By: Okke Bouwman
The most pressing challenge in countries where more than half of the people live below the poverty line, is the development of the poorest sectors of the population. Their ability to climb the social ladder, thereby forming a broad middle class, has proven to be crucial for the economic and social development of several countries. Social mobility has been largely absent throughout the history of Latin America, making it currently the most unequal region in the world. According to the UNDP, Latin America is trapped in an ‘inequality trap, a vicious circle difficult to break’.
Most Central American countries can be found at the very bottom of the inequality table for Latin America, which is telling for their situation. In countries such as Nicaragua and Guatemala, roughly 90% of the national income is concentrated in10% of the population. So how to support the poorer half of the population in their quest for a better future?
Microfinance as part of the solution
Microfinance is one of the methods used to help small entrepreneurs develop, often in rural areas. The microfinance system tries to fill the gap left by the regular banking system, which has yet to respond to the demand for small, affordable credits outside urban areas. Potential entrepreneurs with a business plan, but without resources, are enabled to stand on their own feet. In many cases, all they need is a microcredit ranging from USD 50 to USD 2000, and some technical assistance. ICCO and its partners provide this service.
Shoes, vegetables, handicrafts
The examples are numerous. Doña Maria Catarina and her husband own a small shoe factory in Totonicapan, Guatemala. As a result of several credits from the Microfinance institution (MFI) ASDIR over the years, Doña Maria was able to develop her small shoe business into a well- run enterprise renown in Totonicapan for its good shoes.
She first obtained access to a microcredit by a ´communitarian credit´ These are credits that are given to a group of organized producers. The group regulates the credit and payments through social control and supports debtors that are temporarily unable to pay.
Doña Maria Catarina showing her business, closely observed by her granddaughter
This method is being applied by several microfinance organizations, with good results. In San Juan Sacatepéquez, a group of 10 women receive such a group credit from MFI FAPE. They meet every two weeks to make payments, discuss the progress and socialize. The women stress the social aspects of this arrangement, which opens up their social circle and provides them with a sense of solidarity and community.
The women of the Communitarian credit group in San Juan Sacatepéquez gathered at their monitoring meeting.
Justo Rolando at work in his field
Local farmer Justo Rolando lives with his wife and four children in Sololá, Guatemala. He cultivates vegetables such as spring union on two small pieces of land in the impressive mountains of west Guatemala. Rolando has travelled twice to Canada to earn money as a seasonal worker, which is why he is an expert in French vegetable names. Now he can work his own land and there is no more need to travel abroad. He receives microcredit between 400 and 600 Euros to be able to finance the seeds necessary for sowing his crops. When the tropical storm Agatha ruined his crops last year, the responsible microfinance institution ADICLA gave him an extension on his payment. Eventually he was able to pay for all his debts and continue working his land. Social responsibility and personal attention are important values for the microfinance institutions supported by ICCO.
Don Raul Sanchez and the president of the BCIE at the signing of an agreement between Red Katalysis and BCIE.
ICCO and Microfinance in Central America
In Central America, ICCO has joined forces with the Central American Bank for Economic Integration (BCIE), the University ´Americana´ (UAM), OikoCredit and several microfinance networks. In an attempt to unleash the full potential of the microfinance sector, they are cooperating in different areas, with a regional approach. Where possible, involvement of government bodies is sought, mainly for finance and regulations. In the words of Mariecke van der Glas, regional Director of ICCO/ Kerk in Actie Central America and Haiti: ´the microfinance sector is an important engine for development in the Central American countries.´
Don Raul Sanchez is an authority in the area of Microfinance. His Honduran- based RedKatalysis unites 22 Microfinance institutions (MFI’s ) in Central America and is a partner of ICCO. He explains: “It is all about sharing the experiences of each of the MFI´s in the rural sector. The added value of a regional network is the creation of economies of scale. Red Katalysis offers knowledge, skills, training and facilitation to its members. Activities that would be too costly for each of the individual organizations to develop on its own.”
Many microfinance institutions are still very much in process of their own consolidation, and they urgently need support to keep improving the services to their customers. Jackson Argeñal, director of microfinance institution la Hermandad (the Brotherhood) in Honduras, acknowledges this: ´La Hermandad currently provides over 13,000 clients with microcredit, the majority of our clients are women. Our activities cover 8 departments in the border zone of Honduras with Guatemala. We have been a part of Red Katalysis for 6 years now. The network is very important to us, since it provides support, analysis, training and guidance in different areas´.
From left to right: Mariecke van der Glas, regional manager ICCO, Dr. Ernesto Medina, Rector of the UAM, and Don Raul Sanchez, Red Katalysis. Signign of the agreement between ICCO, UAM and Red Katalysis for the support of the Master in Administration of Microfinance institutions, based in Nicaragua.
Education on Microfinance: Support for the first university Masters degree
At the same time, Red Katalysis is also offering knowledge and input for the first Master in Administration of Microfinance Institutions in Central America, based in Nicaragua. This Masters program is offered by the University UAM and supported by ICCO. The program focuses on candidates from rural areas that already hold a management position in a microfinance institution. By reinforcing their capabilities, ICCO and the UAM attempt to achieve a multiplying effect, reaching the rural areas where microfinance is most needed.
In Guatemala, ICCO cooperates with two networks, REDIMIF y RedFASCO. Both have a broad membership base among microfinance institutions in the country. They are involved in lobbying for a regulatory framework, as well the development of new tools and technologies in the area of microfinance. In the case of Red Fasco, its members define itself as social organizations rather than exclusively microfinance institutions. Microfinance is just one of the services they offer, and is often complementary to activities in the areas of education, health, agriculture, etc.
Jennifer Zapata, ICCO program officer Fair Economic Development / Financial Services
ICCO´s strategy for the future
Jennifer Zapata, ICCO’s program officer , explains ICCO´s strategy for the Microfinance sector in Central America. ´To ICCO, the interaction between different actors in the field is very important. To have the different networks coordinate activities, so that they can show what each of them does. The strategy of ICCO has been to work together on a permanent basis, not just incidentally, and to promote a regional focus. In the end, our goal is to support the development of poor rural communities in Central America. We think the microfinance sector can contribute to this objective.´
