I’m on my way back from Granada on what’s called a “microbus”, a term that refers to the size of the bus rather than the number of passengers. I am sitting in a very small seat which I’m sharing with my 3 new best friends. There is music blasting from the bus radio. Women push their way through the aisle singing their food for sale—“viga-viga-viga-vigaron!” It’s pouring rain, the windows are foggy, and I am deep in discussion with my seatmates about microfinance in Nicaragua.
It seems that no matter where I go in Nicaragua, I inevitably find myself talking about microfinance with the people I meet. While I always want to talk about how cool Vittana is (which I do!), I find that their concerns about microfinance merit a discussion. This is especially true given Nicaragua’s unique—and sometimes stormy—history with microfinance. The topic is quite large and complex. I’m not an expert by any means. Yet I hope my observations gathered by being on the ground in Nicaragua over the past 6 weeks might offer another perspective in the larger conversation about microfinance and how it relates to Vittana.
One of the largest issues facing microfinance in Nicaragua is the Movimiento No Pago (Non-Payment Movement), consisting largely of farmers from north and central Nicaragua who are refusing to pay back their loans. The No Pago Movement initially gained significant ground from politics. In July of 2009, President Daniel Ortega told borrowers “instead of protesting in the streets, protest in front of the usurers (microfinance institutions or MFIs). Stand strong, we will support you.” Compounding the political climate, Nicaragua’s culture of finance is still in beginning stages. In a country where corruption is common and politicians use debt for political clout, well-meaning loans made by well-intentioned MFIs may be lost in translation, so to speak.
- No Pago Movement members protesting in the fall of 2009, (LA PRENSA/L.E. Martínez M.)
Certainly there are important questions to ask as microfinance continues to develop. In the beginning, some borrower pushback could have served to keep MFIs in check. There are some international questions about abusively-high interest rates and the introduction of big banks (seeking big profits) into the traditionally social good-oriented world of microfinance. There is an ongoing debate about how to make microfinance sustainable and still serve the poorest of the poor. Additionally, Nicaragua was hit particularly hard by the global economic crisis, thereby exacerbating an already bad economic situation. Given all these factors, there are most likely farmers who have been taken advantage of in microfinance. As the number of borrowers in the No Pago movement grows and only a tiny percent choose to renegotiate the terms of their loans given the opportunity, it also appears that many borrowers are now taking advantage of microfinance.
Regardless of motivation, members of No Pago Movement harassed microfinance loan officers, burnt down MFI buildings and blockaded streets. In response, credit lending institutions began pulling out of Nicaragua, causing potential havoc in certain agricultural communities which relied heavily on foreign investment. According to EIU ViewsWire “arrears on loans caused by this group [No Pago Movement] have become a serious problem and threaten to imperil the sector’s future.” Recognizing the potentially disastrous effects this could have on the stability of the Nicaraguan economy, Ortega changed his previous position. The National Assembly stepped in and passed the “Ley Moratoria” (Law of Moratorium) in April, granting delinquent borrowers 120 days in which to renegotiate the terms of their loans. This has served to calm the No Pago Movement, but could have significant long-term consequences regarding access to credit and an MFIs’ ability to operate in Nicaragua. The 120 days marker has just passed and most recently, the No Pago Movement has been circulating talk about a government bailout. This is a critical episode in the fate of microfinance in Nicaragua, and it will be interesting to see what happens next.
AFODENIC staff discuss interest rates at a recent meeting.
Amidst this economic and political turmoil, I’ve been able to witness firsthand the actions of Vittana’s MFI in Nicaragua, AFODENIC. Through a rigorous application and observation process, Vittana is careful to partner with responsible and proactive MFIs that have a clear mission of helping people out of poverty. Vittana’s partner in Nicaragua, AFODENIC, is a dynamic, self-reflective and transparent MFI that is committed to the needs of the community. Just a few days ago, AFODENIC had an organization-wide meeting to discuss how interest rates were calculated and how best to lower them and better serve their clients. AFODENIC’s funding comes from non-profits like Vittana and Fundación Barceló, not global banks looking to secure large profits in developing economies. Without fail, every student I’ve interviewed is grateful for the loan they received and for such an accessible interest rate (10%). It has been a pleasure to work with AFODENIC over the past 6 weeks and learn about their projects that range from low-income housing (in picture at top) to loans for microbusinesses and of course, education. I think of all the amazing students Vittana has supported and I worry that other worthy students won’t be able to earn a college degree (and a better living!) without access to microcredit.
- Various loans from AFODENIC helped Marsela, a mother of 4, earn her law degree (Vittana) and build a safe house for her family.
The work of making educational loans available to Nicaraguans continues. It is a full-cycle affair, requiring the hard work and cooperation of lender and lendee alike. Like all forms of credit, it is the responsibility of both parties to ensure the loan conditions are fair and paid off. MFIs must educate their borrowers and ensure that the services they offer are both fair and understood. Borrowers have a responsibility to understand the terms of the loan and not enter into an impossible contract. In the end, it will be a well-established history of good lending practice, like that of AFODENIC, good borrowing practice, and support by organizations like Vittana that will enable microfinance to pull many more Nicaraguans out of poverty.
If you would like to support a Nicaraguan student, click here.
If you would like to read more about the No Pago Movement, here are some possible resources in English and Spanish.
{ 1 comment }
Great post. Informative and insightful.
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