Successfully Providing Microfinance for 19 Years

As WCCN prepares to commemorate next year’s 20th anniversary in microfinance work, we reflect on our experiences to date and consider our current and future place in the growing microfinance sector. With that in mind, I’ll address two main issues. First, I’ll revisit the three investment funds WCCN has used to channel funds to the poor. Second, I’ll elaborate on questions we should be raising about our work.

1. Three vehicles, a single purpose

WCCN’s loan fund has had three names in 19 years. These names coincide with different historical moments, the geographical focus and motivations for our work as capital-providers to organizations that specialize in lending to the poor.

The Nicaraguan Community Development Loan Fund (NCDLF): When WCCN created the NCDLF in 1991, no one could forecast with certainty that the fund would be successful. Nicaragua’s economic and political uncertainty made the country one of the riskiest places for investments of any kind. Also at that time, neither CEPAD (the Nicaraguan Council of Protestant Churches, with whom WCCN partnered to initiate the NCDLF) nor WCCN had experience managing a loan fund. However, the commitment, dedication and optimism of everyone involved in the NCDLF helped the fund take off. Little by little, WCCN and CEPAD developed the policies, procedures and systems to operate a loan fund in the U.S. and a microfinance organization in Nicaragua. Time brought experience and expertise.

Investors in our original fund were motivated mainly by their commitment to the people of Nicaragua. For WCCN, the timing was right, as this work was part of the broader solidarity movement with Nicaragua. Providing credit to small businesses of the poor was the right thing to do just after the end of the Contra war.

During the first years, few other groups did similar work at the international level. As a result, our natural models were the community development loan funds that had emerged around the U.S. to provide credit to community-based organizations. These kinds of organizations shaped our initial identity and the name of the first WCCN fund. Not yet fully considered an important development tool, microcredit was far from popular. As credit was the only service offered by the pioneer lending organizations, this was referred to as microcredit.

The Nicaraguan Credit Alternatives Fund (the NICA Fund): After seven years of channeling funds exclusively to CEPAD-Prestanic, WCCN significantly changed the original model and created the NICA Fund for two reasons. First, as the fund grew, WCCN needed to further diversify investments. Second, other microcredit organizations in Nicaragua had emerged that WCCN could partner with to complement our work and values.

The 1998 inception of the NICA Fund coincided with a new stage in the evolution of microcredit organizations in Nicaragua, which expanded and created the umbrella organization called the Nicaraguan Association of Microfinance Institutions (ASOMIF). ASOMIF brought transparency to the industry and sparked a sense of identity, of being part of a broader national and international movement.

Little by little WCCN expanded its investor base beyond the solidarity movement with Nicaragua. Around 2005-2006, we realized that some new investors were motivated mainly to support microfinance as a development tool. By then, the general public’s support for microfinance had grown. After the United Nations declared 2005 as the International Year of Microfinance and after Muhammad Yunus won the Nobel Peace Prize in 2006, our investors increasingly were attracted by their faith in microfinance and desire to get involved. For many new supporters, the fact that WCCN operated in Nicaragua was less important than our focus on microfinance.

In 2006, WCCN staff attended the Global Microfinance Summit in New Scotia, Canada. That meeting marked the beginning of WCCN’s fluid relationship with other players in the global microfinance industry.

The NICA Fund exposed WCCN to the entire spectrum of players in Nicaragua’s microfinance field. Over a 10-year period, we selected partners based on their financial performance and social impact. When Nicaragua’s political environment grew more hostile to microfinance, WCCN already had the expertise to manage diverse partners in a single country. Our next challenge was to apply that expertise in other countries.

The Capital for Communities Fund (C4C Fund): Our current Capital for Communities Fund was legally formalized in December 2009 but dates back to the June 26, 2008, meeting when WCCN’s board of directors approved the expansion of the loan fund to other Latin American countries. That approval opened the door for the fund’s and organization’s name change, as well as bylaws and articles of incorporation. Our membership approved the changes in November of that year.

The C4C Fund enabled expanded operations in Latin America, including El Salvador, Guatemala, Honduras and Ecuador. We also are initiating partnerships in Peru. Expansion has allowed us to reach diverse new partner organizations working on microfinance through various models, such as communal banks that are more common in Guatemala and Ecuador than Nicaragua. We also have reached new investors who prefer a country-diversified fund, especially as Nicaragua experiences difficult times.

Our investor base has expanded as we’ve attracted 1,800 investors online through MicroPlace. We’re proud to be among the few funds with a broad set of investors. To demonstrate this diversity and enhance investor-end borrower relationships, we have offered study tours in Nicaragua for several years. As we expand to other countries, we plan to provide similar opportunities to visit our newer partners.

2. Three key questions for WCCN today

Three key questions for WCCN and supporters include: What remains of WCCN’s origins? What have we learned over all these years? And, does WCCN remain relevant as an organization? I want to respond to these critical questions.

What remains of our origins? We still approach microfinance as a grassroots effort, with participation open to ordinary people. WCCN always has valued credit as an essential development tool but never considered it a “silver bullet” to eliminate poverty. Instead, WCCN continues to support other projects for holistic solutions. We believe various approaches by many organizations and individuals working in concert are required to “put poverty in the museums,” as Muhammad Yunus likes to say.

WCCN still supports small- and medium-sized sustainable microfinance organizations, as opposed to large and well-established microfinance banks. Finally, WCCN retains the support of 22 of our original 32 investors, all of whom have been investing for 19 years.

What have we learned over the years? We’ve learned an incredible amount through three main avenues: by working mainly in Nicaragua, by working in the economic development field, and by working on microfinance.

By working in Nicaragua during the last 26 years, we have learned the full meaning and importance of democracy and the need to build democratic institutions. Solid democratic institutions and practices are better positioned to improve people’s lives in the long term than the single wishes of any political leader or party. Democracy, the main legacy of the Nicaraguan Revolution, must be actively protected. History has shown that democratic gains can be reversed.

By working on economic development, we have learned to fully appreciate the importance of sustainability. Projects designed to be sustainable can go very far; others fail to survive long-term.

By working on microfinance, we have learned about the life-changing power of credit. We’ve heard numerous examples of credit improving people’s businesses and their families’ lives. Two social impact studies of microfinance in Nicaragua support our anecdotal findings. We also have learned that credit should be provided in a responsible and ethical way, as it could harm people unprepared for that responsibility.

Does WCCN’s work remain relevant? I would respond with a definitive yes. WCCN is more relevant today than ever before.

Our main interest has been to support small- and medium-sized organizations that share our values and reach people historically excluded from financial services, many of whom are located in places forgotten by mainstream financial markets. We also want to connect our investors to the end borrowers. Despite the large number of private funds supporting the microfinance industry worldwide (and some administering huge portfolios), very few organizations offer individuals the opportunity to participate in microfinance. Our association with MicroPlace allows us to reach more people, since investments can be as low as $20.

WCCN started working on microfinance because it was the right thing to do at the end of the Contra war in Nicaragua. We still believe it is the right thing to do for many other reasons, and every day we make our best effort to continue doing it right -- and better.