The collapse of the Rana Plaza building in Bangladesh in 2013, which killed more than 1,100 factory workers in the textile industry, was a crude wake-up call about working conditions in garment-producing countries and the true cost of cheap, seasonal fashion.
A history of long hours, low wages and poor working conditions feed wider inequality between producing and consuming countries. Attention is duly focused on workers’ rights and conditions in producing countries.
Brands are increasingly expected to do more due diligence when dealing with contractors and adhering to international labour laws and guidelines.
Start-ups like Tip me are perhaps a manifestation of a more socially aware business landscape where industry practices are more carefully scrutinised. Tip me’s platform makes it possible to send small sums of money or ‘tips’ to garment workers in producer countries such as Vietnam, Kenya and Pakistan.
Tip me’s CFO Renan Compagnoli says their revenue model is based on fixed fees and commissions from traffic generated for participating brands, as well as direct sales from its website.
In September, Tip me announced it had launched a crowd-investing campaign to raise €500,000 in loans and reach more partner brands and workers. It has set a minimum per investor of €100 and offers returns of 7% plus bonuses.
Why crowd investing and not equity?
The start-up has opted for crowd-invested ‘loans’ rather than raising traditional venture capital as a way of staying true to its mission and community focus, notes Compagnoli.
“The more fans and trust we gain, the more impact Tip me can have on the industry, and the more valuable we are to the brands using us,” says the CFO, who helped to build the Brazilian microfinance fintech Avante between 2014 and 2019.
The loan format and a performance bonus are a much simpler structure for the company than equity, and all legal and financial obligations with investors are managed through a Tip me campaign on Conda, a crowd-investing platform.
As a steward-owned company - a company that conducts its business in a way that creates ‘shared value -, Tip me keeps financial returns separate from impact returns. Stakeholders with economic rights have no voting rights and profits are reinvested.
“We prefer to pay good returns to our community and users instead of traditional funding,” notes the CFO, quickly adding that like-minded impact investors are of course also “super welcome.”.
A similar model is used by condom-maker Einhorn, search engine Ecosia and other social start-ups. They join a growing number of social enterprises pursuing crowd-funding alternatives (see Crowd-funding platforms signal trends in the market for impact investing).
Tip me says it also received a generous donation from an ‘angel’ who wants to remain anonymous and it has received a grant from DBU, the German Federal Environment Foundation.
True price of fast fashion
While three t-shirts for €20 may seem irresistible to money-conscious consumers, it masks the true price of fast fashion.
The Clean Clothes Campaign, which advocates against poverty wages, estimates that a mere 0.6% of the retail price of a t-shirt goes to the worker. Factory owners take 4% as profit, the brand label 12%, and retailers as much as 59%.
Connecting tippers and the people who make their clothes not only has a concrete impact on the ground, it also helps consumers understand that their purchasing decisions matter, says Compagnoli.
“It connects people to the source of their products because they can see who produced it and increase that worker’s salary.”
Even a small amount makes a difference and sends a strong signal that the work is appreciated by a customer who they usually never get to see, Compagnoli says. For Compagnoli, it is all about humanising global trade and taking measured but concrete steps.
It is not a plaster for an industry that looks like it is still not paying fair wages, says Compagnoli. If a producer wants to pay €3 extra to the garment worker, that same piece of cloth would be €30 more expensive for the consumer.
“Factories employing those garment workers are afraid they’ll lose clients if they raise their prices that much,” Compagnoli adds, “so tip me delivers that €3 straight to the worker.”
A barista moment
The idea for Tip me came after its founder Jonathan Funke attended a rally against the ill-treatment of workers by fast-fashion brands. Later, at a café, he tipped the barista and thought, ‘What if we could tip garment workers directly like this?’
To make his idea work, he knew it would have to be very simple, a one-click reflex. So, Tip me developed a system which gives a customer buying, say, a pair of jeans the option to acknowledge the effort that went into it.
The tip is collected and, according to Compagnoli, distributed fairly among garment workers. “Together with workers and factory personnel, we decide the local distribution and participation criteria.”
For example, workers could receive pro-rata shares based on their employment length or tips could be split by the working days. The money is paid directly to their bank accounts.
The transaction costs are borne by Tip me and brands who pay a monthly fee and commission to participate in the programme. The brands have to be certified (Fairtrade, Fair Wear) to take part.
Meet the makers
Buyers can go to Tip me’s site to read about the workers and their stories. Machine operators like Jamsheed Iqbal typically earn around €120 a month at Talon Sports, a Fairtrade-certified garment factory in Sialkot, Pakistan. Since joining the Tip me programme he has added €95 a year to his earnings, which goes towards groceries and necessities for his family.
Workers decide how to spend the extra money because they know what’s needed, Compagnoli points out. The programme currently empowers 1,200 people (workers and their families) in this way. On average, it generates one extra monthly salary per year per garment worker.
Yes, it’s all a bit unconventional, Compagnoli admits, but he is adamant that conventional models are struggling to make a dent in poverty. Once the textile sector is better established, the company’s goal is to expand to food, which according to Compagnoli, has its “own set of challenges” that need addressing.
When a tipping point is reached, it takes more than a rallying cry or Rana Plaza-moment to get things moving in the right direction, he believes.