Microfinanzas

Disclaimer: This is going to be entirely about nuances of microfinance, and I realize this might not be of interest to everyone. Feel free to skip it if that’s the case! Also, my thoughts aren’t fully organized or developed yet, these are just a few ideas.

First, some basic information. Fundación Paraguaya charges an interest rate of 37%. While this may seem high, it is really quite good, comparatively. The loan sharks are one of the only other options available to these women, and they charge 100-200% interest. Each comité goes through cycles of loans, each of which lasts 3-4 months. At the end of each cycle they have repaid their loan and can get a new one. The amount they can receive goes up each cycle, as long as they have made all their payments on time, have a certain number of members in their comité, and a few other basic requirements. Apparently many comités get stuck on the fourth or fifth cycle because they are unable to continue meeting the requirements. When this happens, they can continue to receive loans, but the amount does not increase. As an example to put this process in perspective, one of the comités I had the opportunity of visiting yesterday was signing papers for their third cycle, and each woman was going to receive 300,000 Guaranís (the local money). This is the equivalent of $60, and these women were exceptionally excited about it.

People often look at microfinance through rose colored glasses, and see it as something that can work miracles, a simple and effective solution to a huge problem. But poverty is an extremely complex problem with many sources and manifestations to which there is no one solution, and like all solutions that have yet been offered, microfinance has its downfalls. I’m not saying microfinance doesn’t do great things and provide many opportunities, it absolutely does. I won’t be here if I didn’t believe that, my point is just that there is more to it than people often consider at first glance.

For one, the possibilities for growth are limited. Many of the loans that women receive, especially once they’ve gone through more than one cycle go to the purchasing of more capital to expand their businesses, or just to continue to provide the daily needs of their stores. From what I can tell, a huge majority of these women either sell vegetables, or sell clothes. But after a woman has a successful clothes or vegetable shop, where can she go? What can she do to improve? Very little. Also, this cannot be a solution for everyone. Not everyone can have a clothes or vegetable shop, the demand is not there.

One idea that has been offered as a possible solution to this is to combine micro-franchise with microfinance. This is a very new idea that hasn’t been tried in many places, but seems like it has some potential.

Another difficulty in this process is the basic concept of comités. Loans are dispersed through comités for several reasons. The first is that it provides the lender with some form of security, because if one woman is unable to pay back her loan, the other women in the group are responsible and capable of paying it back. The other facet of this is the idea of social capital—the idea that when these women have common interests they will band together and help each other to reach their goals. While sometimes this works as it is meant to, sometimes it doesn’t. Sometimes there is a lack of leadership and coalition between the women. Other times when a woman is unable to pay back her portion of the loan or problems of some other type arise, it can result in conflict within the group, and can have opposite the intended effect—it can tear a community apart.

Just a few ideas for now. I was going to try to keep this brief, but have already failed, so I won’t go on! I’m sure I’ll have more to say about this once I’ve been here longer though. Feel free to contribute any thoughts you may have (Or just to prove to me that someone actually read my ramblings ;) )!