Here’s a video highlighting those entrepreneurs and children Esperanza International works with in the Dominican Republic.

[youtube]http://www.youtube.com/watch?v=138niwUVBeY[/youtube]

I’ve spent a bit of time in the DR visiting Kayla (who works for Esperanza), and this slideshow certainly takes me down memory lane from my trips a couple years ago.

For the past five months, I have been living and working in Mexico for an organization (Investours.org) that combines microfinance with tourism. I had read extensively about the history of microfinance and the work being done all over the world. I  had a pretty good idea about microfinance and its potential to create sustained positive change, but it wasn’t until I got on the ground that I could fully appreciate the  impact being made.

It has been meeting the clients and hearing about their daily lives that has given me the real story. One inspiring example is Javier: a fisherman and father of 4 who lives in the small town of Bucerias, Nayarit, Mexico. Javier is one of the most hardworking individuals I have ever met. His business is tri-layered: at night, he takes advantage of the lack of boats on the water to do all of his fishing. He leaves at 9pm with his fishing equipment (including a huge spear for catching sting rays!) and doesn’t arrive back home until after 1am. He then wakes up before sunrise to use the fish from the night’s catch to prepare a delicious ceviche (traditional Latin American dish made by cooking raw fish with fresh lime juice). At around 1pm, he loads his truck with coolers of fresh ceviche and soda, and brings his products to the local hotels and gas stations to sell to the hungry workers!

Think all that keeps him busy enough? Javier also does contract work building and painting houses in the neighborhood. He built his own house, and with his most recent micro-loan he will be remodeling his kitchen so he can make even bigger batches of ceviche!

Javier is just one inspiring example of the types of people microfinance supports: people with ingenuity, drive, integrity–and did I mention hard work??

I am so grateful that through my work with Investours, I can introduce tourists to inspiring entrepreneurs like Javier who are being supported by microfinance and also support local businesses with an interest-free loans (funded by tour fees).

Read online: http://www.globalpartnerships.org/sections/newsinfo/newsinfo_nr_SustainableHarvest.htm

Seattle, Wash., - Global Partnerships, a Seattle-based nonprofit investor, and Sustainable Harvest, a Portland-based specialty coffee importer, announced today that they have collaborated on an innovative loan product to two fair-trade coffee cooperatives in Latin America: Aprocassi, a cooperative of small-scale coffee growers in Cajamarca, Peru; and Café y Desarrollo/REDCAFES, an association of coffee cooperatives in Mexico serving small landholder farmers. The loans, which were made by Global Partnerships and fully secured by coffee sales contracts from Sustainable Harvest, are helping provide much-needed flexible financing to the region’s small-scale coffee growers.

“With the help of Sustainable Harvest’s support and expertise, we have created and executed a loan product that is finely attuned to the needs of Latin American coffee farmers,” said Mark Coffey, Global Partnerships’ Chief Investment Officer. “The collaboration reflects our shared commitment to helping underserved populations in Latin America increase their income and improve their lives.”

“We are excited to work with Global Partnerships on this new opportunity to support sustainable smallholder coffee cooperatives in Latin America,” said David Griswold, President and Founder of Sustainable Harvest. “Our partnership is facilitating access to credit for coffee farmers in many remote communities, enabling them to increase their household income and build their assets by selling specialty coffee to the global market. Together we can demonstrate it is possible to stimulate economic growth, social impact, and environmental stewardship in rural farming communities.”

Global Partnerships (GP) finalized and disbursed the loans to Aprocassi and Café y Desarrollo/REDCAFES in July 2011, and March 2011, for $465,000 and $498,000, respectively. The loans’ structure includes two innovative components. First, both loans are secured by coffee sales contracts signed between each cooperative and Sustainable Harvest, which means that Sustainable Harvest has agreed that it will purchase a certain amount and standard of coffee from the cooperatives and that it will repay Global Partnerships once the coffee shipment is made. This reduces the risk of default for Global Partnerships and its investors.

Second, the loan terms allow the cooperatives to receive an initial disbursement, pay down the loan as coffee is shipped and then receive additional disbursements from Global Partnerships without going through an additional closing process. This lowers costs for the cooperatives and allows them to provide more flexible terms to its members, such as providing much-needed credit before the coffee harvest cycle, when farmers need to purchase inputs such as seeds and fertilizer as well as pay living expenses.

GP made the two loans from its fourth fund, Social Investment Fund 2010, a $25 million debt fund that loans capital at low cost to a select portfolio of microfinance institutions and cooperatives that have both a sustainable business model and display an exceptional commitment to improving the lives of their borrowers.

The two organizations are strong examples of the type of partners GP seeks. They provide not only low-cost credit to members but also a range of other services that help members increase their income and improve their lives, including access to coffee importers such as Sustainable Harvest; help with fair-trade and organic certification; access to lower-cost inputs such as fertilizer and coffee processing services; guidance on productivity-boosting techniques; and social programs such as health education.

The cooperatives associated with Café y Desarollo/REDCAFES operate in five of the poorest states in Mexico, Veracruz, Puebla, Oaxaca, Guerrero and Chiapas. One hundred percent of its 1,500 members are fair trade certified, and 80 percent are organic certified. One hundred percent of Aprocassi’s 400 members are fair trade certified, and more than 80 percent are organic certified.

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About Global Partnerships: Global Partnerships (GP) is a Seattle- and Managua-based nonprofit that expands opportunity for people living in poverty by investing in microfinance and other sustainable solutions to poverty. As of March 31, 2011, GP had $40.2 million in capital invested in 28 microfinance partners in seven countries in Latin America. http://www.globalpartnerships.org

About Sustainable Harvest: Sustainable Harvest is a specialty coffee importer that uses the Relationship Coffee model to bring partners together in a sustainable supply chain that serves everyone involved—from the farmer to the final consumer. Its approach builds direct, transparent market linkages for coffee growers while investing in training and management systems to improve their ability to produce high quality coffee. http://sustainableharvest.com/

I’m in Saint Thomas in the US Virgin Islands for the next month or so – and of course you know I’m a microfinance fan. Wherever I travel, I’m always on the lookout for fellow microfinance advocates; this trip is certainly no different.

If you know anyone with an interest in microfinance I should speak with in Saint Thomas, please do let me know. I’d love to volunteer a bit for a microfinance organization if one exists here (I haven’t found one online yet).

Nothing like $4.5 million in funding to give the Latin American microfinance industry a boost. From Global Partnerships:

$4.5 Million for Excellence in Microfinance
Global Partnerships’ Social Investment Fund 2010 makes first loans to six partners

Seattle, Wash., – Global Partnerships (GP), a 16-year-old nonprofit that supports microfinance and other sustainable solutions to poverty, announced today that it has invested $4.5 million of its new $20 million social investment fund in six outstanding microfinance institutions (MFIs) in Latin America. Three of the partners are new to GP.

“We are delighted that our investors’ capital is being put to work in organizations so committed to serving people living in poverty,” said Mark Coffey, Global Partnerships’ chief investment officer. “Amid recent negative news about commercial microfinance in Asia, the exemplary work of these mission-focused microfinance organizations is worth highlighting.”

The Global Partnerships fund, Social Investment Fund 2010 (SIF 2010) is a five-year debt fund that provides affordable loans to a select portfolio of MFIs that have met GP’s rigorous financial and social criteria. The MFIs being funded range in size and business model, but are similar in their focus on reaching people in underserved markets in Latin America and combining loans with “microfinance-plus” services such as business education, health services and agricultural training.

For example, COMIXMUL (Mixed Cooperative of United Women) is a cooperative in Honduras that serves more than 11,000 women with microcredit and services including financial education, training on specific trade skills like baking and access to preventive health education. COMIXMUL was started in 1986 by a group of 12 women market vendors who could not access capital from traditional banks.

Crediflorida is a cooperative in central Peru that provides rural, small-scale coffee farmers with credit at interest rates significantly lower than commercial alternatives. It also offers clients training in growing and diversifying crops and access to higher-profit specialty markets.

Other microfinance organizations that have received loans from SIF 2010 as of December 31, 2010, include D-MIRO in Ecuador, FONDECO in Bolivia (another new partner), FONDESURCO in Peru, and FRAC in Mexico (GP’s second loan to Mexico). Together, these MFIs serve 94,000 borrowers, 72 percent of whom live in rural areas and 63 percent of whom are women. GP is on track to disburse all of the fund’s capital by the end of 2011.

About Global Partnerships: Global Partnerships (GP) is a Seattle- and Managua-based nonprofit that expands opportunity for people living in poverty. As of December 31, 2010, GP had $37.9 million in capital invested in 27 microfinance partners, which serve 874,000 borrowers. Find out more at www.globalpartnerships.org

“Why would borrowers in Nicaragua protest against microfinance?” my friend Michael asked me a few days ago.

Michael and I both majored in Latin American Studies at Berkeley. His email re-ignited my excitement for microfinance in Latin America. When I was studying abroad in Chile I interned with an organization called Accion Emprendedora, which sparked my interest in the intersection between business and social good.

Michael sent me this fascinating article: “No Pago” Confronts Microfinance in Nicaragua by Elissa Pachico:

Last January in northern Nicaragua, as a crowd of hundreds blockaded the Panamerican Highway late into the cool Monday night—soaking tires in gasoline before setting them on fire, hurling rocks at police and TV cameramen, bringing traffic to a standstill for 10 miles—the words once again began appearing in news reports and political speeches and inside the National Assembly debate halls: No Pago, No Pago!

In the months that followed, the refrain was hardly absent from the airwaves—not on May 12, when a group of 20 people smashed the windows of a truck belonging to a local microfinance organization, or in early September, when some loan officers were so harassed by protesters barricading their office doors and badgering the clients who attempted to enter that they decided to stop showing up to work altogether.

These incidents are only a few examples of the bad feeling that microfinance institutions (MFIs) have inspired among a section of the rural population in north and central Nicaragua. Confronted by the bold protests of the Movimiento de Productores, Comerciantes y Microempresarios de Nueva Segovia, or more colloquially as the No Pago (I Won’t Pay) movement, politicians are growing increasingly nervous that the group’s protests are scaring away international investors and could strike a heavy blow against the country’s shaky economy. (more)

Since reading this, I’ve researched like the committed and curious student of Latin America that I remember from college, perhaps for the first time for the 2.5 years I’ve been living in China.

So, why have the borrowers been protesting?  Here are some reasons I’ve uncovered.

High Interest Rates

Microfinance institutions in Nicaragua charge interest rates of as much as 21%. The protestors contend that this rate should be no more than 8%.  Yes, 21% sounds like a large percentage of a small loan.  However, microfinance institutions have high transaction costs, based on the labor-intensive process of managing repayments.

Though this is a much-cited reason for these protests, I don’t think it’s sufficient to justify the violence.

Encouragement from President Ortega

President Daniel Ortega has supported the protestors, with both explicit endorsements and direct involvement in a rival credit institution.

On July 12, 2008, Ortega visited the north of Nicaragua and made the following speech, as reported by Microcapital.org:

[He] called on the population to protest against MFIs charging usury interest rates in order to convince them to renegotiate their rates: “We need to end this policy of usury…go march and plant yourselves in front of the offices of the usurers…Be firm! The usurers don’t have any other option: either they renegotiate or they renegotiate”. Ortega did not cite a particular MFI, and several microfinance organizations in the region were forced to close their doors due to protests led by a group of farmers called Movement of the Producers of the North (MPCS).

Mr. Ortega, a onetime Marxist revolutionary who led Nicaragua from 1979-1990, was re-elected in 2006 with 38% of the vote.  In his campaign, he pledged to end “savage capitalism” and bring in foreign investment to help the 80% of Nicaraguans who live on less than $2 a day.

The state also recently started a new credit union called Alba-Caruna, which uses aid money from Venezuela. The website venezuelaanalysis.com describes the program in this way:

Caruna is the body that administers funds made available for development projects in Nicaragua within the framework of the Bolivarian Alternative for the Americas (ALBA). Currently, ALBA’s member countries are Cuba, Bolivia, Dominica, Nicaragua and Venezuela. The Honduran government has announced that it too intends to join ALBA shortly. So Nicaragua’s experience is important as an example and model of the economic alternative based on solidarity and fair terms of trade that ALBA represents.

A peer reviewer responding to an article on the Global Integrity Report describes the organization in entirely different terms, as “a compatible private microfinance bank loyal to Daniel Ortega.”

Regardless of one’s perspective on Venezuela’s influence across the Americas, it is clear that Daniel Ortega has a personal interest in Nicaragua’s microfinance sector.

Reversed Social Capital

In the book Influencer: The Power to Change Anything, the authors cite Muhammad Yunus’ work with the Grameen Bank as an ideal example of a “high-level influence tool – the power of social capital”(173). The book defines social capital as “the profound enabling power of an essential network of relationships”(174).  By organizing Bangladeshi craftswomen into solidarity groups, he built the social capital necessary to ensure that these housewives-turned-entrepreneurs would repay their loans on time.

I believe that in Nicaragua, the “No Pago!” movement has had far more success in leveraging social capital than the local microfinance institutions.  As reported in the Latin American Herald Tribune, “The leader of the protesters, Omar Vilchez, said on La Primerisima radio that they would continue until Congress approves a debt moratorium and the microlenders suspend for three years asset seizures from delinquent borrowers.”  Omar Vilchez also happens to be the former mayor of the town of Jalapa.  He has denied direct connections to Daniel Ortega and Alba-Caruna.  By attracting media attention, he convinced other borrowers to follow his example.  In the words of Influencer, he turned “a me problem into a we problem” (181).

I argue that strategic use of social capital has contributed to the success of microfinance in many places, but in Nicaragua it has contributed to its failure.

One Borrower, Many Loans from Many MFIs

One borrower involved in the Jalapa protests had amassed $600,000 in debt, ostensibly from many different MFIs  Taking out a loan to pay off another loan nullifies any poverty-alleviation effects, and locks borrowers into a cycle of debt.  This is not only true in Nicaragua; a friend who served as a Kiva Fellow in Peru witnessed a similar trend there.

Ineffective Incentives Within MFIs

Both borrowers and loan officers need incentives that ensure the prompt repayment of loans.

Caroline Bressan, a Senior Portfolio Associate with the Calvert Foundation, explains in this excellent Q&A with Microfinance Focus.

From an investor’s perspective, one thing that can be done is to fund those MFIs that are working to create positive incentives for those borrowers that do make their payments on-time. One example of this is BANEX in Nicaragua. They are currently raffling a new truck at each of their problem branches only to those clients who have kept making their loan payments. Another possibility is making certain types of loan products available only to those borrowers with a clean payment record or by creating a separate loan name for those same borrowers such as an Excellence Loan or Gold Level Loan, thereby creating something that they could be proud of.

Another lesson learned from this crisis is to scrutinize not only the procedures and policies of an MFI, but also the implementation of these practices. With the growth we’ve seen in the industry over the past few years… credit policies were relaxed in favor of higher growth rates. Many loan officers were incentivized based on the growth of their portfolio alone. Instead of focusing only on growth, the importance of portfolio quality and knowing their clients should also be stressed in loan officer training sessions and reflected in compensation packages. If loan officers are incentivized in the right way, they will put more energy into choosing the right clients for the MFI and avoid repeating what happened in Nicaragua, where some clients took out loans with no intention to repay. (more)

Drop in Remittances

With the U.S. economy in recession, Nicaraguan laborers working in “el Norte” have not been able to send as much money home.  I’ve heard that remittances are have dropped for the first time in Mexico, by 20% this year. And some Mexicans have sent money to support relatives in the U.S. Since Nicaraguans and Mexicans work in similar industries in the U.S., I think it’s fair to assume that the impact on remittances in Nicaragua has followed a similar trend.

Overall, Nicaragua’s “No Pago” movement can be seen as a “perfect storm” in which many factors contributed to the collapse of the microfinance ecosystem.

What do you think?  I look forward to hearing your comments!

I recently returned from a fellowship with Esperanza International. This Microfinance institution serves over 18,000 clients in the Dominican Republic and Haiti.

I had been conducting interviews with loan recipients for a few weeks and had met many inspiring associates; one in particular stood out to me:

Armando was eight months old when his legs stopped functioning. His family was very poor and couldn’t access the high quality health care that he needed. As an adult, he was stigmatized for his disability and relied on the kindness of neighbors and fellow church members to provide for his needs. However, with the help of microloans from Esperanza, Armando was able to become self-sufficient. He opened an electronics repair shop out of his home and began repairing motorcycles and cell phones as well as selling refurbished parts. As his business grew, he took on three young apprentices. He showed me two textbooks that he used to teach the boys math and chemistry because he wanted them to succeed in case they decided to attend high school in the future.

Armando is a shining example of what a real hero is made of. He refused to let his disability define his life and with the help of microloans he used his skills and talents to provide for himself but also mentor and educate the youth in his community. Imagine how quickly the world would change if we all “pay it forward” the way Armando does every single day.

I have repeatedly wondered this question with respect to natural disaster since I have begun working in Santiago with Esperanza International and Kiva.  What happens to microfinance bank members when natural disaster strikes?

In the case of the Dominican Republic, natural disaster comes often and in the form of tropical storm and hurricane activity.  Since arriving two months ago I have come across the stories of two individuals, each effected by natural disaster.

Gladys, mother of three, lost everything to tropical storm Olga in December of 2007.  Around midnight on a December evening the Tavera Dam collapsed on the Yaque River and allowed 1.6 million gallons of water a second to enter the surrounding communities.  According to Gladys, hundreds were killed.  She declared everyone was sleeping; it was  unexpected.

Due to the failures of the government infrastructure, the Dominican government has built a housing development for those affected by the collapse of the dam.  Gladys has now been living for nine months in this development and is beginning the process of re-establishing her nail salon with her first microfinance loan from Esperanza International.  In additional to free housing, Gladys is also receiving 300 pesos a month for each child living at home, four gallons of gas a month for cooking purposes, and insurance.  Despite the government’s efforts to aid this population it is clear it is a long road ahead.

Olga, mother of four children, has also suffered the effects of flooding and tropical storm activity.  In February 2009 tropical storm activity passed through Santiago and relentless rains persisted for seven days.  Flooding was inevitable.   Olga, as well as her neighbor and fellow member of her microfinance bank, lost their homes due to the flooding.  In the case of Olga and her microfinance bank, unlike the story of Gladys there is no government assistance.  Olga, on her third microfinance loan with Esperanza, is beginning the process of rebuilding.

Countless stories can be told of the effects of natural disaster amongst other cities in the Dominican Republic and throughout the world.  A trend appears to be evident however; the poorest of communities, due to financial restrictions, live in those areas most prone to the sufferings of natural disasters.  According to the UNDP 2004 Reducing Disaster Risk: A Challenge to Development report, “85 percent of the people exposed to earthquakes, tropical cyclones, floods and droughts live in countries having either medium or low human development”.  A cycle of disaster, recovery and disaster can often be seen that leads to the question of how microfinance organizations can best work in these communities.  It is a question I hope to learn more about as I continue to interact with these two women.

I wanted this post to be deep, intellectual thoughts that would blow all of your minds, but realize with only a few weeks of experience, I realize I don’t have any of those thoughts.  What I can offer is some observations I have about microfinance and poverty. It seems so two-dimensional to learn about something through a book or in a classroom when you can see it first hand.  Microfinance is no different.

One thing I have learned is part of the premise of microfinance: handing out money can many times be detrimental. On one occasion when confronted with a handicapped woman unable to work and buy her own food, a group receiving loans decided to support her with their savings.  Since their savings is a great sacrifice for that group, a wealthy businessman offered to cover her food expenses for a whole year.  Initially it seemed like a great idea but is not the best option.  The right motives can sometimes foster dependence and steal dignity.

Another thing I have learned is that we can all make a difference.  If you are reading this blog, that means you have a computer and the internet (or at least access to both).  That means you have money.  There are websites that allow their users to contribute money to directly fund loans for microfinance institutions around the world.  One such site is Kiva.org.  Members can contribute any amount that they want in increments of $25 and have the choice of getting their money back at the end of the loan, contributing to other groups, or donating the money to Kiva to cover operating expenses. Esperanza International works with Kiva but there are alternatives including LendforPeace.org, which was mentioned this past week on this blog.  For those who want to help poverty and make a difference have this opportunity to make a direct impact.

It seems like poverty can bring the worst out of people.  Poverty is a cause of theft, school delinquency, and even racism.  The Island of Hispaniola is comprised of the Dominican Republic and Haiti, which is the Western-hemisphere’s poorest country.  Many Haitians emigrate to the DR because of the greater opportunities not only in work, but also education and other areas.  The Haitians work for less and are often hired over Dominicans to save employers money.  In the Dominican Republic there are similar sentiments towards Haitians as there are in the United States towards Mexican immigrants.

Loans can spur growth and friendships.  One of my main duties is to interview clients about their life situations and see how a loan will affect them and then post that information on Kiva for the lenders.  Esperanza follows what Grameen Bank does in that we have individuals in groups that cross-guarantee each others’ loans, so when one member cannot pay the others cover for him or her.  This provides camaraderie among group members and is a great way to start friendships.  Between being grouped geographically, seeing each other at biweekly meetings, and the sense of a team working for a goal, these loan groups are a great way to develop friendships.  In every meeting I have attended I have seen a lot of laughing among attendees.

Little things we take for granted can drastically affect the way of life.  The best example I can think of is rain.  This past week it rained everyday.  Most of our clients do not own cars and have to travel by foot to get to meetings.  When it rains a lot, the dirt roads become mud roads, making travel difficult.  This can cause meetings to start late or be canceled; pushing back the whole day’s schedule for loan officers who often rely on public transportation or a motorcycle for travel.  A fellow myKRO blogger and HOPE/Esperanza intern, Krista Hoff, told me about a time she saw countless houses built under a bridge swept away due to the growth of the passing river.  A Kiva fellow I have worked with told me that traffic troubles caused by a mudslide cost her four hours traveling!

My experience here has been eye opening and I am really excited to see what else I will learn in the coming months!

My name is Kevin Halloran and I’m a new contributor here at myKRO.org. Ever since hearing about microfinance my freshman year in college I have been interested in exploring it further.  I decided to look into a internship with a microfinance organization and found an opportunity to work with a partner of HOPE International (Esperanza International) in the Dominican Republic for the next 3 months.

I am working closely with Kiva by updating the stories and information on the Kiva web page, making sure all of the loans and journals are posted.  In addition, I will help in the office wherever needed.  I will have the opportunity to interview clients and travel with loan officers to get first hand experience interacting with clients of microfinance.

So far I have been here a little over a week and have already learned so much.  I’m excited to see all that I will learn and experience in the next few months and will keep everyone updated on my experiences!