Loans for Gold and Fierce Competition
Gold was not one of the topics I would have guessed I´d be immersed in as a Kiva Fellow. But last week I found myself in a tiny backroom at Fundacion Espoir in Cuenca, Ecuador learning the details of what is perhaps their most innovative product: gold-guaranteed loans or “prenda oro.”
Sound like a pawn shop? It´s not. For one, Espoir offers a significantly lower price for gold than it´s competitors. This means they attract customers who are more concerned with getting their jewelry back than getting the highest price possible. The result? Aligned interests. Espoir wants to return their clients´ jewelry. Low interest rates (3% for a 1 month loan) makes this highly probable. More than 98% of clients reclaim their jewelry. Loans range from 1 to 3 months and Espoir offers a significant grace period after the end of the loan for clients to reclaim their gold.
Espoir has an in-house “tazador,” or appraiser – that´s Claudio in the photo above. He determines the value of the gold by appearance, weight, and using a chemical reaction of salt and nitric acid.
1) Cuenca and the Azuay province in Ecuador are rich in minerals, including gold, so lots of women (and men) have it on hand (pun intended).
2) Microfinance competition in the province is fierce and Espoir is the only microfinance institution or “MFI” to offer this type of loan product. Next door to Espoir sits another microfinance organization (green banner in the photo below) and there´s a money lender permanently perched on the steps of an office halfway down the block.
3) Good for Espoir´s clients: The gold guarantee enables a rapid loan disbursment with low interest. The busiest time of the year for Espoir´s “prenda oro” or “gold guaranteed loan” is August as parents get their kids stocked up on school supplies, and right before Christmas.
4) Good for Espoir: There´s an extremely low cost of administration. It´s a one-time appraisal, no credit check is required, and clients pay on a monthly basis directly into the Foundation´s bank account.
The majority of Espoir´s loan products are available through village banks where clients are provided with education on topics ranging from healthy living to business acumen. Prenda oro is a great add-on for clients who need an extra bit of fast capital.
Make a loan an entrepreneur in Ecuador here.
Tara Capsuto is a roaming Fellow in Ecuador currently serving at Fundación Espoir. Since gathering the content for this posting in Cuenca she has since moved north to the province of Manabí where the gold is scarcer but the beaches more plentiful.