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PARAGUAY: Solidarity Lending Bolsters Community Development

David Vargas

ASUNCIÓN, May 25 2007 (IPS) - Esperanza Santos Aranda, who lives in a poor neighbourhood in the Paraguayan capital, used to sell vegetables at a precarious market stall. But thanks to a 60-dollar loan, she was able to open up her own small clothes-selling business.

Aranda is a resident of Bañado Tacumbú, an area in Asunción that has one of the highest poverty rates in this land-locked South American country of six million, and which is flooded every year when the Paraguay River overflows its banks. Her husband is a construction worker who only finds casual work, and she supports her 21-year-old daughter, a single mother.

Four years ago, Aranda heard about a community organisation that granted low-interest loans to people who wanted to set up small businesses, and she did not hesitate: she applied for and immediately obtained 60 dollars to open a small clothing shop in her home.

Her business prospered and grew into one of the most popular neighbourhood clothing shops, which offers clients the possibility of paying in “comfortable, widely-spaced” instalments, Aranda told IPS.

“I often visited banks and other financial institutions to apply for credit, but no one wanted to lend me money because I’m poor, or they asked me for collateral or a guarantor and a ton of documents,” she added.

Now Aranda buys clothes wholesale at a popular market in Asunción, mainly contraband items brought in from Brazil or Argentina. She earns around 200 dollars a month, below the minimum monthly wage of 240 dollars, but four times the estimated value of the basic basket of food items.


She is one of the beneficiaries of ACRES (Área de Créditos Solidarios or solidarity lending branch) of the non-governmental CAMSAT (Health for All Mutual Aid Centre), which has been operating for 17 years in Bañado Tacumbú.

“CAMSAT emerged with the aim of undertaking activities that provide training and help organise the neighbourhood, with the ultimate aim of overcoming poverty,” Catholic priest Pedro Velasco told IPS.

Velasco set up the organisation along with volunteers from the Catholic Church’s Social Pastorate. The commission that runs it is made up of local residents who are elected by assembly every three years.

Based on a census that it carried out last year, CAMSAT estimates that 85 percent of the more than 10,000 people living in this poor neighbourhood have no formal employment.

Most are involved in precarious activities, like informal waste collection and recycling, fishing or the artisanal manufacturing of bricks and tiles. And of the 15 percent who are employed in the formal economy, only one-tenth earn the official minimum monthly wage of 240 dollars or more.

Some 750 families are members of CAMSAT, paying a monthly quota equivalent to three cents of a dollar, which entitles them to medical care, medicines from a low-cost pharmacy, tutoring classes for children, a soup kitchen for children, and skills training courses for adults.

A United Nations Development Programme (UNDP) publication in February (part of the Human Development Publication Series) described CAMSAT as a model of community development and organising against poverty.

The official poverty rate in Paraguay is 38 percent.

The ACRES credit programme is one of the pillars of CAMSAT. It was organised in 2000, emulating the idea of Bangladeshi economist Muhammad Yunus, who in the 1970s put into practice the concept of microcredit for poor people without access to commercial bank loans to start up their own small businesses.

Last year, Yunus was awarded the Nobel Peace Prize for his Grameen Bank, or “bank for the poor”.

ACRES currently benefits 650 local clients, and moves around 60,000 dollars a year. The loans have an annual interest rate of 1.6 percent, and the payoff rate is 97 percent.

In Paraguay, interest rates for loans are regulated by the Central Bank and range between 20 and 26 percent a year in banks and 25 and 30 percent in finance companies.

ACRES’ loans are granted to groups of five people, under the solidarity group lending model, in which peer pressure and collective group responsibility help ensure that the payments are made. The initial microcredit is 60 dollars – an amount that can grow as the initial loan is paid off and the client builds a strong repayment history.

The quotas are paid weekly and in accordance with what each beneficiary can afford. The profits derived from interest allow ACRES to maintain the flow of credit, cover administrative costs, and absorb the unpaid loans.

One peculiarity of the programme is that it does not require loan applicants to live up to specific requirements or sign any document: all that is needed is a personal commitment. “The less they have, the better. Because those who have nothing are the people we want to help,” said Father Velasco.

Another innovative aspect is that the programme’s loan officers actually go out to knock on doors in search of clients, constantly combing the neighbourhood in search of new business opportunities for people, and providing advice to candidates on the possibilities of new activities that they could get involved in.

“We are more like social workers than bank employees,” Zulma García, the ACRES administrator, joked to IPS.

The programme has enabled many poor people, who had no access to the financial system, to free themselves of loan sharks who charge up to 30 percent a week interest, making their loans a practically unpayable burden.

One of the most dynamic initiatives to come out of the solidarity credit programme was the “Bañado Poty” bakery run by a local women’s organisation.

The company was set up in 2001 with a 100-dollar loan. “We took out the first credit to buy the raw materials,” Vicenta Rodríguez, who coordinates the bakery, told IPS.

The business now employs 19 people, most of whom are women, and produces between 600 and 800 kgs of baked goods a day, enough to supply over 90 percent of the neighbourhood’s food stores. The company bills around 8,000 dollars a month.

“For the women in the bakery, one of the main achievements of this project was that they don’t leave the neighbourhood to work, and they don’t have to leave their children alone for hours on end,” said Rodríguez.

The UNDP report said the opening of the bakery was a fundamental step towards achieving autonomy for the women involved. The members “are now aware of their rights; they stand up for themselves and demand respect, and tell the men that ‘I also have rights; we are equal’,” Rodríguez added.

The loans benefit families on various levels, one of which is to encourage people to continue studying. An adult literacy programme, for example, is being carried out by means of a community radio station that operates in the neighbourhood, a joint initiative with the Catholic organisation Fe y Alegría (Faith and Happiness), which is active in 14 countries of Latin America in popular education and social development and has been working in Paraguay since 1992.

ACRES’ main challenge is to grow.

“When we had 30 or 40 (solidarity loan) groups, we were unable to support ourselves,” said García, the programme administrator. “When we grew to 70 groups, we began to cover our expenses with the interest earned, and now, with 130 groups, we even take in a small profit.”

“Unfortunately, no institution has come forward to provide us with a relatively large sum of money. If we could receive a significant boost in terms of aid, we could achieve stability in this area,” she added.

Father Velasco said that “If we could turn over one billion guaraníes (200,000 dollars) a year with 300 groups, that would enable us to take in profits and expand into other areas, like housing for example.”

 
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