Wednesday, February 29, 2012

Passport Series: Microfinance Adapts To Meet The Needs Of Salvadorans

This is the second of a three part series taking a deep-dive look at El Salvador, its history with microfinance, Kiva's role in expanding opportunities for Salvadorans, and what it's like to participate in the country's economy as a borrower, lender and field worker.

El Salvador is a country in the process of rebuilding. The damage from a brutal 12-year civil war and a series of natural disasters has left many citizens in need. Kiva currently works with three microfinance partners in El Salvador to offer loans and services to help citizens grow, repair and strengthen their businesses. While our Salvadoran partners share the mission to expand opportunity, each addresses borrowers’ needs in a unique way.

Imagine being a rural farmer in northeast El Salvador, one of the regions most damaged by the war. Your family depends on your income and subsistence crops for food, but minimal infrastructure and widespread poverty make it difficult to access training programs, education and formal support groups. Maybe you need to buy fertilizer and harvesting tools like your neighbor Hector Arely. What are your options?

Prior to 2004, getting a loan would have required time-consuming, costly trips to the nearest microfinance institution, relying on struggling friends or family, or borrowing from an informal money lender with sky-high interest rates. Eight years ago, our partner, PADECOMSM saw this situation and decided to do something about it. They moved their headquarters to the heart of the region in Morazan, and now offer irregular repayment schedules to cater to the agricultural sector and better fit clients’ lifestyles.

Imagine living in a community torn apart by a lengthy civil war. As you start the long rebuilding process, you form associations of communal development (Asociaciones de Desarrollo Comunal or ADESCOs in El Salvador) governed and administered by the people who live in each community to help, support and manage development. As the community grows, you are limited by a lack of outside capital and must rely on friends and family for loans. With scarce funds and financial education, reconstruction is often a non-starter. What can you do?

Our partner Fundacion Campo encouraged these communities to establish Communal Credit Committees consisting of three to five members to review loan applications -- but not by performing traditional credit checks. These committees look at the character of each applicant and review his or her business plan to make sure it is likely to be successful. These committees allow Fundacion Campo to make loans based on information that would otherwise be difficult and expensive to gather.

These partners have both demonstrated a willingness to listen to and act on the unique needs of their clients, and adapt their business models to fit those needs. To recognize their efforts -- and highlight them to Kiva lenders -- we have awarded both of these partners the Client Voice social performance badge. Listening carefully to clients’ needs often leads to the creation of additional wraparound services that can dramatically improve people’s lives, and that's what Kiva is all about.

Imagine living in a rural community and you are the only mechanic in a four hour driving radius. A neighbor comes to you with a flat tire and asks for a quick tire change so he can use his car tomorrow to get to work. But you have no tires. In fact you -- like borrower Jaime -- have no oil, grease or keys because you can’t afford to keep them in stock. You lose your neighbor's business, and he misses a day of work to journey into town. What options do you have to prevent this from happening again?

Fundacion Campo responded to woes of Salvadoran entrepreneurs struggling to start, maintain and grow their businesses by launching UNDESCO. A program to drive the development of projects that strengthen the local community by providing technical assistance and training, and increasing access to basic services and infrastructure. Funding Kiva borrowers like the mechanic helps Fundacion Campo strengthen the entire community. This supportive program has earned Fundacion Campo the Entrepreneurial Support social performance badge.

Now, imagine you’re living in a house with no roof. That means no heating, no cooling, no security, no protection from rain or noise. Sleepless nights make it difficult to be productive during the day. It’s all but impossible to preserve and protect food -- or any of your belongings for that matter. Maybe your neighborhood has a problem with vandalism and you and your partner have to work full time to make ends meet like borrower Oscar and his wife. How do you secure your property and have the energy and peace of mind to go to work all day?

Our third partner in El Salvador, Apoyo Integral, helps borrowers like Oscar by offering personal use loans coupled with technical advice. They advise borrowers on everything from construction materials to installation methods through their partnership with the Foundation for Integral Support (FUSAI). They even offer voluntary microinsurance plans, allowing clients to affordably and safely protect their homes in the event of a disaster.

El Salvador’s vulnerability to extreme weather conditions and street violence makes building sturdy, secure homes particularly important. And insurance programs provide a cushion from unpredictable financial hardships when strong walls aren’t enough. For many Salvadorans, a secure home is an investment in the prosperity of the entire family.

Microinsurance, construction consultation and voluntary savings accounts are ways that Apoyo Integral and Kiva are helping to establish a more stable economic environment in El Salvador. We have awarded Apoyo Integral the Innovation and Facilitation of Savings social performance badges to encourage lenders to support its clients and innovative programs.

El Salvador is a dynamic country with complex and unique issues impacting development and economic stability. Kiva is proud to be working closely with partners that sensitively and sensibly address these issues.

However, there is one quality that shapes the country's culture above all others: the importance of family and community -- which is one reason we are proud that all three of our partners have earned the Family and Community Empowerment social performance badge. Through empowerment, support and innovation, our Kiva lenders and our partners are helping to strength the future of El Salvador one loan at a time.