Pedal for Peace 2008

“Small amounts of capital—typically $50 to $300—can make the difference between absolute poverty and a thriving little business generating enough income to feed the family, send kids to school, and build decent housing.” The Foundation for International Community Assistance (FINCA) uses this quote on their website FAQ to explain how microcredit loans have a real and effective impact in the lives of their clients. And after my time in Nicaragua I agree with how those small sums of money can make all the difference in people’s lives. Nicaragua is the second poorest country in the Western Hemisphere and Nueva Guinea is one of the poorest regions of Nicaragua—a place with desperate need for human development. To speak upfront and candid, the FINCA program clearly provided a need and service to the people of Nicaragua by allowing these people a degree of self-determination in their lives through the expansion of an economic activity which allows them to create a life-enhancing business.

In a region of Nicaragua where 20% of the 120,000 population lives in the urban center of Nueva Guinea and 80% lives in the rural zones, there is a desperate need to bring a degree of economic opportunity to those living in the hard to reach rural zones and not only in the urban center. In expeditions termed “rural penetration” by FINCA, we would visit these rural communities and offer FINCA’s services to the people living there. When the loan monies were distributed, it was easy to see the benefit these loans provided these individuals. In conditions where there is no electricity, no running water, the family is living in a house with a dirt floor, tin roof, rotting wood walls, holes in the ceiling covered by plastic, and little or no land in which to make a subsistence livelihood—these loans from FINCA would enable these people to start an economic activity which would lead them down the road to economic security. For an example of one of these small economic activities, please see the attached photo page and FINCA partner Maria Constancia Rodriguez Bello with her newly purchased pig made possible by Wheaton’s Peace dollars which will afford her over the next six months income to begin saving and reinvesting in growing her new business. FINCA is working in regions of the world which are overlooked even by those living in the capital of Nicaragua.

FINCA’s partners use the loan money in a variety of different ways. Depending on a persons economic activity, a partner may purchase a few products to add to their family run general store, new clothes from the capital, Managua, to sell in Nueva Guinea, or livestock and other farming related purchases. What I frequently heard from individuals in the small villages around the urban center of Nueva Guinea is that they lacked the products for which there was demand for in the community. Maria Josefa Blanco, from the Village Bank Raices Verdes, told me about how she was going to use the FINCA loan monies to purchase the juice, soda, cookies, and candies which she was lacking in her store. In addition, she described to me how she would be able to buy these products in quantities that would allow her favorable profits. These micro-loans from FINCA truly did allow the recipients of the loans to buy into the economic system which was previously closed to them. Seemingly all individuals in Nueva Guinea had some innovative idea for a business (selling sandwiches and coffee to people on the long bus rides to and from the capital, for instance), it was just a matter of them having access to the necessary monetary capital to fund their idea. I am happy to say that I saw many examples of people’s ideas being carried out because a loan from FINCA was all they needed to start it up.

FINCA is an international microcredit organization located in 27 countries in the world including Latin America, Africa, and Eastern Europe with more the 500,000 clients throughout these countries. FINCA has been operating in Nicaragua as “FINCA Nicaragua” since 1992 and is now located in 15 regions throughout the country. The Nueva Guinea branch was opened in January 2007, and at the time of my departure had 64 Village Banks formed.

FINCA works with the Village Banking system of microcredit wherein FINCA does not give loans to individuals, only to groups of 12 to 20 individuals who have agreed to work together and are organized together into what is termed a “Village Bank.” In this Village Bank, no more than four members can be men, further expanding FINCA’s commitment to bringing economic opportunity to women in Nicaragua—the most marginalized demographic in Nicaragua and Latin America. Calling their clients “partners,” FINCA seeks to offer much more than just a loan, they hope to also offer technical capacitation and community building through their Village Bank system of microcredit. Each Village Bank is run autonomously by said members with a Credit Officer from FINCA forming the group together, assisting with organizing elections for the President, Treasurer, and Secretary of each Village Bank, and overseeing loan repayment. Three requirements are needed for a loan from FINCA: a photocopy of their state-issued identification card, 10% of the total loan amount solicited for deposit in a savings account, and collateral of domestic electronic devices (television, refrigerator, sound system, etc.). (In areas where there is no electricity, and subsequently no electronic devices, the Village Banking group can sign in solidarity and agree to be responsible for the repayment of each others loans in case of a delinquent repayment.)

After all three requirements are satisfied, the complied information is sent to the regional office, Juigalpa, for review before it is sent to the capital, Managua, for final approval and fund appropriation. From the time that a Credit Officer sends off the required information to Juigalpa and the time that money is made available for distribution to the new Village Bank is about five days. This is a very quick turn around for a region of a country where there is a terrible infrastructure system and no official mail service—further example of how FINCA truly does serve the people of Nicaragua.

On a designated day, all members of the Village Bank meet at the FINCA office in Nueva Guinea where the money is distributed and the legal contract is signed. 14 days after the first distribution of the loan, a Credit Officer goes to the Village Bank to collect the first of 12 repayments in the six month loan cycle, one repayment every two weeks. FINCA’s loan program in Nueva Guinea is given out in the amounts from $US50-300. The loan period is for six months at an interest rate of 2.7%/month. The repayment plan is a payment every 14 days where a Credit Officer goes to the village where the Village Bank is located to count up and collect the loans. The actual handling and depositing of the money is done by the Treasurer of the Village Bank; the Credit Officer is not allowed to handle the money—this helps indoctrinate self-sufficiency in the new partners of FINCA’s Village Banks.

FINCA’s loan program comes with a policy which is seen as “safety net” for their clients—I was unbelievably impressed with this policy and so heartened to see that every FINCA partner is afforded this social security. Every FINCA client is provided with a life insurance plan for the duration of their loan with FINCA. In case of death or incapacitation, the policy cancels the existing loan and pays back the total loan amount while providing the benefactor of the plan with a Canasta Basica to cover basic foodstuffs for the year with C$24,000 (US$1,290) which is paid out in 12 monthly payments of C$2,000 (US$107). In case of death C$11,500 (US$618) is given to cover funeral costs.

FINCA also works with a savings program built into their loan process. The effectiveness and importance of this program cannot be overstated. In a culture of people where there is negligible savings (at their own admittance), this program is a positive conditioner and teacher of better economic growth practices. At the initiation of a Village Bank, each client puts 10% of their total loan size solicited into a savings account which they will only be able to access at the end of their loan cycle. Then, at each repayment time, the client will put 1% of their total loan size into that savings account whereby at the end of their 12 month cycle, they will have doubled their initial investment. This program teaches the partners that saving is easy and effective—I was absolutely blown away by this program, I was so impressed that this wonderful part of FINCA’s microcredit program was in existence. This is a very effective program to promote savings, a necessary condition for economic growth and sustainability.

And at the end of the loan cycle, each client is able to apply for a second loan at a larger amount. Depending on the number of late payments, a client will be eligible for anywhere between a 0-100% increase in their loan size. Interest gained from each Village Bank has made FINCA Nicaragua a self-sustaining entity which can cover all program expenses from the loans which it distributes.

Pages:

My Project for Peace Report

Microcredit Program Analysis: FINCA Nicaragua

Microcredit Resources