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.
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