Oswaldo has been farming for 25 years and raising cattle for 30. He owns a small plot of land in Santa Lucia, Ecuador, where he cultivates rice and also has some livestock. Oswaldo and his wife Mersy have 2 children, ages 10 and 11. He hopes that with this loan he will be able to buy fertilizer for his rice, a resource he is particularly in need of. Although Oswaldo runs his farm well, he does not have a formal education and has very limited reading and writing skills. He believes his farm will continue to generate profits, especially with this loan, and he will be able to provide his children with the education he did not have the privilege of receiving himself.
The Primero de Agosto Communal Bank in Santa Lucia
Oswaldo is part of one of the newest Communal Banks in the recently developed Mifex Rural Finance Program: the Primero de Agosto Communal Bank. All bank members are part of the Association of Rice Farmers in Santa Lucia, and they will use these microloans to prepare their lands and cultivate rice on their farms. As members of a communal bank, they are all guarantors for each other's loans. This means that if for some reason one person in the group cannot fully repay the loan, the other borrowers and the Primero de Agosto Association are responsible for the amount in default. The members of the bank also participate in a program designed to teach and encourage savings among the group. Promoting savings is often forgotten in many microfinance programs, but Mifex believes that is imperative for the communities we work with to have capital reserved for future investments or unexpected difficulties.
Below is more information about the commnity of Santa Lucia, compiled by Luis Crespo and Robert Edgar of the Mifex team when evaluating the potential of the sector for the Rural Finance Program. Special thanks to Mario Balazantegui who provided expert insight and contributed to the development of the alliances with the local organizations.
Economy of Santa Lucia
Santa Lucia County has a population of about 33,000 people. The region is fit for rice cultivating because it is not in the lowlands and therefore it is not at risk of flooding. There is also great access to water because of the Daule River, which is accessible to many of the farmers in the area. About 70% of the farmers have basic infrastructure for watering their crops.
Rice production is the main economic activity of the area, as about 80% of the people are rice farmers. Almost everyone is either directly or indirectly involved with the rice production, as they produce, commercialize or participate in activities that add value to the product. Within the county, there is a small town also named Santa Lucia. The town is filled with many small businesses and it serves as the social and commercial hub of the area.
Rice Farming in Santa Lucia
Most of the people in the Santa Lucia area are small farmers. They produce about 100 sacks of rice per hectare of land. In order to farm they first must prepare the lands by removing weeds and plowing. The farmers then fill an area with water to form what is known as a paddy field, because rice is a very water intensive crop. The rice seeds are either dispersed freely (the process is known as boleo in Spanish) or hand sowed. Once the rice has grown, most farmers rent machinery that helps them harvest their crop. A risk factor does exist in rice farming because of drought, but in Santa Lucia this is somewhat mitigated by the access to water form the nearby river.
Access to Credit
The biggest struggle in the area has been the lack of credit. Because people do not have access to formal financial services, they have turned to loan sharks for financing. They have been affected by expensive lines of credit that exceed 100% interest a year and can be as expensive as 240%. Intermediaries also exploit the farmers because of their outstanding debt. Farmers also often lack skills and knowledge of how to commercialize their product and get fair prices for their crops.
The loans in this sector will be used to to buy soil, seeds, fertilizer and insecticides. They will also be used to prepare the land prior to farming, to plant the seeds and purchase other materials. The loan repayment schedule is different from the typical microentrepreneur. Because farmers see the profits from their investments 5 or 6 months after making their initial expenditures, Mifex asks them to repay 50% of the capital in the first 6 months of the loan. The rest of the debt must be paid in the seventh and final month.
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