Julio is a native of Salitre, Ecuador, and he has been working in rice farming his entire life. On his farm, he has rice and also some cows and bulls. With the loan, he will buy fertilizer for rice farming as he hopes to increase his productivity. The fertilizer helps increase the yield per plot and it also provides rice of better quality. He dreams of fixing his home, which is made out of wood and is vulnerable to rains. On his farm he also has a couple of horses.
He is the latest addition to one of the new Communal Banks in the Mifex Rural Finance Program. All of the members of the 10 de enero Communal Bank are part of an Association of Rice Farmers in Salitre named 10 de enero. They will use the microloans to prepare the lands and cultivate rice on their farms. Because they form part of a communal bank, they are all each others' guarantors for the loan. This means that if for some reason one person in the group cannot fully repay the loan, the other borrowers and the 10 de enero 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 is imperative for the communities Mifex works with to have capital reserved for future investments or unexpected difficulties.
Loan Use and Repayment
The loans in this sector will be used to create water basins that will prevent flooding in the case of heavy rains or store water in case of droughts. The loans will also be used to treat the land prior to farming, to plant the seeds and purchase fertilizer. The loan repayment schedule is also 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 only to pay 50% of the capital in the first 5 months of the loan. The rest of the debt must be paid in the sixth and final month.
Below is more information about Salitre compiled by the staff at Mifex when evaluating the potential of the sector for the Rural Finance Program.
Economy of Salitre
Salitre is a rural sector in the Province of Guayas known as the capital of Montuvios (montuvio is a cowboy) with approximately 30,000 inhabitants. The main economic activities are herding and agriculture which make up about 80% of the economy. The infrastructure and basic services are poor, especially the roads and water services.
Salitre is highly dedicated to farming rice and cattle ranching. Rice is a crop that yields about every four months. In order to farm rice, the environment must be very humid and there must be a high volume of water. The lack of a structured water system makes it difficult for the small farmers to be highly productive. The best months for cultivating rice are early in the year when it is the rainy season in the coast of Ecuador.
Salitre is a national tourist attraction as many Ecuadorians visit the freshwater Salitre River. There are cottages, small restaurants and water attractions that people come to enjoy.
Access to Credit
There are not many financial institutions that provide services to the productive sector of the local economy. The primary access to credit comes from loan sharks who charge extremely high interest rates averaging around 20% a month. The locals are also exploited by the intermediaries that buy their products in order to sell them in the city and to export abroad. These intermediaries buy crops in advance at very low prices, finance soil at extremely high prices and often provide emergency loans for even higher interest rates than the loan sharks.
Salitre is a dangerous sector considering it is in a rural area. There is a high incidence of robbery of cattle that results in many of the ranch owners owning weapons to protect their property. Because the police are not present in these areas, farmers and ranchers must apply their own laws and provide their own security. In some instances they have formed their own cooperatives and associations to have a community crime prevention effort.
Salitre is in the lowlands of Ecuador and is vulnerable to flooding in the rainy season. In the event of a heavy rainy season, often at its worse when El Niño occurs, the farmers of rice lose many of their crops. All this is due to a lack of infrastructure in the area.
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