Microcredit: No magic solution

Over the last several years the term microcredit has become a real buzzword. What is it? Microcredit gives small loans (usually less than $1,000) to poor people, those lacking collateral and without verifiable credit histories. The idea is that with access to sources of capital, self-employment then rises and quality of life improves as people break free from the cycle of low income, low savings, and low investment.

The concept of microcredit is now standard in development and for many it has become a magic formula to be applied uniformly around the world. And, as in the case with so much that looks attractive, upon a closer look, everything is not so rosy. You’ve probably heard about Kiva.org, a website where individuals can loan small amounts of money to microcredit programs. They’ve had immense success, and are doing a great job of getting the haves to give a little bit to the have nots. But how are the “end users” faring – the poor people receiving the loans? According to their website, Kiva doesn’t charge its partner agencies interest. But the average interest rate that a Kiva field partner charges the poor borrower is 21%. How can a poor person afford to pay 21% annual interest on a loan? Another NGO working in Nicaragua charges its partner agencies 10% interest and their partner agencies charge interest rates that average 36%. These rates are justified by the higher cost of administering many small loans, and giving free trainings to their clients, but in reality any institution that charges those interest rates is taking advantage of the poor. The poor can’t get a loan at a bank, so the field partners will charge higher interest rates than even a bank charges (18-25% in Nicaragua). That’s called usury.

In our own experience with microcredit projects in Nicaragua, not all is perfect either. After 15 years of work in this area, we have concluded that small loans to poor individuals at truly low interest rates (0-6% annual interest) are necessary, but ultimately insufficient. Those we’ve worked with have improved their living conditions for themselves and their families, but they are still poor. While microcredit can move people within the scope of poverty, but in order to really lift themselves out of poverty, the poor need a more serious investment under a different model.

So what is the solution? The reality is that there are many. But what we have found is that together, we can do more: groups of people working together in democratically-run cooperatives provide more and more sustainable employment than either self-employment or traditionally run businesses. Yet they fall into a financing gap: too large for microcredit and too risky for banks. We are trying to fill that gap with our Vida Fund. The Vida Fund is a shared risk investment fund that partners with the poor to build lives through livelihood. Currently the Vida Fund is helping the Genesis cooperative start up their spinning plant with over $140,000 in loans so far for their building construction alone.

Now we are looking for people to invest in the Vida Fund so that the folks at Genesis can finish their building and so that other similar projects can get started. Investment loans receive up to 5% interest. We encourage a minimum investment of $5,000 and longer time periods (5-10 years) for these loans, so that they can be used most effectively. Since launching the Vida Fund this spring, we have received $27,000 in loans! Currently Genesis needs about $40,000 to finish their building, or just eight people who can loan $5,000. We accept donations of any size to the Vida Fund, all of which are tax deductible. If you know anybody who might be able to invest, please have them email us at jhc@jhc-cdca.org and look at our website at www.jhc-cdca.org/microent.html and http://jhc-cdca.org/Vida%20Fund%20web.pdf for more information on the Vida Fund. To donate online go to www.jhc-cdca.org/credit.html

Global Day of Action in Solidarity with Honduras

Participating in a global day of action in solidarity with the Honduran people, 75 individuals gathered in front of the U.S. embassy in Managua Tuesday afternoon. Participants included U.S. citizens, Nicaraguan social organizations, Christian Base Communities, and others.

News in brief:

• The Bucknell class left on Sunday and had a good experience.
• Sarah is home from a successful speaking tour…thanks to all.
• Becca, Paul and the girls are in the Northwest of the USA.

• The roof of the spinning plant is up except for a cap to go across the top. It is quite impressive…see photos.

• We now have three volunteers working in the clinic: a public health intern (a rising 2nd year medical student from Alaska) and two students who are pre-med and pre-dental from Georgia (the state)... see photos.


• We are taking surveys of people in Nueva Vida and patients in our clinic in an attempt to better our services and learn from the neighborhood.
• Our Shared Risk Investment Fund is getting a new name, logo, and tag line as well as a brochure and a description of the process plus answers to questions people have asked…more on that in a few weeks.


A brief thought:

As it is said about the first missionaries to Hawaii, they went to do good and ended up doing well. This can often be said re the Church…congregations and denominations are established to do good and then they do well. Afterwards they find it low in their priorities to do good. In other words maintaining themselves is more important than helping the poor.
My favorite news source on the television is Fareed Zakaria’s GPS. Last week during an interview with Michael Lewis, Liar’s Poker, Lewis commented about people in finance and financial institutions. He stated that they needed to consider “Doing good not just doing well.” We wouldn’t have such a disaster now if finance worked for the betterment of society as a whole.
It’s hard…so many institutions fall into this trap: governments, NGOs, religions, clubs, etc. But seeing the poor struggle like the Genesis cooperative (the spinning plant) it is easier to stay focused. -Kathleen

Roof going up at Genesis spinning plant

Yesterday afternoon, the Genesis co-op began roofing their building – this is such a huge step for the co-op. Members talked with students from Bucknell University who are working with them about how excited they were, how relieved, how now it felt like their dream is becoming a reality.

It’s a particularly bittersweet moment for the folks at Genesis, because it comes at a time with the co-op is struggling internally with differences among co-op members, and they’re not yet sure what the result will be.

After the Cone Denim factory shut down in April, a few of the Genesis members began to doubt that the cooperative would ever be operational – with the economic crisis worldwide, if the largest textile plant in the country can’t make it, how could a small co-op like Genesis ever have a chance?

At that time the co-op had stopped construction to have a serious of organizational meetings within the co-op, sorting out legal agreements, powers of attorney, and bank accounts. During those meetings some members began to say that the co-op didn’t have a chance of making it – and they were persuasive. Other members began to lose faith in the project.

After weeks of dealing with differences among co-op members, the folks at Genesis are worn out and saddened. There are now there are two groups within the co-op: 1) those who want to get back to work on the construction and move forward and 2) those who want to dissolve the co-op (and expect monetary remuneration for their work, which is a real bone of contention). The first group has the majority.

Genesis has made the very wise decision to try to work out its differences through mediation carried out by INFOCOOP, the government office in charge of cooperatives. Yesterday both groups attended mediation, but were unable to resolve their differences. They are now in a process of presenting arguments and evidence to INFOCOOP, and then that body will make a decision as to how the co-op is to move forward.

Rosa, one member of the co-op who wants to move forward, told the class from Bucknell University yesterday “we have followed the law, we have tried to allow everyone to express their ideas and tried to respect one another throughout this process. Now we want to move forward.”

This morning Rosa was twenty feet in the air with her compañera Jamileth, passing sheet metal up to put the roof of her cooperative. Rosa and Jamileth believe in their project, and they are doing what it takes to make it become a reality. “I’ve lasted more than two years here,” Jamileth told the Bucknell group. “And we’ve got to get this building up this year and get to work, because to be honest with you, I don’t think I can last another year working without pay. I keep telling my kids ‘I don’t have anything for you now, but by Christmas we’ll be working and I’ll buy you a really nice present.’”

Water running uphill at the El Porvenir Coffee Co-op!

When we began to work with the El Porvenir coffee co-op in 2001, one of the problems the co-op asked us to help them resolve was their water problem. The co-op, with 43 families is perched on the top of a hill, has little access to potable water for its 286 people.

FINALLY, last week Rogelio, Pedro, Rito -- the electrician -- and our volunteer coordinator, Ben, went up to El Porvenir to test the water system which pumps water from the co-op well UP 3 kilometers (with a 300 m rise!) to the co-op. The pipes were flushed out from above and below, then reconnected, and the guys went to the bottom of the mountain to turn on the pump. It didn’t start.

The switch was faulty, and luckily Rito was able to disconnect it and wire it directly to the breaker. Since there are no telephone land lines and unreliable signal for cell phone communication, those at the bottom of the hill used a little appropriate technology and flashed mirror signals (we couldn’t make this up if we tried!) to the folks at the top to let them know the pump had been started, then the top of the mountain flashed a mirror back to say they’d started timing the process. After watching the pump’s pressure, they began walking the line back up the hill, checking for leaks and wondering if there was water at the top yet.

About two thirds of the way up the hill, Ben’s cell phone suddenly got a signal and a call came through. It was Felice from the Gettysburg-Leon sister city project which participated in funding this project along with Pangea Giving and Bucknell students and engineers. When Ben answered the phone, Felice – who was two hours away in León – said “Congratulations! The engineers at Bucknell were so pleased to know there is water at the top of the hill!” René, the co-op’s vice president, was at the top of the hill with cell phone reception, and when the water hit the top of the hill, he called Mike at the CDCA in Ciudad Sandino to let him know. Mike called the engineers at Bucknell in Pennsylvania, who called Felice in León. Felice then called Ben and was the first to tell those on the ground that they had running water up at El Porvenir!

Thanks to a whole lot of work from a lot of people, the folks at El Porvenir now have reliable access to potable water…something which will make a huge difference in the everyday lives of these folks, especially in their health. -- Becca