Microcredit in Central America: Some impressions from Guatemala
by Sheldon Rampton
Board member
I didn’t do much sightseeing when fellow WCCN board member Gregg Johnson and I visited Guatemala City in August with staff members Carlos Arenas, Emily Allred, and Francisco Barquero. Our trip was all business: three days of meetings with 21 organizations that lend to low-income borrowers in Guatemala, Honduras, El Salvador and Nicaragua.
Esperanza Bulux and César Tocón from the Guatemalan microfinance organization CDRO, one of WCCN’s prospective partners. 95% of CDRO’s borrowers are indigenous. Photo by the author.
They had come to attend the Fourth Central American Microfinance Conference. As WCCN prepares to expand our lending beyond Nicaragua, we wanted to meet with groups that are active in microcredit in neighboring countries. Since we began lending in Nicaragua more than 17 years ago, the strategy of offering small loans to poor people has caught on through Latin America and the developing world.
In El Salvador, for example, PADECOMS (Patronage for the Development of the Communities of Morazán and San Miguel) is an organization that began after the civil war to help people obtain housing and reintegrate into society. Another Salvadoran group, the Asociación Salvadoreña de Extensionistas Empresariales del Incae (ASEI), offers 85% of their loans to women at the lowest level of the business pyramid: street vendors and people with stands where they sell tortillas or baked goods.
In Guatemala, we met with ASEI’s president, Ricardo Arturo Segovia. He explained that they began as a training program affiliated with the Central American Institute of Business Administration (INCAE). “We believed at the beginning that people grow more with education,” he said. “A small business person without education is not going to do very well.” Through experience, however, they realized that poor people also need financing, so they began offering loans.
I was also impressed with FONDESOL, a project affiliated with the Catholic Church (although they offer loans to people of all religious beliefs). FOND ESOL’s loans mostly help small farmers in the Guatemalan countryside. They encourage groups of borrowers to form rural community banks (typically with around 20 members). Members work together to receive their loans and ad minister payments.
From Honduras, we met with representatives of the Organization for Female Enterprise Development (ODEF), which serves women in the northwest and the Atlantic coast. Offering loans was only a small part of ODEF’s social mission when they began lending in 1989. By 2005, how ever, they had grown to the point that ODEF chose to become a regulated financial institution, and by the end of 2007, it was serving more than 22,000 clients with a portfolio of nearly $50 million.
As these numbers suggest, microfinance is becoming a major economic force in the developing world. WCCN first began lending to Nicaragua more than 17 years ago. Back then, giving small loans to the poorest of the poor was seen mostly as charity. Banks weren’t interested in it, because the loans seemed too small, and of course, poor people are rarely able to offer collateral or other traditional guarantees of repayment.
In the ensuing years, however, microcredit has proven that it not only helps people improve their standard of living, but can also actually be profitable. Throughout the world, recipients have demonstrated that they can and do repay their loans, plus enough interest to grow the institutions. Microfinance has become so profitable, in fact, that investment bankers, venture capitalists, and pension funds are grabbing for a piece of the action. In April 2007, a Mexican microfinance institution, Banco Compartamos, held an initial public offering of stock that attracted $467 million in investments.
Of course, the growing appeal of microfinance to conventional capitalists also raises the possibility that its mission and nature may change. WCCN (and most of our investors) be came involved in microfinance be cause we saw it as a means of addressing the poverty that blights the lives of many Nicaraguans. As new money flows in, it creates exciting new opportunities to expand, but groups with a social vision like ours are still necessary to ensure that microfinance continues to truly serve the needs of the poor. I was pleased to see that this vision remains strong in the groups we met in Guatemala City. This is the work that we want to support as we expand our lending beyond Nicaragua.