The Social Side of Microfinance
Innovation, impact and integrated services in Nicaragua

Global Perspectives | Summer 2009

GP microfinance partner FDL serves rural farmers in Nicaragua, including Julian, who raises cattle and chickens

On a Tuesday afternoon in León, Nicaragua, a group of three microfinance borrowers are starting their weekly meeting inside a home built of scrap metal and plastic tarps. The topics at hand are pigs, chickens, feed and finances.

Griselda Campos, Mario Olivar and Darwin Herrera are members of a microfinance borrower group affiliated with Fondo de Desarrollo Local (FDL), one of Global Partnerships’ newer microfinance partners. Their group, which they named God’s Assembly, initially borrowed $50 collectively from FDL, then $90. Now they are on their third loan cycle, with a one-year loan of $250.

But loans are just one piece of what the God’s Assembly members have received from FDL. FDL also provides technical assistance to each borrower that’s highly specific to his or her loan package. For example, Mario learned how to butcher and package meat for customers. Griselda, who used her loan money to purchase pigs, learned how to care for and feed her animals. And because their loans are part of a special subsidized portfolio for FDL’s poorer clients, they’re paying back the loans at a lower-than-normal interest rate.

FDL is one of two microfinance partners (MFIs) that the Global Partnerships (GP) board visited with in early March 2009, during the board’s first-ever trip “to ground.” Guided by our top-notch Managua staff, board members spent several intense days in Nicaragua witnessing Global Partnerships’ unique approach to microfinance, including our expertise on the ground and our emphasis on best-in-class microfinance institutions such as FDL and Pro Mujer in Nicaragua, which combine a sound business model with other services that help borrowers break the cycle of poverty.

Board and staff who attended the trip left with a deeper understanding of GP’s model, and with stories about the day-to-day impact our programs are having on people’s lives. As board member Margaret Larson wrote in a travelogue: “Meeting and talking with these people in their homes, and at their farms and businesses, reminded all of us on the Board not just about what we do, but why we do it.”

Doing the math

If you take out a loan in Nicaragua to buy a piglet for $70, how much will it cost to raise it? How much will you net after selling it? How soon before you can afford to buy more pigs?

FDL loan officers excel at this kind of economic analysis. FDL, which started in 1992 as the credit program for Nicaragua’s Nitlapan Institute, specializes in rural and agricultural credit, and has developed many innovative financial products to match the particular needs of its client base.

Not only has FDL enjoyed substantial growth—it is the largest non-governmental organization in Nicaragua—but its dedication to improving the lives of rural Nicaraguans is exemplary. Eighty-one percent of clients are rural and the average microloan size for FDL, $836, is low for an organization that focuses on agriculture.

FDL’s flagship social-impact program is its “development portfolio,” which offers low-interest loan packages combined with high-touch technical assistance around a specific product. For example, a very poor client might be advised to take on a “pig loan,” with a loan-and-assistance cycle finely tuned to what FDL knows about how long it takes a pig to produce piglets that can eventually be sold.

“It’s a quick way of advancing income and savings for a client at the low end of the market,” explains GP CEO Rick Beckett.

“I was amazed how farmers who initially take a small loan through FDL are able to so quickly change their own lives and those of their sons and daughters through microfinance,” says board member Gregg Johnson. “I loved seeing those families who, after multiple loan cycles, were transforming the lives of others in their village.”

Loaning money, saving lives

A Pro Mujer in Nicaragua health worker provides training on women’s health issues for its female clients

Pro Mujer in Nicaragua, the other MFI that board members visited in March, is another exemplary MFI that offers a powerful combination of financial and non-financial services to reach people traditionally left behind. Pro Mujer in Nicaragua, like the other four branches of Pro Mujer, focuses on very poor women (the name literally means “For Women”), and offers health services and education to all their clients, as well as business training. Pro Mujer serves more than 222,000 women and 1 million children and families with financial and non-financial services in five countries.

“Pro Mujer believes that credit alone is not enough to lift women and their families out of poverty,” explains Gloriana Guillen, communications manager for Pro Mujer. “Healthcare and education not only support a woman’s business, but also foster self-confidence in women and empower them to gain further control over their health and other areas of their lives.”

A key to the distribution of Pro Mujer’s integrated services is the group lending model. Borrower groups of 15-40 members meet every two weeks to repay loans, socialize and participate in health trainings. In addition to providing health education, Pro Mujer operates subsidized clinics that offer health services such as screenings for cervical cancer, a leading killer of women in Latin America. In the last five years, 700 out of 9,000 Pro Mujer clients in Nicaragua who have had a Pap examination were found to have pre-malignant tumors that were treated. Since joining Pro Mujer, more than 95 percent of clients have had a Pap exam, whereas only 36 percent of clients had an exam before joining.

Pro Mujer also has a solid financial track record, with substantial growth and low default rates: $181 million in loans was disbursed in 2008, and the organization’s loan portfolio at risk of default is less than 1 percent.

FDL and Pro Mujer in Nicaragua are just two examples of how Global Partnerships’ MFI partners—which we hand-select through an exhaustive screening process of financial health and social impact—are helping clients improve not just their livelihoods, but their lives.

And our emphasis on partnering with “social enterprise” MFIs, as we call them, is growing in importance. A recent survey by Microfinance Insights, for example, found that 85 percent of MFIs and 61 percent of microfinance investors believe that MFIs should “aim for wider social development beyond financial inclusion.”

“It’s a virtuous circle,” GP CEO Rick Beckett says. “By offering non-financial services to clients that help them succeed in business and life, MFIs are both helping the client and helping themselves.” After all, a client who has received technical assistance for a milk-cow venture, or received a training that encourages healthier choices, is a client much more likely to pay back a loan and take out a new one—and to ensure a brighter future for her family.

Read GP board member Margaret Larson’s Nicaragua travelogue

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