Why can’t you repay your loan?

Together with Mary Helen, another ACCION Ambassador, and along with 3 interns from Fundacion Paraguaya, we are conducting a study to determine “causes of arrears among women’s committees”.

In simple words: “Why women can’t repay their loans  sometimes ?”

1.       The problem

A group meeting

The portfolio at risk (PAR30 for the experts) [that is the part of Fundacion Paraguaya’s loan portfolio that is at risk of not being repaid by the clients] is currently very low among group lending’s clients (women who borrow in groups of 15 to 30): less than 1%. That is particularly low compared to the 4% of individual lending. Yet, this percentage has recently been increasing. And worrisome, defaulting on a loan (ie not being able to repay it) now happens to women who are in their very first loan cycle, after only 1 month of taking out a credit.

So, is there something wrong with women themselves? Is the Paraguayan economy the one to blame? Is there something wrong with Fundacion Paraguaya’s credit methodology (be it the selection process or the groups’ follow up)?  Is there something wrong with microcredit in general? And what can be done to prevent it?

This was the agenda given to us a month ago: finding the causes and making recommendations to prevent defaults in the future.

Measuring Microfinance Impact

As ACCION Ambassadors, our mission is to document the impact of microfinance.

Let me share with you what my first week in Fundación Paraguaya taught me. I’ll shed a light on some other experiences I had in other places as a microfinance consultant.

“Fundación en Acción”

For our readers already familiar with the Fundación, I’ll be brief on what they do.

Fundación Paraguay is a 25-years old NGO, conducting 3 main programs: microfinance, self-sustainable agricultural schools, and youth business education. I’ll only discuss here the microfinance part. I will even narrow it only to its village banking part (making the bulk of clients: 70%). The village banking consists of women committees of 10-15 entrepreneurs each. There are over 2,000 committees, representing 32,000 clients. Women receive loans, starting from 100,000 Guarani’s ($25), up to 1,200,000 Guarani’s ($300) after a few loan cycles. FP also provides them with training (ranging from financial and business education, increasing your sales, business plans to interpersonal relations). Women are required to save money in order to educate them to do so. Unfortunately that’s not a service of the Fundación itself, as it is not a regulated bank enable to take savings, but a NGO.

The traffic light (Semaforo)

Last year, Fundación Paraguaya, -like many organizations maturing-, started feeling the need to measure their impact on client’s lives and to document it. A true impact study takes time (up to 2 years) and money, and results are often disputed. FP decided to develop its own tool to assess results on clients. They developed the “Traffic light” (Semaforo in Spanish), a clear and colorful picture of a client poverty level, through 50 indicators grouped in 6 dimensions. Poverty is not only assessed through incomes generated by the client, but also through education, health, housing, participation, and motivation. 3 colors are used (green, yellow and red) to clearly identify right away areas of improvement for the client and for the group.

Solidarity and Companionship! (Solidaridad y Compañerismo!)

The first question that I asked Fortaleza, a women’s committee of Fundación Paraguaya, was “What is the secret of their success and how did the group reach their fourth loan with la Fundación?” “Solidarity and Companionship”!  was the simultaneous response I received from the ten members. All of them are neighbors from the community of Mariano Roque Alonso, which is located approximately 18 kilometers from the city of Asunción.

When I introduced myself as one of the ambassadors of ACCION, I tried to explain the reason for my visit and my organization’s mission. But inspired by so much positive energy from these wonderful women, I simply sat among them to listen to their stories. Each of them described their occupation with great pride, “I started as a hairdresser and now I offer manicure and pedicure services.” “I am an ambulant seller”. My merchandise depends on the time of year. I sell jewelry, spices and also fish during the summer at the markets in my area.” “I design and build furniture and I am also an ambulant seller.” Another woman, impatient for her turn said, “With my loans I opened my grocery store and I purchased a PlayStation and now I charge by the hour 3.000 Guarani.”  Then, with so much pride in her voice, doña Rosa told me how she started her business by just selling medication and how now she has managed to purchase three sewing machines for her daughter. Also, the chef in the group invited me to visit her “Kiosko”, a small space in her house, from where she cooks and serves her delicious food.  This spring she is adding chairs and tables for her loyal customers and she cannot wait for the new improvement in her business.

Nevertheless, if that were not enough, all of the women contributed to the purchase of a grill, which is used to help a colleague who is having a difficult time with her business this month. They offered the hamburgers a few days earlier to generate the orders and then later they bought all of the necessary ingredients to prepare and to cook the hamburgers. Some of them devoted themselves to cooking and the others to distributing the orders. “Today for you and tomorrow for me”  is the motto of the group and the principal philosophy for this extraordinary effort of sisterhood and teamwork.

The meeting continued with a training workshop for new business ideas or merchandise.

Reflections on Tanzania

Akiba's Headquarters in Dar es Salaam

During my ten weeks with Akiba, I’d like to believe that my understanding of urban and peri-urban microfinance in Africa has increased greatly. Though I’m left with more questions than answers, I’d like to wrap up my Ambassadorship by explicating for my loyal readers my more relevant observations and thoughts.

Some of these aren’t strictly related to microfinance, but rather to Tanzanian economic development in general. This list isn’t meant to be exhaustive, and leaves off major development topics which I don’t have the space or the credentials to comment on, but which nonetheless are extremely relevant, including HIV, malaria, education, inflation, gender discrimination, and corruption. Rather, I speak only of areas I feel were frequently and unnecessarily making the bank’s operations more of a hassle than they needed to be.

Superacion de Pobreza – a lofty goal

Fundacion Paraguaya has a lofty goal this year, to raise 6,000 women in poverty to an income level above 500,000 guaranis ($125) per person per household per month.

The project is a work in process at Fundacion Paraguaya, which is reaching out to clients who fall into the poverty category.  The clients are current members of women’s committees and already have loans with the foundation.  The objective is to encourage and teach these clients to manage their loan funds, putting the money to productive use.  Implementation strategy has been vague, but a visit by a regional manager who held discussions with the asesoras (committee credit officers) about their work showed that strategy development is in process.  The cart before the horse, perhaps, but an idealist might suggest that if a goal is set, a way will be found to achieve it.  The manager also attended meetings with target clients.  I was encouraged by the visit, the two-way discussions, and the client visits.  Nothing can replace first-hand observation.

"Erradicacion" meeting

Clients at a low economic level need a great deal of attention.  Asesoras who currently shoulder the responsibility for reaching out to this group will invest a significant amount of time.  Women living at subsistence level have little or no concept of  budget, the distinction between household and business income, or future earnings.  They need to be introduced to all concepts of financial management; recordkeeping, costs, revenues, investment.   And they need a great deal of personal encouragement since they have little self-confidence.  The asesoras with whom I travelled care about these clients; they are patient and supportive.  They are currently handling this education and follow-up in addition to their existing training, credit review, collection, and business development responsibilities.

Final field visit – a reality check

Before actually seeing microfinance field operations from a worm’s-eye view, I sometimes wondered, what’s the catch? How are loan officers actually able to scale up client numbers so quickly? How are repayment rates so high and reliable? How do MFIs actually get through all the client protection and paperwork that they claim they do with poor people in slums? Does it actually function as simply as it’s often advertised?

This summer has satisfied much of my curiosity into the ground-level realities that make possible the seemingly too-good-to-be-true phenomenon of sustainable microcredit. What I found on the field did not disillusion me or surprise me, but rather added a sense of credibility to what was previously only a bird’s-eye view. The ‘catch,’ so to speak, is that with the dedication of Swadhaar’s staff to the social objective also comes an understanding that Swadhaar is a business that needs to make it financially in order to carry on. Swadhaar serves a market that nobody else will for the reason that nobody else will, which makes it all the more necessary to keep a keen business perspective with each decision they make.

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.

A New Assignment: Placing Human Rights and Gender Equality in the Surveyors’ Manual

ACCION Ambassador dinner with Martin Burt, Executive Director of Fundación Paraguay. Ambassadors: Mary Helen Pombo left, Leah Vinton center and Katie Webster right

During a charming dinner with the founder of Fundación Paraguaya, I was pleasantly surprised by Martin Burt’s receptiveness to the importance of gender relations in the context of poverty and in the two main areas of work at Fundación Paraguaya: Microfinance and Self-Sufficient Agricultural Schools. Without any of my probing, Martin elaborated on the growing need to address domestic violence within the family unit, especially as female microborrowers gain economic power and mobility outside of the home: a topic I have been immensely curious about. It was certainly refreshing to hear an executive director of a Microfinance institution (MFI) explicitly say, “Gender is the hard stuff!”

The very next morning, Martin Burt contacted Tania Almada, a lawyer at the human resources department to put me on a new project to have me integrate or add (still not clear, though obviously the difference between these two activities is not inconsequential) human rights and gender equality into the surveyor’s manual. The assignment requires an interview with the Paraguayan government ‘s minister of women’s issues. I began my due diligence by researching MFIs in Latin America and the Caribbean that claim to incorporate similar initiatives[i].

Women’s Empowerment Initiatives

In the course of my research, I have come to wonder why Fundación Paraguaya has not implemented a women’s empowerment initiative to microfinance, as have some MFIs with larger visions for microfinance.

This is customer service at its finest

8:00 a.m. – the Ketu branch of ACCION Microfinance Bank (AMfB) in Lagos, Nigeria is starting to gear up for the day. One of ten branches throughout the city of Lagos, the Ketu branch is the newest – in operation since March of this year. In the small upstairs office that houses about seven employees in one main room, walls are plastered with AMfB stickers (“Plenty of capital from 3 major banks” “Hundreds of people get loans every day!” “My future is bright”) interspersed with notices from the Central Bank of Nigeria, outlining how to complete a visual/manual assessment of a genuine 1,000 Naira note. As the office wakes up, a small radio spreads gospel music, and several employees sing along under their breath. Two women walk in to discuss their loan, a newborn baby wrapped behind his mother in the African style, cheek pillowed against the warmth of her back, fast asleep and drooling slightly. Everyone leaps to their feet and shuffles around to provide chairs, welcoming the women with wide grins.

me with Ebere, savings officer extraordinaire. Check out our snazzy shirts with ACCION Ambassador and AMfB logos!

After finishing some paperwork from the day before, two AMfB savings officers steer me out of the office and into the market sprawl on the streets below. As we navigate the stalls on the outskirts of the main market, Gbenga and Ebere give me an overview of a day on the job. Starting at about 8:30, the intrepid savings officers are on their feet for the majority of the day, using whatever mode of transportation is available to visit a minimum of 20 clients each day who are usually spread throughout a vast marketplace. Savings officers usually travel in pairs, weaving through the vendors and customers, collecting deposits and spreading the gospel of the microfinance bank. Ebere has her AMfB-branded backpack slung under one arm, where she stows savings she collects each day from each client – sometimes 2,000 Naira, sometimes 20 (about $13 US dollars and 13 cents, respectively). Immediately I am struck by the fact that here we are, about to be carrying a backpack full of cash through the streets of Nigeria. And everyone who sees us accept a new deposit knows it.