by Derrick Gee, NICA Fund Oversight Committee Member and Study
Tour Participant
On a recent WCCN study tour of Nicaragua, the group visited 'Johnny' Suarez. Johnny is a farmer near the remote, eastern community of Nueva Guinea. He has to keep his cattle and crops healthy in tropical heat and 3 meters (117 inches) of rain a year. To a foreigner, at least, his pineapples, yucca, Brahma X Holstein cows and pelibuey, a tasty breed of tropical sheep, looked in good shape; so did Johnny with his perky, straw cowboy hat perched atop a big Caribbean grin.
His dad helped him get started in farming, but he has grown with the help of a loan from the local NICA Fund partner, Cooperative Banco San Antonio. Johnny employs six people full time and some seasonal workers at harvest.
WCCN's NICA Fund lends to small businesses through thirteen Nicaraguan non-government, non- profit micro-finance institutions (MFIs). They, in turn, select the end-borrowers, like Johnny, supply technical training and administer loans. The NICA Fund monitors the MFI, checking up regularly not only on its financial practices and performance but also its social strategies. For example, to ensure that the Fund is helping those in need, the MFI should keep down the size of its loans- currently averaging about $500 per borrower across the 13 MFIs. (To date, no MFI has ever defaulted on its loan from the NICA Fund).
Prospective borrowers must fit into a "window". If they are financially strong enough, they may have the option of going to a regular bank for a loan. On the other hand, if they lack the financial strength to handle credit, they will also be excluded. Just as families qualifying for a home from Habitat for Humanity must be neither too rich nor too poor, so it goes with micro-credit loans in Nicaragua.
Excluding the "too poor" from credit might be the right thing for a loan fund to do, just as we may wish that some of our first-world family and friends were excluded from the credit card "opportunity". The NICA Fund has an obligation to make careful use of its investors' capital. But, the NICA Fund's parent, WCCN has a broader mission in helping Nicaraguans, so what could it do to help those who are "too poor"?
Nicaragua, the second poorest country in the Americas, after Haiti, has plenty of people in this category. According to the World Bank, 48% of the five million population live in poverty, i.e., they live on less than $3 per day, and 17% live in extreme poverty (living on less than $1 per day).
From recent experience, here are two possible approaches to the "too poor" issue. The 77 families who live in the Chacocente Wildlife Refuge on Nicaragua's southwest coast are being helped by the Richland Center, WI, Sister City Project (SCP). Electricity is ten miles away; a dirt road reaches only one of five villages. When SCP became involved six years ago, the people said that, above all, they needed clean water, health care and an education for their children.
SCP has taken care of much of this and helped them grow more food. But, loans can't be used for projects like these because there would be no way to repay. Now, it's time for the villagers to try to generate cash income. SCP has started working on this with a sewing project and with organic honey. An ecotourism plan is in the pipeline. In a December 2005 survey, only two of the 77 families said they had ever used credit. But with income generation just around the corner, it may be time to see if ultra-small loans might begin to move the "too poor" into the category of just plain "poor".
WCCN is involved with testing the idea of very small home improvement loans. Experimenting to find the lower limit of credit viability for micro businesses, such as those starting in Chacocente, may also be a worthy project.
However, the visit to Johnny stimulated another thought. Nicaragua's micro-finance institutions mostly support people with businesses. According to ASOMIF which represents the country's MFIs, 43% of micro-lending funds goes to small farms and another 36% to retailers of goods and services.
But, not everyone wants to be an entrepreneur. It takes skills such as a level head, risk tolerance and a skill with figures. It means subordinating oneself to customers. No doubt, most of us have decided that being a mere employee is more to our liking than the "dog eat dog" world of self-employment. Why should it be any different for Nicaragua's "too poor"?
So, we are forced to conclude that a large part of the answer must be simply "jobs". Why don't these poor people just go out and get a job? Of course, the answer is that the Nicaraguan economy doesn't create enough jobs.
That's why between 10% and 20% of all Nicaraguans are working in Costa Rica and, hopefully, sending some money home. That's why thousands of "Nicas" are prepared to work in maquilas, factories in free-trade zones where the conditions are, reportedly, often well below first-world standards.
What can be done to create more and better jobs? Because of the weakness of the domestic economy and lack of natural resources, for now, only foreign investment can make a big difference quickly. That means competing with many other countries, including China and India, for this investment. It means creating an attractive business climate which, in turn, means less corruption, less red tape and more political stability.
Maquila conditions are largely the responsibility of government but, failing that, first-world consumer activism has a role. What can WCCN or its NICA Fund do to create decent jobs, and thus really help the "too poor"?
Organic job creation, resulting from businesses growing as a result of their own success, is good for everyone. By lending to those small businesses that are capable of growing but are not big enough to find financing elsewhere, the NICA Fund and its MFIs can stimulate organic growth and create jobs. By favoring jobs in remote rural areas and near the barrios of large cities, the "too poor" are likely to be particularly well served.
When we visited Johnny, we wondered if he was "too successful" to warrant an MFI loan. However, the jobs he creates in the Nicaraguan tropics are a real service to the very poor. May the NICA Fund continue to back the Johnnies of Nicaragua.
