Posted by: Lilly | September 9, 2008 site on Microloans in Bolivia

When text below comes from American Government site we know things are changing. Here it is in its entirety.

02 September 2008
Microloans Enable Many Bolivians to Become Entrepreneurs

Microfinance is fastest-growing business in South America’s poorest country

By Phillip Kurata
Staff Writer

Washington — Bolivia, the poorest country in South America, has devised a system of microfinance lending that offers poor, often illiterate people the chance to become self-sustaining entrepreneurs.

One such entrepreneur is Flora Callisaya, a 38-year-old single mother of three boys aged 12, 14, and 18. The mother and her boys used to live with Callisaya’s parents as she struggled to support her family. She received her first loan of $17 from the Pro Mujer microfinance institution (MFI), which requires its members to participate in a savings program.

Callisaya used her initial loan to buy materials for a printing business. From that modest beginning, she expanded her enterprise to include a photography studio and dishware and gift boxes that she sells in the market. Her loan now is $1,122.

Thanks to Pro Mujer’s mandatory savings program, Callisaya has bought her own land and a house. She has served as president of the communal bank that the MFI helped organize.

“Pro Mujer is like school for us. Here we can see each other, have fun, relax and learn. For us Pro Mujer is a place we can be together,” Callisaya said, according to the Pro Mujer Web site.

Inter-American Development Bank seed financing has played an important role in the Bolivian and similar microfinance systems throughout the region.

“Microfinance lending is the fastest growing and most profitable sector of the Bolivian economy for the past quarter century,” said Sandra Darville of IDB. “Loan repayment rate is very high. If they want another loan, they have to repay the first one.”

Bolivia seized and redistributed land, nationalized mines and natural gas reserves and imposed exchange rate and price controls from the 1950s to the 1980s with the aim of spurring economic growth, but to little avail.

Then, in the 1980s, Bolivia reversed course and embraced market-based reforms — lifting price controls, encouraging foreign trade, selling off state enterprises and closing unprofitable mines. Those measures stabilized the economy but did not induce economic growth. Poverty remained high, and the rural poor migrated to the cities in search of better economic prospects. Witness the growth of El Alto, a city near the capital, La Paz, from a population of 100,000 to more than 1 million over 15 years.

On the streets of El Alto, as well as other Bolivian cities, vendors sell fruits, vegetables, televisions, refrigerators and clothing. These street businesses are part of the “informal” economy, which provides the livelihood for more than 60 percent of the population.

To enable laid-off miners, landless peasants and others of the impoverished underclass to support themselves, donor countries, charities and the Bolivian government developed ways of identifying prospective entrepreneurs and loaning them small sums of money to launch businesses. Thus was born the microfinance industry, and the collapse of the myth that poor, illiterate people were poor credit risks. The default rate on microloans is less than 5 percent.

About 1 million Bolivians have taken out microloans from about 20 MFIs. Throughout the Latin America and Caribbean region, about 8 million people have taken out microloans, amounting to about $9 billion.

The 2004 Special Summit of the Americas affirmed its support for IDB lending through the banking system to micro-, small-, and medium-sized enterprises. A summit statement praised IDB for “striving to benefit all of the countries that participate in the Summit of the Americas process.”

Referring to Bolivian microloan recipients, the IDB’s Sergio Navajas said, “These people are very, very poor, but they have viable businesses. The key to microfinance is having methodology that distinguishes legitimate business people from would-be beggars.”

“MFIs are part of the financial system,” Darville said. “Certainly, they are sustainable. They have grown, taking deposits, offering checking accounts. Some issue bonds and shares. Increasingly, they are part of the domestic and international capital markets. [Credit rating company] Standard and Poor’s has begun rating them for their credit risk.”

The microfinance lenders form close ties with borrowers, getting to know them and their communities. Often loans are extended to groups, creating “moral collateral” in the absence of material assets. If one person defaults on a loan, then the other members of the group are responsible for repayment. The social network minimizes the default rate.

The interest rates on microloans in Bolivia have fallen from around 60 percent a year in the 1990s to 19 percent now, according to Navajas. As business people have seen that microfinance is a viable service industry, competition has grown and lowered the cost of borrowing, he said.

Most of the microloan recipients are women — by coincidence rather than design, according to Darville, although some MFIs deal exclusively with women. The reason that women constitute the majority of the borrowers is that most microfinance loans go for retail businesses, such as small grocery stores, bakeries, handicrafts, restaurants and market stalls, where women predominate.


  1. Good … but how good?

    All the data about performance is either financial related to the organization … or anecdotes ( and maybe surveys) about the clients … but this is not an adequate indicator of performance. What is happeneing to the community? And how what is being accomplished compare to what is needed … or what it could be … or relative to performance in other locations.

    Tr-Ac-Net’s Community Accountancy (CA) addresses these performance issues … helping to generate a set of neutral data that show how well initiatives are working and how much impact they are having.

    Peter Burgess

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