Second, microfinance providers are prohibited from offering other kinds of banking services – they can only dispense loans. For agricultural clients who do no need more debt at the time of the year when the market is replete with corn and beans and the prices are very low, there is no place (other than under the matress) to put any savings. Both of these point to the immense problem of the dearth of small and medium enterprises here. Very few businesses served by MFIs have more than 1 to 3 people working for them including the borrower.

Finally, echoing the post I am a bit skeptical of the MNP motives. The MNP functions as a protection racket.However, the MNP works by members taking out as many loans as they can without any plans to pay them back. Members actually pay for the protection the group provides them from their creditors. If a loan officer comes to collect, they call up their MNP jefe and they chase them out of town or chop up their motorcycle.

I’d agree that financial literacy programs are important and underutilized. These loan products are quite straightforward – interest is a simple compound and borrowers know how much they owe every period and how much they will pay at the end of the term. If they dont think they can pay, they don’t have to borrow. You don’t get into $600,000 of debt in places like Jalapa by accident or financial illiteracy.

Alba Coruna not only gives out loans with low, subsidized interest rates but their clients do not appear on the country wide database of risky clients. For example, I can take out a whole bunch of AC loans, not pay all of them back, and then go in and try to borrow from a host of other MFIs linked in with ASOMIF (the industry association) and none of them will know how many loans I have outstanding. So I can then turn around and not pay them back either. Much more likely here is that these are soft programs to garner favor with the government backing them up.

Now that I understand better the types of interest that are charged on these loans I have even greater concerns. The off-setting factor which I would also have to investigate is the local inflation rate, but I find it hard to believe that loans at 20% for home improvement can be helpful to clients in the longer term unless their homes are unlivable.

I always try to identify people who are borrowing to improve their productive capacity and/or their ability to serve their local market with goods or services that are otherwise unavailable or imported. It seems to me that the MFIs may be missing an important responsibility in not providing guidance on what constitutes a wisely sought loan. While most poor people are probably quite intelligent about small amounts of money, they may not have experience with borrowing. I also have a problem with reading that an MFI had 6 people jailed for failing to repay a loan. No Western organization should be sanctioning debtor’s imprisonment in the 21st century.

At the same time it seems very likely that Mssrs. Ortega and Chavez have ulterior motives in their sponsorship ( control? ) of the Alba Caruna. Perhaps MFI involvement in Nicaragua has reached the saturation point and a refocusing is required. It seems to me that this would also be a good time to support an independent member owned credit union. This could be more community based which would reduce the travel requirements of the MFIs. After all, isn’t the intent of these programs to assist people to get out of the poverty trap?

Thanks for that link. So interesting! I also came across mentions of similar protests in Bolivia and Pakistan. I think they are in the Microfinance Focus Q&A that I linked to above. Microfinance is sometimes referred to as a “silver bullet” and we all know that it;s much more complicated than that.

-Leslie

It is so great to hear from someone on the ground in Nicaragua! I really appreciate your perspectives on this. Let me comment on your points one by one:

1) I think that financial education is absolutely critical to the success of microfinance and think it’s ridiculous to lend and lend and lend without giving people the tools to use the financing in ways that can really improve their lives.

2) Informal lending is big here in China too, especially within families. It’s how many of the factories in cities like Wenzhou got off the ground. Courtney McColgan, one of the founders of Wokai, actually researched this while on a Fulbright Scholarship here.

3) I’ve never heard of this before, but the religious influences make a lot of sense to me. Usury is listed as a sin in the Bible, right? Also, religion often can tie a movement together — any kind of movement, really. I can see why a “Zero Usury” program could be popular. I agree that this would be a fascinating topic for a thesis or dissertation or something like that, since there are so many angles to look at.

I also agree with your point about small businesses in the age of globalization. The organization I worked with in Chile, Accion Emprendedora, helped small businesses specifically confront these issues, though higher-level tutoring sessions on business strategy. For example, building relationships with children’s boutiques in rich neighborhoods to sell artisanal wooden toys. But I think that MFIs primarily focused on loan volume don’t have the capacity or inclination to provide that sort of support.

I’m also curious: what brought you to Nicaragua? There was a point when I was in college when I was considering going there, but I eventually decided to come to China again.

Thanks again!
Leslie

First, I don’t see much effort, not from the current government, and DEFINITELY not from any of the market-fundamentalist governments from 1990-2006 to match rhetoric about loans and social capital with real efforts to promote financial literacy. The loan-to-loan cycle Leslie describes is just as common in the urban parts of Nicaragua where I work. I have lived here for two years and can count on less than one hand the number of people I’ve met who credit microloans with a sustainable improvement in their quality of life.

Second, an informal tradition of loan seeking and barter predates the advent of microfinance. The separation of microfinance from the informal economy (legal and illegal) and the increasing cost of living is shortsighted. In most neighborhoods, there’s always money if you need it, and many people who are by no means gangsters or loansharks see loaning money (at 20-30%) as a good investment if they come into some extra cash. High risk, high reward.

Third, and related to the second, behind the opposition to microfinance is also a religious opposition to “usury.” “Zero Usury” is the program Ortega started to , (overtly) crack down on informal loans, and to (covertly) encourage people to choose Caruna over other microlenders. The program is very popular, and it has been delivered with a definite religious twist. It would make fascinating social science research. The issue that Ortega so astutely plays off of is those who’ve had experience with both microlenders and neighborhood informal lenders don’t really see the difference. Somebody is trying to make money by giving you money. That’s the credit system. There is something supernatural and scary and maybe even demonic about making money grow without appearing to do anything yourself.

There’s also the intuitive knowledge that the number of microbusinesses and small farms that will be successful in a world of globalized agriculture and maquiladoras is finite. It’s frustrating to watch microloan organizations and NGOs churn out tortilla makers, tiny shops, restaurants, and piñata stores, most of which, like most small businesses in the US and Europe, fail to turn a profit. There can only be so many of those before the profits thin out. The money (if you can get it) is in working for the state or working for one of those same NGOs, or joining another treadmill, the maquiladora circuit.

Thanks Daniel! Awesome comment.