The real profits of village banking.

AuthorKelly, Patricia B.
PositionMicrolending in Guatemala - Includes information on the 1997 World Microcredit Summit

Low-income women in Cuatemala are gaining financial and personal freedoms with the assistance of an international mircolending organization

Before dawn Liliana Matias rises to prepare the corn. She washes it and mashes it into dough. Then she carries plastic bowls of the pale yellow mounds to the huge, black griddle--a stovetop the size of a door. There, by 7 a.m, she and her three business partners--Maria Consuelo Gomez, Letty Mazariegos, and Eva Ortiz--mold the dough into small, firm cakes. Within minutes on the griddle, the cakes become their sales product: corn tortillas, two for twenty-five centavos, sold from the kitchen door every morning, from 9 a.m. until they disappear.

On this morning, the four women pause after their cooking to attend a meeting. Upstairs in Gomez's cement-block house in the Villalobos neighborhood of Guatemala City, more than a dozen other women join them in a weekly gathering of their "village bank." They are all entrepreneurs managing their own businesses--from making tortillas and sewing bedspreads to selling chickens and conducting exercise classes.

In a narrow room furnished only with a bed for sitting and a table for counting money and recording figures, Ingrid Hernandez orchestrates the meeting. An organizer, trainer, accountant, and cheerleader combined, she introduces the bank officers, women elected president, treasurer, and secretary of Mujeres Unidas (Women United), the name members have chosen for their bank. The president welcomes her colleagues, makes announcements, and reviews the weekly routine: They will pay the percentage of the loan each one owes this week, with interest. They will pay the percentage each is required to save. Numbers will be updated in bank ledgers and personal account passbooks. But first, they will pause and reflect together about a group issue or problem or break-through, gathering support and motivation from one another. The entire meeting lasts about an hour.

The members of Women United are a small link in a global chain of village banks sponsored by FINCA International, a microlending organization based in Washington, D.C. During its ten years of operation, FINCA International has introduced its methodology in fourteen countries, benefiting more then sixty-five thousand low-income families in some of the poorest areas of Latin America, Africa, and Asia, as well as the United States. Its special approach has been replicated in whole or in part by more than sixty other programs or organizations in thirty-two countries.

The process is simple: First, each banker starts out with a $50 loan, which must be paid back, with interest, by the end of a four-month loan cycle. So, at each weekly meeting, the banker owes 1/16 of her loan and interest. Second, each banker is required to save at least 20 percent of her loan amount during each four-month cycle. For a $50 loan, this is a total of $10. The savings also are paid in weekly installments. Finally, if a banker pays back her entire loan with interest, and meets her savings goal, she may borrow the combined amount of the loan and savings at the beginning of the next cycle. For example, a $50 loan plus $10 in savings will enable a member to borrow $60. And the cycle may continue until a banker reaches a loan of $300. This $300, says FINCA, is enough to create the equivalent of one to three full-time jobs in the developing countries where the program is at work.

"The four-month cycle is designed to change the mold of business thinking, to give quick rewards," says FINCA's founder, John Hatch. "In four months you can spur new activities, get fast turnover. There is a rapid rotation of working capital."

The combination of this low-cost, working capital, the promotion of family savings, and individual and group empowerment makes up the winning formula. FINCA records an overall repayment rate of 95 percent, and its programs have mobilized $3.2 million in borrower savings worldwide. The average banker has accumulated $49 in savings, but many borrowers with two or three years' membership have saved more than $300.

The members' collective savings are deposited in local, commercial banks in accounts controlled only by the visage bank officers. Early on in the life of FINCA, village bankers in Mexico decided that these savings could be put to continuous use. The concept of an "internal account," with the...

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