Chillin’ in the Panama airport after an eventful 10 days in Ecuador including board meetings, client visits and a side trip to the Galapagos. Going to spend all of 3 days at home and then its Gotham City on Monday for a cocktail with the Hult Business School Entrepreneurship Contest winners (hosted by Bill Clinton and Yunus) and then off to Scotland for an Entrepreneurship Conference in Edinburgh. Will there be time for a quick round at Saint Andrews? In your dreams, amigo. A Social Entrepreneur’s work is never done.
I have some compelling videos of clients and red and blue footed boobies and courting Albatross but that will have to wait until I’m back in Bandwidth Land.
Seems like all I do these days is go to birthday parties. I love this job.
We had a nice celebration at the Center of the World (longitude 00, latitude 00) on the outskirts of Quito, Ecuador last night with FINCA International and Banco FINCA Ecuador Board Members,staff and assorted friends from government agencies, Embassies and others. But the night belonged to our clients, three of whom came with their spouses to celebrate with us. Lidia Gonzalez, a shopkeeper from Ibarra, has been our loyal client for 18 years, during which she build her grocery store — with help from a series of loans from FINCA, initially $300 and lately $2,500 — from a hole in the wall with “just a few products” to a full on enterprise offering a complete line of consumer products. Lidia is also President of her 14 member village bank which she describes as “always united as one FINCA family”.
I came to Quito, Ecuador in 1993, armed with a $50,000 loan from a wealthy physician in Washington, D.C. who had a fondness for the country and wanted to help bring FINCA’s program there. We had first tried to interest the huge Banco de Pinchincha in doing microfinance in Ecuador, and while it’s President listened to my pitch politely, I never heard back from him. So we decided, what the hell, let’s do it ourselves. What, with just $50K in borrowed money? That’s how we rolled in those days, yo, that’s how we did.
I had only one contact in the country, Carlos Camacho, to whom I had been referred by a friend from the U of Wisconsin graduate school, Professor (now at Ohio University) of Economics who has worked in and written about Ecuador for many years. Carlos, also a Badger, listened to what we planned to do and said, “Okay, I’ll help”. He introduced me to a lawyer who registered us as an NGO, and we set about trying to find someone to run the program. Our first two hires were disasters. One ran off to Peru with some of our money and a young girlfriend. (Note to self: don’t hire people going through a mid-life crisis) Finally, Carlos offered to run the program himself. He did a great job, handed it off to an experienced banker, and the rest is history. Today we have 60,000 clients, $40 million in loans and branches throughout the country. Feliz Cumpeanos, Banco FINCA Ecuador!
Had a great visit to some Banco FINCA Ecuador clients yesterday in Otavalo, a beautiful town in Northern Ecuador. We met at the house/factory of one of the clients who produced panchos and other woolen goods. When our host first started working with FINCA nine years ago, she employed only a few family members to help out. Her first loan was for $400, which she used to buy raw wool, sheared from sheep grazing on the slopes of the spectacular mountains overlooking the town. Today, she employs three full time people, and is borrowing $2,600. She produces 7 panchos per day, which she sells wholesale for $30 a piece and retail for $35. It’s great to see microfinance working as it should, creating jobs and helping people to a better life.
She treated us to a demonstration of the entire process she follows in producing a pancho, which begins with her producing a single strand of white yarn, followed by braiding it to another strand, and then boiling and dying the yarn, and finally weaving it into the finished product on a handloom, operated by one of her employees. I will put up a video of the process later this week.
It’s off now to a fun day buried in a windowless conference room where we will hold our Audit Committee! Want to join? No?
Reading through David Roodman’s book conjured up more memories of the Way it Was back in the 80’s and 90’s while we were running around the globe starting up microfinance programs on a shoestring.
My fellow pioneers will remember when it was an article of faith that “clients are indifferent to interest rates”. Impossible to believe now, when clients shop from one MFI to another for the best rate, but back then the important thing for the clients was to find a provider who could get them the funds they needed quickly and with minimal red tape. MFIs in those days were essentially competing with money lenders in the local markets who charged high rates (10% per DAY), but didn’t ask you to fill out forms or provide real guarantees. These guys walked through the markets with a “Mochilla” full of greenbacks slung over one shoulder and a .45 over the other. Banks today (or used to, anyway) talk about “instant approval” of loans, but the “chulqueras” of Ecuador and Peru counted out your $50 loan the second you asked for it, if you were a repeat customer.
At FINCA, we learned the “real” cost of money when, upon the suggestion of the members of one of our village banks on the border of Mexico, we created “the internal account”. This was a euphemism for the 20% (of the FINCA loan) forced savings we required of our clients, which back then was kept by the Treasurer of the Village Bank. After a few 4-month loan cycles, this money really began to pile up, and one of our enterprising Mexican VBs asked John Hatch if, rather than risk having it lying around the Treasurer’s house, they couldn’t lend it to the more successful microentreneurs in their VB who had need of it. The women who borrowed money from this internal account would pay interest on it, which would be the property of the VB, to be used however they decided. How much would they charge? John wanted to know. The answer: 10% a month, or more than 3 times the 3% charged by FINCA.
It worked brilliantly. The more dynamic groups actually made enough money on the “internal account” to pay all the interest on the FINCA loans, making it essentially “free” money to the VB members. The women who borrowed from it were happy because they had more working capital at a lower cost than from the loan sharks.
Sadly, over time, many of the Treasurers began to abuse the trust of the members and embezzle their savings. We at FINCA were unable to place adequate controls over the myriad internal accounts, and eventually had to abandon this part of the model. A word of caution to the “new” trend of community savings groups gaining popularity as an alternative to microfinance. This will become a problem, if it hasn’t already.