Microfinance helps Latin Americans lift themselves out of poverty

Miriam lives in a one-room shack in El Salvador with her husband and 11 children. They store their fresh water in a barrel by the side of the house and cook on a stove in the yard. Although the kids go to school it's unlikely that they'll finish their education.

Miriam is not unique, but what's interesting about her situation is that she has taken the first steps toward improving her family's income and standard of living. That's thanks to a $100 microfinance loan that has allowed her to begin buying produce from farmers and selling it to local residents. Over time additional loans will help Miriam grow her business and improve her family's prospects.

I heard Miriam's story a few days ago at a breakfast briefing by Global Partnerships (GP), a Seattle-based nonprofit organization that works to help people in Latin America to better their lives through microfinance.  GP identifies and invests in microfinance institutions (MFIs) in Latin America, which then make small-scale loans to borrowers, most of whom would never qualify for a traditional bank loan.

According to Jason Henning, GP's director of development and investor relations, roughly a third of Latin America's 560 million people live below the poverty line and approximately 94 million live on less than $2 per day. Henning estimates that around 48 million people in the region could benefit from microfinance, but fewer than 20 percent have access to loans. GP seeks to increase that number.

Currently, the organization works in seven countries: Guatemala, El Salvador, Honduras, Nicaragua, Ecuador, Peru, and Bolivia. In addition to its Seattle headquarters, GP maintains an office in Nicaragua whose staff performs much of the screening work to identify MFIs to partner with.

"All microfinance is not created equally," says Henning. Many charitable MFIs are doing fine work but are not growing to meet the demand for microfinance credit. At the other end of the spectrum are the commercial microfinance institutions, which operate like traditional banks according to a profit-seeking model. GP has developed a model that enables it to continually increase the amount of money it invests in MFIs, which in turn can then extend loans to more and more borrowers.

While GP carefully evaluates MFIs based on traditional investment criteria, social service factors are equally important in the selection of GP partners. Some of the criteria examined include an MFI's percentage of female clients, the percentage of loans to rural areas, interest rates, and the average cost of a first-time loan. In addition, GP's practice is to invest only in institutions that reinvest their profits into services such as health care, education, business training, and other much-needed programs. As part of this effort, GP is partnering with the nonprofit organizations Pro Mujer and PATH to develop models for improving access to low-cost health care. (See my earlier post, "Health care through microfinance" for more on this pilot program.)

GP's investments come from philanthropic donations and socially motivated investors, including individuals, corporations, foundations, and other organizations. According to Henning, large-scale institutional investors are increasingly supportive of social enterprise investments. As of June 2009, the organization had more than $46 million invested in 28 different microfinance institutions.

The beauty of microfinance is that it helps people help themselves. Often it takes only a small amount of credit to start or expand a business and increase a family's income. Although the size of the loans provided by GP's microfinance partners varies, the average is about $500. That's enough to make a significant difference in the life of someone like Miriam.

Photo by Chris Megargee/Global Partnerships: Norma, also from El Salvador, is a member of a communal bank organized by GP's partner organization Enlace. Microfinance loans have helped Norma start and expand a business making and selling hammocks, a skill she learned from her grandmother. This business has created an additional source of income for Norma's family, enabling her to buy medicine and clothing for her five children.

Health care through microfinance

Three of the most respected nonprofit organizations in the fields of microfinance and health have announced a joint initiative to address health issues in Latin America through a microfinance model. Microfinance organizations Pro Mujer and Global Partnerships are joining with the leading global health organization PATH in an effort to improve access to essential, low-cost preventive and primary health care. The initiative aims to break the cycle of poverty and poor health that affects many communities in Latin America and elsewhere.

Based in New York, Pro Mujer focuses on development and microfinance programs for poor women in Latin America. Seattle-based Global Partnerships also supports microfinance and other poverty-reduction programs in Latin America. PATH, also headquartered in Seattle, works to create solutions to health care problems in communities throughout the world.

Over the course of the next year, the three organizations will work together to create and launch a financially sustainable health program for Pro Mujer in Nicaragua. The initiative will build on Pro Mujer's history of helping poor women in Latin America improve their income and the lives of their families through an integrated package of financial services, training, and health care. The ultimate goal is to create a model that can be replicated elsewhere.

“Pro Mujer has 20 years of experience providing high-quality, low-cost healthcare and preventive health education," said Rosario Pérez, CEO of Pro Mujer. "Collaborating with Global Partnerships and PATH will enable us to do so with greater focus, higher impact, and lower costs, with the goal of tackling the health care problems that contribute most to poverty and pose the greatest danger to women and their children.” 

Global Partnerships will provide overall leadership for the initiative. “Poverty and poor health are inextricably linked, and the solutions are as well,” said President and CEO Rick Beckett. “One of the strategic challenges facing the microfinance industry is the need to develop fully sustainable solutions that address multiple facets of poverty. This collaboration with Pro Mujer and PATH allows us to bring together microfinance experience, global health expertise and rigorous economic discipline to advance the field for the benefit of people living in poverty.”

During the initial phase of the microfinance-health initiative, PATH will conduct an assessment to identify priority health concerns and develop appropriate strategies for addressing them through microcredit services. Pro Mujer will test the strategies in a follow-up pilot project. The experiences garnered in the pilot project will form the basis for a resource guide for defining an integrated health strategy for microfinance institutions that can be replicated in other markets.

“We will be looking at a range of health solutions—largely preventive and primary care—that are affordable, sustainable, and appropriate to Pro Mujer’s client base and infrastructure,” said Chris Elias, president and CEO of PATH.

Issues-related travel: Tugging at the heartstrings...and the pursestrings

It's pretty much a proven fact that personal experience makes people care more about just about anything. That's why a growing number of nonprofit organizations are turning to travel as a way to provide donors and potential donors with a first-hand look at what their money can do. These special nonprofit travel programs offer travelers the chance to make personal connections with local communities and see the positive impact of international development projects for themselves.

Below are some interesting upcoming trips sponsored by nonprofit organizations. While local development projects and specific issues are at the heart of each of such trips, the itineraries generally also include opportunities to visit some of the highlights of the host country.

PATH Journeys: Kenya, September 14-24, 2009: PATH works to improve global health by providing appropriate health technologies and strategies in more than 70 countries around the world. This trip introduces travelers to the most prevalent health issues in Africa and some of the solutions PATH is working to implement. Participants will visit with urban and rural communities working on issues ranging from AIDS and other epidemic diseases to improving maternal and child care. The trip will include time in both Nairobi and the Western Province, as well as time to explore some of Kenya's natural beauty on visits to the Kakamega Rain Forest Park and Mount Elgon National Park.

Americans for UNFPA and PPGG Leadership Delegation to Ethiopia, October 18-26, 2009: Operated by Wildland Adventures on behalf of Americans for UNFPA (the United Nations Population Fund) and Planned Parenthood Golden Gate (PPGG), this trip focuses on the challenges faced by many Ethopian women and children, including poverty, genital mutilation, and the lack of family planning and health services. The trip is escorted by field staff from UNFPA and PPGG and will visit urban and rural projects run by both organizations. A portion of the trip cost goes to support the efforts of Americans for UNFPA and PPGG in Ethiopia. In addition to meeting with local people and learning about the development work that is being done in Ethiopia, participants will have the opportunity to visit some of the country's most famous places, including twelfth-century rock-hewn churches and other historic Christian sites.

El Salvador PartnerTrip, November 15-22: Global Partnerships (GP) works to provide economic opportunities for the millions of people in Latin America who are living in poverty. GP provides financial and managerial support to microfinance institutions, which then make small-scale loans to poor individuals and families so that they can start or expand their own businesses. GP's PartnerTrips offer participants to experience the day-to-day reality of people who survive on less than $2 per day and see first-hand what a difference microfinance can make. The El Salvador trip will visit two of GP's partners: Enlace, a microfinance institution created by Catholic Relief Services that works with the extremely poor communities in central El Salvador , and Apoyo Integral, which serves 30,000 borrowers throughout the country. Together with field staff from the local partner organizations, travelers will have the opportunity to visit with borrowers and their families and learn about the successes they have had as a result of microfinance loans.

Water Tour: Ethiopia, January 30-February 5, 2010: Water 1st is a Seattle-based nonprofit organization that seeks to address poverty by improving people's access to safe drinking water, basic sanitation, and health education. This trip will visit several of Water 1st's ongoing and completed projects in the Oromia region of Ethiopia, three hours west of Addis Ababa. Participants will meet with local Water 1st field staff and partners, as well as with members of the communities served by the projects. The program also includes time for sightseeing, including a visit to the National Museum, which houses the remains of Lucy, the famous 3.2 million-year-old Australopithecus afarensis specimen discovered in northern Ethiopia in 1974.