“What will happen in the future is for us to incubate mission aligned businesses, knowing the danger of losing the balance between doing business and creating impact,” says Veronica Colondam, YCAB’s founder & CEO

Published by Jean-Christophe Nothias on
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“What will happen in the future is for us to incubate mission aligned businesses, knowing the danger of losing the balance between doing business and creating impact,” says Veronica Colondam, YCAB’s founder & CEO
YCAB's Founder & CEO Veronica Colondam

It was just a few years ago when we wrote: “It seems that YCAB’s growth and international expansion is only just beginning.” YCAB believes that financial independence and self-sufficiency are essential to development, that dignity comes before development, and YCAB works hard to develop vulnerable youth by giving them access to education and economic assistance. Today YCAB is one the most effective and influential SPO (Social Profit Organisation) in the world. As it is now in full capacity to aim at systemic change, it was time for an open conversation with YCAB’s founder and CEO, Veronica Colondam.

by Jean-Christophe Nothias | Editor-in-Chief, NGO Advisor

 

Jean-Christophe NOTHIAS (JCN): YCAB claims that it is “now exploring ways to implement the last link in its change model, that is, to create a sustainable system whereby students who graduate and become entrepreneurs or get a job, can pay it forward.” This is an ambitious next step. How did it happen to have that vision? What were the concrete indicators or criteria to ring a bell on that?

Veronica Colondam, YCAB’s founder & CEO: First and foremost, my spiritual journey demanded me to find the reasons of my existence. It called me to find my purpose in life. It sent me to discover a meaning of life. This “calling” became especially clear to me on my 26th birthday. And eighteen months later, it led me to establish YCAB in 1999. Secondly, as my soul demanded I go into the world and do something, my role as a mother also changed me; it showed me whom I was meant to help. As a mother I learnt that every child has extreme potential. My heart went bleak when I saw so many children were not being given the opportunity to reach their potential, and that they were marginalized by their poverty and deprived of education. Being a mother gave me the conviction to help the dropouts and helpless youth of Indonesia and to equip them to be “mandiri” – the Indonesian word for self-reliant.  Lastly, my own experience shaped me to understand the importance of what I was doing.

I just came to understand this around six months ago when I participated in one of the Kennedy School programs for the World Economic Forum’s Schwab’s social entrepreneurs. In one of the classes, we were asked to seek within ourselves the reasons why we chose the specific mission we are called to do. There I learned that everything had started long before I had my calling.  When my father suddenly passed away, and I dropped out of school. I had to take a gap year before I could continue to college. Simply because my family had to figure out our family’s finances and there was a period of time in which I didn’t know how to pay for college so I started to get a job. That period of time made me realized not only the fragility of dropouts, but also the proper way to truly transcend a life out of poverty. I realized then that it is nearly impossible to be self-reliant without education.

The battle I am currently fighting on a national scale, is the same battle that has existed within myself ever since the aforementioned traumatic experience. My experience fueled me to create YCAB, to look at each child as a honeypot of potential. I see myself in every child I help because we share a key experience that has shaped us. I now have helped millions of other “me(s)”. I can only pray that they will use their opportunity to touch a life, to pay it forward, and to create a ripple effect for true impact.

 

JCN: Speaking of implementation what was YCAB methodology to forge the best approach in order to achieve this new mission? Did you turn to other organizations with experience in system change? Who were the experts you found to help YCAB on that? Who were the experts you found to help YCAB on that?

Veronica Colondam, YCAB’s founder & CEO: The one methodology that works for us is to have is the willingness to learn. Over the years, YCAB has evolved from “impact only” to an “impact first”; from non-profit which was driven by donation to now becoming a sustainable social enterprise. The reason why we evolve is very much driven by survivability then, and now, sustainability. The term social enterprise wasn’t even there then, at least in Indonesia. But YCAB was already incorporated with a social enterprise approach, set up and surrounded by business units. I believe I was driven purely by my own entrepreneurial mindset, thinking to make profit somewhere and use it for social food. There is no law against it. So why not? And fast forward 15-20 years later, people categorize us as a social enterprise. That sounds like us. It fits us well.

If you ask me who the experts among us, I must say there was none. We all learn by doing, as we aim to do our best, we aim for excellence. And this path has led me to learn both informally and formally, through INSEAD Social Entrepreneurship program and Oxford Said School’s Impact Investing. And from these institutions, I have learned how to do things better each day. Also, with the help of one of MIT’s Peter Senge’s System Dynamic coach team, with whom we had the privilege to work with, we came to figure out our premise of change model back in 2010. And of course, additionally, with the help of our pro bono partners such as Boston Consulting Group (BCG) and Accenture, we got all the help we needed. Being the world’s top-notch consultants who are at our disposal to help us, we can really see the values they added to YCAB; transforming YCAB to a better organization. Hopefully one day, from a good to a great organization.

 

JCN: What specific challenges do you face when it comes to managing a mutual fund relying on YCAB alumnus?

Veronica Colondam: I can only imagine it won’t be a hard sell. Many are waiting with anticipation. This is the most intriguing part of our premise of change model. But truthfully, I cannot rely entirely on YCAB alumnus alone. By capital market law, any mutual fund product should be open to the public so our mutual fund will be accessible to all kinds of investors, our alumnus included here.

However, at this point, the product is not ready to be issued. The process takes longer than anticipated. We are faced with challenges at every angle; from regulatory environment, (evidently more education is needed). It takes time to educate our regulators of something with a nature of impact bonds.

Then, the next challenges came from the issuer. By law, YCAB as a non-profit or as YCAB a venture company cannot underwrite its own fund, especially a mutual fund as it is a public fund. That said, a mutual fund has to be issued by an institution with OJK (Indonesia’s SEC) license, such as asset manager. At this point, we have identified the asset manager, they’re willing to do it pro bono but there’s another challenge which comes from the business itself. It has to become a size big enough to justify the costs of its issuance. We are looking at the window before 2020 to be able to do this, all we are waiting for is for our mission driven microfinance to at least double its today’s outstanding of US$3.5 million.

 

JCN: One core innovation at YCAB is its economic model which is a mix of nonprofit and for-profit entities. How do you see this evolving in time? Do you plan to add more to the existing for-profits? If so, what is catching YCAB’s eye?

Veronica Colondam: YCAB’s main goal since its inception is to be sustainable — for us, this means financially independent. Therefore, we design our finances in such a way so that the Foundation’s core costs and operating costs can be covered by its business units through a sharing services approach. The services shared include IT, Legal, GA and HR. The companies (business units) pay for the entire costs of these departments yet some of the staff of these departments will then ‘volunteer’ for the Foundation. That’s how our auditors think the best way to do it, so this has been the practice since the beginning.

Until a few years ago when we started to do a restructuring of the entire group. From the process, we decided to make the Foundation’s structure much leaner than before with only two functions in place: program and fundraising (including communications here). That said, the all other support functions are moved under a new holding company that we created. This holding company was supposed to be the hub of all shared services with a pay per usage model. In this case, all business units will pay per manhour used, and this becomes the income of the holding company. At that point of time, we think it is cleaner this way when compared with the setup we had in the beginning.

However, a year into this transition, we received a license from OJK (Indonesian SEC) to run a venture company. We had applied for this license because we needed to move the microfinance operation from cooperative structure to a more financially savvy institution under OJK. Starting January 2015, YCAB Ventures was in full swing, established as an impact first venture company. I believe we are the first and only impact ventures in Indonesia as it is 25% owned by the Foundation and 75% by myself, Veronica Colondam. This decision was based on an advice from our consultants and it was done in a such a way to be most efficient and in compliance with both foundation and capital market laws. With this in place, things have started to change again from the structure point a view.

So, in order to create a lean and simple story of YCAB, we are now inclined to use YCAB Ventures as the main structure of YCAB as social enterprise with obviously, YCAB Foundation as the main entity that runs the education program. And as of December 31st, 2018, YCAB ventures has bought out some of the business units (Terrazone and Beauty Inc.) and going forward, our business units will become the investees of YCAB Ventures. This is how we will put all our business assets under one structure.

With this, I’ve started to see a light at the end of a long tunnel of restructuring. But the story won’t quickly end here, as we all know the process of change management following a restructuring will still go on until the next few years. But I am more hopeful now because things are now getting clearer and leaner.

This year, YCAB Ventures will create an impact fund and activate its impact advisory unit. Through the advisory unit, we can continue to develop our impact while doing more mentoring of other social enterprise or SPOs. And through the impact investment fund, we will be investing in like-minded SPOs. This way we will go bigger than before, this is how we scale through investments. The other strategy that came to mind is to scale through merger and acquisition (M&A). However, this is harder to do and for the obvious reasons, it will take longer time to do as we need to find one with the right size with the right passion and business chemistry to adopt YCAB’s mission driven purposes.

Now that we have in a way merged all our business units under the umbrella of YCAB Ventures, we have come to a comfortable place. Comfortable simply because it is simpler for everyone to understand us as a social enterprise: YCAB (the Foundation) owns YCAB Ventures. And through YCAB Ventures, sustainability is reached while through the Foundation all education programs are run.

As for our plans to add more business units, well, the phrase never say never comes to mind. With this recent setup, what will happen in the future is for us to incubate mission aligned businesses, then make them investable for YCAB ventures to invest in. Of course, this is all done by a totally different set of people, completely different management team. As we know the danger of losing the balance between doing business and creating impact. I may be entrepreneurial myself, but since the beginning I have never had the desire to become too business oriented, as this could easily detract YCAB from its main task of serving the poor. However, the more profitable business units we have or the more good investments we make, the more profit we have to use for our programs and the more jobs we can create within the bottom of the pyramid, so it could be called a win-win situation.

 

JCN: Has YCAB partnered with any Academics to monitor and track its progress and its many underprivileged youths who were trained in YCAB’s educational program?

Veronica Colondam: YCAB partnered with the center of the applied psychology of University of Indonesia in our formative years to design and measure the impact of our initial school program that leads to behavior change. At the same time, we also learned the intricacies of the monitoring and evaluation (M&E) processes, and have since formed our own M&E department. Now we are still connected to University Indonesia, the Faculty of Economics Studies (FE-UI), where some of their post graduate and doctorate students have done impact measurement for us; one is actually underway. The previous one was actually published in 2017 in a humanomics Emerald Insight Journal with a title “Does Microcredit Improve Wellbeing? Evidence from Indonesia”.

The tracking of our graduates, however, is done internally by our M&E department. It is not easy to track. Half of them changed their phone numbers, only around half of the other half which is still contactable will respond to our calls. That’s a brutal reality but the tracking business is always problematic with most nonprofits who run their own tracking. For this reason, we are currently speaking with Lean Data (Acumen), the plan is to partner with them as they run successful tracking techniques that works for funders or impact investors. They are ready to help us with this particular tracking of graduates and the beneficiaries of our mission driven microfinance.

On the tracking of the increase in welfare of our microfinance beneficiaries, we are still using the impact matrix which we put together with BCG in around 2013. Then we mapped out some items of study that define welfare (business growth, daily income, food security, education, savings, etc.) into our standard impact matrix measurement. We renew the data every other year, or at least, periodically. We just wrapped up our new 2018 data which shows some improvement from the previous study.

 

JCN: Are there any other Social Profit Oriented organisations (SPOs) in Indonesia or Asia that have caught YCAB’s attention, possibly inspired it? Would you suggest any merge & acquisition?

Veronica Colondam: As mentioned before, we have learned from many good friends and impact investment organizations all of whom share our vision. We are incorporated with the AVPN, along with our unique funders network who are committed to building a vibrant, high impact social investment community across Asia, and especially Indonesia. We have also invested in PLUS (platform for social enterprise in Indonesia), there we see thousands of young social enterprises blossoming here in Indonesia.

Merge & acquisition (M&A) is definitely one of our next strategies to scale. The challenge is to find the like-minded SPO which is also investable. We have not met one that fits our criteria, honestly, it’s not easy to find an SPO that does both missions in education and economic empowerment. As for now, we have made investments in a couple of SPOs that at least serves one of our mission, either education (i.e.: education tech startup offering online scholarship) or economic empowerment (i.e.: empowerment in agriculture business).

The one ongoing is an investment we are thinking to make in one of Indonesia’s online job platforms that focuses on jobs for youth with low level education, mostly for high school (SMA) and its equivalent, like graduates of vocational schools (SMK).  They’re driven by a mission that is similar with ours, that makes them very different than other job platforms which usually focus only on undergrads. At this point this platform has already a million job seekers and we are in the process of due diligence. I believe this business is a good fit with YCAB’s premise of change where the end goal is to help youth find jobs and be “mandiri” or financially independent thus adding to the combined wealth of their family.

 

JCN: YCAB aims at reaching in 2020 five million youths in six countries in South East Asia and raises US$50 million in social investment funds. That’s about tomorrow. Where do you stand to that ambition?

Veronica Colondam: We have so far reached around 3.4 million youth through our offline (face to face) programs. On top of this which we never put into the account is the digital reach which we have collected in the last two three years partnering with Facebook. The number of digital-reach is quite fantastic, nearing 22 million digital impressions with tens of thousands of digital engagements. At this point we are trying to make sense of this digital footprint, but I believe there’s a potential there as it is cheaper and as effective (we did a comparison study of financial inclusion program: face to face classroom style vs. showing 5 min video with 5 min facilitation has proven to bring no significant statistical difference).

As for the social investment fund, we are around one fourth of the target through our philanthropic- and social-investment programs. Philanthropic investment usually involves CSR money with “investors” like Chevron, HSBC, and few Indonesian companies; as for the investors of our social investment program (where investors will get their principal back after a certain period of time; some with interest, some none) are usually high net worth individuals, impact investors and some companies and institution, like the Central Bank of Indonesia which exited mid last year after a three-year women empowerment program in the greater Jakarta area.

 

JCN: What will be your next flight’s destination outside Indonesia?

Veronica Colondam: Our next flight will be to Vietnam or East Timor. The Government of Vietnam is at present, more supportive of educational and economic empowerment programs. We are still exploring East Timor, geographically it is a more logical choice for us, but everything depends on local government and NGO partners on the ground. Currently, we are trying to shape and strengthen our international team.