I might be falling for microfinance.
Alana Solimeo, KF9, Costa Rica
I realized after letting the excitement of Kiva, Costa Rica, and research topics (exhibited in previous post Rice, Beans and an Inspired Hypothesis) settle that I might want to take a step back. The thing is I hit the ground running here, thanks to the great work of my predecessor Kiva Fellow, the fact that EDESA really is on top of their game, and the enthusiastic charge with which I like to begin things that earned me my nickname Eager Beaver.
As ready as I think I am to lay it down as to why I think EDESA’s model is so successful it will be prudent to spend a blog post proving that it is indeed, successful. So here I give myself one shot to make you a believer, and then maybe we can jump on Kiva Fellow Suzy’s “What if microfinance really does work?” bandwagon!
While visiting SACRIN, the Community Credit Enterprise in San Cristobal Norte, Costa Rica, I got a chance to sit down for coffee and cake with two members of their board (who are also members/shareholders/borrowers), Luis Cordero and Olman Ceciliano Nuñez, who have served eight of its thirteen years of existence. What did I learn?
- Trust is reciprocal between the lender and borrower. Borrowers trust the ECC because they are involved in its operations. 60 hours of technical training with FINCA Costa Rica go into just forming the ECC! The relationship then benefits the loan recipients when the ECC can lend without traditional collateral requirements because of the trust and communal knowledge that exists in such relationships.
- Borrowers understand paying interest because it comes back to them in dividends. SACRIN has had returns over 80% for its members this year. Jealous?
- In 13 years, SACRIN has never seen a loan default. There might be a few reasons for this and they can each be attributed to the small neighborly populations served by Community Credit Enterprises. First, SACRIN starts out providing small loans and only increases loan amounts according to increased debt capacity of members and success with their businesses. Second, they have a real economic interest in seeing their clients succeed because they are members of the same community. As such they are tolerant to work with borrowers on restructuring loan terms if something gets in the way of a borrower successfully completing loan terms as they were originally established. Third, social collateral plays into repayment when the borrowers are interested in establishing themselves as credit worthy and responsible among peers, neighbors, and their own business partners and customers.
- SACRIN began lending with a capital base established by selling one share of 5000 colones each, roughly $8.50 in today’s currency exchange rate, to 20 members. They outgrew themselves and sought outside funding from the National Bank and EDESA and now they have a loan portfolio of 103,921,736 colones, or $180,420 which shows a little over 100,000% growth over 13 years.
- SACRIN has seen its lenders/members/shareholders/neighbors/friends transform their businesses into lucrative enterprises selling goods on the wholesale market and providing services all over the country. Having started out small, with say, one screen printing, sewing, or knitting machine, these business owners now have many machines, many employees, and strong efficient enterprises. See recent journal updates for some of SACRIN’s borrowers:
Luis and Olman spoke to me passionately about the history and future of SACRIN and its impressive financial performance and institution/borrower relationship. They were tossing around numbers, percentages, converting them to dollars making it relevant. They spoke of success metrics, Christian faith’s role in repayment, perceptions of poverty, but of all the various ways to measure a financial institution’s success, we ended the meeting focused on one:
“The most meaningful growth we’ve seen is personal growth.”
They explained to me that the people involved in the Community Credit Enterprise, including themselves, haven’t received more than a 6th grade education. In that there’s an immeasurable component of this microfinance model. These men and women are now part of a national network of financial institutions. They attend international microfinance conferences. They get together with peers and neighbors and make finance professionals out of one another. They gather with the same group and make successful entrepreneurs out of themselves, and more impressive is how they reached out 13 years ago to form the ECC, to help themselves as individuals, with the financial risk and emotional burden that it might not work out. But they believed it could and worked towards it together.
When 80% returns and 100% repayment rates pale in comparison to an unquantifiable personal growth they achieve while establishing themselves as ingenious members of the productive world…I’ll go ahead and call it a success. Would you?