditional values such as a reliance on community solidarity.

Obstacles to Progress

The average low-income homebuilder takes four years to complete just one room, and 13 years to finish a small four-room house that typically consists of a kitchen, bathroom, bedroom and a second bedroom that doubles as a family's common space. This discouraging rate of progress reflects the many obstacles that low-income homebuilders face. Banks and other businesses will not engage with poor residents of informal settlements where the legal status of their property ownership is murky, and residents cannot document assets, collateral, references or regular sources of income.

Photo by Kris Herbst

Houses line a street in the Agua Fria settlement of northern Guadalajara. Rebar for unfinished upper stories extends above the roof lines.

So poor people here, as elsewhere in the world, use a traditional method for saving money: they form a savings club or tanda. Typically women form groups of ten persons who each make a small, weekly contribution of about 100 pesos (US$10) to a pool for a period of ten weeks. Each week, one member of the tanda is selected by lottery to receive the entire pool until every member has taken the pool once.

While studying low-income communities in Mexico, Moreno found that 70 percent of women who participate in tandas are saving money to construct improvements on their homes. But just 10 percent actually spend the money on building materials.

Often the money is spent before a family even receives it. What little can be saved in poor communities typically gets claimed for unanticipated emergencies, loans to friends and family, school fees, and clothes, etc.

Further, a person's social status in low-income Mexican communities is measured not so much by wealth or assets, but by "social capital" – a person's reputation and participation in the life of the community.

"Much of their money goes to these festivities: weddings, music and parties," Moreno said. "There is a party for everything: my favorite soccer team won, my political party won, my neighbor's daughter just turned 15, I just put a new floor in my house. That is a very important reason why people don't have a better house, education or clothing – their money goes to non-primary necessities."

The challenges of putting aside enough money to buy a bag of cement – up to two times the average daily earnings – are great. In the past, homeowners attempted to hoard materials as a hedge against runaway price inflation, but because they lacked adequate storage they lost materials to theft and spoilage. A bag of cement left lying on the ground in front of a house will soon be rendered useless by rain, hardening before it can be put to use.

It is a common practice in the low-income communities, that the quality of building materials purchased in small lots often is poor – dealers give customers leftovers from their larger orders, prices charged by middlemen are high, and deliveries are delayed. Because most do-it-yourself homebuilders lack construction skills, they often waste materials by failing to specify the exact quantities they require. Home design and construction tends to be haphazard and suffers from substandard circulation patterns, structural integrity, ventilation and lighting.

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. . . companies must build bridges between a community's familiar traditional practices and a new set of more modern values to provide the seeds for a new way of life

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Replacing Resignation with Ambition

Translated to English, Patrimonio Hoy means "Patrimony Today." Patrimony refers to the tradition of creating something of value that can be passed down to future generations.

In this sense, patrimony is seen as a statement of solidarity with the traditional community. It may be something intangible like education, personal values or a sense of personal empowerment, or it may be something material, the most substantial instance of which is a family's house.

At the same time, low-income communities are pervaded by a sense of resignation that extends to the station of life to which a person is born, fate, and an inability to reconcile traditional values – such as making expenditures for communal celebrations – with modern aspirations such as financial planning and asset accumulation. "Their mental model is 'We cannot do it, we cannot have a better life. This is my life, this has been my parents' life, and this will be my children's life'," Moreno said.

"They are resigned. We are convinced that this is a very big lie. But we are certain this will not be the model for the future because otherwise the world will be lost."

As a slogan on posters and publications, "Patrimony Today" replaces this resignation with an assertion it provides an opportunity to achieve a better way of living, more quickly, beginning today. "Our philosophy is that if we make a promise, we will make it reality," Moreno said. "This is the Patrimonio Hoy way of relating, of making transactions and doing business – no more false promises."

Banking on Social Capital

No paperwork is required to join Patrimonio Hoy: prospective members need not provide identification, proof of address, co-signers, documentation of assets, collateral or paycheck stubs. Instead, like traditional organizations such as tandas, applicants are asked to provide the one thing they do possess: social capital – their word, honor and reputation. All they need to enroll is to promise to be consistent about making weekly savings payments.

"The less economic capital you have, the more you depend on your social capital," Moreno said. "The only thing they have is social capital. Their most precious treasure is their identity, because if you don't have money you depend on your name. You must honor your commitments."

Members are invited to form savings clubs, like tandas, in which each member contributes a minimum of 120 pesos per week. Each Patrimonio Hoy savings group consists of three persons. After members join a savings group, Patrimonio Hoy calls its members "partners" rather than customers.

"We learned that the solidarity is stronger for a group with three partners than with ten because of the relationships between the partners," Moreno said. "A group of three is tightly bonded – people pick their closest relations, while a group of ten has weaker links. This system is based on trust. My leverage is that the group of three consists of the most trusted persons in each other's lives."

The structure of the saving club expands the idea of the tanda to a 70- to 86-week commitment to a well-defined plan. The rules of the group, such as the penalties for missing payments, are formalized and specified in advance to help prevent fraud and abuse. The lack of hidden consequences helps members trust the system.

A group's members take turns collecting payments and playing the role of contract enforcer for one month at time. By separating this function from Patrimonio Hoy staff, members gain a better understanding and commitment to the process.

This structure, and the use of simple, transparent rules, avoids a more familiar arrangement in low-income communities: the hierarchical relationship between patron and supplicant where care is exchanged for loyalty and the patron may be expected to forgive transgressions of the rules. Instead, Patrimonio Hoy works to develop reciprocal responsibility: it delivers quality materials and services; the customer gets the possibility of getting a better house by paying on time and doing the building.

A New and Rewarding Experience

Participation in the savings clubs is a breakthrough for community members because, for the first time, they are being offered a chance to do business with a legitimate corporation and to join a secure savings and credit plan. For most, it's a new and rewarding experience to be transactional equals, free to bind themselves in serious commitments to each other and to a company.

They have become accustomed to living in a culture permeated with distrust due to generations of dealings with people who have cheated and swindled them. This unhappy situation is the product of their marginal political and legal status as poor, uneducated residents of informal settlements.

This has created a risky political environment that helps explain the paucity of NGOs and other community development programs that would otherwise address the problems of these communities, such as inadequate housing. "There aren't many social entrepreneurs in the area of home construction because of difficulties over 'gray property titles'," Spinosa said.

"They also must compete with government agencies that, for many years, have been focused on ending the disorder of these communities rather than simply giving people wealth. The government's ambition and funding, although noble, gets in the way of the simple, more pragmatic wealth-building ambitions of social entrepreneurs."

High-Touch Outreach Builds Community and Trust

Patrimonio Hoy tackles these problems by employing a "high touch" method of community outreach to build community in a variety of ways. It is especially important to manage the spread of information because low-income communities are highly networked by word-of-mouth, and rumors, paranoia and jealousies spread rapidly.

Patrimonio Hoy begins operating in a city by opening an office staffed by four employees in one of the outlying areas with the greatest concentration of low-income people. Patrimonio Hoy calls these areas "cells." Typically a cell has a population of 100,000, or 20,000 families. Patrimonio Hoy is operating eight cells in Guadalajara.

The program has just come through an explosive period of expansion. It grew by 250 percent last year, ballooning from 9 cells in 3 cities to 30 cells in 19 cities that are located in 15 states throughout southern and central Mexico. This rate of growth is being allowed to level off temporarily so that the program's systems and software can be upgraded and consolidated to support a large number of customers, Moreno said.

Since it was founded four years ago, Patrimonio Hoy has enrolled more than 20,000 families, directly affecting some 100,000 people. Even with the current pause in growth, it is adding new families at the rate of 2,000 per month, and sales are growing by 15 percent monthly. "Our goal is to reach 1 million families in Mexico in five years," Moreno said.

Patrimonio Hoy targets about one-fourth of the population of a cell (5,000 families) for its services because they can afford to save 120 pesos per week and will need assistance with their housing. Rather than using advertising to reach them, Patrimonio Hoy's staff identifies and recruits informal leaders in the community, 98 percent of who are women, to serve as "promoters" who will engage in a highly-personalized form of selling.

Promoters tend to be housewives who love to meet and spend time with people, and to contribute to their community. They often already are earning money by selling multilevel marketing products for companies like Avon, Tupperware and Amway.

Photo by Kris Herbst

The two women at left and center are the top performing Patrimonio Hoy promoters in Mexico. They share a laugh with a third promoter at a marketing event in the Cerro del Cuatro settlement on the southern edge of Gaudalajara

Promoters first form a savings group with neighbors, family or friends, and then begin enrolling others to form their own savings groups. When they sign up new members, they get points, which they can exchange for cash or building materials.

Promoters are given ID badges and bright blue t-shirts emblazoned with Patrimonio Hoy logos to distinguish them from the parade of scam artists who pass through the community claiming to solicit for charities. "It's very important that people trust us," Moreno said. "We are dealing with some of the most distrustful people in the world because for many years people have been robbing them."

Women are the Key

Patrimonio Hoy's managers have been surprised to discover how much they rely on women as their primary clients in low-income communities. They have found that women assume the responsibility for maintaining household unity and a family's progress.

"In the low-income market, the man is the provider and his only worry is what to bring to the house the next day," Moreno said. "But women see daily that the children are growing up in the streets. We discovered that women ensure the future – they are worried about what kind of life they can expect for their children, and about their education.

"When you deal with a woman, you can be more secure that she will respect agreements – on average – than if you sign with a man. It's very difficult to gain her confidence, but when we do, it's a guarantee of her loyalty."

Consuelo Silva lives with her husband and four children in the Mesa Colorada district on the northern outskirts of Guadalajara. She has been a Patrimonio Hoy promoter for three years.

Photo by Kris Herbst

Promoter Consuelo Silva walks the streets of her neighborhood in the Agua Fria settlement of northern Guadalajara. Her t-shirt reads "You build your house easier. Ask me!"

"We are accustomed to having men be the ones who lead in Mexico," she said. "Now I know that the women also have an important role in the society, and I feel useful. I can do many more things than just being in the house.

"On average, there are 200 active partners that I have enrolled. That means a lot to me – it's a big achievement. I feel a lot more confident – like I can conquer the world."

Consuelo Silva (below right) with her husband Rafael, one of three daughters (Anna, age 14) and her son (Jorge, age 5) in front of their house in Agua Fria.
"We were used to being very stressed out, living in a small space," Silva said. "We used to be in a bad mood. We didn't have enough space for my daughters, who are teenagers. Now that we have a bigger space, we feel more comfortable. They are really enthusiastic now that they have a big enough space where they can have their own friends over. They feel like showing it off."
"I wish that we could have had this program before. We could have finished our houses a long time ago. Thanks to this program now I have a real house. Now we are more ambitious. I want to finish building the first floor of my house – I still have to put the plaster on. I have a lot of plans. I want to build a second floor. And I want to have a car so I can go out." Photos by Kris Herbst

Safety in Numbers

Community members are introduced to Patrimonio Hoy in a group session at the local Patrimonio Hoy office rather than as individuals. This helps make their first encounter a sanctioned, communal activity.

It also helps prevent new members from being socially isolated when they begin pursuing new habits that aren't a part of the traditional culture. Otherwise, envy, suspicion and misunderstanding can spread as others notice that Patrimony Hoy members are beginning to accumulate savings and improve their homes. And this can cause Patrimonio Hoy members to try to avoid notice by taking a low profile rather than proudly promoting the program to their friends and neighbors.

Introducing Patrimonio Hoy in a group setting encourages participants to talk about the problems and obstacles they face and to identify and acknowledge their resulting feelings of resignation. At this point, they are offered Cemex?s guarantee of a firm and relatively quick timetable, along with technical support. In this way members are able to build the much-desired family patrimony, room-by-room.

Photo by Kris Herbst

A Patrimonio Hoy staff member introduces the program to a group gathered for a product demonstration at an elementary school in the Cerro del Cuatro settlement on the southern edge of Gaudalajara

The average do-it-yourself homebuilder in Mexico spends US$1,527 and takes four years to build an average size room of 100-square-feet. But participants in Patrimonio Hoy can build the same size room, with better quality, in less time –1.5 years – and at two-thirds the cost (US$1,038, which includes the cost of materials, technical assistance from an engineer or an architect, and Patrimonio Hoy club fees).

Hearing this offer in a group increases the general level of trust in Cemex's commitment. Community members are reassured that the program is backed by Cemex, a large, credible, and well-managed company (familiar to them, if for no other reason, by its sponsorship of Mexico's most popular soccer team, Guadalajara's Chivas) that will not evaporate and leave them holding the bag.

Partner #1

"I didn't believe this plan would help me build my house in this faster and easier way – I thought maybe they will cheat me," said Rosa Magaña, the first person to join Patrimonio Hoy in 1998. Prior to joining, she and her husband had spent eight years building a 270-square-foot, one-room house for their family of four in the Mirador Escondido settlement on the northeast edge of Guadalajara.

They had attached a kitchen area to their single-room dwelling. It was covered by a sheet of corrugated metal and would flood when it rained so that Magaña had to move her gas stove to keep it from getting wet. Family members went to a neighbor's house to use the bathroom.

Rosa Magaña and her daughter Alejandra Martina stand in front of their first house, several years ago. The kitchen area at left is covered with corrugated sheet metal and a blue tarp.

"Everybody ate and slept everybody together in the same room," Magaña said. "It was very uncomfortable."

After joining Patrimonio Hoy, Magaña became the program's first promoter and she and her husband spent two years expanding their house into a neat, 475-square-foot, two-bedroom house complete with a kitchen and bathroom. "Now I have a house in which my family lives a much better and more dignified life, "Magaña said.

"My children sleep in the other room. It was a big opportunity to be able to give 100 pesos a week to Patrimonio Hoy. I realize I have something that I couldn't have done if I hadn't known Patrimonio Hoy. My dream is to finish building my house because this is the only asset we have to pass on to our children. My plan is to start building a second floor this year."

Integrating Old and New Values

Patrimonio Hoy integrates the tradition of communal celebrations by publishing its customers' achievements in local newspapers, sponsoring block parties and open houses, and holding a twice-annual event to honor its top savers, builders, and program promoters. "We organize parties – festivals – with every delivery of materials we make," said Teresa Martinez, Patrimonio Hoy Operations Manager. "This attracts the attention of neighbors so they see that the partners are actually meeting their commitment – that they are for real."

When a family finishes a room, they become a living testimonial to the program and are issued a diploma. They also are delivered "a box with family-size soft drinks and a bowl with tacos for the party they will throw for their neighbors," Moreno said. "We call it the celebration kit."

Photo by Kris Herbst

A Patrimonio Hoy staff member serves soft drinks to community members at a promotional event

These activities help bridge the gap between the traditional value of maintaining social status by contributing to communal celebrations, and the desire to get ahead in life. Traditionally, the latter attitude has been viewed with suspicion and envy, and seen as weakening the community fabric.

Savings group members are invited to participate in biweekly support groups to help reinforce their new values and behavior, celebrate their accomplishments and acknowledge their setbacks. "Everything is focused on these solidarity groups," Martinez said.

"I have seen cases where one of the partners broke his leg and couldn't work. The other partners helped him make his payments while he recovered. In another case, a partner was going through a divorce and he received psychological, emotional and economic support from the group."

Services are Crucial to Low-Income Customers

Not all of a partner's 120-peso weekly payment buys building materials. Patrimony Hoy collects 15 pesos out of each payment as a "club membership" fee.

Patrimonio Hoy quickly discovered these extra services are crucial because simply supplying "cement by itself doesn't solve anything," Moreno said. Low-income homebuilders need a new way of doing things that includes help with financing, technical assistance and social development. "We had to retire our brain chips as a Cemex sales force and think about how to resolve these problems," Moreno said.

Patrimonio Hoy services include:

• Technical assistance from architects and engineers.

• Support for education by financing upgrades to school buildings.

• A school for beginning do-it-yourself homebuilders for those who want to cut costs by doing their own construction, freeing up more money for materials. Here they learn basic skills such as how to dig foundations, mix cement and make level walls with square corners. Some 450 homebuilders are attending the school and 1,000 have graduated.

• A more advanced school that provides professional certification for masons.

• Guaranteed quality of building materials and timely delivery. Cemex collects feedback forms from customers who evaluate the quality of the materials and delivery service they receive from Cemex's authorized dealers.

• A guaranteed freeze on the price of construction materials for 70 weeks, beginning the day a customer enrolls in the program, regardless of price fluctuations in the economy. Locking-in prices protects customers from inflation.

• Free storage of all building materials for up to two years to protect against spoilage and theft. A family may want to wait to claim its materials if it lacks its own storage space, or if it needs to save money to pay for the help of mason, or if a husband has gone to work in the United States for six months.

• An interest charge of about 12 percent for the loan of building materials is incorporated into the membership fee.

Doing Well While Doing Good

Cemex is determined to make a profit in low-income markets. It will not compete on price – its 110-pound bag of cement costs slightly more (about 3.5 pesos) than competing brands.

Instead, it offers a competitive package of services that it hopes will allow low-income customers to purchase a premium-quality "first world" product, and to work toward attaining a higher quality of life. "I prefer to invest in helping our partners discover ways to live a better life," Moreno said. "I think that is a more responsible and intelligent way of doing business."

Already, Cemex brands are growing stronger in low-income communities, Moreno said. "Some people say, 'Thanks to Tolteca (Cemex's premium cement brand) I have my house'," Moreno said. "'For 20 years I couldn't build my home, but now we have two more rooms, thanks to Tolteca.' When I hear testimonies like that, I know we are doing well and that our brand is well positioned."

The Patrimonio Hoy program itself is not required to generate a profit. Cemex wants the program to break even so that it covers its costs. "This program has cost the company a lot of money – millions of dollars since we started four years ago," Moreno said. He predicts Patrimonio Hoy will reach the break-even point by October or November 2002.

"This is not a charity organization," Moreno said. "We have to meet two objectives: we have to collaborate in providing a better life for these people and the next generations of their families, and we have to do business. If we achieve both these two objectives we will be OK. But you cannot manage this as only a business or a charity organization.

"This is my main concern: that we take both parallel courses. If you do only one of these, you will be out of business in less than six months. This is what wakes me up in the middle of the night."

Israel Moreno
Director
Patrimonio Hoy
Calzada Central No.289, Cd. Granja
C.P. 45010 Zapopan, Jalisco
Mexico
Tel: 52-(33) 3627-1921 / 1280
Email: imoreno@cemex.com

• Interview: analysis of the Cemex case and corporate involvement in social development
• Creating a Whole Community, by Kris Herbst
• Slum Communities Claim a Stake in their Community's Future, by Teena Amrit Gill
• You Can Bank on It: Women are Doin' It for Themselves, by Pritha Sen
• Further background reading on tapping low-income markets and the Patrimonio Hoy program