Micro-loans – Finances for people of low income
Most small businesses are handled by one person and need financing. These micro-enterprises, however, have always found it difficult to obtain this much-needed financing. Banks didn’t think that the low income clients could pay their loans and obtain profit in a long term. The goal of the microfinance program is to promote the development of micro and small enterprises, and also of low income people, through the creation, expansion and strengthening of sustainable loan, training and advisory services. Our statistics, backed by independent researches, suggest that we have made possible the creation of approximately 23.000 new jobs, at a rate of 1,3 jobs created for micro-enterprise and assisted for a year.
Our work in the world of microfinance using micro loans and training shows how promoting entrepreneurship, in financially excluded people with low income, can strengthen precarious jobs, promote creation of new jobs, increase gender equality and raise family income, thus creating economical and social gains.
Besides, the Fundacion Paraguaya provides education as well as sustainable, innovative financial and non-financial services. Unlike institutions that only target financial inclusion, we also seek, in an inclusive manner, that our beneficiaries can overcome their poverty in different dimensions to move into the middle class. We seek to develop and disseminate methodologies that show that it is possible to eliminate, and not just lessen, poverty.
In these 29 years:
- We introduced to Paraguay the concept of micro-enterprise, awakening the interest of the private sector and showed that micro-enterprises can be financed with levels of recovery above the market average.
- We lobbied for the creation of the Global Program of Support for the Micro-enterprise of the Inter-American Development Bank, thanks to which their regulated financial sector provides ours with services.
- We incorporated to the country advanced technology to support the informal sector of the economy; solidarity groups, individual loans with innovative guarantees, promotion programs for leaders of micro-enterprises, training programs, methodology for elaboration of balance sheets and investment plans.
- We accessed the formal financial market to fund our credit portfolio.
- We developed a credit methodology for the micro-enterprise of agricultural production.
- We provide technical assistance, management training and loans to over 54.000 micro-enterprises.
- We elaborated 77.000 balance sheets and investment plans for these micro-enterprises.
- We granted 647.000 loans with a value G. 1.029.000 million.
- We reached financial self-sufficiency by managing the institution with financial severity, under the oversight of the Administration Counsel.
- We achieved international certification through the application of the CAMEL instrument.
- We support micro-entrepreneurs of 160 towns and cities in 15 departments, through 26 regional offices and through the work of 214 advisors, supervisors and micro-finance managers along with 113 support staff.
- We work with the productive agricultural sector; 580 small agricultural producers received technical and credit-based assistance, valued at G 3.000 million, through their organizations.
- Another 200 producers received G. 2.000 million in direct loans granted by the institution.
- We assisted over 90 different types of micro-enterprises, both urban and rural. Among the urban enterprises are small stores, street salespeople, pancheros, taxis, food producers, clothe makers, bakers, colcheros, artisans, smiths, golf club manufacturers, among others.
- Some of the agricultural micro-enterprises are sesame producers, horticultures, green houses, small ranchers, tambos, sugar cane producers, cotton producers, sponge productors, pig ranchers, poultry ranchers, among others.
- We’ve managed to bring the income of 6160 families above the poverty line, indicator that guarantees that families can have access to their basic needs, and we’re currently working to make these results sustainable and integrate more families towards the new focus of the institution: the elimination of poverty.
Principles of Protection for Clients of the Microfinance Program
Along with the members of the Accion Internacional Network, the Microfinance Program has adopted principles of protection for the beneficiaries.
We have committed in the VII Inter-American Micro-enterprises Forum to respect the following principles:
- Quality of services, assisting the client quickly and effectively.
- Transparent prices, offering the client with understandable information.
- Fair prices, we don’t seek excessive profits.
- Avoiding over-burdening the client with debt.
- Appropriate collection practices, without depriving the client of basic needs.
- Privacy of the client information.
- Ethical behaviour of the employees, avoiding conflicts of interest.
- Feedback mechanisms: establishing channels of communications with the client.
- Integrating pro-consumer policies, training the employee and the client.
Work Methodology of the Micro-finances Program
The micro-finances program differs from the financial services offered by banks and financial institutions in two key ways.
First, we focus in small loans, granted to the smaller micro-entrepreneurs and to entrepreneurs still in the process of starting their activities and that are generally excluded from financial entities. The average loan of the competition is of around US$ 600; our average loan is of US$ 314 and we start offering loans at US$ 25.
Second, we offer more than just credits. Thanks to our particular business model, we also provide a wide range of educational, business and community development services to the client, their family and their community.
This way, the Fundacion positions itself as a entity for development instead of a financial entity, which provides us with a competitive advantage against our biggest competitors.
The Fundacion Paraguaya offers the urban micro-entrepreneur and the rural agricultural producer a loan program, training and basic management advising. The program is based in six fundamental concepts: agility in the process and grant, simple forms, flexible conditions, positive payment incentives, real unsubsidized interest rates and management training.
Preference for the smaller ones
The main focus are the smaller micro-enterprises , and not those whose expansions has made market leaders. The average amount of debt for each micro-entrepreneur is currently G. 1,6 million (US$ 356).
In 2005 we initiated two new products directed to small micro-entrepreneurs and emergent businesses:
- “Committee of Entrepreneurial Women”, a product for women of low income (“Bancomunal”)
- Individual loans of very small amounts that are approved by credit officials (“Dinero Rapido”)
None of these products are offered by the competition; they are both directed to serve micro-entrepreneurs with very low credit needs. The product “Committee of Entrepreneurial Women” promises to turn into an efficient product to reach an important number of poor women and their families.
During 2013 we worked with 57.000 families, of which we managed to get more than 6.160 families out of the poverty level by increasing their revenue generation.
We have a team of advisers that elaborate the balance of micro-enterprises, their budget, balance sheets, cash flow, and determine the capacity for growth of the client under the oversight of the credit adviser.
With the goal of eliminating poverty that affects the clients, we’ve developed the “Traffic Light of Poverty”, a tool that allows families to divide their condition of poverty into 50 tangible indicators and develop solutions to resolve each and every one of them.
We provide some of these solutions directly, other by forging alliances with other organizations, and yet others by forming social capital and encouraging clients to find their own solutions.
The program is self-sufficient and profitable in financial terms, and we have therefore demonstrated that it’s possible to finance the informal sector without subsidizing it.