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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.

2.       The method

Going at client's houses

Defining a methodology to proceed has been the hardest part of our study. It took us almost a month to have everybody agree upon it. After a few field tests, we came up with a mix of quantitative and qualitative tools. The purpose is to give Fundacion Paraguaya the largest overview of the problem. Therefore, we have decided to investigate 1. The figures; 2. Loan officers who know their clients more than anyone else; 3. Clients themselves.

Our study focuses on the Metropolitan area of Asuncion, because our data analysis showed us this is where 80% of the problem lies.

We have decided to conduct 15 qualitative interviews with every loan officer of the area to get their insights on what can lead women to difficult situations, and share their ideas to improve the loan follow up process to avoid those cases.

We have decided to interview nearly 30 women groups to have a qualitative discussion on what happened, and why they found themselves in a difficult situation. Especially, we want to understand why the group dynamic is not working. Because as you may (or not) know, in group lending, women are responsible for one another’s loans. That means if Sara cannot repay her weekly installment, the rest of the group is responsible for covering it, if they do not want to all default as a group and have fines to pay. And helping each other is what they usually do, because it happens to almost everyone during the course of a 4 months loan to encounter temporary difficulties (such as a kid being sick,…) preventing you from being able to pay that week. Although women are encouraged to have savings, they only have compulsory group savings with Fundacion Paraguaya, and it is really up to them to set money aside for difficult times (which they unfortunately rarely do).

On top of that, we collect quantitative data on each group member, to perform our analysis of causes, and profiles of women in arrears (whether there is actually a profile or some common characteristics of women who defaulted)

We have been conducting those interviews for 3 weeks now, testing our Spanish and Guarani skills (the other official language and often the mother tongue or only language of those women) and our resistance to temperatures above 90s (35° for Europeans)…

We do not have it all yet, but we do have some insights…

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.

FP has indeed used this tool to design a new program aimed at increasing revenues for 6,000 families   by the end of 2011.

Measuring the results of your policies and social objectives on clients, is part of what microfinance usually calls “Social performance”. Although microfinance has existed for over 35 years -or 50 in the case of Acción-, measuring its benefits on clients to prove they are moving out of poverty, is something relatively “new” to the field (10 years old though). Social performance is usually referred to as “the effective translation of an organization’s social objectives into concrete actions”. If you say you’re targeting the poor: 1) How do you effectively do it? 2) How do you measure the effects of your actions on clients?

Measuring the processes implemented by an organization to reach social goals and measuring the results on clients are 2 arms of social performance. Many tools have been developed over the past 5 years to measure it. One can name Social Performance Indicators from Cerise,- measuring processes of MFIs and currently used by over 400 MFIs -, and Progress Out of Poverty (PPI) from Grameen Foundation, -measuring poverty at client level and changes over time- (currently used by over 100 MFIs).

A customized tool

FP chose to develop its own tool, as there was no PPI for Paraguay, and it was looking for a more thorough picture of poverty than the 10 indicators of PPI, mostly focused on type of housing and comfort level.

FP is not the first organization to develop its own tool to measure microfinance effects. Fonkoze for instance in Haiti has developed its own scorecard, used to adapt its product and services to its clients’ poverty levels (training and savings only for the poorest, then a gradual access to credit).

Those tools give picture of poverty and its evolution over time, to determine how effective an organization is to improve its clients’ lives and help them progress out of poverty.  Yet, there are not to be misinterpreted as impact measures. They will not show you poverty is eliminated, only improvements in client’s lives.

In the case of FP, they “took a picture” of poverty in June 2010 for some groups, and are currently taking another one of the same groups to monitor changes.

Jewellery making

I had the chance to visit the Fortaleza group, Maria discussed in her blog earlier this week. A year ago,

Petronilla's kiosk

they were doing rather poorly in stable employment, trash disposal, unspoiled environment, physical security. But mostly, their revenues were below the poverty line: 5 of them in extreme poverty, 9 in poverty and only 4 above the poverty line. Fundación Paraguaya developed the already mentioned program to increase revenues and trained them how to increase sales through making jewellery, handicrafts, and taking advantage of every opportunity they see. They have also worked on programs to enroll women to clean the neighborhood and teach others to do so. I could see myself how Rosa and Cristina are doing better and have improved their revenues. Rosa was even able to purchase sewing machines for her daughter. Petronilla was able to add a kiosk to her food business to increase her sales. The complete results for the 50 indicators are not yet available, but changes are very likely to be seen.

Stay tuned for more stories from clients to document the impact on women’s lives as I visit groups on their 3^rd, 4^th, 5^th loan cycle and can visually see the (positive) effects of microfinance as done by FP.

Aurélie Dagneaux is an ACCION Ambassador with Fundación Paraguay. She’s French and works as a microfinance consultant. She’ll be staying September and October 2011 with the Fundación and work on causes leading women to not being able to repay their loans, while documenting the impact of microfinance in the field for ACCION.

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.

Fabiola Cantero, Adviser (Acesora) wiith members from Fortalez.

In this class, the adviser from Fundación Paraguaya showed them how to make jewelry, where to get affordable supplies and where to exhibit their new pieces of art.

• A minimum of 15 members between 18 and 65 years of age
• Be involved in commercial and entrepreneurial activities
• The credit must be used only for the existing business or to begin a new business
• Be supportive, have willingness and desire to work in a team
• Have desire and commitment to excel
•  Participate in mandatory meetings for the formation of the committee
•  Willingness to actively participate in committee meetings
•  The members must live in the same area
•  Commit to participate in all training provided by Fundación Paraguaya

The program consists of several cycles of four months. When the first loan is approved and granted to the committee, it begins the first period of operation. Each micro-entrepreneur receives her portion of the loan and agrees with her group to attend necessary meetings and make weekly loan repayments. After completing the first cycle, if the group has an excellent payment history, a new loan is granted. The only new requirement for additional loans is that each member must save 10% of her monthly earnings from her business. The first loan can be between USD $25 to USD $130, and the maximum amount for a loan is USD $650.

With this model of microcredit implemented byFundación Paraguaya, these women with little or no financial resources acquire new skills such as: creativity, flexibility, interpersonal skills, marketing, negotiation and money management.  As a team they share the same purpose to perform well, get results and to succeed in their business and in the marketplace. 

I have great respect and admiration for the Fortaleza committee, and I am very grateful to have had the opportunity to meet them and to listen to each of their stories. Their workload and effort are enormous, and with a huge mutual commitment by all of the women. Armed with incredible courage they face many challenges with great expectations.

Solidarity and fellowship  is clearly the key to success for this women’s committee. Now I wonder if this pilot group is representative of the majority of the committees for Fundación Paraguaya. I also wonder , “What is the impact of this model of microcredit on their families?” and  “How do they handle the pressure of the responsibility of being part of a group from the same community?”

 With optimism, admiration of the work, and the incredible accomplishments of Fundación Paraguaya’s education and microcredit programs, I would like to finish the review of my first week in Paraguay with the “Pledge of Initiation,” which each member must recite during the opening ceremony of a new committee. This has profoundly moved me…

 La primera pregunta que le hice a Fortaleza, un comité de mujeres de Fundacion Paraguay, fue “¿Cuál es el secretode su éxitoy como el grupo logro su cuarto préstamo con la fundación?”  “Solidaridad y Compañerismos” fue la respuesta simultanea de sus diez miembros.  Todas vecinas de la comunidad de Mariano Roque Alonso, ubicado a unos 18 kilómetros de la ciudad de Asunción.

Cuando me presente como unas de las embajadoras de ACCION, trate de explicar el motivo de mi visita y la misión de mi organización.  Pero inspirada por tanta energía positiva de estas maravillosas mujeres, simplemente me senté entre ellas para escuchar sus historias. Cada una describía su ocupación con mucho orgullo, “Yo comencé como peluquera y ahora soy manicura y pedicura” “Yo soy vendedora ambulante. Mi mercadería depende de la época del año.  Vendo joyas, yuyos y también pesco durante el verano para los mercados de la área” “Yo diseño y construyo muebles a pedido y soy vendedora ambulante

Silla hecha a mano (chair made by hand)

también”.  Otra señora, impaciente por su turno dijo, “Con mis préstamos abrí mi almacén de comestibles y también compre un PlayStation y ahora cobro 3,000 guaraníes por hora”.  Después se presento doña Rosa quien comenzó vendiendo remedios y logro comprar tres maquinas de cocer industriales para su hija costurera.  También, una experta cocinera me invito a su kiosco.   Esta primavera ella agregara sillas y mesas para acomodar a su clientes y servir sus deliciosos manjares.

Pero si eso fuese poco, todas colaboraron para la adquisición de un asador, que se usa para ayudar a una compañera con un mes de bajas ventas en su negocio.  Primero ofrecen las hamburguesas unos días antes para generar los pedidos.  Después entre todas compran los ingredientes para preparar y cocinar las hamburguesas. Algunas se dedican a cocinar y otras a repartir los pedidos. “Hoy por ti y mañana por mí”, es el lema del grupo y la razón principal de este extraordinario esfuerzo de hermandad.

La reunión continúo con un taller de capacitación de nuevas ideas o artículos de negocio.  En esta clase la asesora de Fundación Paraguaya les demostró cómo hacer joyas, les sugiero donde conseguir materiales a un buen precio y también donde exhibir sus creaciones.

Fortaleza, es un ejemplo del modelo de micro créditocreado por Fundación Paraguaya llamado “Comité de Mujeres Emprendedoras Urbanas”.  Un grupo de mujeres de escasos recursos económicos que se unen para formar un comité.  Actualmente, Fundacion Paraguaya, sirve 2,270 comités vigentes y los requisitos para los potenciales miembros para formar un comité son las siguientes:

• Un mínimo de 15 integrantes entre 18 y 65 años de edad
• Deben realizar actividades lucrativos y o comerciales
• El crédito debe ser usado para solventar las necesidades empresariales o para la orientación de inicio de un nuevo negocio
• Ser solidaria, poseer voluntad y ganas de trabajar en grupo
• Tener deseo y compromiso de superación
• Participar en reuniones obligatorias para la formación del comité
• Predisposición de participar activamente en las reuniones del comité
• Las integrantes deben vivir en la misma zona
• Comprometerse a participar entodas las actividades de capacitación brindada por Fundacion Paraguaya

 El programa se compone de varios ciclos de cuatro meses.  Cuando el primer préstamo es aprobado y otorgado al comité, comienza el primer periodo de operación.  Cada microempresaria recibe su porción del préstamo y se compromete con su grupo de atender las reuniones necesarias y hacer los pagos semanales de las cuotas del préstamo. Una vez completado el primer ciclo, si el grupo tiene un excelente cumplimientode pago se le extiende un segundo crédito.  El único nuevo requerimiento para préstamos adicionales es que cada integrante debe ahorrar un 10% al mes de las ganancias de su negocio. El primer préstamo puede ser de un valor entre USD$25 a USD$130 y el valor máximo de un préstamo es de US$650. 

 Con este modelo de microcrédito implementado por Fundacion Paraguaya, éstas mujeres con pocos o ningún recurso financieros, adquieren nuevas habilidades como ser: creatividad, flexibilidad, habilidades interpersonales, mercantil, negociación y administración de dinero. En equipo, aprenden a trabajar fraternalmente compartiendo el objetivo de lograr resultados y exito en sus negocios y en el mercado.

 Siento mucho respeto y admiración por el comité Fortaleza, y estoy muy agradecida por la oportunidad de haberles conocido y por sentir cada unas de sus historias.  Sus horas de trabajo y esfuerzos son enormes y con un gran compromiso mutuo.  Armadas de una increíble valentía enfrentan los desafíos del día con muchísima expectativas.

Solidaridad y compañerismo, es claramente la clave del éxitode este comité de mujeres.  Ahora me preguntosi este grupo piloto es representativo de la mayoría de los comités de Fundacion Paraguaya. También me pregunto ¿Cuál es el impactode este modelo de microcrédito sobre sus familias? Además, como ellos manejan la presión de la responsabilidad de ser la parte de un grupo de la misma comunidad.

Con optimismo, admiración del trabajo, y los increíbles logros de los programas de microcrédito y educación de Fundacion Paraguaya, quisiera finalizar el repaso de mi primera semana en Paraguay con el pactode iniciación que cada integrante debe recitar durante la ceremonia de inauguración de un nuevo comité.  Se realiza el corte de cinta y el juramentode cumplimientoy solidaridad que al leerlo me conmovió profundamente…

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.

High Transaction Costs:

1. Savings Account Fees– Tanzania’s banking industry suffers from inefficiencies due to high transaction costs of operations. Though the market is competitive, with dozens of different banks competing for customers in Dar es Salaam, this competitiveness has not resulted in efficiency improvements thought of as commonplace in the US.

A Loan Officer from Akiba's Mbagala Branch with some of his Solidarity Group Clients, in late June.

For example, savings accounts have small monthly fees simply to remain open. Akiba’s latest savings account charges its users 250 Tanzanian Shillings per month, or about 16 cents. Though this amount sounds small, it adds up to almost $200,000 annually over Akiba’s 83,000 savings accounts. Akiba’s management has evidently decided that the opportunity to capture significantly more customers by marketing a free savings account is not worth the loss of this fee income.

2. ATM Fees – The majority of Tanzania’s financial institutions continue to charge a small fee for ATM withdrawals, even to their own customers. Akiba is a member of the Umoja Switch network.

Umoja Switch, owned by Business Connexions (BCX), is an independent ATM operator which has contracted with about 16 small and mid-sized banks to provide ATM services for their customers. Umoja Switch ATMs charge a flat fee of 500 Shillings per transaction, which is divided roughly evenly between Umoja Switch and Akiba.

Barclays, which serves a much wealthier client base than Akiba, is the only bank I encountered that allowed free ATM withdrawals for its own customers, a fact that it proudly advertised on each machine. Akiba also charges a fee to customers for the processing of their ATM card, something that American banks wouldn’t dare to do.

3. Antiquated Loan Repayment Technology – Though a mobile banking platform is in development, Akiba still requires its customers to repay loans by bringing cash to the closest branch office, filling out a deposit slip, waiting in line (often for hours), handing the money to a teller, and finally receiving a receipt.

As I’ve mentioned in an earlier post, one loan officer estimated that 40-50% of his delinquent portfolio was clients who were simply too busy to make it to the bank to repay their loans. Development of mobile repayment systems would greatly improve Akiba’s efficiency and lower its overall portfolio at risk while satisfying many of its clients.

Technology:

4. Digitization of Loan Files – Loan officers complete appraisal forms by hand while meeting with customers in the field. Summary information from these loan applications is entered into Akiba’s internal Management Information System (MIS) by the Loan Administrator, but very little of the client’s business information, cash flow detail, or demographic data is computerized, making any type of meaningful portfolio analysis virtually impossible.

5. Computers for Loan Officers – While Loan Supervisors and Administrators have their own desktops, loan officers share communal computers for printing forms and checking customer account balances. Untold efficiency benefits would be unlocked by providing each loan officer with a desktop computer to help manage their loan portfolio.

General Infrastructure:

6. Power outages – The population of Dar es Salaam, and its commensurate energy demands, has far outpaced the capacity of the government-run electricity company, Tanesco, to provide continuous and reliable electricity. Power outages occur daily, recently for upwards of six hours at a time.

Clients of Akiba dependent on electricity for their business operations, such as hair salons or stationeries (think a mini-Kinkos, with perhaps 2 printers and a copy machine) have struggled mightily of late. Generator fuel is expensive, recently around 2100 Shillings per liter (~$1.35), or close to $6 per gallon. Unpredictable and expensive energy stifles entrepreneurship and annihilates profitability.

Using alternative means of navigating Dar's busy streets - in late July.

7. Public Transportation – Any visitor to Dar es Salaam who leaves the airport will remember the traffic. It chokes the city streets during all daylight hours, particularly during the evening commute between 3 and 7 pm.

Dar is growing both upward and outward, with high-rise buildings half finished in the CBD while high-quality tarmac road construction pushes the city’s outside border definition further and further from its downtown port.

The city buses, or Dalla-Dallas, are cheap, fast, and frequent, but also hot, crowded, and smelly. And they have to share the same slow roadways with the cars, bicycles, bajajis, and motorcycles of the city’s four million residents. Anyone who can afford a car prefers it to the buses.

There are also no flyovers and very poor traffic signage. There is no train or subway system, parking is usually free or otherwise cheap, and there are no tolls on the roads. Beyond mere logistics and comfort, there is significant status afforded to those who drive their own cars.

All things considered, it’s easy to understand why despite the traffic, everyone continues to drive. It’s not uncommon for the eight-kilometer trip from downtown to the airport to take an hour or more.

______________________________

Tanzania enjoys many developmental advantages over other African nations. It has a universal national language in Swahili. Its location on Africa’s central east coast, with the high capacity of Dar’s port, makes it an ideal trading partner for India, Dubai, and China.

Climbing Mount Kilimanjaro with my brother, Brian, on the left.

Its government, though widely perceived as inefficient and corrupt, is relatively popular and stable, with no national history of political violence or current threat of civil war. Its tourism opportunities include the slopes of Mount Kilimanjaro, the wildlife of the Serengeti, and the flour-white beaches of Zanzibar.

Though split roughly evenly between Christians and Muslims, there is little to no animosity between religious groups. Although Western visitors who leave the fenced and manicured gardens of the expat-heavy Msasani Peninsula will see poverty in nearly every street of Dar, its residents consider themselves fortunate.

While malnutrition is common, outright hunger and starvation are not. Childhood education has much to improve and school fees are too expensive, but the country has excellent universities and most of the population speaks adequate to good English. Its economy is growing rapidly, aided by Chinese infrastructure investments, omnipresent Western NGOs, and development institutions like the World Bank and Millennium Challenge Corporation.

______________________________

My experience in Tanzania was truly outstanding. ACCION entrusted me with enormous responsibilities but offered ample support to accomplish my goals. Akiba staff were welcoming and forthcoming, never making my sometimes difficult requests unnecessarily challenging or uncomfortable.

Special thanks are due to my direct manager and friend, Francis Musoke, for putting up with me every day, and to my supervisor Melissa Lumpkin Baez for hiring me and trusting me to handle the inaugural Ambassadorship to Akiba. Additional thanks go to Kate McGrath for running a tight ship, and to Nick Roose – best of luck at Fletcher.

Thanks also to my fellow Akiba Ambassador and partner in crime, An Appelmans, for her professionalism, sense of humor, and hustle.

Finally, thanks to those who read my posts and especially those who were nice enough to comment. If even one of you were fascinated or inspired by my experiences, it was worth every word.

-Jason Loughnane

Me, An, and Francis, on An's last day with Akiba in July.

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.

The plan in Ciudad del Este is for asesoras to reach out to their lowest income clients and hold frequent training meetings.  An early meeting emphasizes that the foundation wants to help increase the women’s income, and “business plans” are written.  These might be for group food sales, making and selling of household cleaning products, or other sales ideas.  Follow up meetings will take place soon after, to review, repeat, and for further planning.  Not all the clients are receptive.  This raises questions as to their suitability as foundation clients; they are supposed to have a plan and a business use for their loans.   But they don’t always.  Does one keep trying?  Or do these clients fall out of their committees in favor of more promising clients?

An asesora addresses a committee

The poverty erradication project is a targeted extension of the credit work already being done, but is an added responsibility for asesoras faced with travel challenges and unreliable meeting dates.  Asesoras worry that if target numbers are too high, some of their clients will slip back, due to lack of attention.  Quantity or quality?  As with credit reviews and business development, a careful balance will have to be struck.

The project brings me back to my thoughts on training, “capacitacion.”  The education process is critical, and time and energy invested will be considerable.  Who’s to to the training?  The asesoras are the best suited, rather than an outsider.  Asesoras know and are trusted by the clients, and they are positioned for repeat visits, which will be necessary.  Let’s hope adjustments are made to other job responsibilities, and that reasonable objectives are set.  I think high quality, constructive relations with needy clients could yield interesting results.  Disinterested clients should be quickly weeded out; they won’t enhance their committees, and their peers should want to replace them with promising prospects.  This may take input from asesoras.

A lofty objective?  Yes.  But kudos for trying, and access to credit is helping Fundacion Paraguaya’s clients to gain ground financially.

Microloans will not help all of the targeted women; some simply don’t have the energy or interest in finding ways to make incomes grow.  But others will benefit.  Microfinance won’t eliminate poverty, but it is a tool that helps many women achieve self-confidence and financial independence.

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.

On my second to last day at Swadhaar, I made a field visit to the same client zone I went to on my second day over two months before. On my first visit to the zone with loan officer Santosh, we had walked around the slum to visit PAR (portfolio at risk) clients, or those who were late on payments. So my first field visit wasn’t filled with inspiring client stories, but rather a variety of excuses from women for missing payments. It wasn’t disillusionment, but rather a reality check.

Santosh helped me understand the tricks and methods of client interaction necessary for the business to operate successfully. One group didn’t show up on time for a meeting; rather than waiting around even a short time for them, Santosh would come back the next day to make them understand the value of his time and the seriousness of the loan contract they would be getting into. One woman in a joint-liability group was too forgetful, argumentative, and time-consuming; it would not be cost-effective to give her a subsequent loan. Several clients needed to be reminded the consequences of not repaying.

Two months later, I was in the same client zone with Santosh’s replacement trainee and trainer (Santosh left for family reasons) on a day scheduled for a couple of client meetings, the first of which was supposed to be a first meeting of a five-woman group. As we waited in one of the women’s home for the others to arrive, the loan officer’s showed me a standardized checklist of twelve steps that he needed to cover for a first client meeting, many of which entailed him explaining terms and conditions. Unfortunately, we didn’t get past the first step.

After 15-20 min. of waiting, only four of the designated five women showed up. She would be here shortly, they said, and there were other women present to fill in for her. The loan officer, however, strictly followed the rule that the designated woman getting the loan could not be substituted for in the first meeting. Furthermore, one of the five women present was pregnant; pregnant women were not allowed loans on account of having different money priorities during pregnancy.

After we walked out of the woman’s home, leaving behind the four would-be customers with their necessary ID forms still in their hands, the loan officer explained me that those women were too late past the scheduled meeting time, and that if they were given loans, they would likely have repayment problems and become PAR clients. The next chance that group would have for a first meeting to show up on time and follow rules would be several weeks from now. It was a somewhat harsh reality, but I knew the loan officer was in the right.

For the rest of the day, only one meeting was not foiled by similar circumstances of not meeting up to Swadhaar’s rules. It was a group of women in requesting a second loan cycle. The explanation and paperwork took over an hour, and the paperwork was far more extensive then I would ever have thought. Client protection and respect comes first, the loan officer explained me, but this is a company that follows rules. Otherwise, the company faces repayment problems, he said. It is not a charity. It is a business.

I am currently back home in New York, likely to be at a bird’s-eye distance from microfinance for long time once again. Blogs like this one thankfully help me keep some sort of worm’s-eye view to satisfy my curiosity about on-the-ground operations all over the world. Yet, after being in the field, I understand the limitations of this channel for understanding microcredit. There is hardly a substitute for being in the field to really understand what loan officers have to do in order to make microfinance actually work. While this summer was in large part a curiosity satisfaction for me, I am determined to make it an early step in a longer relationship with the microfinance sector, and I thank ACCION International for my most fulfilling summer yet.

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.

As I recently discussed with a local loan officer at Fundación Paraguaya’s San Lorenzo branch, outside of Asunción, they get many calls for references from cooperatives where Fundación clients are attempting to receive an additional loan. Most often, they are able to give a favorable recommendation. But, does this spell trouble or is this a sign of Fundación clients “graduating” to more formal and commercial financial tools?

With the not so distant microfinance meltdown in Andhra Pradesh and sector-wide soul searching, the thought that women are taking out multiple loans and possibly becoming over-indebted, could be troublesome. But even in the Malegam Recommendations, which some saw as too conservative (or just generally misguided), they allow for borrowers to take out loans from 2 MFIs. The recommendations also called for the establishment of a credit bureau, which many people, such as the Center for Global Development’s David Roodman, largely viewed as a positive. Paraguay seems to be have been ahead of the game in this respect.

Paraguay is certainly no India in terms of an oversaturated microfinance market, only 7 MFIs report to the Mix Market, where 143 are listed for India. There is, however, growing competition in Paraguay. With last year’s GDP growth at 15%, it had the second highest growth in the world and credit is increasingly more accessible to people. The existence and use of a credit bureau is encouraging, but if a “moroso” loan is the only barrier to obtaining another loan, there may be more cases of over-indebtedness here in the Western Hemisphere.

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.

Demetria showing her work

 

There are also other business ideas in the works. In the future, Demetria would like to purchase an an enclosed inflatable trampoline to rent at parties. It would be a significant investment, but they are popular at birthday parties here. She plans to expand her sheet sewing business and open a taller de costura, or a sewing shop, in her home and hire 2 or 3 friends to assist. However, she needs to be able to take out larger loans to purchase additional sewing machines, and if she continues to stay in good standing with the Fundación she will be able to do so. Demetria and her husband would also like to open a dispensa, or store, in their home. Not just any dispensa, but one that would sell hard to find sewing machine parts and threads, as well as electrician parts. Oftentimes people in the neighborhood need such products, but they must travel to Asunción to purchase them.

The finished product

Demetria’s work, creativity, and confidence is impressive, especially considering that she was only able to study until the sixth grade. Through her perseverance, her children are able to attend school much longer than she did. Her daughter is finishing high school and is studying to be nurse’s assistant and her young son plans to attend high school at a Fundación Paraguaya self-sustaining agricultural school. Through Demetria’s hard work and involvement in Fundación Paraguaya, as well as her husband’s support, they are able to continue to provide a better life for their family.

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. It would be misleading however, to insinuate that the MFIs claiming to ‘do’ women empowerment, merely based on the offering of financial services to women and by default supposedly increasing their self-esteem, is properly ‘doing’ women’s empowerment. This was indeed a mainstream way of promoting women’s empowerment in the 1980s but has since come under fire. Empowerment in the Women in Development (WID) policy approach in the 1980 was defined strictly as supporting women’s productivity, increased efficiency and earnings, which would presumably trickle down into greater household welfare. The common narrative depicted the entrepreneurial women as empowered by the fact that she could do more for her children and better negotiate with her husband. If the negotiation process fails to meet the woman’s expectation, her training and self-esteem will empower her to leave him entirely. The critiques indicate that this approach renders ‘empowerment lite’[ii] because this narrow form of economic empowerment often reinforces conservative gender practices. It can reinforce traditional gender norms and roles in which women are increasingly responsible for formal productive work (e.g. entrepreneurial projects), while still remaining responsible for informal care and reproductive work in household and community –and are now responsible for raising their families out of poverty.  Gender and development experts see this approach to empowerment as using women for development, as instruments for alleviating poverty as opposed to the contrary. Hence, this is rhetoric of women empowerment that Fundación Paraguaya does well by not appropriating!

Other MFIs are Doing Women’s Empowerment

A Bella Elisa Microcredit Committee

However, some microcredit organizations such as Fundación Adelante, Pro Mujer, Finca Peru, and Fonkoze supplement their financial literacy and business skills training, education on human rights and health awareness especially on reproductive and sexual health. Pro Mujer and Fundación Adelante are among the few that also promote an educational session covering domestic violence. Although, it is ambiguous how MFI deliver human rights awareness. Fundación Adelante’s seems to disaggregate their human rights educational programs into sessions on the rights of women, child, elderly, work place and sexuality. The session on work place right seems particularly important as well considering many of the clients of Fundación Paraguaya that I have worked with apart from having their entrepreneurial project are also domestic employees working very long hours less than a fourth of the minimum wage and probably undergoing other exploitative conditions. It seems that it would be useful for microborrowers to gain awareness of national and UN defined workers rights while also learning ways to actively engage the government to address their needs.

The Pitfalls

People have asked me what it means to implement or support women’s empowerment. Unfortunately, there is not a straightforward answer due to the sheer diversity of what ‘empowerment’ means to different women. One women’s empowerment may very well be another women’s oppression. In the context of microfinance, women empowerment approaches have meant incorporating rights education and advocacy; as well as increasing social capital and female autonomy through solidarity efforts among female members of the microcredit committee. Despite these efforts, there are still some pitfalls.

Depoliticized Human Rights Education

Though spreading awareness about human rights may help a woman formulate a broader sense of her entitlements, the way in which the rights training is delivered may not incorporate how to claim rights beyond a local or personal context. Knowledge of how to collectively voice one’s needs and mobilize political action toward the state is equally important for empowering women as mothers and entrepreneurs. Right to leisure, demands for social provisioning from the state and justice for domestic violence can also be just as important for children as they are for women.  In Paraguay there is a serious problem with involuntary domestic servitude and sex trafficking of children. Children are often abducted while supporting parent’s income generating activities as street vendors. This makes spreading awareness of child right issues, developing the capacity to demand social provisioning and promoting activist potential vital for low-income women entrepreneurs [iii].

Relenting Silence

Often MFI approaches to women empowerment that implement tight solidarity groups via village banking forget that inter-gender conflicts also exist. Men are not always the oppressor of women, women can equally play a subordinating role as mother-in-laws, grandmothers, daughter-in-laws, mothers and neighbors. During committee meeting, I frequently witness group treasurers who routinely speak for all the women. In larger discussions there are some women who remain silent and do not speak for their usages of the loans or the problems that exist among members. When I spoke to a younger microborrower in San Lorenzo, her mother-in-law with whom she lived answered the majority of my questions though none were addressed to the mother-in-law. The unrelenting silence of any participant compromises consensus and solidarity among women and transparency for the surveyor.

 Social Ostracism

This habit of ‘speaking for’[iv] also occurs frequently with microborrowers who drop out or are eliminated from further microfinance committee participation. When women are expulsed from the committee, sometimes no explanation is provided beyond that the microborrower did not pay on time and did not warn the group that she was not going to do so. Surveyors’ response to this explanation is not uniform. Few will pursue a detailed justification, while most attempt no follow up to understand “why not?” The common explanations given for expulsing woman is ‘she is irresponsible and just doesn’t want to pay.’ A committee in San Lorenzo rejected a group member based on the previous mentioned reasons and moreover because she is ‘Argentinean’ and therefore unmanageably ‘rude’. For some women, the rejection and contempt of twenty or so neighbors translates into social ostracism and greater poverty [v]. After, I spoke privately to some of the co-members regarding the ‘rude Argentinean’ lady about the problems getting in the way of her repayment. A few suspected that there were larger problems at home relating to her husband’s long-term unemployment. The “she-just -doesn’t- want –to-pay” story seem to conceals the friction microcredit loans and/or entrepreneurial projects can unintentionally bestow upon the lives of the female microborrowers. Coupling this tension along with social ostracism can damage the ex-member’s prospects of attaining community support in any current or future case of need or emergency.

Legitimizing Irresponsibility of the State

Solidarity groups also present another problem. How much can be asked of a solidarity group to better enable women to dedicate more quality time to their business? It is tempting from a gender and development perspective to suggest that solidarity should expand the narrow confinement of financial cooperation to elaborate more on forms of social cooperation. This could help to promote local community welfare support such as rotating babysitting shifts and/or committee safety planning to help mothers negotiate with domestic abuse. It seems that this grassroots technique would encourage the social capital necessary for alleviating different dimensions of poverty beyond income level. However, there is  significant contention about whether it is fair to transfer community provisioning, which was the state’s political obligation, on to overburdened low-income women. Another contention resides on the assumption that the microborrowers are altruistic because they are women and that village banking doesn’t create a corrosive form of competition among women even within solidarity groups.

Individualized Female Autonomy = Empowerment?

The husband of a microborrower represents his wife at the surveyor meeting while she works Downtown.

A larger issue at hand for the MFIs that claim to do women’s empowerment is to conflate individualized female economic autonomy with empowerment. For instance, when I asked several levels of the staff at Fundación Paraguaya about the issue of husbands who inhibits their wives from participating in street vending, many have responded by asserting “ with a certain level of loans and increased earnings women will be empowered to leave their husband.” However, from what I have seen some low-income women for which being divorced or single with numerous young children, living far away from extended family has not been so liberating. On the contrary, some of the more reliable microborrowers and success entrepreneurs are women that live in a household of extended family. Large families and marriages for low-income women can provide more autonomy and support to engage more fully in their entrepreneurial projects[vi].

Accountability to Women

So back to my question about; why has Fundación Paraguaya not yet appropriated any inclusion of women’s empowerment in their mission or poverty initiatives? The answer remains unclear to me. Women empowerment initiatives are inherently difficult undertakings— difficult to execute, to monitor and to evaluate since empowerment is not an end objective but rather a process. To make formal claims to empowering women certainly invites many critical expert eyes to interrogate the politics behind the organization’s vision of empowerment: who the initiative actually empowers and how. However, to opt out of any form of gender conscious initiative, whether it is a women’s empowerment scheme or not, equally invites troubling challenges. For feminist and gender researchers, mainstreaming gender or a women’s empowerment perspective in an organization such as a MFI should be for the interest of providing greater transparency and accountability to the effects that village banking have on women’s families and communities. Village banking as a microcredit methodology is highly dependent on social capital of communities as collateral and thus not necessarily complementary to the empowerment agenda. Gender projects also require a commitment to move beyond using gender roles, as village banking often does and attempt to transform them.

An ambiguous project, is what this may seem to be. However, incorporating a gender project does not require large-scale changes at first. To begin with, a MFI like Fundación Paraguaya can disaggregate the initial microcredit survey questions by sex (e.g. how much money does the microborrower make versus her husband? Do her daughters and sons go to school or work?). When providing financial literacy and budget training invite husbands and older children into the family budgeting session. During committee meetings have surveyors conduct all-inclusive group discussions and advocate services provided by other social organizations that work on issues such as domestic violence and child rights. If possible, add human right education to the training program. At Fundación Paraguaya I noticed that there is certainly no shortage of gender agenda ideas especially after meeting Maria Christina Silvero Salgueiro, who works with the agriculture schools and daughter of the founder of a large feminist NGO Mujeres por la Democracia (Women for Democracy) along with Martin Burt’s mother. A carefully thought out gender conscious initiative such as a women’s empowerment scheme may help women’s entrepreneurial projects and earnings to trickle more readily into sustainable change.

Microborrower from San Lorenzo