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3 Reasons Microfinance Still Matters

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“Banco Occidente, Banco Caja Social, Citibank, BBVA…” Don Hugo listed off the banks he had taken loans from in the past. A microentrepreneur, José Hugo Beceira runs a construction shop in a neighborhood on the outskirts of Bogotá, and as he described, there is no shortage of credit for small business owners in the city. Entrepreneurs can walk into any number of NGOs, Colombian banks, or multinational banks, and walk out with a loan.

So if a microentrepreneur like Don Hugo can get the loans he needs to grow his business from so many providers, can’t we just consider this microfinance business a success and pat ourselves on the back?

Not so fast.

Though credit is widely available in major Latin American cities like Bogotá, we’re still very far from universal access, and moreover, easier access doesn’t necessarily guarantee better results for individuals or at the macroeconomic level. So, why do we need a continued focus on microfinance? Continue reading


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Making Friends on the Road

Outside the arrivals terminal at the Medellín airport, I was scanning the busy road for a bus that would take me to the center of town. My internet research had told me that a taxi would cost about 60,000 pesos. Though this translates to roughly $23, on my student budget I was determined to find the cheaper option. Sure enough, I located a bus with “Medellín Centro” painted in showy green letters in the window, and hopped on in exchange for a bargain 9,000-peso fare. I sat in one of the few remaining seats on the bus, next to an elderly nun wearing a habit and a warm smile. She asked with whom I was traveling, and, like all the Colombians that I had told about my long-weekend travel plans, expressed some surprise that I would travel alone. But, unlike those acquaintances in Bogotá who were concerned that I would be lonely traveling by myself, she told me that I was “brava y capaz” – brave and capable. We chatted as we descended into the green valley where Medellín is located, and this became one of many conversations I had with kind strangers on the road. Continue reading


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Loan shark lurks Compartamos waters

One of the reasons microfinance emerged in the first place is to stop loan sharks from lending money to people at unreasonable high interest rates. To this date, MFI’s worldwide have become de facto regulators of this underground practice.  For example in Mexico, whenever Compartamos issues a credit, the loan officer first reads out a code of ethics and a set of legally-binding rules to each client notifying them what they can and cannot do with the loan granted.  Nonetheless, how to really know for sure whether MFI clients are not using the money loaned to extort others?

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Sadly, last week, in one of the field visits we encountered a woman who told us her inspiring story but forgot to leave out the part where she explains how she operates as an uncertified, illegal loan officer, giving out credits at an interest rate 10% higher of the rate she gets in Compartamos Banco.

After describing in detail her daily activities as a hairdresser and sharing with us her goals and future dreams,  she went on to describe her usurious practices and daily operations as what she calls “caja de ahorro” or savings box.

No one really knew what to say or even how to react towards her “secret to success”. She mentioned that her loan officer was not aware of this so she wanted us to keep it a secret. What surprised me the most was how nonchalant she was about her shady secret. It was almost like she knew it was wrong but never really understood the severity of her actions.

The tension filled the 2×2 hair salon and with a diversionary question we finished our visit.

After the visit, we had a brief discussion with the loan officer of what had just happened. It was clear that the hopeful hairdresser was not going to get her next loan renewed.

I wonder, however, what legal mechanisms can be put in place to prevent  this from being a recurrent problem. My question is, how can Compartamos ensure that she will not go to another MFI and do the same thing?