Each month, the Kiva Blog profiles a country we work in through a three-part segment call the Passport Series. This month, we are taking a look into Nicaragua! Nicaragua has one of the most interesting histories in Central America as well as a complex and controversial political economy. Follow us throughout the month of June while we learn about the country, their microfinance sector, and finally narrow in on the life of a borrower. This installment of the Passport Series focuses on the Microfinance Industry in Nicaragua; the first post was a Country Profile.
Microfinance Industry in Nicaragua
Nicaragua’s history includes a ten-year civil war, devastating natural disasters, high external debt and unstable politics. While the country is beautiful and full of natural resources, the majority of the wealth does not reach the masses. With the more recent global economic crisis, microfinance needs are plentiful in Nicaragua, as it remains one of the poorest countries in the western hemisphere.
Campground Northwest of Chinandega
The microfinance industry in Nicaragua is comprised mainly of NGOs, non-profit MFIs, and cooperatives. The Superintendency of Banks and Other Financial Institutions and the General Directorate of Cooperatives are the regulatory institutions for microfinance in Nicaragua. The creation of the Central American Network of Microfinance (REDCAMIF) in 2002 aided in the growth of the microfinance industry for Nicaragua, making it the largest market in Central America. REDCAMIF is a regional network that helps ensure transparency and the flow of viable information to the necessary channels.
Movimiento No Pago
Until recently, the microfinance industry in Nicaragua was considered a great success. However, the market is vulnerable to perceptions of country risk, which was evident during Nicaragua’s “Movimiento No Pago” (No Payment Movement). This crusade began in 2008 and was fostered by Nicaraguan borrowers protesting for non-payment of loans. Since the No Pago Movement arose in 2008, the microfinance industry in Nicaragua has succumbed to controversy and scrutiny from investors. The global economic crisis was a major catalyst to this effort, as rural farmers and the underprivileged were hit the hardest. Many borrowers found themselves unable to repay loans. There were complaints before the government that interest rates were too high, and protests (some violent) from the rural poor were sparked throughout the country. The No Pago Movement initiated discussions of implementing debt-relief laws throughout the country.
The momentum behind the No Pago Movement appears to have largely dissipated, as a result of the National Assembly's passage of a law in April 2010. This new law allows delinquent borrowers (as of June 2009) to re-negotiate loans with more favorable interest and terms. Borrowers who were part of the No Pago movement were required to approach MFIs to re-negotiate their loans by May 12th of 2010. While many borrowers did approach MFIs to re-negotiate their loans, it still only accounted for a small percentage of the members of the No Pago Movement.
Volcan Concepcion (Photo Credit: Gabe Frances - KF12)
Kiva and Nicaragua’s Microfinance Relationship
While the microfinance market in Nicaragua continues to mend, it still remains the largest in Central America. Nicaragua currently has 32 MFIs, 6 of which are current loan raising Kiva Field Partners: Fundacion Leon, ADIM, AFODENIC, MiCredito, CEPRODEL, ADEPHCA. In 2009, Nicaragua had roughly 391,375 borrowers and the country reports over $472 million gross loan portfolios. Out of all of Kiva’s field partners in Nicaragua, CEPRODEL has the highest gross loan portfolio and number of borrowers.
MFIs are playing an important social and economic role, and some are rebounding from the No Pago Movement crisis, according to local and international reports. Each of Kiva’s Field Partners has tremendous and unique efforts in Nicaragua, which encompass: microenterprises, women, rural farmers, student loans and afro-decedents.
• Fundacion Leon focuses on the development of micro, small, and medium enterprises through credit services and management.
• ADIM also concentrates on entrepreneurial development, but with a special attention to female entrepreneurs.
• CEPRODEL develops housing cooperatives for low-income families, provides microfinance loan services to small business owners and livestock and agricultural workers, and promotes renewable energy and improved water quality by offering loans and subsidies for solar panels, water tanks, filters and pumps.
• AFODENIC provides micro-loans for agricultural activities, livestock cultivation, and house repairs, as well as microenterprises/small businesses.
• MiCredito is in its pilot stage with Kiva and together we have disbursed our first low-interest student loans at Catholic University of Dry Tropic Farming and Livestock just north of Managua!
• ADEPHCA is one of Kiva’s higher risk partners. It is very small and started working with Kiva before certain core risk and due diligence policies were put into place. Located on the Caribbean Coast of Nicaragua, ADEPHCA works with communities of Indigenous and African descent. The area where ADEPHCA works is not served by other MFIs and therefore ADEPHCA provides an important and needed service to people in the community.
Banana field, Isla Ometepe (Photo Credit: Gabe Frances - KF12)
Nicaragua’s history of microfinance is quite distinctive, and Kiva and our partners work hard to support its recovery. For Kiva lenders considering making new loans in Nicaragua, it seems that as a result of the passage of the debt-relief law and since the term for re-negotiation has passed, the microfinance situation in Nicaragua has calmed. Additionally, the Nicaraguan government formulated a new law that regulates MFIs and will go into effect this month. This ratification is a big step towards bringing MFIs into the mainstream, ensuring better quality institutions, aiding in stabilizing the situation, and bringing back investment to Nicaragua.