We’re Checking Up On You: Paraguay’s Credit Bureau

So you find 14 women to form a comité with and then your microloan is on its way? Not so easy. First, we’ve got to look at your credit history.

Fundación Paraguaya, just like other financial cooperatives and banks in the country use Informconf, a privately owned credit bureau, to check up on potential clients’ credit history.  From a global view, Paraguay scores a “6”, the highest score on the Doing Business scale for access to and scope of credit information, such as through a credit bureau. However on the index for legal rights, as it relates to credit, Paraguay scores a 3 out of 10, on the low end of the scale. The legal rights index entails the degree to which the in-country laws on bankruptcy and collateral protect the rights of borrowers and lenders.

Come get your credit

Informconf is used at Fundación Paraguaya to ensure that you have not defaulted on a loan at another institution, or as they call it, have a “moroso” loan. As long as you are in good standing, they won’t reject you if you have outstanding loans at other institutions. Equally, Fundación clients’ loans also appear on the database, even the group comité loans.

A double-edged sword, being a part of a group loan through a comité helps you to establish a credit history. However, it doesn’t define your personal track record with the Fundación, but how your group is doing overall. So if a few members of your group can’t make their payments and your group is late, it tarnishes the credit history of the entire group.

Making it Beautiful, Making a Living: A Decorating Entrepreneur

Demetria in action

Demetria is an energetic mother, president of her Fundación Paraguaya lending group, and microentrepreneur who runs two home-based microbusinesses. One business, sewing bed sheets, is her bread and butter, while the other, a decorating service, is her passion. I first wrote about Demetria a few weeks ago, but have recently had the chance to get to know her better and join her on a couple decorating jobs.

When Demetria first started her decorating business 8 years ago, she didn’t even have the money needed to purchase materials for her first gig. Instead of being paid, she asked if she could keep the cloth and decorations purchased for the party as compensation. Her clients agreed and she was able to begin a small inventory of decorating materials.

Celebrations are an important part of Paraguayan life. As Demetria said, “With things how they are, people want to have something pretty once in awhile. Even people who are poor.” She does decorations for weddings, birthday parties, quinceañeras, New Year’s Eve dinners, school parties, and other special requests. Demetria has many loyal clients that she often decorates for. The pictures she displayed from her business photo album are impressive; colorful cloth regally draped around the room, ostentatious entryways with matching gift reciprocals, delicately decorated cakes on stands, and balloons galore.

Microloans for High Aspirations: Student Loans at Fundación Paraguaya

1,000 students achieving their dreams in 11 countries.  All they needed was a few hundred dollars.

When Fundación Paraguaya granted a student microloan last week, it was also notable for its partner organization, Vittana. With this loan, Vittana reached its 1,000^th student with a microloan. Founded in 2008, Vittana combines the model of crowdfunding microfinance with the belief in and passion for the possibilities of higher education in developing countries. After conducting pilot projects to ensure sustainable repayment rates, Vittana began loaning to students throughout the globe in 2009.

While in three years they have managed to create partnerships with 17 microfinance organizations and have made loans to 1,000 students, there is a much larger goal in sight.

Much discussion and support abounds for improving access to primary education in developing countries, but there is significantly less effort around making post-secondary education accessible. Most of us that have been fortunate enough to pursue higher education were able to do so, most likely, due to student loans. However, in many developing countries student loans are not available from the public or the private sector. This is a significant barrier to entry for many students that wish to further their education and career aspirations.

As Vittana works with local microfinance organizations to make student loans available now, their broader goal is to spur the student lending market in developing countries. This is what they call their “demonstration effect.” Vittana wants to demonstrate that students in developing countries are creditworthy and an important investment for development. Their hope is that the global financial community will take note and begin to offer loan products on a large scale to willing and able to pay university and vocational students.

On the Frontline: One Financial Literacy Trainer’s Story

Some of the most compelling stories I have heard during my time in Paraguay often come from the very people working at Fundación Paraguaya. The trainers, or capacitadoras, I have been working with balance not only their full-time positions, but attend university as well.

Nora Explaining Family Budgets

The capacitadoras start working at 7:30 am when the Fundación Paraguaya branches open and often work past closing time at 4:30 pm, giving classes to the women’s lending groups “in the field.” Most of the groups cannot meet in the mornings and with each capacitadora responsible for more than 30 groups, or comités, many times a capacitadora must give two classes in the afternoon, not finishing until 6pm.  Then, they must take a collectivo home which will take at least an hour, if not more.

This job takes dedication.

One capacitadora in particular impresses me. Nora is one of the best capacitadoras, a natural teacher; she is a pleasure to watch in front of a comité. When I ask her about her approach to teaching, she tells me that, “I connect well with the women because I know how to talk to them. I have many friends of all ages.” But to me, Nora’s success is that she truly wants the women to understand and she takes her time explaining every detail. She never assumes that the women already know something. She confronts the educational barrier that many women face and works around it.

Group Think

Comité Santa Teresa

No group lending comité is the same. Groundbreaking, I know. But, really, there are some points worth elaborating about the complexity and variety of comités at Fundación Paraguaya. Many times, the comité‘s reality is very different from that of the traditional understanding of group lending.

Some comités are a delight to meet, they pay on time, they attend their financial literacy meetings, they arrive, and on time, for their renovación and desembolso meetings where their new loan amount is agreed upon and dispersed.  And, perhaps, most important of all, they get along.

Other groups get together and plan events to help pay their cuota or their weekly payment. One comité, Dulce Esperanza, which I mentioned in my recent blog about the comité president, organizes events, such as a hamburgeseada, where they make hamburgers and sell them as a group. Every woman helps out with the purchase of products and making and selling the hamburgers. Another comité I blogged about also had a venta de comida for a San Juan celebration where they sold Paraguayan food to raise money for their weekly group loan payment.

¿Paraguay Para Todos?

“Paraguay Para Todos” is the ubiquitous slogan for Paraguay’s bicentennial, but visiting the centro of Asunción makes you wonder.

According to the Gini index, Paraguay is the 14^th most unequal country in the world in terms of income distribution. One of the most jarring examples of this disparity is in the centro, near the Presidential Palace and the Legislative Palace. Slums are literally just a stone’s throw away from the epicenters of Paraguayan government. These are not just symbols of power and poverty, but the epitome of inequality staring you directly in the face.

Recently, the Center for Global Development released a working paper on the declining inequality in Latin America. The Gini coefficients of 13 countries in Latin America have declined, which is encouraging; as 0 represents complete equality and 100 complete inequality. Between 2002-08, Paraguay saw a statistically significant decline of 1.31% in its Gini coefficient.

Standing in front of the Legislative Palace, a large glass building, you can see the neighboring shacks in its reflection. Looking directly across the street, large canvas signs are draped at the entrance of the slums. One sign read, “Congressmen, the families are more important than your luxury cars and the Bicentennial Park.” Another day that I visited the area, another sign read, “They want to throw us out like garbage!”

Start Small, Think Big

This is one mantra that the Fundación Paraguaya wants to impart to its clients, and in a lot of ways it has to do with another initiative of the Fundación, the formalization of microbusiness. With 63% of Paraguayans working in businesses that have 5 or fewer employees, the majority of people work in small or microbusinesses. 80% of these businesses are not formally recognized.

When I first started here at Fundación Paraguaya, I wrote about how a stronger voice for microbusiness is needed, as the cons often outweigh the pros for those who properly register their businesses. Speaking with the presidenta of a comité on Friday, I learned about her experience as an informal businesswoman.

The Road to Formalization of Microbusiness?

Demetria is the presidenta of her comité called Dulce Esperanza or “Sweet Hope.” She is the proud owner of her own decorating business. This business idea has always impressed me here in Paraguay, in part because it seems to be an unsaturated market, a rarity in microbusinesses. Demetria does all sorts of events, such as weddings, quinceañeras, the celebration of a girl’s 15^th birthday, and other parties.

But when Demetria is hired to do an event for someone that requires a factura, or a formal bill with a tax number, she finds herself in a tough spot. These are often larger and better paying gigs and she cannot afford to lose these clients. But since she is not a formalized business she does not have a RUC, the tax number required. In Paraguay, every price has a 10% tax, or the IVA, figured in to it. People collect their receipts from their purchases, from small purchases like groceries to large expenses, like a property, and they are allowed to pay less in taxes at the month’s end.

Two-Tongued Nation

“No hablo guaraní.” I have said this phrase many more times than I thought I would coming to Paraguay. I knew that many women I would meet would speak Guaraní, but I didn’t realize how present it is in Paraguayan life.  While continuing to speak Guaraní has allowed Paraguay to retain and celebrate a core part of its history and culture, it also creates barriers for many of the borrowers of Fundación Paraguaya.

87% of the Paraguayan population speaks Guaraní according to the 2002 census. It was the first American indigenous language to be recognized as an official language, as declared in the constitution of 1992 after the fall of the Stroessner dictatorship. A dramatic shift from its prohibition during Stroessner’s rule, Guaraní is now a required subject in primary and secondary schools. While the Guaraní language is of an oral tradition, a written Latin alphabet form was developed and is also taught in schools.

A comité meeting in Asunción

In every financial literacy class I have attended the women speak both Spanish and Guaraní, but largely Guaraní within themselves. The classes are conducted in Spanish and use materials written in Spanish, however, every capacitadora, or trainer, speaks Guaraní as well. There is often a mix of conversation in Spanish and Guaraní, with the capacitadora speaking in Guaraní, often as a way to explain a concept in a different way or to create camaraderie. The loan officers that work with the comites and their credit are also bilingual.

This presents a challenge in many ways. It is not uncommon for the women in the comites to be more comfortable with Guaraní than Spanish, and the written form is not generally practiced. While many people in Paraguay do speak Guaraní, Spanish is still the preferred language of business and the middle and upper classes. Not surprisingly then, speaking Guaraní better that you speak Spanish will present problems in social mobility, while the reverse is not true.  When discussing this conundrum with the capacitadoras, I asked it they thought it would be of use to have the training manuals in Guaraní. But, as noted earlier, Guaraní is a largely oral language and they did not think this would be helpful.

Cashing in on San Juan

The Festival of San Juan has been an on going celebration since I arrived in Paraguay. The official day of Paraguay’s patron saint is June 23rd, but Paraguayans had been celebrating with comida típica for weeks beforehand. Paraguayan comida típica such as chipa guazú, mbeju, carne asado, and, empanadas de mandioca can been found in food kioskos to restaurants and bus vendors. Everyone is cashing in on the holiday and pushing their San Juan menu.

Making el mbejú

The women of a Fundación Paraguaya comité also decided to take advantage of this festival of food. When a local Ñemby radio station was throwing a San Juan fiesta they approached them about selling their traditional fare. I was able to spend some time with them last Saturday afternoon as they prepared for the night’s festivities.

Such go-getter attitude and ability to recognize an opportune moment is often characterized as the “entrepreneurial spirit.” However, this elusive term generally mischaracterizes microborrowers’ realities. While most of us have the desire to survive and thrive, this is no indication that we are born businesswomen. Having the “entrepreneurial spirit” does not mean that you know how to calculate your equilibrium point.

Gloria, a trainer with Fundación Paraguaya’s financial literacy team, saw this as a perfect teaching moment. While the women were preparing their comida típica, Gloria was helping them to calculate their fixed and variable costs, even throwing in a loss margin, to arrive at an appropriate price. Looking over their receipts with calculator in hand, she guided them through figuring out how much each ingredient’s cost should be allocated to one unit.

The Highs and the Lows: From Mbaracayú to Asunción

Road to Mbaracayú

From young campesina students with big dreams about their future and that of their communities to women in Asunción’s most marginalized neighborhoods using microcredit to help keep their families fed, it was a week of highs and lows. A moment of personal hope for those living in poverty in Paraguay, but also of frustration and coming to terms with the great challenges Paraguay faces.

Last Wednesday morning with 3 Fundación interns, we set off on an 8-hour bus ride to Fundación Paraguaya’s self-sustaining agricultural school, Mbaracayú Educational Center. Mbaracayú is a natural reserve in Eastern Paraguay which is part of the Atlantic Forest, most of which is located in Brazil, but also extends into Argentina. It is one of the most biodiverse areas in the world. The school is located inside the reserve and houses 130 girls aged 14-20 years old who study a high school curriculum of environmental science, including hands on learning in sustainable practices of animal husbandry, farming, and ecotourism. The students are not just involved in the production process, but also the marketing and commercialization of their goods and services.

Mbaracayú Natural Reserve

Upon our return on Friday I accompanied a capacitadora to a training in Asunción. Tired but inspired from our trip, I hopped on a collectivo with her to the neighborhood of Barrio Jara. I had not been to any neighborhoods in urban Asunción, so I was eager to meet an urban comité. When we first began walking into the neighborhood, a small child of about 2 years old was walking around barefoot and crying. He headed straight for a busy street and was only stopped by a man who grabbed his jacket.  A woman from the comité met us and he took the little boy by his hand. She asked him who his mother was as we headed up the hill and turned into a small alleyway. He eventually wandered off again.