Almost all businesses require finance, and the very small, often one-person businesses, typical in developing countries such as Paraguay are no exception. These micro-enterprises have however always found it hard to access the finance they need. Banks just didn’t believe low-income clients could repay their loans and be profitable.
The objective of the Microfinance Program is to promote the development of micro and small enterprises along with people of scarce means through the creation, expansion, and strengthening of sustainable lending, training and advisory services. Our statistics, endorsed by independent research, suggest that approximately 23,000 jobs were created, at a ratio of 1.3 jobs per microenterprise supported for over a year.
In these 21 years:
We introduced the concept of microenterprises to Paraguay, awakening the interest of the private sector and we have shown that not only can microenterprises be financed, but they also have higher levels of repayment than the market average.
We promoted the creation of the Inter-American Development Bank’s Global Microenterprise Support Program in the Central Bank of Paraguay, thanks to which the regulated financial sector now serves that sector.
We incorporated leading edge technology into the country to support the informal sector of the economy: solidarity groups, personal loans with innovative guarantees, programs to promote leader microenterprises, training programs, methodology to produce accounting statements and investment plans.
We accessed the formal financial market to anchor our loan portfolio.
We developed a credit methodology for agriculture and livestock production microenterprises.
We provided technical assistance, management training and loans to 36,277 microentrepreneurs.
We drafted 77,000 accounting statements and investment plans for these microenterprises.
We granted 186,000 loans for a value of 276 billion Guaraníes.
We achieved self-sufficiency managing the institution with financial rigor and under the comptrollership of the Board of Directors.
We achieved international certification through the application of the CAMEL instrument.
We support microentrepreneurs in 136 towns and cities in 10 departments (provinces), through 17 regional offices and the work of 57 advisors, microenterprise supervisors and managers, as well as 48 support staff.
We work with the agriculture and livestock production sector: 580 small livestock and agriculture producers received technical and loan assistance for Gs. 3 billion through their organizations.
Another 200 producers received Gs. 2 billion in direct loans granted by the institution.
We serviced more than 90 different types of urban and rural microenterprises. Among the urban ones, we have mom & pop grocery stores, street vendors, hot dog venders, taxis, homemade food producers, garment and blanket makers, handicraft artisans, blacksmiths, and golf club makers, among others. Among the rural microentrepreneurs, we have sesame seed growers, horticulturalists, plant nursery owners, small-scale livestock growers, dairy farmers, sugar cane, cotton and sponge plant growers, and people who raise swine and poultry, among others.
Microfinance Program Consumer Rights
Together with the members of Red Accion Internacional, the Microfinance Program has adopted beneficiary protection principles. At the VII Inter-American Microenterprise Forum 2004, we made a commitment to respect the following principles:
Quality Services; serve the client expeditiously and in a timely fashion.
Transparent Prices; offer the client understandable information.
Fair Prices; we do not seek excessive earnings.
Help client avoid over indebtedness.
Appropriate collection practices; not depriving the client of the ability to meet basic needs.
Client Information Privacy
Ethical Behavior of employees, avoiding conflict of interest.
Feedback Mechanisms; establish communication channels with the client.
Integrate pro-consumer policies, training the employee and the client
Microfinance Program Work Methodology
The Microfinance Program differs from financial services offered by banks and savings and loans in this market in two key aspects. First, we concentrate our efforts on loans of low amounts granted to the smallest microentrepreneurs and entrepreneurs initiating activities, which are generally excluded by other financial entities. The average loan the competition awards is around US$600, while our average loan is less than US$450 and begins at US$40.
Second, we offer more than just loans. Thanks to our particular business model, we also provide a broad array of educational, business, and community development services to the client, his/her family and community. In this way, the Fundación positions itself as a development entity more than a financial entity, providing a competitive advantage vis-à-vis the savings and loans that are our major competitors.
Fundación Paraguaya offers the urban microentrepreneur and the rural agriculture-livestock producer a lending, training, and basic management advisory program. This is based on six fundamental concepts: expeditious procedures and disbursement; simple forms; flexible conditions; positive incentives for payment; real, non-subsidized interest rates; and management training.
Preference for the Smaller Ones
We cater mainly to smaller scale microenterprises, smaller in the sense of comparison to those, which through expansion have become leaders. The average loan balance is currently 2.7 million Guaraníes (around US$450) per microentrepreneur.
In 2005, we tested two new products designed for small microenterprises and emerging businesses: a) “Women Entrepreneurs Committee”, a product for women with low incomes (“Village Banking”), b) individual loans at very low amounts approved by Credit Officers (“Dinero Rápìdo” i.e. quick money). None of these products is offered by the competition; both aim to serve microentrepreneurs with very low credit needs. The product “Women Entrepreneurs Committee” looks promising in terms of becoming an efficient product to reach a significant number of poor women and their families.
Free Advisory Services
We have a team of advisors who draft the microenterprise’s balance sheet, their budget, profit and loss statement, cash flow and determine their capacity for growth.
Program Profitability
This program is self-sufficient and profitable in financial terms and we have thereby demonstrated that it is possible to finance the informal sector without subsidizing it.
