Microfinance Jingles

By Juan David Nuñez Hurtado

I grew up in Ambato, Ecuador, during what was probably a microfinance boom. Every time I got into a taxi or bus, I could hear jingles about “Cooperativas de Ahorro y Crédito” (Savings and credit cooperatives), but I did not know what all the fuss was about. In my school people talked with awe about this indigenous guy who became a really successful businessman. The reason for astonishment was that most indigenous communities in Ecuador were and still are racially marginalized, so knowing about a successful man who is not white or mestizo was a reason for surprise. Later, I discovered he was the founder of one of the biggest microfinance institutions in the center of Ecuador. His organization aims to help indigenous people who were denied loans from bigger banks by giving them microcredits to start their own businesses.

Now you might ask: what are microcredits? Well I did not know until recently. I had to read the book “Building Social Business: The New Kind of Capitalism That Serves Humanity’s Most Pressing Needs” by Muhammad Yunus to discover what all the jingles that I forcedly memorized as a child were about. So for those who do not know, microcredits are a part of the umbrella term microfinance which includes micro insurance, micro savings, etc. These are a type of loans designed for people with low income. Unlike traditional loans, they do not require a collateral. You might wonder how do they work then… well, they rely in societal pressure to ensure prompt payment. Initially the system worked like this; you gather a group of fellow friends, family, or close acquaintances. Each person receives a part of the loan. Every month there is a meeting with a microfinance official, and everyone has to pay his/her part. If someone does not pay, the group is responsible for the payment. Since the people you form the group with are your very loved ones, disputes are undesirable. Hence, most payments are made on time. However, nowadays this system has morphed into diverse forms of lending, that do not only cather only the poor, but also middle class people. As long as the money is used to fund the growth or creation of a small traditional business, it might be considered microcredit.  I even found an institution that accepted golden jewelry as collateral for their micro loans.

A lot of what I have been doing during this Human Connections internship is learning about the microfinance landscape in Latin America. It might sound dull to some, but there is something about this topic that keeps me engaged. It is probably the promise of a method that might solve one of the biggest problems of humanity; poverty. However, as with every big promise, there are always several downfalls and complications. Given the cultural and racial diversity of Latin America, we have seen this system morph and adapt to the place it is implemented in. It has been very successful in the northern Andean region, probably because of the niche market created by the racial tensions I mentioned before. But on the other hand, it still strives to find its place in big countries like Mexico and Argentina. Only time and the will to innovate will determine if this system is applicable on a global scale.{:}