“As a result of my visit to Antigua, I’ve become a more educated, culturally aware citizen who has seen one major tool in action that’s had a big impact on bringing millions of people around the world out of poverty—micro-credit. I look forward to seeing micro-credit’s expansion to other parts of Guatemala and the world, and believe that it truly makes a difference in people’s lives.” Allison Czapracki, MBA student
In late June 2014, sixteen students, one professor, and one Ahlers Center administrator from the University of San Diego set out on a journey to discover the intricacies of micro-loans and micro-credit in Antigua Guatemala, where about half a million of around 15 million Guatemalans receive micro-loans every year. These loans range from less than a hundred to a few thousand US dollars, repaid over the course of six months to up to three years. Although the loans are offered at a higher interest rate (for example, one lender we visited charged 25% APR) than what a typical first-world citizen might pay, the interest rates are nearly always much lower than those of the local moneylender, who might charge over 100% APR, keeping borrowers in a cycle of dependency upon them. (We learned that these “high” interest rates must be charged to keep these banks and NGOs sustainable, and because of transaction costs associated with each loan.) Guatemalans might use their micro-loans to buy supplies in bulk, purchase livestock or equipment, improve their homes (for example, add a tin roof in place of a thatched roof) or receive education or training to further their skill-sets.
According to microfinance information exchange website Mix-Market, 24 banks and NGOs provide the loans to poor, mostly rural Guatemalans. Several of the clients our group visited said these loans help improve the quality of life of Guatemalan citizens by helping them rise from poverty. This is in a country where, according to Elaine, our site coordinator in Antigua, the average Guatemalan has only three and a half years of education—wow! One lender said his organization was doing its job if it increased the number of meals a family could afford to eat from one to two per day, and if their loans enabled them to prosper enough to be able to afford education for their children. Furthermore, we learned from one of the largest microfinance lenders in Guatemala that nearly half of their clients have NO education. That was mind boggling to me, as it must be very difficult to explain the concepts of credit and that stashing your hard-earned cash under a mattress is not okay to someone who’s never been to school and can’t even read or sign their own name on their loan documents.
Throughout the course of our studies in the U.S. and in Antigua, we learned that group loans via “solidarity groups” are quite common. The basic concept is that individuals in a group of about 10-15 people each take out a loan, but the group guarantees the sum of everyone’s loans. Periodically (bi-weekly or monthly) the group gets together and discusses a range of topics, from brainstorming ideas on improving their businesses to overcoming business and fiscal challenges. These groups are usually composed of women—as representatives of the banks we visited unanimously said, they are the “responsible ones” and are more likely to repay their loans. We learned that loans can be repaid monthly, weekly, or even daily. Wow! (In one organization, an “iron man” donning armor and a lock box comes daily to collect the payments, so that the loans are repaid first before other obligations—an important concept in a society without one unified credit-check system, one where people tend to overborrow and can be financially devastated by just one small earthquake, bad harvest, or minor illness.) The solidarity groups help borrowers keep each other accountable, and if one person defaults the group’s credit worthiness is on the line—so each person has extra motivation to repay his or her loans.
In and around Antigua, we met with several such solidarity groups, each woman dressed in traditional Guatemalan garb. Although the women we met with didn’t have much and lived at varying stages of poverty, we detected palpable joy from their warm welcomes and eagerness to show us their home and plot of land, where they grew fruits and vegetables, made tapestries, and weaved sweaters, aprons, and other garments. It was an incredible experience to witness people live so humbly and yet have so much enthusiasm and passion for their their businesses, families, and tight-knit communities. We also met with a baker, a brick maker, and women who ran a tortilerilla—folks who were at varying stages of becoming financially stable or gradually increasing their socioeconomic status, who had perhaps been through many micro-loan cycles, each one helping them incrementally expand their businesses and quality of life.
Perhaps my favorite part of the trip was meeting with farmers and an executive from De La Gente http://www.dlgcoffee.org/ (“For the People”), a coffee co-operative in the Antigua area. DLG works with independent farmers to pay them a living wage—around 50% more than what they would be paid if they worked for a large coffee plantation (which is where many, if not all, of them acquired their experience in the coffee world). The coffee beans are later exported to a site in the Midwestern U.S., from where they are roasted, distributed, and sold to independent coffee shops and American coffee connoisseurs. We learned about DLG’s business model and sustainability plan, had the opportunity to test our hand at grinding coffee beans via bicycle and stone hand-grinder, and then got to taste the fruits of our labor. Because of DLG, independent farmers have a built-in support network and are also receiving education to help them become autonomous, sustainable farmers and eradicate roya, a common, rapidly spreading fungus in Central America that could destroy a farmer’s entire coffee crop.
As a result of my visit to Antigua, I’ve become a more educated, culturally aware citizen who has seen one major tool in action that’s had a big impact on bringing millions of people around the world out of poverty—microcredit. I look forward to seeing microcredit’s expansion to other parts of Guatemala and the world, and believe that it truly makes a difference in people’s lives.
Post written by MBA student Allison Czapracki