ARGENTINA-ECONOMY: Micro-Credit – When a Little is a Lot

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Jul 21 1997 (IPS) - As the big super banks of the world grow more powerful they become more distant from the reach of the poor and working classes in most countries but small borrowers still have the option of “microcredit.”

This novel system is relatively new and operates on the fringes of mainstream economies where, unlike the big banks, micro-credit mechanisms provide loans to the underserved.

Some 28 percent of Argentina’s workforce is comprised of micro- entrepreneurs with no access to mainstream credit. They are mostly the small businessmen and businesswomen who operate food stands, handcraft shops and build up supply depots.

More than 6,000 of these small entrepreneurs have received 40 million dollars in loans issued by the Enterprise Foundation, a non-profit organization that seeks people outside the mainstream banking system. Some 85 percent of all borrowers utilizing micro- credit do not own their own home and, generally, their assets are under 3,000 dollars – which precludes bank financing.

Forty two percent of micro-creditors are women heads of household who support their families with micro-enterprise earnings.

Gladys Chavez owns a mini-market in San Miguel in the province of Buenos Aires. Four years ago she asked for a 900 dollar loan to purchase merchandise. Terms included 12 monthly payments and access to a new line of revolving credit each time she paid.

Chavez told IPS: “Now we’re asking for 4,000 dollars because we want to purchase a pick-up truck so my husband can transport merchandise by himself. When we pay off this new loan, we’re going to borrow an additional 5,000 dollars as down payment on an adjacent piece of land which will be used to expand our business”.

Juan Padilla, executive director of Enterprise Foundation, explained that his organization – which is funded by private businesses in Argentina – is associated with a network coordinated by the American company, Action International. Action International has 18 affiliates throughout Latin America.

In countries like Bolivia, where 85 per cent of the workplace is comprised of micro-entrepreneurs, a micro-credit agency called Banco Sol (Sun Bank) has a loan default rate of less than 1 per cent. Recently, Banco Sol began to distribute earnings among its shareholders.

Other similar organizations exist all over Latin America, among them, Tolima Action in Colombia, the Small Business Corporation in Chile, Ecuador’s Development Foundation, Peru’s Communitarian Action and the Paraguayan Foundation for Development and Cooperation.

Periodically, these micro-credit institutes meet in order to share their vast wealth of experience and to exchange training methodologies. “The idea is for Argentines whose family is income between 600 and 900 dollars to improve their quality of life without dependence on the State,” Padilla says.

In Argentina, the micro-credit phenomenon is not yet an established business, although it has experienced significant growth since it commenced operation in 1992 with fewer than 200 clients.

A national unemployment rate that has skyrocketed from 6.0 to 17.4 per cent in the last six years, has fueled the expansion of micro-credit. Many micro-entrepreneurs are dismissed workers from the private sector, or former employees of State-held companies that were privatized earlier this decade, Padilla notes.

By using severance pay or money set aside for retirement, these unemployed Argentines have established news kiosks, green groceries, repair shops, and used auto rental agencies. Soon, however, these entrepreneurs found themselves with insufficient money to finance expansion and improvement.

The Enterprise Foundation was first incorporated in Buenos Aires, but has now spread to the provinces of Cordoba, Santa Fe and Tucuman. By August, branches also operate in Jujuy and Chaco. Loan terms always specify short-term repayment, and bear a monthly interest rate of 3 per cent.

Padilla says that “the usurer who used to do business in Tucuman charged 30 percent per month. On the other hand, the mainstream Argentine banking system in Tucuman only charges 2.7 per cent monthly, but also requires guarantees that micro- entrepreneurs can not provide

To request micro-credit, one must have access to workshop space or a store-front, in addition to an identity card. Borrowers can opt to take training courses in ledger maintenance, cost analysis, sales, incorporation and profit analysis.

“Some clients are scared to participate since 75 per cent of them have less than a grade-school education but our teaching methods and group study sessions make our courses accessible to everyone,” Padilla says.

In the beginning, the Enterprise Foundation consolidated borrowers in solidarity groups, a procedure that has been followed elsewhere in Latin America. Four-to-six micro-entrepreneurs join together to back a single borrower’s loan petition.

In 1995, when Argentina was overwhelmed by repercussions from the Mexican financial crisis, the micro-enterprise system suffered the same stunning blow as mainstream banking. Padilla recalls: “Many solidarity groups got weak in the knees making it necessary to re- furbish our methodology”.

Now, anyone who wishes to participate in solidarity groups may do so. In fact, solidarity groups are used by 100 percent of all micro-creditors in Tucuman. However, in other locales, such as Rosario (in Santa Fe province), individual borrowers predominate.

Gladys Chavez’ group experience has been favorable. During her initial request for credit, she banded together with the owner of a grocery store, a propane gas tank salesman and the proprietor of a building supply depot.

One member of her solidarity group jumped ship, while the other three sail forward on an even keel.

Enterprise Foundation employees say that women are more dependable borrowers than men, as well as being generally more responsible. Chavez herself is not interested in offering an opinion about the relative merits of male and female creditors.

At the moment, she’s has her hands full planning what she’ll do when she purchases the lot next door.