Thursday, January 14, 2010

Microcredit and more

Yesterday, our first of several destinations in Leon was CEPRODEL. This means Center for Local Development, and it´s a microcredit lender. When we walked in, it looked like a bank. In our meeting with the men who work there, we learned that this is to have a professional face for the borrowers, so they take the responsibility of their loans seriously. However, CEPRODEL is very different from your typical bank, even your typical microcredit lender. They give out microloans for business and agriculture, but they do much more than that. Their stated goal is to "be part of the structural transformation of the problems that affect our society: gaps between rich and poor, rural and urban, generations, and genders." They take a holistic view of microcredit, seeing it as a means, rather than an end in itself. They try to help their clients in as many ways as posssible. They employ not only financial managers, but also specialists in architecture and agriculture, who can better relate to the challenges faced by clients working on construction and farming projects. CEPRODEL also sponsors various trainings and technical assistence in sustainable methodology. They have recently started a reforestation project. They also manage to foster cooperation between their clients. For example, one farmer recieved loans to produce an organic pesticide. Another client who was planting trees was able to buy this spray, as well as learn to make it himself. CEPRODEL was able to connect these people so they both benefited, as well as increasing the likelihood of repayment.

CEPRODEL´s payback statistics are indeed impressive. They told us 95% of the money they lend comes back on time. I believe Alice said that the UNAG loan fund we support has a return rate around 50%. We wondered what made CEPRODEL so successful. One thing that we were told, that I hadn´t really heard before, was about the handout mentality. If people think they are getting money that has been donated, they do not feel the need to return it. With all the natural disasters and daily poverty Nicaragua faces, this is quite understandable. If a rich country give them money, and they struggle to feed their families, why should they return the money? CEPRODEL avoids this issue by keeping the loans strictly loans. They are as helpful to borrowers as they can be, and are willing to renegotiate the terms if the client is unable to pay back on time. Ultimately, though, everyone knows they money is in the form of a loan that must be repayed. Clients know that if they don´t repay CEPRODEL, they can´t take out another loan. CEPRODEL and other microfinance institutions are also finally beginning to communhicate with each other. They are starting to keep records so they know which lenders have a history of not paying back their loans. This system, similar to a credit score in the U.S., holds borrowers more accountable, so they can´t just switch to another lender to get more money. CEPRODEL also has it´s own system of incentives. It rates its borrowers on an A through E scale, and rewards the best lenders with prizes, like fruit trees for farmers, or backpacks (which they were nice enough to give us as gifts! They´re pretty awesome.) Also, they only lend to those with at least a year of experience in their field. And to avoid the interest overwhelming the borrowers, loans are given out in installments, so they pay interest only on the money they need at the moment.

It´s easy to see why microcredit is needed. Farmers struggle with drought, cattle ranchers saw their prices fall 50%. CEPRODEL has 14,000, 60% of whom are women. Their typical borrower is a woman between 30 and 35, who hasn´t completed primary school and has 3 to 4 dependents. Many women support their families, since so many men have migrated to Costa Rica, El Salvador, Spain and the United States. One poignant thing Rachel (the American who is in Leon on a Fullbright) told us: In the U.S., people are always talking about their future plans and aspirations, but if you ask Nicaraguan farmers about their plans for the next five, ten, or fifteen years, they will fall silent. Microcredit can be a way to give Nicaraguans more opportunites, and a reason to have hope for the future.

I am eager to see how all that we learned about microcredit will apply when we meet with the UNAG. I also look forward to finding out more about SosteNica (the American organization that coordinates investment into CEPRODEL) when I return home.

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