A Thesis
entitled
Examining the Impacts of Microfinance Programs in Guatemala: A Case Study of Loan
Borrowers in San Antonio Aguas Calientes
by
Winston C. Chester
Submitted to the Graduate Faculty as partial fulfillment of the requirements for the
Master of Arts Degree in Geography
______Dr. Bhuiyan Alam, Committee Chair
______Dr. David J. Nemeth, Committee Member
______Dr. Sujata Shetty, Committee Member
______Dr. Patricia Komunieki, Dean College of Graduate Studies
The University of Toledo
August 2014
Copyright 2014, Winston C. Chester
This document is copyrighted material. Under copyright law, no parts of this document may be reproduced without the expressed permission of the author. An Abstract of
Examining the Impacts of Microfinance Programs in a Guatemalan Village: A Case Study of Loan Borrowers in San Antonio Aguas Calientes
by
Winston C. Chester
Submitted to the Graduate Faculty as partial fulfillment of the requirements for the Master of Arts Degree in Geography
The University of Toledo August 2014
The use of microfinance and microcredit as a poverty alleviation and economic development strategy has expanded dramatically since it was first popularized in the
1970s. This study focuses on microfinance programs being implemented in a
Guatemalan village and the impacts these programs impart on microloan borrowers. A case study was conducted in the village of San Antonio Aguas Calientes, located in
Guatemala’s western highlands. An in-depth mixed method case study approach, combining quantitative analysis with personal stories from borrowers regarding their borrowing experiences was used to gain a holistic understanding of the state of the current microfinance system in the study area. Survey data was collected from borrowers working with microfinance programs in the area. Data was collected on (1) borrower demographics, (2) microfinance customer’s perceived financial and quality of life impact of the loans, and (3) customer satisfaction indicators. The survey data was analyzed and examined in an attempt to determine if loan borrowers believed these programs were beneficial and provided a valuable service. Results from this analysis reveal several
iii concerns facing microfinance institutions and borrowers stemming from issues of high interest rates, loans used for consumption spending, and multiple borrowing. Findings from this study can be used to guide further policy decisions and regulations regarding the microfinance industry.
Keywords: Microfinance, Guatemala, Economic Development, Poverty.
iv
Dedicated to the unshakable support network that is my family and friends. Specifically, to my mother, Kathleen Pawlowski, who has continuously encouraged me in all of my academic endeavors and reminded me of the importance of being a “well-rounded” person. Also, to Angela S. Gerber for standing beside me and supporting me through every step of this project and all of the other important projects in my life.
Acknowledgments
I would like to express my gratitude to all of the faculty members in the
Geography and Planning Department for their support and encouragement. I would like to thank my committee chair Dr. Bhuiyan Alam for his priceless guidance, inspiration and, maybe most importantly, his ability to keep me focused and on task. Thank you to my committee members Dr. Nemeth and Dr. Shetty both of whom have helped to guide me throughout my graduate school career.
I would also like to thank my research assistant Elias Hernandez, his help was paramount in the completion of this project. Finally, I would like to thank the citizens of
San Antonio Aguas Calientes, Guatemala for welcoming me into their homes and sharing their stories with me.
vi
Table of Contents
Abstract .………………………………………………………………………………… iii
Acknowledgments...... vi
Table of Contents ...... vii
List of Tables ...... x
List of Figures ...... xii
List of Abbreviations ...... xiii
1 Introduction & Problem Statement ...... 1
1.1 Motivation for the Study ...... 1
1.2 Problem Statement ...... 4
1.3 Objectives of the Study ...... 5
2 Review of Literature ...... 77
2.1 Overview of the Concept of Microfinance ...... 7
2.2 Microfinance Programs in Guatemala ...... 10
2.3. Critiques of Effectiveness of Microfinance Programs ...... 11
2.4 Interest Rates of MFIs ...... 15
2.5 Use of Microfinance for Consumption ...... 17
2.6 The Issue of Multiple Borrowing ...... 18
3 Study Area ...... 20
3.1 Physical Landscape of Guatemala ...... 20
vii 3.2 History, Politics, and Culture of Guatemala ...... 21
3.3 San Antonio Aguas Calientes ...... 26
3.4 Economy ...... 27
4 Methodology of the Research ...... 30
4.1 Primary Data Collection ...... 31
4.2 Data Analysis ...... 34
4.3 Limitations of the Study...... 35
5 Findings and Analysis ...... 38
5.1 Data Source ...... 38
5.2 Demographics of Loan Borrowers ...... 39
5.3 Data Analysis ...... 44
5.3.1 Consumption Spending ...... 45
5.3.2 Multiple Borrowing ...... 49
5.3.3 Trouble Repaying and Perceived Effectiveness ...... 53
5.3.4 Customer Satisfaction and Interest Rates ...... 59
5.4 Inferential Statistics Results ...... 66
5.4.1 Chi-Square Goodness-of-Fit Test ...... 66
5.4.2 Correlation between Borrowing Patterns and Borrower Opinions ...... 70
5.4.3 Correlation Implications ...... 76
6 Summary, Conclusion, and Policy Implications ...... 78
6.1 The Fundamental Flaws of Microfinance ...... 79
6.2 The Changing Face of Microfinance ...... 81
6.3 Policy Implications of the findings of the study ...... 83
viii 6.4 Conclusion ...... 86
References ...... 88
A Summary of Literature Revi ew ...... 95
B Microfinance Borrower Survey Questionnaire ...... 108
C Institutional Review Board Approval ...... 113
D List of MFIs the Respondents Borrowed From ...... 116
E Photographs of Study Area ...... 118
ix
List of Tables
3.1. Guatemala HDI Trends based on consistent time series data...... 27
3.2. Guatemala’s HDI indicators for 2012 selected countries and groups...... 28
3.3. Guatemala’s IHDI for 2012 relative to selected countries and groups...... 28
3.4. Guatemala’s GII for 2012 relative to selected countries and groups...... 29
5.1. Borrower Marital Status ...... 40
5.2. Borrower Household Size ...... 40
5.3. Household Size Frequencies ...... 41
5.4. Age of Borrowers ...... 42
5.5 Level of Education ...... 43
5.6. Formal Education Frequencies ...... 43
5.7. Types of Businesses Operated ...... 46
5.8. Use of Loan ...... 47
5.9 Number Loan Organizations Used...... 50
5.10 Number Loan Organizations Used Frequencies ...... 50
5.11. Variety of Organizations Borrowed From ...... 51
5.12. Difficulty Repaying Loan ...... 54
5.13. Sales Performance Since Loan...... 55
5.14. Sales Performance Frequencies ...... 55
5.15. Ability to Pay Bills Since Loan ...... 56
x 5.16. Ability to Pay Bills Frequencies ...... 57
5.17. Has the microloan improved your household’s financial situation? ...... 58
5.18. Are you satisfied to have used the microloan? ...... 59
5.19. Borrower Satisfaction Frequencies ...... 59
5.20. : How would you rate the MFI(s) you are working with? ...... 61
5.21 Customer Rating Frequencies ...... 61
5.22. Interest Rate Chart ...... 63
5.23. Change in business since obtaining microloan (Chi-Square) ...... 67
5.24. Has the Microloan Improved Household Financial Situation? ...... 67
5.25. Do You Have Difficulties Repaying Your Loan(s)? ...... 68
5.26. Are You Satisfied to Have Used the Microloan?...... 69
5.27. MFI Customer Rating, 10=Excellent, 1=Very Bad ...... 69
5.28. Chi-Square Goodness-of-Fit Test Statistics ...... 70
5.29. List of Pearson’s Correlation Variables ...... 71
5.30 Pearson’s Correlation Table of Borrower Variables ...... 73
xi
List of Figures
3-1 Map of the Study Area...... 24
5-1 Borrower’s Marital Status ...... 40
5-2 Microfinance Loan Borrower Household Size ...... 41
5-3 Borrowers’ Age Frequencies ...... 42
5-4 Formal Education of Borrowers ...... 44
5-5 How Borrowers Used Their Microfinance Loan ...... 46
5-6 Types of Business Operated ...... 47
5-7 Number of MFIs Each Borrower Utilized ...... 51
5-8 Types of Organizations Utilized by Borrowers ...... 52
5-9 Difficulty Repaying Loan ...... 54
5-11 Ability to Pay Bills Since Loan ...... 57
5-12 Household Financial Situation Improved with Loan ...... 58
5-13 Borrower Satisfaction Frequencies ...... 60
5-14 Borrower Rating Frequencies ...... 62
xii
List of Abbreviations
CGAP……………… The Consultative Group to Assist the Poor GB…………………. Grameen Bank GNI………………… Gross National Income HDI………………… Human Development Index MFI………………… Microfinance Institution NGO……………….. Non-governmental Organization ROI………………… Return on Investment USD………………... United States Dollar U.N………………… United Nations UNDP……………… United Nations Development Program WB…………………. World Bank
xiii
Chapter 1
Introduction & Problem Statement
The expansion of microfinance as a poverty alleviation strategy and international development tool over the last 30 years has been championed by academics, large non- governmental organizations (NGO) and national governments around the world.
However, recent findings by researchers have brought into question the effectiveness of these types of programs and whether or not they are having the intended impacts on those that are supposed to benefit from them (Bateman & Chang, 2012). It is important to independently monitor organizations that are involved in microfinance lending using social science research to measure effectiveness and foster increased accountability.
1.1 Motivation for the Study
This study attempts to capture the various experiences and opinions of microfinance program participants in the village of San Antonio Aguas Calientes, located in Guatemala’s western highlands. Using a case study approach, survey data was collected and analyzed to determine the views and opinions of microfinance program participants regarding several key issues that they face as microloan borrowers. These issues include the perceived financial impacts of microfinance institutions (MFIs) on
1 program participants, as well as, participant satisfaction with the microfinance programs they are using. Additionally, data on specific characteristics of borrowing practices, and the manner in which loans are used are examined to determine how these variables relate to the overall impacts on the borrowers’ perceived financial situation and satisfaction levels.
There are many competing definitions of microfinance but a basic definition that sums up the concept and one that will be used for general understanding in this study is the following:
“Microfinance is a general term to describe financial services to low-income individuals or to those who do not have access to typical banking services. Microfinance is also the idea that low-income individuals are capable of lifting themselves out of poverty if given access to financial services” (Kiva, 2013, “About Us”).
It was during a trip to Guatemala, and specifically to San Antonio Aguas
Calientes, a small village in the hills outside the colonial town of Antigua, that the author first came across the microfinance programs that have become widespread in this area.
When travelling through the rural Highlands of the Central American country of
Guatemala it is impossible to ignore the impoverished conditions that much of the population lives in. However, more striking than the poverty is the level of inequality between those at the top of the economic ladder and those that are scraping by at the bottom. This assessment is supported by the information provided by agencies such as the United Nations Development Programme (UNDP), which lists Guatemala as having very high levels of inequality based on a number of Human Development Indicators
(HDI), such as income (UNDP, 2013). This poverty and inequality are especially concentrated among the rural indigenous population that inhabits the Mayan villages in
2 Guatemala’s Western Highlands. According to assessments by the World Bank, over three-quarters of the indigenous population in Guatemala lives on income that is below the country’s poverty line (World Bank, 2003).
To find out more about the popularity of MFI programs, the author spoke with ten women who have been borrowing money from local microfinance institutions for the past four to five years. After speaking in detail with these women, the author was left with a number of questions regarding the effectiveness of these programs and the impact that they are having on individuals and the local community. This initial investigation raised the question of whether or not these programs are actually benefiting the people they were designed to help. It is based on these questions that this study was conducted.
The author decided to travel to Guatemala in August of 2013 to interview the program participants. While it was possible to simply gather information from annual reports, phone interviews, and emails with microfinance program directors and employee, this field study approach was deemed appropriate and it was decided that talking directly to the people that were believed to be benefiting from these programs would be the most effective. Through initial research it was discovered that the microfinance sector is an enormous and complicated industry with many moving parts. Industry insiders argues that the industry is largely unregulated compared to formal financial industries and access to information can be very difficult at times (Sinclair, 2012).
The author of this study found this to be true after speaking with the director of the Banrural-Grameen microfinance program in Guatemala. The Banrural-Grameen director indicated that in order to obtain permission to talk directly to the clients permission would need to be granted from the home office of Grameen Trust in
3 Bangladesh, the corporate office of Banrural in Guatemala City, or Whole Foods, who provided some of the funding, at their headquarters in Austin, Texas. After several unsuccessful attempts to gain permission from these organization, it was decided to conduct the research independent and without assistance from any of the MFIs. Instead, the researcher went straight to program participants to directly ask them questions and try to gather the information that was pertinent to the study. The citizens of San Antonio
Aguas Calientes were incredibly helpful, welcoming, and thoughtful in their participation in this study. It is based on these interviews that the bulk of the research rests.
1.2 Problem Statement
Due to the rapid expansion of MFIs in developing countries around the world, and in Guatemala specifically, updated information needs to be collected and analyzed to help answer several research questions. Microfinance was designed as a poverty alleviation tool for the poorest of the poor. However, evidence has shown that many times microfinance fails at this mission (Bateman & Chang, 2012). Several factors that may contribute to this are explored using data collected from a small town in Guatemala.
Latest numbers estimate that there is currently 313.2 million USD in loans outstanding to approximately 490,000 borrowers from MFIs in Guatemala (Mix Market Microfinance
Information Exchange, 2012). This study looks at several aspects of local microfinance programs in the village of San Antonio Aguas Calientes, based on the survey data collected from loan borrowers.
The study begins by examining several demographic characteristics of the borrowers using MFIs. It will then look at borrower usage of microloans for consumption spending, versus the use of microloans for businesses investment. This
4 study also looks at the issue of multiple borrowing by customers from MFIs, moneylenders, and commercial banks, simultaneously. Following this, the research explores the MFI clients’ opinions and reactions to MFI interest rates, the clients’ perceived impacts of the microloan, and concerns that MFI clients have with loan repayment. Additionally, it is important to determine if MFI customers are satisfied with the services they receive and if these organizations are delivering a valuable resource to loan borrowers.
To determine this, survey respondents’ answers to questions regarding customer satisfaction are analyzed. Data is also presented to determine the overall financial impact these organizations have on program participants, based on borrower responses. Finally, information is presented from open-ended survey questions and in-depth interviews that demonstrate the positive and negative aspects of working with MFIs and how it has impacted the lives of program participants.
1.3 Objectives of the Study
This study has eight main objectives:
1. Identify the demographics of typical loan borrowers in the study area: age,
household size, marital status, and level of education.
2. Examine the use of microfinance loans for consumption spending by MFI
customers to determine if this is a concern for loan borrowers.
3. Examine the issue of multiple borrowing by microfinance customers. For this
purpose, survey data was analyzed to determine if borrowing from multiple MFIs,
as well as using a combination of MFIs, moneylenders, and commercial banks
was a problem for microloan borrowers.
5 4. Determine if MFI clients in the study area are having difficulties repaying their
loan and if they believe these microloans are helpful and effective.
5. Explore the reported customer satisfaction levels of MFIs borrowers and evaluate
their concerns with the borrowing process, and excessive interest rates.
6. Evaluate the borrowers’ in-depth responses that describe both positive and
negative aspects of working with the MFIs, to determine their opinion about
specific MFIs as well as their overall opinion about the microfinance programs
that operate in their areas.
7. Use statistical analysis, including Chi-Square Goodness-of-Fit test and Pearson’s
Correlation, to determine patterns and relationships in MFI borrower responses.
8. Analyze the policy implication of the findings, and provide recommendations for
MFI and local government policy makers.
6
Chapter 2
Review of Literature
A large portion of existing microfinance research supports the idea that microfinance is an effective economic development tool that has positive benefits for loan borrowers. However, recent studies have brought into question the true impacts of microfinance programs on loan borrowers. Research involving the overall concept of microfinance as well as several specific critical issues impacting loan borrowers is examined in this chapter. These issues involve loan interest rates, the use of loans for consumption spending, and the issue of multiple borrowing.
2.1. Overview of the Concept of Microfinance
The spread of MFIs around the world has expanded dramatically since the idea of lending small amounts of money to poor entrepreneurs with no collateral was introduced in the late 1970s. Nobel Prize economist Muhammed Yunnus popularized the concept of modern microfinance in the south Asian country of Bangladesh. After returning to
Bangladesh from studying and teaching in the United States, Yunnus was confronted with the extreme poverty of his home country and decided to implement a new economic strategy of loaning small amounts of money to groups of poor women to start businesses.
7 This was known as the Grameen Bank (GB) project. Grameen means rural or village in
Bengali the official language of Bangladesh.
The first project was launched in 1974 in the village of Jobra, in the south-eastern district of Chittagong, Bangladesh with an equivalent amount of 30 USD in loans distributed to a group of 43 basket weavers (Islam, 2007). In 1983, GB was transformed into a formal banking institution and has grown immensely over the past 30 years. Today the GB has 2,565 branches and works in 81,379 villages with a staff of over 22,000 worldwide. The total number of borrowers is over 8.35 million, and 96 percent of them are women. The amount of loans GB has distributed to borrowers since its inception has reached over 11 billion USD (Grameen Bank, 2011). This model has been adopted by
NGOs and commercial banks around the world. The growth of MFIs as an economic development tool has been substantial. As of 2010, microfinance intuitions have extended loans to more than 200 million clients worldwide and the MFI industry is still growing at a substantial rate (Lüzenkirchen, 2012).
The use of microfinance as a way to reduce extreme poverty, empower women, and increase the overall quality of life for its participants has gained a great deal of validation and support from governments, non-governmental organizations and experts in the field of economic development (Burra, Deshmukh-Ranadive, & Murthy, 2005).
Measuring the impact of microfinance on poverty alleviation can be difficult because there are many different types of microfinance organizations and numerous external variables that need to be taken into consideration. Still, according to several studies looking specifically at GB, microfinance has had positive impacts on several measurable areas such as, household income and asset accumulation, household consumption, as well
8 as social welfare indicators such as education, and spending on health and nutrition
(Islam, 2007).
The study of microfinance has lead to debates about the exact definition of microfinance and microcredit. Some researchers argue that there are fundamental differences between microfinance and microcredit, stating that microfinance goes farther than simply lending money and provides social services as well as financial services
(Ledgerwood, 1999; Robbinson, 2001). For this study the term microfinance is used to describe both microcredit and microfinance, although distinctions are made in the descriptions of different organizations and the services they provide. Some key characteristics of many microfinance institutions are: standardized and limited set of products and services, group lending, social collateral, forced savings, small initial loan size, loan size tied to savings, standardized loan repayment, disbursal schedules, and frequent repayments (Elahi & Rahman, 2006).
One important distinction that promoters of microfinance as a poverty alleviation tool make, is between microfinance institutions that operate as for-profit money lenders and those that operate as non-profit organizations. For organizations such as, the World
Bank and Muhammed Yunus, for-profit microfinance organizations are not part of the solution to global poverty (Elahi & Rahman, 2006). Despite this lack of approval, commercial banks have aggressively moved into the microfinance sector. The impressive repayment rates and profitability that GB business model introduced has paved the way for both small and large commercial banks to capture a portion of this sizeable pool of previously un-served borrowers (Islam, 2007).
9 2.2 Microfinance Programs in Guatemala
Over the years, both government sponsored programs and charitable organizations have tried to address the issue of poverty and inequality in Guatemala through a number of different methods. Microfinance is one of the latest tools being used by NGOs as a way to address these issues. A great deal of expansion has taken place since the introduction of MFIs to Guatemala in the 1980s. Beginning in the mid-1990s, the expansion of microfinance had been pushed by the United States and European governments as a way to “develop an entrepreneurial middle-class in the region in order to try to bridge the societal divisions responsible for civil wars during the 1980s”
(McIntosh & Wydick, 2005, p.275). This has resulted in the particularly heavy growth of
MFI activities in Guatemala.
This growth has occurred in several ways. The number of MFIs have grown substantially, the number of clients has increased, the number of towns and villages they are serving has grown, and the types of MFIs such as commercial MFIs and specialty
MFIs, have increased (McIntosh & Wydick, 2005). There are a variety of MFIs that operate in Guatemala. These range from commercial banks that simply make loans all the way to NGOs that help with the production and marketing of the goods produced and sold by the MFI participants (Kiser, Trevino, & McVicker). Among these different
MFIs, banks and credit unions account for more than 80% of the loans made to borrowers. Non-governmental or charity based MFIs in Guatemala have a difficult time competing due to the lack of clear regulations regarding how they are to operate (MIX
Market Microfinance Information Exchange, 2012).
10 Several studies have examined the impacts of microfinance in Guatemala. A study conducted by Brau, Hiatt, & Woodsworth, using a dataset of 393 microfinance clients from five MFIs in Guatemala, concluded that microcredit programs are beneficial to program participants. The authors explain that the positive impacts are seen in the areas of improved housing, health, and client empowerment. The authors also found that respondents indicated that they were generally pleased with their microfinance borrowing experience (Brau, Hiatt, & Woodsworth, 2009).
Another study by Wydick tracked the progress of 239 microfinance program participants from 1994-1999. Results from the study highlighted some of the economic and employment benefits of microfinance programs in Guatemala. The study reveals some of the limitations surrounding these programs. These limitations include program sustainability and prolonged benefits for participants (Wydick, 2001).
2.3. Critiques of Effectiveness of Microfinance Programs
Microfinance is not without its detractors, and there have been those who are critical of the microfinance movement and the organizations involved. Critical analysis of the microfinance industry has revealed several key flaws that contribute to microfinance’s inability to effectively help the poor escape poverty. A fundamental critique is that while some microfinance advocates may see microfinance as a panacea to poverty alleviation around the globe, critics point out that microfinance programs and small business developments do not necessarily cause poverty reduction (Islam, 2007).
Critics point out that these types of programs may not be the best approach for very poor people. The poorest 10 to 15 percent of people in developing countries may first need
11 help with the essentials of food and health concerns before they can successfully use programs like microfinance (Islam, 2007) Access to financial services is an important step but some argue that microfinance alone is not capable of producing the economic results that are needed to overcome deeply ingrained poverty in developing countries.
While many agree that microfinance is not having the intended effect that it was designed to have, there are various ideas on why this is. Some claim that geographical distance between MFIs and their clients may play an important role in the outcome of these programs (Presbitero, & Rabellotti, 2014). Organizations such as, The United Nations maintain that training in business skills and access to marketing information, as well as, government regulation and support are the keys to overcoming many of the challenges
MFIs face (Chowdhury, 2009).
Some researchers have taken on the entire concept of microfinance and have concluded that it is not what its proponents claim (Karim, 2008). Karim argues that microfinance is a tool used to spread neoliberal economic policy to developing nations.
She claims that instead of using a bottom up approach to improve the lives of the poor by giving them the tools they need to succeed, microfinance is actually restructuring society with a top down approach that is administered by the same actors that currently control the global neoliberal economic system (Karim, 2008). While Karim’s work looks specifically at Bangladesh, due to the global perspective of her argument, these conclusions could equally be applied to other developing nations.
Other critics of microfinance have observed the profit motives of some of the financial institutions participating in microfinance programs and the negative effects that these business models can have on program participants. This issue was brought to
12 popular attention in a 2008 New York Times article titled “Some Fear Profit Motive to
Trump Poverty Efforts in Microfinance” (Saltmarsh & Coniguglia, 2008). The article looks at the sizeable profits that are generated by asset funds that invest in microfinance intuitions operating in developing countries. The New York Times article also discusses the large influx of capital by commercial banks and investment funds into the microfinance sector. The early business models of what McIntosh and Wydick call “non- profit socially motivated lenders” (McIntosh & Wydick, 2005, p.272) showed that microfinance could produce profitable returns. This, in turn has led to for-profit commercial lenders entering the market and competing with traditional non-profit MFIs
(McIntosh & Wydick, 2005).
Another criticism of microfinance program performance looks at the dissatisfaction of clients using microfinance. Studies have shown the uneven results of microfinance programs. A study from Zambia that examined a popular MFI shows that a minority of wealthy clients experience positive results with microloans while the majority are left worse off financially. This study argues that microcredit can have a positive impact on short-term poverty reduction for some borrowers but it may cause increased inequality in communities and financial hardships for many clients. It is important to remember that MFIs are not charities giving away money to the poor. Instead, these are organizations that loan money to borrowers which borrowers must pay back with interest.
Many times these interest rates are at levels that can be very high compared with loans from commercial banks in Europe and North America. In a detailed study of microfinance, Islam (2007) identifies client dissatisfaction as a major component in the inability of MFIs to effectively use microfinance as a poverty alleviation tool. The
13 reasons for customer dissatisfaction are wide ranging but certain concerns, such as high interest rates, are common among many borrowers.
Looking at microfinance in a broader context, some may argue the entire economic structure in which these programs operate is suspect and the true benefits of entrepreneurial capitalism as a development tool is debatable. Theorist such as David
Harvey argue that expansion of micro finance is nothing more than a way for financial institutions to spread neoliberal economic policies focusing on wealth accumulation. In doing so, these institutions are able to extract wealth from individuals through predatory lending practices, similar to the subprime loans which contributed to recent problems in the U.S. housing market (Harvey, 2011).
Debates surrounding the long-term benefits of the global capitalist economic system are not new. However, research examining effects of the capitalist system on inequality has shed light on the potential negative impacts that this type of economic arrangement can have, especially on those at the bottom. In Capital in the 21st Century,
Thomas Piketty makes a simple but profound argument: the growth of income from capital grows at a rate several times larger than the rate of overall economic growth, this means that a smaller portion is going to income earned from wages compared to income earned from invested capital. In turn, this leading to increasing disparity between wage earners and those that control capital. This inequality is also exasperated during when the economy and population grow slowly (Piketty & Goldhammer, 2014).
Despite criticism of the capitalist system, it is important to understand that microfinance organizations operate in the framework of a financial system based on modern banking practices of investments and returns. Piketty himself does not argue
14 against capitalism or economic competition. Indeed, he argues that private property and market institutions are essential to a healthy economy and as a precursor to personal freedom (Erlanger, 2014). Ultimately it is sensible to examine microfinance institutions and economic development organizations in the context in which they operate.
Criticism of microfinance has existed in many forms since its inception in the
1970s and rigorous academic work questioning the true impact of these programs has been produced since at least the mid-1990s (Ahmad & Townsend, 1998). While the reasons behind the failure of many microfinance programs is still debated, a growing consensus is arguing that these programs are ineffective in their goals of reducing poverty and improving the lives of borrowers. Whether in India or Latin America studies continue to show that much the microfinance industry is not living up to its promise of grassroots, entrepreneurial economic development (Bateman, 2013; Banerjee, Duflo, Glennester, &
Kinnan 2013).
2.4. Interest Rates of MFIs
One major complaint from borrowers is the high interest rates imposed by the
MFIs. Interest rates of between 20 to 30 percent are common among MFIs in developing countries (Islam, 2007). For many borrowers interest is only part of the cost for borrowing. A significant number of MFIs incorporate various fees and forced savings that increase the cost significantly (Sinclair, 2012). One of the most extreme examples of this comes from Campartamos, a Mexican bank that has moved into the microfinance sector. When considering fees, and other factors, it is argued that, for a period,
Compartamos charged an annual interest rate of 195% (Roodman, 2011). The global
15 industry average of MFI interest rates is around 35 percent but these vary greatly from country to country. In Uzbekistan, for example, the average annual interest rate is about
80 percent, while the average is17 percent in Sri Lanka (Kneiding & Rosenberg, 2008).
Some argue that distributing and managing many small loans is a high cost process and justifies high interest rates for borrowers. Others claim that high interest rates are harmful to borrowers and argue for interest rate ceilings across the sector (Hudson,
2007).
Studies conducted by The Consultative Group to Assist the Poor (CGAP), a
Washington D.C. based think tank focusing on financial access for the poor, provide useful information regarding microfinance interest rates. These studies show that for lenders focusing on extremely poor borrowers, interest rates have risen over the last several years. They also point out the fact that these low-end lenders are much more profitable than average microfinance institutions (Rosenberg, Gaul, Ford, & Tomilova,
2013). The studies by CGAP point to the same justification for high interest rates as the ones mentioned above. Small loans require higher administrative costs and these are not offset by economies of scale (Rosenberg, Gonzalez, & Narain, 2009). Rosenberg,
Gonzalez and Narain (2009) state that
“The burgeoning volume of money passing through international microfinance investment funds is coming mainly from investors who are not willing to accept higher risks or lower returns for the sake of social objectives” (p.3)
This type of justification seems to point to the fact that there is very little difference between the microfinance industry and the commercial banking sector other than the size of the loans.
16 2.5. Use of Microfinance for Consumption
One of the major challenges facing microfinance programs is the inability of borrowers to use loans solely for businesses investments that will produce financial returns. Bateman and Chang (2012) argue that most microcredit loans are not used to invest in small businesses but instead are used for consumption spending. They acknowledge that this use of loans for consumption spending can have a beneficial impact for borrowers because it increases their ability to avoid financial crisis and can act as a financial smoothing mechanism. However, they also make sure to point out that such use of microcredit is very different than the original GB innovation that Yunnus implemented in the 1970s (Bateman & Chang, 2012).
Other scholars like Dichter (2007) also claim that the majority of microfinance loans are in fact used for consumption spending instead of businesses investment.
Dichter argues that most people, whether they are rich or poor, are not entrepreneurs and that simply loaning people money will not lead to a viable small businesses. He goes one step further and makes a distinction between what he calls “real businesspeople” (p.5) and the standard microfinance clients of today. Dichter claims that:
The practical dividing line between standard microfinance clients of today (the vast majority of whom are not entrepreneurs) and real businesspeople is the line between consumption and investment capital for business. Credit for real business is not for nor about consumption, nor does it need to be accessible to everybody (2007, p.5).
This statement may stand in contradiction to the view of many microfinance promoters who believe that access to credit is important for poor people around the globe.
However, the question remains, how are microfinance borrowers going to be able to pay
17 back loans and bring themselves out of poverty if much of the loan principle is used on spending that does not produce a financial return? At the end of the day the borrowers are still accountable for the loan they borrowed, with high interest.
A constant cycle of borrowing and spending is often a situation that microfinance customers can find themselves in. Due to the fact that microloans provide small amounts of money and must be repaid in a short period of time, these loans may be used as a consumption smoothing mechanism. Borrowers may use these loans to reduce the negative effects of unexpected financial misfortunes or seasonal instabilities instead of investing them in long-term business ventures. The net effect of this may simply be the redistribution of income over time instead of increasing the total income of the loan borrowers (Selinger, 2008).
2.6 The Issue of Multiple Borrowing
Another major concern for microfinance programs is the issue of multiple borrowing. With the increase in MFIs there is an increased risk of borrowers taking on multiple loans, over extending themselves financially, and facing repayment difficulties.
Access to multiple MFIs and aggressive lending policies can lead to borrowers obtaining multiple loans simultaneously from different MFIs. Many times these loans are used for consumption spending or to pay back other loans. This can lead to an unproductive cycle of debt that is difficult for the borrower to overcome (Rahman, 1999). The expansion of microfinance programs may provide loan access to more borrowers but it has also lead to increased competition between MFIs for customers. Studies have shown a link between increased MFI competition for customers and a number of problems for borrowers.
18 These problems include, borrower over indebtedness, reduction of loan repayment incentives, and increase in unpaid debts (Luoto, McIntosh, & Wydick, 2007).
Evidence shows that borrowers who take loans from multiple organizations have higher debt levels and are more likely to default on those loans (Vogelgesang, 2003;
McIntosh and Wydick, 2005). Some efforts are being made in Guatemala to address the issue of multiple borrowing. Several Guatemalan MFIs have implemented a credit information system to share borrower repayment information. However, only a small number of Guatemalan MFIs participate in the system, and the occurrence of clients borrowing from multiple lenders is still common (Luoto, McIntosh, & Wydick, 2007).
As Wydick (2001) points out, more research is needed to ascertain the long-term effects of microfinance programs on borrowers and how these effects vary among different types of MFIs (Wydick, 2001).
Added to the problem of multiple borrowing from MFIs, some borrowers choose to take loans from commercial banks and informal moneylenders at the same time they are participating in microfinance programs. Unmanageable debt loads force borrowers to make difficult financial decisions. Microfinance program participants can find themselves in a cycle of ‘‘microcredit dependency’’ that can lead to borrowers obtaining loans with extremely unfavorable terms. In some cases peer pressure has required borrowers to take on expensive loans from informal moneylenders in order to repay their microfinance loans (Selinger, 2008).
19
Chapter 3
Study Area
The unique blend of tradition and progress that make up of the country of
Guatemala is perfectly reflected in the western highland village of San Antonio Aguas
Calientes. Guatemala is a country with deep rooted indigenous culture that is entwined with modern consumer capitalism. This is apparent when looking at how modern microfinance programs have penetrated villages throughout the Guatemalan Highlands.
San Antonio Aguas Calientes is a village famous for its traditional Mayan weaving, yet it is directly linked to the modern economy of the country’s capital and to the tourist town of Antigua. The location and economic structure of San Antonio Aguas Calientes makes it an ideal location to conduct a case study of this nature.
3.1 Physical Landscape of Guatemala
Guatemala is a Central American country with an area of 108,890 km2, slightly smaller than the U.S. state of Ohio. It is bordered by Mexico to the north and west,
Belize to the east, El Salvador and Honduras to the south, and the Pacific Ocean to the southwest (CIA, 2013). Due to plate tectonics and its proximity to the intersection of the
American plate, Carribean plate, and the Cocos and Nazca plates, Guatemala is in a
20 volatile earthquake zone covered in conical volcanic peaks that run across it northwest to southeast. These volcanic peaks are made up of at least six active and twenty-four dormant volcanoes (Calvert, 1985).
The climate in Guatemala is largely dependent on altitude. The climate at sea level is considered maritime tropical, and the average annual temperature on the coast ranges from 23-30 degrees Celsius. The northwestern mountain regions do experience a cooler climate and can get particularly cold with an average temperature of only 15 degrees Celsius. Guatemala experiences two main seasons: a dry season from November to April and a rainy season that lasts from May to October.
The majority of the population lives in the Highland region facing the Pacific
Ocean where the average temperature is approximately 20 degrees Celsius. Due to the steady and comfortable climate the region has gained the nickname, Land of Eternal
Spring. The Highlands are a continuation of the mountain chains that extend down from
Chiapas, Mexico. In the north of this region is Mount Tajumulco at 13,816 feet, the highest mountain in Central America. The country’s capital Guatemala City is located at the southern end of this region with the second largest city Quetzaltenango located toward the north. The famous Lago Atitlan region is located further north towards the
Mexican border. This area is also home to many of the Maya people that make up almost half of the population of Guatemala (Calvert, 1985).
3.2 History, Politics, and Culture of Guatemala
The Republic of Guatemala is a constitutional democratic republic. Guatemala won its independence and was established as an independent country in 1821 after almost three centuries as a Spanish colony (CIA, 2013). The nineteenth and early twentieth
21 century were tumultuous periods for the countries of Central America, and during this time Guatemala went through several political regimes, including an era of economic liberalization from 1870-1930 (Bethel, 1991).
Like other Central American countries, politics in Guatemala was heavily influenced by U.S. government interests throughout the 20th century. These policies resulted in the U.S. backed 1954 military coup d’état that overthrew the democratically elected government of President Jacobo Árbenz Guzmán. The period following this event is one of the most tragic eras in Guatemala’s history. The 36-year civil war that began in 1960 and officially ended with the signing of the “Agreement on Firm and
Lasting Peace” on December 29, 1996 was the longest lasting civil war in modern Latin
America (Tomuschat, 2001). Hundreds of thousands were killed during the war. The most destructive periods took place during the late 1970s and early 1980s with mass killings and displacements, mostly of the indigenous Maya population. A U.N. report concluded that over 200,000 people were killed or disappeared during the Guatemalan civil war, 93 percent at the hands of government forces and related paramilitary groups
(Manz, 2005).
Almost two decades after the signing of the peace agreement, Guatemala is still dealing with the repercussions from this tragic war. In May 2013, former dictator Jose
Efráin Rios Montt was found guilty of genocide for massacres committed against
Guatemala’s Mayan population. The ruling stemmed from the government ordered systematic massacres of Mayan villagers in the El Quiché department during the early
1980s. The conviction of Ríos Montt is historic as it is the first case in which a former head of state has been charged with and convicted of genocide by a national tribunal
22 (Malkin, 2013). While there are still lingering consequences from this tragic period, the resurgence of a war is unlikely and most of the current political focus is on the very serious problems surrounding violent crime and poverty (CNN, 2007).
Guatemala is well known for its enduring indigenous Mayan culture. The
Guatemalan population is made up of 60% Mestizos, who are mixed Amerindian-Spanish and European. About 39% percent of the population is made up of various Mayan groups.
The three largest Maya groups are Kíche, Kaqchikel, and Mam. There are other Maya groups that have a significant presence in the country, such as the Tz’utujil near Lake
Atitilan and the Ixil people of the northwestern Highlands (CIA, 2013). Alongside the dominant language of Spanish, there are over 20 recognized Mayan languages spoken throughout the country (Ethnologue, 2013).
23
Figure 3-1 Map of the Study Area
24
Figure 3-1 Map of the Study Area (Continued)
25 3.3 San Antonio Aguas Calientes
The town of San Antonio Aguas Calientes (population approx. 7000-8000) is located in the department of Sacatepequez about seven miles outside the colonial town of
Antigua and approximately 30 miles south-west from the country’s capital, Guatemala
City. The town is nestled in a winding valley at the base of three volcanoes. The massive and dormant Volcan de Agua rises to the southeast, and to the southwest lay the double- peaked Acatenango and the very active Volcan de Fuego.
The majority of the inhabitants of San Antonio identify themselves as Kaqchikel
Mayans and most of the older people in San Antonio speak Kaqchikel in addition to the national language, Spanish. Unlike some highland towns where some people only speak the local indigenous language, San Antonio has had a long tradition of bilingualism and almost everyone speaks Spanish just as well as they speak Kaqchikel (Annis, 1987).
San Antonio has been a well-known tourist destination since at least the 1970s.
The town is famous for traditional weaving and is home to an artisan market and a women’s weaving cooperative. Weaving is a major part of the town’s identity, and the distinct patterns and high quality are admired by weaving aficionados around the world.
Practically every woman born in the village knows how to weave (Annis, 1987).
The other traditional cornerstone to the San Antonio way of life is milpa agriculture. Most families in San Antonio own or rent small plots of land called milpas to grow crops that are used at home. While factors such as agricultural technology, movement towards cash cropping, and the consolidation of farmland by large growers have affected this tradition, the milpa way of life still remains strong. The hills
26 surrounding San Antonio are filled with milpas growing corn, beans, squash, and other produce.
3.4 Economy
While Guatemala as a whole has made progress in many areas, poverty remains a persistent problem. According to the latest UNDP report (2013), Guatemala’s Gross
National Income (GNI) per capita for 2012 was estimated at $4,235 USD, but many in rural regions live well below this level. Low levels of income can have negative consequences in terms of opportunities and choices. This is reflected in areas such as education. The mean amount of schooling for the current adult population is approximately four years. The UNDP report also discusses the problem of gender inequality, an issue that remains a serious concern in Guatemala (UNDP, 2013)
Looking at the Human Development Index (HDI), which is widely used as a measure of both social and economic development, Guatemala’s score is 0.581. This puts Guatemala at 133 out of 187 countries or territories, worldwide. HDI levels have been improving over the past three decades (Table 3.1) but Guatemala is still below other countries in the region based on several key indicators (Table 3.2).
Table 3.1 Guatemala HDI Trends Based on Consistent Time Series Data.* Life expectancy Expected years of Mean years of GNI per capita HDI at birth schooling schooling (2005 PPP$) value 1980 57.3 6 2.4 3854 0.432 1985 59.6 6.1 2.8 3183 0.444 1990 62.2 6.2 3.1 3268 0.464 1995 64.9 7.3 3.5 3626 0.501 2000 67.8 7.3 3.8 3911 0.523 2005 69.7 9.6 3.6 3990 0.551 2010 70.9 10.7 4.1 4172 0.579 2011 71.2 10.7 4.1 4210 0.58 2012 71.4 10.7 4.1 4235 0.581
27 Table 3.2 Guatemala’s HDI Values for 2012 Relative to Selected Countries* HDI HDI Life Expected Mean GNI per value rank expectancy at years of years of capita birth schooling schooling (PPP US$) Guatemala 0.581 133 71.4 10.7 4.1 4235 Nicaragua 0.599 129 74.3 10.8 5.8 2551 Honduras 0.632 120 73.4 11.4 6.5 3426 Latin 0.741 - 74.7 13.7 7.8 10300 America and the Caribbean * Source: UNDP Human Development Report 2013, Guatemala.
In addition to poverty, levels of inequality in Guatemala are also high and are seen as an obstacle to development. Looking at Inequality Adjusted HDI (IHDI) that accounts for inequality in relation to HDI, Guatemala’s adjusted HDI value is even lower than its base score (Table 3.3). Another major indicator of inequality that stands out as an issue for Guatemala is the Gender Inequality Index (GII). With a score of 0.539,
Guatemala ranks 114 out 148 countries measured, indicating that the country has high levels of gender inequality. These rates are also higher than other countries in the region
(Table 3.4).
Table 3.3 Guatemala’s IHDI for 2012 Relative to Selected Countries and Groups.* IHDI Overall Loss Loss due to Loss due to Loss due value (%) inequality in inequality in to life expectancy education inequality at birth (%) (%) in income (%) Guatemala 0.389 33.1 18.6 36.1 42.5 Nicaragua 0.434 27.5 13.9 33.3 33.6 Honduras 0.458 27.5 17.4 28.2 35.8 Latin America 0.55 25.7 13.4 23 38.5 and the Caribbean
28 Table 3.4 Guatemala’s GII for 2012 Relative to Selected Countries and Groups.* GII GII Maternal Adolescent Female Female Female value Rank mortality fertility seats in Labor population ratio rate parliam force with at ent (%) particip least ation secondary rate education (%) (%) Guatemala 0.539 114 120 102.4 13.3 49 12.6 Nicaragua 0.461 89 95 104.9 40.2 46.7 30.8 Honduras 0.483 100 100 85.9 19.5 42.3 20.7 Latin 0.491 - 74 70.8 24.4 53.7 49.8 America and the Caribbean *Source: UNDP Human Development Report 2013, Guatemala.
Guatemala falls well below average in a number of other categories that measure indicators such as poverty, education, and inequality. Guatemala is a prime location to implement economic and social development programs. Due to this, many microfinance programs have sprung up in Guatemala over the last 20 years.
29
Chapter 4
Methodology of the Research
This study was conducted using a quantitative-qualitative mixed method approach based on primary survey data gathered by the author in the field during the months of
May and August of 2013. The intention of this approach was to gain information directly from microfinance program participants in order to try and capture their experiences as microfinance loan borrowers. This type of case study approach is implemented at the grassroots level and provides significant information that large scale studies that use aggregate data are likely to miss. This study contains first-hand accounts of loan borrowers that shed light on the true impact of microfinance programs. Many studies lack these personal stories making the findings abstract or theoretical. By allowing loan borrowers to explain their circumstances in their own words, this study provides valuable information that is missing from much of the current research on microfinance. The methods used for this study are divided into two main groups: Primary Data Collection and Data Analysis.
30 4.1 Primary Data Collection
In March of 2013 an exploratory trip to Guatemala was conducted to determine if a study on this topic would be feasible. During this trip the author was able to meet with ten women at their houses in the village of San Antonio Aguas Calientes. This specific village was selected because the author has contacts with a Guatemalan family from San
Antnonio, who now live in the U.S. state of Michigan. Over the past few years the author has visited this village many times and formed relationships with several residents. The ten women were informally interviewed and confirmed that they were participant members of Banrural-Grameen, which is a large MFI that has branches throughout
Guatemala. During the interviews, the women brought up several concerns that they had with their current loans, such as high interest rates and difficulties with repayment.
Based on these initial interviews a survey was created to gather further information from
MFI program participants in order to determine if these and other concerns were widespread among MFI loan borrowers in San Antonio.
During this trip the author was also able to meet with the director of Banrural-
Grameen, Md. Delwar Hossan, at the Ciudad Vieja branch office. During his meeting with Mr. Hossan, he discussed the possibility of working with Banrural-Grameen to conduct the study, in order to gain a larger number of survey respondents, as well as access aggregate information about the countrywide program. The author was informed that he would need to gain permission from one of the lead partners. After sending several emails to the lead partner organizations, Grameen Trust, Banrual Guatemala, and the Whole Plane Foundation, a partner organization of the grocery store company Whole
Foods, he was unable to obtain permission and moved forward with the study.
31 Based on information gathered from the initial trip, several research questions were developed. Structured surveys, consisting of 37 individual questions divided into three sections were also created (Appendix A). The first section consists of questions regarding general background information and borrower demographics such as age, gender, household size, and educational attainment. The second section contains questions relating to financial information, such as loan amounts and sales figures for businesses ventures. The final section is comprised of questions that address program participants’ opinions of MFIs and their specific loan experience. The use of surveys as a primary data collection source is well documented in the social sciences (Yin, 1994).
Because human subjects are involved in this research and in order to implement this study as part of a master’s thesis requirement with the sanctioning of The University of Toledo, the researcher was mandated to receive approval from the university’s Social,
Behavioral, and Educational Institutional Review Board. The required paperwork was summited and approval was granted on June 19th 2013 (Appendix B). The researcher arrived in Guatemala on August 4th 2013 to begin conducting surveys and interviewing
MFI participants.
Mr. Elias Hernandez was enlisted as a research assistant to help recruit participants and assist with translation. Mr. Hernandez is a resident of San Antonio
Aguas Calientes. He works as a municipal bus driver for the town of San Antonio, and is a well-known and very respected member of the community. Mr. Hernandez lived in the
United States for several years and is fluent in both Spanish and English. He can also understand Kaqchikel, the indigenous language that is widely spoken in this region. Mr.
32 Hernandez has been a friend of the author for many years and his help was essential in the completion of this project.
Participants were recruited by going door to door and through word of mouth. The microfinance programs that operate in the area are group-lending schemes and each group consists of between 10-30 women. On several occasions the researcher was able to talk to one person who would then arrange for several group members to meet at a single house to complete the surveys. This was very helpful and saved a great deal of time by allowing surveys to be administered to groups of up to 15 borrowers at a time. The respondents filled out the surveys themselves and independent of each other. Before the respondents completed the survey, the nature of the study was explained, a consent form was presented to the participants, and instructions were given on how to complete the survey. Mr. Hernandez and the author were both present while the respondents completed the surveys to explain and clarify any questions the respondents did not fully understand. Due to the low education levels of a few of the respondents, reading and comprehension prohibited them from being able to fill out the surveys themselves. In these situations either Mr. Hernandez, myself, or one of the other members of the lending group assisted in the completion of the survey. A total of 107 completed surveys were collected from respondents.
As a way to increase participation and compensate participants for taking the time to contribute to this study, respondents were paid the equivalent of 2.50 USD in local currency to reimburse them for their time and effort. The use of incentive pay to increase respondent participation is well documented and widely used in the social sciences (Ver,
Moffitt, & Citro, 2002; Mulligan; Bischoping & Schuman, 2012; Philipson, 2001).
33 Respondents were informed several times throughout the process that the only objective of this study was to obtain valid and reliable information and that the researchers remain impartial to any of the answers they provide.
4.2 Data Analysis
A coding scheme was developed to transform the nominal survey data into numerical categorical data. Survey data was entered into a Microsoft Excel spreadsheet.
Following this, the Excel spreadsheet was uploaded to IBM SPSS v.21 statistical software. Variables were defined and labeled.
The questions were divided into to two categories for analysis, Group and Score.
Group variables were used to assign survey responses to a specific category. For example, the answer for the survey question pertaining to gender would fall into either
1=Male, or 2=Female. Score variables were used to measure the quantity of variables.
The level of education or the age of a survey respondents are measured using the score variable format. Score variables were also used to measure answers using a Likert scale of 1 to 5. Several of the questions relating to borrower satisfaction fall into this category.
The techniques presented by Aspelmeier and Pierce (2009) in SPSS: A User-Friendly
Approach was invaluable in guiding the data management and analysis process of this study.
Descriptive statistics were generated from group data and are presented as percentages by categories for several questions of demographics, as well as several bivariate questions. Score data frequencies are provided for open-ended quantitative questions, and questions that use a Likert scale value. Ranges, mean, and median values, and histograms are provided for these questions.
34 In addition to the descriptive statistical techniques listed above, two types of inferential statistics procedures were conducted to gain a better understanding of the borrower responses. A Chi-Square Goodness-of-Fit test was used to measure differences in expected versus the observed frequencies for several variables measuring borrower opinions. Also, Pearson’s product-moment correlation coefficient was used to determine the existence of statistically significant relationships between variables measuring borrower opinions and the respondents’ borrowing patterns.
The surveys also included several open-ended questions dealing with the opinions and comments of the respondents regarding their loan experiences. These responses are used to identify patterns and anecdotes that are useful in addressing the research objectives.
Several longer form interviews were also conducted to clarify several points not addressed in the surveys and add context to the data collected. Responses from these interviews are included in the analysis. These descriptions and accounts add a deeper understanding of the microfinance program borrowing experience and the challenges the borrowers face.
4.3 Limitations of the Study
As with much research, the major limitation for this study was time. Given more time a deeper analysis would have been possible leading to the development and examination of further research questions. Despite the fact that only those that are currently borrowing from microfinance programs are eligible to participate in the study; several surveys were completed by individuals who are currently only borrowing from either commercial banks or informal moneylenders and were therefore not included in the
35 analysis. This is reflected in the data. Another limitation was the relatively small sample size of the survey respondents compared to the number of individuals participating in microfinance programs in Guatemala.
Due to invalid responses and lack of pertinent information, some questions regarding financial measurements were not included in the analysis. Many of the survey participants responded with invalid amounts or failed to answer questions regarding sales figures, monthly income levels, loan amounts and specific loan interest rates. Further studies may be able to resolve this issue by structuring the questions in a different manner allowing for respondents to answer these questions based on a scale that is easiest for them to explain. For example, questions of sales were asked on a monthly basis.
Respondents may be more comfortable explaining this in weekly measurements or even daily amounts. Researchers could then extrapolate these answers for analysis.
Access to information from the microfinance organizations themselves was also an issue and it was only possible to obtain information that was available from the organization websites or from data, which was included in previous studies. This made it difficult to verify the information provided by the clients with information from the microfinance programs. All of the microfinance programs that respondents acknowledged working with were contacted for information regarding annual interest rates. Only one organization, Génesis Impreserial, responded. This organization provided numbers consistent with those provided by loan borrowers. A full list of microfinance programs that were identified by survey respondents is included in Appendix C.
36 Finally, because the surveys were conducted in Spanish and then translated to
English there is always a chance of losing some of the respondents’ intention and meaning during this process.
Working in San Antonio Aguas Calientes was both challenging and rewarding.
While most survey respondents were incredibly welcoming and helpful, it was still sometimes a challenge to explain the motivation behind this study to survey respondents.
In the end, this was accomplished through open and focused dialogue, and the loan borrowers participated in good faith and provided valuable information.
37
Chapter 5
Findings and Analysis
The findings of this study depict a situation for loan borrowers in the study area that is much different than those described by many microfinance advocates. Results from this analysis reveal several concerns facing both MFIs and borrowers stemming from issues of high interest rates, loans used for consumption spending, and multiple borrowing. These findings are further assessed and explained using first-hand accounts from loan borrowers describing their personal experiences with MFIs.
5.1 Data Source
The following results and analysis are derived from a survey containing 37 individual questions. The surveys were distributed to women in the study area who indicated that they had borrowed money from loan granting organizations. (Appendix A).
Out of the 106 surveys collected, 94 respondents were identified as MFI loan borrowers.
For this study, MFI borrowers are defined as borrowers who currently have at least one loan from a loan program recognized as a microfinance institution. The MFIs that lent money to the respondents in the study area are listed in Appendix C. In addition to a
38 single loan from a recognized MFI, respondents identified as MFI borrowers may have additional loans from other MFIs, commercial banks, private moneylenders or any combination of the three. There were ten survey respondents who identified themselves as non-MFI borrowers. These borrowers obtained loans from only commercial banks, private moneylenders, or both. The remaining two respondents could not be classified, due to incomplete survey data, and were discarded. In order to protect the privacy of the study participants, only the respondents’ initials are used when attributing statements.
5.2 Demographics of Loan Borrowers
In order to gain a better understanding of the loan borrowers, demographic data was collected as part of the study. All 94 respondents were women. This fits with the overall philosophy of current microfinance theory. A major component of modern microfinance theory is the promotion of women’s empowerment by providing them with small loans to start small businesses and gain economic independence (Hossain, 2003).
The percentage of male microfinance customers at most MFIs is small. The GB reports that over 90 percent of its current loan borrowers are women.
The survey respondents were asked for the number of people in their households and their marital status. Out of the 94 respondents, 88 reported valid answers for this question: 56% reported as Married and the other 44% responded as Not Married. The household size of respondents varied quite a bit. Three respondents reported living alone, while two respondents reported a total household size of nine individuals. These numbers demonstrate the wide range of household sizes in which these MFI borrowers live. The mean household size was 4.48 with 49% of households comprising of either
39 four or five members. The median household size was equal to 4, with a standard deviation of 1.781.
Table 5.1 Borrower Marital Status Frequency Percent Valid Percent Cumulative Percent Married 53 56.4 56.4 56.4 Not Married 41 43.6 43.6 100.0 Total 94 100.0 100.0
UnMarried 44%
Married 56%
Figure 5-1 Borrower’s Marital Status
Table 5.2 Borrower’s Household Size N Valid 88
Missing 6 Mean 4.48 Median 4.00 Std. Deviation 1.781 25 3.00 Percentiles 50 4.00 75 5.00
40 Table 5.3 Household Size Frequencies Size of Frequency Percent Valid Cumulative Percent Household of HH of HH Percent of of HH Sizes Sizes Sizes HH Sizes 1 3 3.2 3.4 3.4 2 8 8.5 9.1 12.5 3 14 14.9 15.9 28.4 4 23 24.5 26.1 54.5 5 20 21.3 22.7 77.3
6 6 6.4 6.8 84.1 7 9 9.6 10.2 94.3 8 3 3.2 3.4 97.7 9 2 2.1 2.3 100.0 Total 88 93.6 100.0 Missing System 6 6.4 Total 94 100.0
25 26.1% 22.7% 20
15 15.9%
10 10.2%
Frequency 9.1% 6.8% 5 3.4% 3.4% 2.3%
0 1 2 3 4 5 6 7 8 9 Number of Household Members
Figure 5-2 Microfinance Loan Borrower Household Size
41 There is a wide range in the age of survey respondents. The age range for MFI borrowers is 21-65 years. The mean age for borrowers was 37.78; the median was 35.50, with a standard deviation of 11.39.
Table 5.4 Average Age of Microfinance Loan Borrowers Valid 94 N Missing 0 Mean 37.78 Median 35.50 Std. Deviation 11.385 25 30.00 Percentiles 50 35.50 75 45.00
25 23.4%
20 19.1%
15 13.8% 12.8%
Frequency 10 8.5% 6.4% 6.4% 5.3% 5 4.3%
0 0 0 21-25 26-30 31-35 36-40 41-45 46-50 51-55 56-60 61-65 66-70 70+ Borrower Ages
Figure 5-3 Borrowers’ Age Frequencies
The MFI borrowers were asked how many years of formal schooling they had completed. The level of education varied significantly among survey respondents. With
85 valid responses, 9.4% of women reported that they had not completed any formal
42 education with the highest level of education reported as seven years by one respondent.
The mean value was 3.55 with 30.6% completing 6 years of formal education. The mean value is below the country average of 4.1 years (UNDP, 2013).
Table 5.5 Level of Education Valid 85 N Missing 9 Mean 3.55 Median 3.00 Std. Deviation 2.079 25 2.00 Percentiles 50 3.00 75 6.00
Table 5.6. Formal Education of Borrowers Formal Years of Frequency Percent Valid Percent Cumulative School Percent 0 8 8.5 9.4 9.4 1 6 6.4 7.1 16.5 2 16 17.0 18.8 35.3 3 16 17.0 18.8 54.1 Valid 4 7 7.4 8.2 62.4 5 5 5.3 5.9 68.2 6 26 27.7 30.6 98.8 7 1 1.1 1.2 100.0 Total 85 90.4 100.0 Missing System 9 9.6 Total 94 100.0
43 30 30.6% 25
20 18.8% 18.8% 15 Frequency 10 9.5% 8.2% 7.1% 5.9% 5 1.2% 0 0 1 2 3 4 5 6 7 Years of Education
Figure 5-4 Formal Education of Borrowers
Of course these demographics only give us a snapshot of who is borrowing money from these microfinance programs. Each of these women lives a complex and unique life that the researcher was only able to catch a glimpse of during the brief interaction with them. The welcoming nature and helpfulness that that the author encountered, as well as, the stories of hard work and innovation are not reflected in the demographic information above. However, these demographic measurements are important to note because they help to reflect the condition of borrowers in San Antonio.
5.3 Data Analysis
After examining the frequency results from the surveys, several interesting patterns emerged from the responses to key questions that warrant examination and further consideration.
44 5.3.1 Consumption Spending
One of the hallmarks of microfinance is the idea that providing loans to poor women in order for them to start small businesses can improve their financial situation
(Burra, Deshmukh-Ranadive, & Murthy, 2005). However, what if the loans were not used for business investment and were instead used for other purposes, a phenomenon known as consumption spending? One could logically conclude that loans used in this way would not generate monetary returns for borrowers and, therefore, they would lead to increased debt, which would be harmful to the economic well-being of microfinance borrowers. This phenomenon was discussed earlier in Chapter 2 under section 2.5. In order to determine if this scenario was occurring with MFI borrowers in San Antonio, survey respondents were asked, “What was the main purpose of the microloan?”
(Appendix A, Question #13).
With 91 valid responses out 94 MFI borrowers surveyed, 40.7% reported using their loans for business projects. Among the businesses operated by loan borrowers in
San Antonio, the most common businesses is weaving and selling textiles. With 49 borrowers responding to a question related to types of businesses, 61.2% reported that they operated a weaving/textile business, 8.2% made and sold tortillas, and 30.6% operated other assorted businesses such as, collecting and selling firewood or selling fruits and vegetables at local markets.
45 Table 5.7 How Borrowers Used Their Microfinance Loan Loan was Used For: Frequency Percent Valid Cumulative Percent Percent Business Project 37 39.4 40.7 40.7 Housing/Improve Living 34 36.2 37.4 78.0 Valid Conditions Other 20 21.3 22.0 100.0 Total 91 96.8 100.0 Missing 3 3.2 Total 94 100.0
Other Business 22% Project 41%
Housing/Improve Living Conditions 37%
Figure 5-5 How Borrowers Used Their Microfinance Loan
When asked about the use of their loans, 37.4% of borrowers reported using their loans for housing or to improve living conditions, and 22% reported using the loans for some other purpose. This means that 59.4% of MFI borrowers that answered this question did not use their microfinance loan for business investment.
46 Table 5.8 Types of Businesses Operated Types of Businesses Frequency Percent Valid Cumulative Percent Percent Tortillas 4 4.3 8.2 8.2 Weaving/Textiles 30 31.9 61.2 69.4 Valid Other 15 16.0 30.6 100.0 Total 49 52.1 100.0 Missing 45 47.9 Total 94 100.0
Tortillas 8% Other 31%
Weaving/ Textiles 61%
Figure 5-6 Types of Business Operated
These responses of how borrowers are using microfinance loans reveal a very troubling situation. As discussed in Chapter 2, loan borrowers who do not use their loans for business investment to increase profits have difficulty repaying their loans and can end up worse than before they took the loan. According to the survey, 59.4% of MFI borrowers who responded to this question would fall into this unfortunate category.
47 It can be argued that it is difficult to isolate what portion of each loan went into business investment and what portion was used for consumption spending. Therefore, these results are simply based on the answers that the borrowers themselves gave.
However, these are the people who borrowed and spent the money so it would be reasonable to assume that they understood what they did with the loan money they borrowed.
Of the 22% of borrowers who reported using their loans for other purposes, a common theme that emerged was the use of loan money to cover medical expenses.
Several women reported using microfinance loan money to pay for unexpected medical bills when family members fell ill. While discussing the microloan process with the author, one borrower, Maria G., explained that she was able to use a portion of the loan she borrowed to buy materials for weaving. She used the remaining money to pay for medical expenses and household bills while her husband was unable to work due to illness. Currently she is working for another person that provides her with fabric to weave. She uses part of her wages to pay off her outstanding loan balance and is presently unable to afford supplies to take on her own projects.
Another troubling situation is the use of microfinance loans to make payments on other outstanding debts to commercial banks, private lenders, or even other MFIs.
Several women reported using microfinance loans each month to stay current with other outstanding loans that they are responsible for. Some of the borrowers are in situations similar to, Alejandra.L., who explained that she currently has five loans with different organizations. She went on to explain that she is under tremendous pressure trying to
48 jungle these loan payments and uses one loan to pay off the others each month in an endless cycle of debt.
These findings reveal a situation in which almost 60% of loan borrowers surveyed in San Antonio are not using microfinance loans for the intended purpose. As described in Chapter 2, Section 2.5, the negative impacts of using microfinance for consumption spending is well documented. The survey results depict a situation in which 60% of these loan borrowers are extremely vulnerable to falling into a vicious cycle of debt and poverty, the exact opposite outcome of what these microfinance programs claim they are trying to achieve.
5.3.2 Multiple Borrowing
Another worrying finding that was revealed after reviewing the survey data was the issue of multiple borrowing. As noted in Chapter 2, Section 2.6, multiple borrowing by loan recipients can lead to over-indebtedness and other negative financial consequences. This information was gathered through survey question #7, “Which organizations have you borrowed the loan from?” (Appendix A). The survey was not initially designed to address the question of multiple borrowing. However, while administering surveys to the first group of respondents, several had asked, if they had multiple loans, which ones should they list? All survey respondents in the first group, as well as all subsequent groups, were instructed to list all loan granting institutions and organizations, as well as organized but informal money lenders that they have current outstanding loans with. Informal moneylenders were included because there is a long tradition of these types of individual private lenders operating in the study area. These private moneylenders are organized in the sense that loan agreements are structured,
49 interest rates are agreed upon, and many of the lenders have employees that handle collections.
All 94 borrowers provided valid responses when asked to list the organizations that they took the loans from. The results reveal the prevalence of multiple borrowing by
MFI program participants in San Antonio. Only 17% of respondents reported borrowing from one organization. In other words, 83% of respondents simultaneously took loans from multiple organizations. At the top end of the range, 3.2% of respondents reported taking loans from seven different sources. The remaining loan borrowers, 79.8%, took loans from between two to six different sources at the same time. The mean value of organizations loan borrowers took loans is 3.24, with a median value of 3.
Table 5.9 Number of MFIs Each Borrower Utilized Valid 94 N Missing 0 Mean 3.2447 Median 3.0000 Std. Deviation 1.59762 25 2.0000 Percentiles 50 3.0000 75 4.0000
Table 5.10 Number of MFIs Each Borrower Utilized Number of Frequency Percent Valid Percent Cumulative MFIs Percent 1.00 16 17.0 17.0 17.0 2.00 18 19.1 19.1 36.2 3.00 16 17.0 17.0 53.2 4.00 27 28.7 28.7 81.9 Valid 5.00 8 8.5 8.5 90.4 6.00 6 6.4 6.4 96.8 7.00 3 3.2 3.2 100.0 Total 94 100.0 100.0
50 30 28.7%
25
20 19.1% 17% 17% 15 Frequency 10 8.5% 6.4% 5 3.2%
0 1 2 3 4 5 6 7 Number of MFIs Each Borrower Utilized
Figure 5-7 Number of MFIs Each Borrower Utilized
The variety of institutions borrowers used varied as well. Of the 94 survey respondents, 46.8% took loans from MFIs at the same time they borrowed money from a commercial bank or a private moneylender. While 10.6% took loans from MFIs, commercial banks, and private lenders, concurrently. This shows that MFIs are not really replacing commercial banks or private moneylenders as small loan sources. MFIs are simply entering an already saturated market with a slightly different business model.
This finding is similar to ones found by others who have looked at this relationship
(Karim, 2008).
Table 5.11 Types of Organizations Utilized by Borrowers Types of Lending Frequency Percent Valid Percent Cumulative Organizations Percent Only MFIs 50 53.2 53.2 53.2 MFIs & Com. Banks 25 26.6 26.6 79.8 MFIs & Money- 9 9.6 9.6 89.4 Valid Lenders MFIs, Com. Banks, & 10 10.6 10.6 100.0 Money Lenders Total 94 100.0 100.0
51
11% Only MFIs 9% MFIs and Commercial Banks
53% MFIs and Money Lenders 27% MFIs, Commercial Banks, and Money Lenders
Figure 5-8 Types of Organizations Utilized by Borrowers
When speaking with MFI customers in San Antonio, several borrowers explained the stress caused by juggling multiple loans simultaneously. There was also an informal sequence in which loans were repaid. Most of the borrowers that were interviewed explained that the moneylenders were paid first followed by the commercial banks. MFIs were the last ones to receive payments back. One of the most bizarre stories that the author encountered while talking with survey respondents had to do with the private moneylender Don Juan Mixtum Cuma. Several of the survey respondents that were interviewed borrowed money from Don Juan Mixtum Cuma. Mr. Mixtun-Cuma lives in
Santa Maria de Jesús, a predominately Kakchiquel village located high on the slopes of the dormant volcano, Volcán de Agua, which overlooks the valley. Borrowers stated that outside of his moneylending business Mr. Mixtun-Cuma is also a well-known shaman or witchdoctor with magical powers. The borrowers explained to the researcher that the last person that failed to repay their loan was cursed and Mr. Mixtun-Cuma magically
52 placed a frog in the man’s stomach, which killed him. The women that were interviewed were adamant about this and explained that the rumor was revealed to be true when the autopsy was performed on the man and the doctors removed the frog. With this type of pressure it is no wonder that the moneylenders are repaid before the banks and the MFIs.
A more reasonable explanation may be that moneylenders are local individuals who live in the community or the fact that they employ very aggressive collection practices.
The abundance of multiple borrowing exposes a situation in which loan borrowers are vulnerable to a constant cycle of robbing Peter to pay Paul. By placing these borrowers in further debt, the MFIs operating in the area are, once again, doing the exact opposite of the stated mission of microfinance. As discussed in Chapter 2, widespread multiple borrowing has a negative financial impact on MFI program participants. The evidence of pervasive multiple borrowing in San Antonio would suggest that these borrowers are negatively impacted by the loan agreements they are in.
5.3.3 Trouble Repaying and Perceived Effectiveness
Borrowers were asked about their ability to pay back loans and what impact they thought the loans had on their financial situation.
MFI borrowers were asked if they had difficulty in repaying their microloan
(Appendix A, Question #25). Of the 94 borrowers surveyed 91 provided valid responses.
A total of 68.1% of borrowers indicated that it was very difficult to make their loan payments. While 22% answered that it was a little or somewhat difficult. Only 9.9% of borrowers responded that “no, not really” they did not have difficulty in repaying their microfinance loans.
53 Table 5.12 Difficulty Repaying Loan Difficulty Repaying Loans Frequency Percent Valid Percent Cumulative Percent Very difficult to pay 62 66.0 68.1 68.1 back loans A little difficult to 20 21.3 22.0 90.1 Valid pay back loans Not difficult to pay 9 9.6 9.9 100.0 back loans Total 91 96.8 100.0 Missing System 3 3.2 Total 94 100.0
Difficulty Repaying Loan Not difficult 10%
A little difficult 22%
Yes, very difficult 68%
Figure 5-9 Difficulty Repaying Loan
Borrowers were also asked a series of questions regarding the financial impacts of their microfinance loans. The first two questions were administered using a 5-point
Likert scale form with 1 representing best and 5 representing worst.
Borrowers were asked if their sales had increased since obtaining the microloan(s)
(Appendix A, Question 22). A total of 80 survey respondents provided valid answers.
On a scale of 1 to 5, with 1 being sales have greatly improved and 5 being sales have
54 greatly worsened, borrowers reported a mean score of 3.84 and a median value of 4. This indicates that, on average, survey respondents believed that their sales had not improved and had in fact worsened since obtaining the microfinance loans.
Table 5.13 Sales Performance Since Loan Valid 80 N Missing 14 Mean 3.84 Median 4.00 Std. Deviation .961 25 3.00 Percentiles 50 4.00 75 4.00
Table 5.14 Sales Performance Frequencies Change in Sales Since Frequency Percent Valid Cumulative Obtaining MFI Loan Percent Percent Greatly Increased 1 1.1 1.3 1.3 Somewhat Increased 9 9.6 11.3 12.5 Unchanged 11 11.7 13.8 26.3 Valid Somewhat Worsened 40 42.6 50.0 76.3 Greatly Worsened 19 20.2 23.8 100.0 Total 80 85.1 100.0 Missing System 14 14.9 Total 94 100.0
55 1%
24% 11% 14% Greatly Increased Somewhat Increased Unchanged 50% Somewhat Worsened Greatly Worsened
Figure 5-10 Sales Performance Since Loan
Borrowers were then asked about their ability to pay household bills since they received their microloan(s) (Appendix A, Question #23). On a scale of 1 to 5, with 1 signifying that their ability to pay bills has greatly improved and 5 indicating that their ability to pay bills has greatly worsened, the respondents provided answers with a mean value of 4.08 and a median value of 4. This shows that, on average, surveyed respondents have increased difficulty in paying their bills since they have obtained their microfinance loans.
Table 5.15 Ability to Pay Bills Since Loan Valid 91 N Missing 3 Mean 4.08 Median 4.00 Std. Deviation .833 25 4.00 Percentiles 50 4.00 75 5.00
56
Table 5.16 Ability to Pay Bills Frequencies Change in Paying Household Bill Frequency Percent Valid Cumulative Since Receiving Loan Percent Percent Somewhat Improved 7 7.4 7.7 7.7 Remained the Same 7 7.4 7.7 15.4 Valid Somewhat Worsened 49 52.1 53.8 69.2 Greatly Worsened 28 29.8 30.8 100.0 Total 91 96.8 100.0 Missing System 3 3.2 Total 94 100.0
Somewhat Remained the Improved Same 7% 8%
Greatly Worsened 31%
Somewhat Worsened 54%
Figure 5-11 Ability to Pay Bills Since Loan
To get to the core of whether or not the borrowers believed that these loans had positive financial impacts, they were asked if they believed that the microfinance loan(s) helped improve their household’s overall financial situation (Appendix A, Question #24).
Ninety-one survey respondents provided valid answers to this question, with 14.3% responding yes. However, a vast majority (85.7%) responded that they did not feel that the microfinance loan improved their households’ overall financial situation.
57
Table 5.17 Has the microloan improved your household’s financial situation? Improved Frequency Percent Valid Percent Cumulative Percent Financial Situation Yes 13 13.8 14.3 14.3 Valid No 78 83.0 85.7 100.0 Total 91 96.8 100.0 Missing System 3 3.2 Total 94 100.0
14% Yes No
86%
Figure 5-12 Household Financial Situation Improved with Loan
Based on the responses provided by these microfinance loan borrowers, one can conclude that the majority of the respondents did have a difficult time repaying their loans and that they did not believe that these loans had helped them financially.
58
5.3.4 Customer Satisfaction and Interest Rates
Another important goal of this study was to find out if MFI loan customers were satisfied with these programs. Loan borrowers were asked questions regarding their opinions of the MFIs they have borrowed from. The borrowers were asked if they were satisfied to have used the microloan (Appendix A, Question #34). For this question, using a Likert scale, a value of 1 indicated that the borrowers were very satisfied with having used the microloan, and the value of 5 indicated that the borrowers were not at all satisfied with having used the loan. A total of 92 respondents provided valid responses to this question with mean value of 3.95, and a median value of 4. This indicates that, on average, survey respondents were not satisfied in having used the microloan.
Table 5.18 Borrower Satisfaction With MFI Loan Valid 92 N Missing 2 Mean 3.95 Median 4.00 Std. Deviation 1.161 25 4.00 Percentiles 50 4.00 75 5.00
Table 5.19 Borrower Satisfaction With MFI Loan Frequencies Frequency Percent Valid Cumulative Percent Percent Very much satisfied 4 4.3 4.3 4.3 Somewhat 13 13.8 14.1 18.5 Indifferent 1 1.1 1.1 19.6 Valid Not really 40 42.6 43.5 63.0 Not at all 34 36.2 37.0 100.0 Total 92 97.9 100.0 Missing System 2 2.1 Total 94 100.0
59
45 42.6% 40 36.2% 35 30 25 20
Frequencies 15 13.8% 10 4.3% 5 1.1% 0 Very Satisfied Satisfied Indifferent Dissatisfied Extremeley Dissatisfied Satisfaction Level
Figure 5-13 Borrower Satisfaction Frequencies
In order to rate the customer satisfaction levels of borrowers, they were asked directly to rate their loan granting institutions on a scale from 1 to 10, with 1 representing very bad and 10 denoting excellent (Appendix A, Question 37). With 87 of the 94 borrowers surveyed providing valid responses, the mean value was 3.49 with a median value of 3. The majority of the borrowers indicated that the MFIs they worked with were of poor quality. These numbers are even more significant when we look at the distribution percentiles. With the 25th and 75th percentiles of 1 and 5, a vast majority of borrowers (75%) rate the MFIs they are working with 5 or bellow. Only one borrower surveyed gave the microfinance program they were working with a rating of 10.
60 Table 5.20 : Borrower Rating of MFI MFI Customer Rating, 10=Excellent, 1=Very Bad Valid 87 N Missing 7 Mean 3.49 Median 3.00 Std. Deviation 2.230 25 1.00 Percentiles 50 3.00 75 5.00
Table 5.21 Borrower Rating of MFI Frequencies Customer Rating Frequency Percent Valid Percent Cumulative Percent 1 25 26.6 28.7 28.7 2 6 6.4 6.9 35.6 3 19 20.2 21.8 57.5 4 7 7.4 8.0 65.5 5 16 17.0 18.4 83.9 Valid 6 3 3.2 3.4 87.4 7 6 6.4 6.9 94.3 8 4 4.3 4.6 98.9 10 1 1.1 1.1 100.0
Total 87 92.6 100.0 Missing System 7 7.4 Total 94 100.0
61 30 26.6% 25 20.2% 20 17% 15
Frequency 10 6.4% 7.4% 6.4% 4.3% 5 3.2% 0% 1.1% 0 1 2 3 4 5 6 7 8 9 10 1=Very Bad, 10=Excellent
Figure 5-14 Borrower Rating Frequencies
Survey respondents were asked two open-ended questions in order to gain more information about what was behind their opinions of the MFIs. As a follow-up question to question #34, which asked if the respondents were satisfied to use the microloan, borrowers were asked for the reasons that they chose their satisfaction level (Appendix #,
Question #35).
A large number of the respondents (61.7%) mentioned that they were unsatisfied with the loans because of the high interest rates. A typical response is the one given by
Elena H., “Because of the high interest rates it costs too much to pay back the loans and I must borrow money to make the payments on time and it causes a lot of pressure on me.”
It must be noted that actual interest rates for loans were difficult to obtain. Many borrowers who completed surveys reported that they did not know the exact annual interest rates for their loans.
The industry average for microfinance loans in Guatemala is 23.5%. This is below the industry average for Latin American countries, which is 29%, and far below the average rates of close to 45% in Mexico, Argentina or Haiti (Pedroza, 2010). Despite
62 having a competitive regional rate, these rates are well above average interest rates charged in developed countries, such as the United States. A chart of typical interest rates is provided in Table 5.22. This begs the question, “why are the most vulnerable borrowers charged such high interest rates?” Microfinance proponents may argue that micro-lending is much more labor-intensive than commercial banking and, therefore operating costs demand that they charge higher rates. However, this logic is flawed. Just because an MFI charges a certain amount does not necessarily mean that the clients can afford to pay that amount. Evidence from this case study shows that many clients are forced to borrow from other lenders and juggle multiple loans simply to make their payments on time.
Table 5.22 Typical Interest Rates Chart in the U.S. Compared to Guatemalan Microfinance Rates Interest Rates Average U.S. Mortgage Rates for the Past 10 Years 3.6-8%* U.S. Stafford Student Loans, 2013-2014 3.9-6.8%** Avg. U.S. Credit Card Rates, 2013 13.02% (Fixed), 15.38% (Variable)*** Average U.S. Small Business Loan 6% (Approximately)*** Average Microloan in Guatemala 23.5% Sources: *Freddie Mac Website http://www.freddiemac.com/pmms/pmms30.htm **Stafford Loan Website http://www.staffordloan.com/stafford-loan-info/interest-rates.php ***Bankrate.com http://www.bankrate.com/finance/credit-cards/rate-roundup.aspx National Federation of Independent Business http://www.nfib.com/surveys/small-business-economic-trends/
Several borrowers who reported not being satisfied with their microloans mentioned compulsory saving as a problem. Many MFIs require mandatory savings accounts and other fees, which increase the financial commitment of the loan borrowers
63 (Karim, 2008). Other borrowers complained about the time-consuming requirements to get a loan, and one woman explained problems she has had with aggressive money collectors working for the MFIs. The overall experience for many of these borrowers has not been a pleasant or productive one, according to their responses. Yolanda L., for instance stated, “It was supposed to get you out of debt and now I am in more debt” and
Gracia C., said she wasn’t satisfied, “because nothing good has come since she has taken the loans”.
As noted above, not all respondents were displeased with the microloans.
Eighteen percent of respondents indicated that they were somewhat or very much satisfied to have used the microloans. One borrower, Debora H., said that she was very satisfied with her loan and stated that, “with microcredit loans I am able to pay for my children’s education.” A few borrowers, who responded that they were “somewhat satisfied” or “very satisfied” with their microloan, mentioned that the reason they were satisfied with their loans was because they were able to pay for their children’s school fees and supplies. One borrower responded that she was “somewhat satisfied” with her loan because it helped her pay for food. This again brings up the issue of consumption spending and the intention of microfinance programs. If borrowers are using loans to pay for their children’s education and food, how are they going to get a return on their investment that will allow them to pay back their loans?
This case study focuses on the borrowers’ experiences with using these microfinance loans. To make sure the survey respondents had chance to fully express their opinion, borrowers were asked if they had any other remarks they would like to make about the microloan system (Appendix A, Question #36).
64 Once again, the respondents took this opportunity to criticize the high interest rates of the microfinance loans. Common responses regarding this issue were similar to
Jacinta H.’s, comments, who said, “It would be better if interest rates were lower.” A much more troubling comment came from Gracia C., who described aggressive collection techniques, “They have come to my house with insults and saying that they will cut off the water or lights.” Gracia C. indicated that she had received loans from four different organizations, including one commercial bank, and in her response she did not clarify which institution she was referring to. However, these are the types of situations that microfinance programs are supposed to alleviate and not contribute to. Other respondents had other negative things to say about their loan experiences. For example,
Maria M. said ”Rather than help us, it hurts our business,” and according to Elena L.,
“They help at the time but eventually you get hurt by the high interest.”
Other borrowers had criticisms for the MFIs and how they operate. Soledada M., for instance, expressed concern for how the MFIs were run and said she felt there was a
“Lack of communication between administrative areas.” Other borrowers described problems with MFIs and customer relations, as reflected by the comment by Victoria G.,
“Lack of communication between the borrowers and administration” The descriptive comments were overwhelming negative. One of the most distressing statements came from S.H., who declared, “I wouldn't advise it to other people because one slowly loses everything.”
There is an obvious demand for loan programs. However, the way these programs are structured means that they may not have the intended impacts that they were designed to have. Still, borrowers will continue to take loans, as reflected by Debora .H.’s
65 statement, who said, “I'll continue to borrow to help support my kids.” There is an undeniable market for small loans in San Antonio Aguas Calientes despite the limited positive financial impact.
5.4 Inferential Statistics Results
This strategy has identified three major areas of concern for microfinance borrowers: multiple borrowing, use of loans for consumption spending, and high interest rates. In order to learn more about these factors, several statistical tests were conducted to determine if there are any statistically significant relationships between variables.
This exploratory process was conducted in two stages. First, a Goodness-of-Fit
Chi-Square test was employed for several variables to determine whether the observed group frequencies differ from the expected values due to chance alone. Following this,
Pearson’s product-moment correlation coefficient was measured to determine if any statistically significant relationships existed between selected variables. The results were then examined to determine the nature and strength of the relationships.
5.4.1 Chi-Square Goodness-of-Fit Test
In order to determine if the observed frequencies for several important variables differ from the expected values by chance alone, a Chi-Square Goodness-of-Fit test was conducted.
5.4.1.1 Change in Business Since Obtaining Microloan
Respondents were asked how their business situations had changed since obtaining their microloan(s). Table 5.23 shows the frequency distribution of responses.
The residual results show the observed frequencies differ from expected random
66 frequencies. A Chi-Square score of 12.825, p < .01, Table 5.28, indicates that there is a statistically significant difference between the results and a random pattern. As shown in
Table 5.23 the results show that more respondents than expected indicated that their business situation has worsened since they have obtained the microloan(s).
Table 5.23 Change in business since obtaining microloan Observed N Expected N Residual Somewhat Improved 7 14.3 -7.3 Remained the Same 8 14.3 -6.3 Somewhat Worsened 21 14.3 6.8 Greatly Worsened 21 14.3 6.8 Total 57
5.4.1.2 Improved Household Financial Situation
When borrowers were asked if the microloan had improved their household financial situation the observed responses varied dramatically from what is expected from a random response (Table 5.24). The residual of 32.5 for “No” indicates that many more borrowers than expected believe that the microloan(s) did not improve their household financial situation. The test is statistically significant with a Chi-Square score of 46.429, p< 0.001.
Table 5.24 Has the Microloan Improved Household Financial Situation? Observed N Expected N Residual Yes 13 45.5 -32.5 No 78 45.5 32.5 Total 91
67 5.4.1.3 Difficulty in Repaying Loans
Borrowers were asked if they had difficulties repaying their loans and the frequency results show a substantial disparity between observed and expected responses.
The most notable finding is the residual of 31.7 for “Yes, it is very difficult”, which indicates that significantly more than expected borrowers faced difficulties repaying their loans. With a Chi-Square score of 51.582, these finding are statistically significant (p<
0.001).
Table 5.25 Do You Have Difficulties Repaying Your Loan(s)? Observed N Expected N Residual Yes, it is very difficult 62 30.3 31.7 Yes, a little difficult 20 30.3 -10.3 No, not really 9 30.3 -21.3 Total 91
5.4.1.4 Satisfaction Using the Microloan (Goodness-of-Fit)
In order to determine if respondents were happy with their borrowing experience, they were asked if they were satisfied with using the microloan. Once again the observed responses varied from the expected or random responses. For this question the analysis shows that more respondents were unsatisfied and less respondents were satisfied than were expected. The Chi-Square score of 67.891, p< 0.001 shows that these findings are statistically significant.
68 Table 5.26 Are You Satisfied to Have Used the Microloan? Observed N Expected N Residual Yes, very much so 4 18.4 -14.4 Somewhat 13 18.4 -5.4 Indifferent 1 18.4 -17.4 No, not really 40 18.4 21.6 Not at all 34 18.4 15.6 Total 92
5.4.1.5 Customer Rating
The final category that was examined using the Chi-Square Goodness-of-Fit Test looked at how customers rated the MFI(s) that they borrowed from. The analysis indicates that observed frequencies differed from expected frequencies. Specifically, the lower ratings were over represented while higher ratings were underrepresented. This implies that more borrowers were displeased than would be expected from a random sample. With a Chi-Square score of 56.690, these findings are statistically significant (p<
0.001).
Table 5.27 MFI Customer Rating, 10=Excellent, 1=Very Bad Observed N Expected N Residual 1 25 9.7 15.3 2 6 9.7 -3.7 3 19 9.7 9.3 4 7 9.7 -2.7 5 16 9.7 6.3 6 3 9.7 -6.7 7 6 9.7 -3.7 8 4 9.7 -5.7 10 1 9.7 -8.7 Total 87
69
Table 5.28 Chi-Square Goodness-of-Fit Test Statistics Change in Has the Do You Have Are You MFI Customer Business Since Microloan Difficulties Satisfied to Rating, Loan Improved Repaying Have Used the 10=Excellent, Household Your Loan(s)? Microloan? 1=Very Bad Financial Situation? Chi-Square 12.825a 46.429b 51.582c 67.891d 56.690e df 3 1 2 4 8 Asymp. Sig. .005 .000 .000 .000 .000
The use of the Chi-Square Goodness-of-Fit test reinforces the conclusions from the previous sections that more than expected, microfinance borrowers in San Antonio
Aguas Calientes believe that their bushiness have not improved, that the microloans have not improved their financial situations, and they are having trouble repaying their loans.
Also, more than expected, microfinance borrowers are unsatisfied with the microfinance program(s) they are involved with and they believe that they are of poor quality.
5.4.2 Correlation between Borrowing Patterns and Borrower Opinions
In order to establish if there are any significant relationships between respondents borrowing patterns/use of loan(s), and the respondents’ borrowing experience/opinions’ of MFIs, a bivariate correlation tables was generated using SPSS. Variables measuring respondents borrowing patterns were derived from survey questions, #7, #13, and #14
(Appendix A), and are listed in the left column of Table 5.29. These variables were cross- tabulated with the variables measuring borrower experiences and opinions, listed in the right column of Table 5.29, to determine if there are any statistically significant
70 associations between these variables. This analysis revealed several statistically significant relationships between variables. All relationships mentioned below were found significant with p-values < 0.100.
Table 5.29 List of Pearson’s Correlation Variables Borrower Patterns Borrower Opinion Number of Institutions Borrowed From Change in Business Situation Types of Institutions Used Improved Financial Situation Purpose of Taking Microloan Difficulty Repaying Loan Types of Business Operated Satisfaction with Loan Customer Ratings’ About MFIs
5.4.2.1 Multiple Borrowing Effect Correlation
The issue of multiple borrowing, as discussed in previous sections, has been linked to negative financial implications on microloan borrowers. To determine if this issue is associated with several variables measuring borrowers’ opinions, Pearson’s R correlation analysis was conducted. The results reveal that there is a statistically significant relationship between the number of institutions that a customer borrower from and her/his change in household financial situation, as well as, difficulty in repaying loans.
The Pearson’s Correlation score of 0.236 indicates that there is a weak positive relationship between the number of MFIs a customer borrows from and the change in a household’s financial situation. Pearson’s R value of -0.449 denotes that there is a negative correlation between the numbers of institutions borrowed from and customers’ difficulty in repaying their loan(s). Also, with a Pearson’s R value of 0.200, a weak
71 positive correlation was also indicated between number of MFIs respondents borrowed from and whether or not they were satisfied to have used the loan. These results suggest that multiple borrowing may not play a substantial role in microfinance customers’ responses.
72 Table 5.30 Pearson’s Correlation Table of Borrower Variables Change in Has the Do You Are You MFI Customer Number of Variety of Consumption Business Microloan Have Satisfied to Rating, Institutions Institutions Spending Since Loan Improved Difficulties Have Used 10=Excellent, Borrowed Borrowed Household Repaying the 1=Very Bad From Used Financial Your Microloan? Situation? Loan(s)? Pearson 1 .469*** -.115 .295** -.221 .050 .412*** -.310* Correlation Change in Business Since Loan Sig. (2-tailed) .000 .407 .029 .122 .711 .001 .058 N 57 54 54 55 50 57 57 38 Pearson Has the Microloan .469*** 1 -.404*** .357*** -.076 .236** .192* .024 Correlation Improved Household Sig. (2-tailed) .000 .000 .001 .483 .024 .068 .866 Financial Situation? N 54 91 90 91 87 91 91 52 Pearson Do You Have -.115 -.404*** 1 -.250** .128 -.449*** -.287*** -.079 Correlation Difficulties Repaying Sig. (2-tailed) .407 .000 .017 .240 .000 .006 .576 Your Loan(s)? N 54 90 91 91 86 91 91 52 Pearson Are You Satisfied to .295** .357*** -.250** 1 -.480*** .200* .337*** -.111 Correlation Have Used the Sig. (2-tailed) .029 .001 .017 .000 .055 .001 .429 Microloan? N 55 91 91 92 87 92 92 53 ***. Correlation is significant at the 0.01 level (2-tailed). **. Correlation is significant at the 0.05 level (2-tailed). *. Correlation is significant at the 0.10 level (2-tailed).
73 Table 5.30 Pearson’s Correlation Table of Borrower Variables (Continued) Change in Has the Do You Are You MFI Customer Number of Variety of Consumption Business Microloan Have Satisfied to Rating, Institutions Institutions Spending Since Loan Improved Difficulties Have Used 10=Excellent, Borrowed Borrowed Household Repaying the 1=Very Bad From Used Financial Your Microloan? Situation? Loan(s)?
Pearson MFI Customer Rating, -.221 -.076 .128 -.480*** 1 -.125 -.220** .200 Correlation 10=Excellent, 1=Very Sig. (2-tailed) .122 .483 .240 .000 .249 .040 .164 Bad N 50 87 86 87 87 87 87 50 Pearson .050 .236** -.449*** .200* -.125 1 .449*** .222 Number of Institutions Correlation Borrowed From Sig. (2-tailed) .711 .024 .000 .055 .249 .000 .107 N 57 91 91 92 87 94 94 54 Pearson .412*** .192* -.287*** .337*** -.220** .449*** 1 .045 Variety of Institutions Correlation Borrowed Used Sig. (2-tailed) .001 .068 .006 .001 .040 .000 .748 N 57 91 91 92 87 94 94 54 Pearson -.310* .024 -.079 -.111 .200 .222 .045 1 Consumption Correlation Spending Sig. (2-tailed) .058 .866 .576 .429 .164 .107 .748 N 38 52 52 53 50 54 54 54 ***. Correlation is significant at the 0.01 level (2-tailed). **. Correlation is significant at the 0.05 level (2-tailed). *. Correlation is significant at the 0.10 level (2-tailed).
74 5.4.2.2 MFIs, Commercial Banks, and Moneylenders
Respondent data was collected based on which institutions they borrowed from.
Borrowers were grouped into several categories based on which organizations/lenders they took the loans from. The categories were broken down into borrowers taking loans form MFIs only, or MFIs and commercial banks, or MFIs and moneylenders, or MFIs, moneylender, and commercial banks.
There was a statistically significant but weak correlation between several variables measuring borrowers’ opinions. This indicates that the types of institutions a borrower takes loans from plays a significant role in the borrowers’ responses. With a
Pearson’s R value of 0.412, the type of institutions a respondent borrows from is positively correlated with the variable measuring the change in business since the loan.
There is also a significant relationship between the type of institution(s) a respondent borrowed from and whether or not a borrower is satisfied to have used the loan, improved household financial situation, with Pearson’s R values of 0.337 and 0.192 each. There was a negative correlation between a borrowers’ difficulty in repaying their loan and the type of institution(s) they borrowed from with a Pearson’s R value of -0.287.
5.4.2.4 Consumption Spending Impact
A major criticism of modern microfinance theory stems from the problems that arise when microloans are used for consumption spending in place of business investment. To determine if the issue of consumption was related to the borrowers’ opinion, these variables were analyzed using Pearson’s correlation co-efficient.
Three variable combinations were found to have statistically significant relationships with the use of microfinance loans for consumption spending. These
75 variables include, a borrowers’ difficulty repaying their loan(s), whether or not a borrower is satisfied to use the microloan, and MFI customer ratings. A borrowers’ ability to repay their loans and MFI customer ratings were both negatively correlated with Pearson’s Correlation scores of -.315 and -472, respectively. Whether or not a borrower was satisfied with using the loan had a modest positive correlation with a score of .370.
5.4.2.5 Association Based on Type of Business (Correlation)
The final variable measured for correlation was the type of business that loan borrowers operated. For this variable, responses were grouped into three categories:
“weaving/textiles”, “tortillas”, and “other”. The types of businesses that borrowers operated have a statistically significant correlation with the variable that measured the change in business since the loan. The R value of -0.317, indicates that there is a weak negative correlation between the variables. This finding could indicate that the change is due to the type of business instead of the loan(s) themselves. Due to the fact that both variables are business specific it is difficult to assume that there is a significant causal relationship from this finding.
5.4.3 Correlation Implications
From the correlation statistics it is difficult to draw conclusions as to why the borrowers believe that they are not benefitting from these loan programs. These findings suggest that there is no single cause that contributes to the negative opinions of the microfinance customers in San Antonio Aguas Calientes. This would lead one to believe
76 that it is a complex combination of issues, both microfinance program related, as well as, outside macroeconomic factors, that have led to the overwhelmingly negative opinions of the microloan borrowers in the study area.
77
Chapter 6
Summary, Conclusion, and Policy Implications
Unlike previous findings that show the majority of borrowers are satisfied with their microfinance programs (Brau, Hiatt, & Woodsworth, 2009), the respondents surveyed in San Antonio Aguas Calientes seem very unsatisfied with the programs they are participating in. The survey results reveal serious concerns for the borrowers who participated in this study. These results show a situation in which borrowers are mostly using their loans for consumption spending, borrowing from multiple organizations simultaneously, and having difficulties repaying their loans. It would be a mistake to assume that these issues are due to new borrowers that are unfamiliar with the system.
With 85 valid responses, the average time that a borrower has been working with an MFI was five years (Question #10, Appendix A). This raises a serious question. Is microfinance a poverty alleviation tool or just a way to trap the poor in a permanent cycle of borrowing?
78 6.1 The Fundamental Flaws of Microfinance
This case study simply captures the opinions of a small group of microfinance program participants in one Guatemalan village. However, their experience sheds light on the bigger and more complex picture of economic development and the idea of what economic aid, charity, or assistance really means. The findings of this study suggest a dysfunctional system of lending and borrowing that is producing very limited benefits and may in fact be harmful to the borrowers. These findings are contrary to much of the foundational work done on microfinance. While most of the studies on the effectiveness of microfinance loans are large-scale data driven and focus on a country or region, this study goes into the details of one village and investigates microfinance’s functionality on an individual borrower level. Other researchers in this field have come to the similar conclusions using a much larger scale of analysis (Bateman & Chang, 2012; Sinclair,
2010; Vik, 2010).
According to Bateman and Chang (2012), the failure of microfinance as a poverty alleviation tool is becoming apparent to those who study the field. In their article,
Bateman and Chang (2012) describe that a few lucky borrowers succeed with the help of microloans but that the concept of microfinance is flawed and fails as a long-term poverty reduction tool. They point to several fundamental economic flaws of microfinance.
Evidence of these flaws can be found in the evidence gathered from the borrowers in San
Antonio Aguas Calientes. Three important limitations of microfinance, as described by
Bateman and Chang (2011), are listed below along with examples observed from San
Antonio Aguas Calientes.
79 1. The microfinance model ignores the crucial role of scale economies. It is widely accepted that there are minimum scales for efficient production and businesses that operate below these levels have a difficult time surviving and prospering in a competitive economic environment (Bateman & Chang, 2012).
This was evident when talking to the women in San Antonio who are producing textiles. These products are hand-woven and take a great deal of time to produce. The microloans they received do not allow them to scale up their operations and they are on a constant cycle of borrowing to purchase materials for their next project.
2. The microfinance model ignores the “fallacy of composition”. (Bateman & Chang,
2012). A mistake that is made many organizations dealing with development and poverty alleviation programs is the idea that there is no local demand constraints and that the local economy can absorb an unlimited number of workers through the expansion of small businesses that sell similar products.
This issue is obvious when one looks at the vast number of entrepreneurs in San
Antonio that produce the same goods. The market is flooded with tortilla vendors because it is easy to buy corn and produce tortillas. However, the market can only support a certain number of tortilla vendors. Microfinance institutions would do a great service to borrowers if they were able to conduct market research and advise borrowers of profitable business ventures.
3. The microfinance model helps to de-industrialize and infantilize the local economy.
(Bateman & Chang, 2012). Recent development in entrepreneurship theory and
80 institutional economics have shown that technical innovation and creativity are the keys to sustained economic development.
Once again it is impossible to effectively create an economic environment that leads to a significant reduction in poverty by simply giving small loans to women to produce tortillas or similar goods. As noted above, there still needs to be some type of innovation that can help transform the current economy. The three limitations of microfinance listed above are just a few of the problems that are pointed out by Bateman and Chang (2012). Nevertheless, they give a snapshot of some of the fundamental problems that exist in the current microfinance approach.
The firsthand accounts of microfinance program participants in San Antonio
Aguas Calientes give a personal description of precisely what Bateman and Chang (2012) describe in their research. The information gathered from these loan borrowers provides a tangible case study, which supports the growing criticism of the use of microfinance as a poverty alleviation tool.
6.2 The Changing Face of Microfinance
As previously mentioned, the theory of microfinance as an economic development tool has gained great deal of attention and support from large organizations and very powerful people around the world. However there is still something intuitively flawed about giving high-interest loans to vulnerable populations made up of the poorest of the poor and then describing it as a type of assistance.
The modern form of microfinance began as a way to bring poor women out of poverty. However, with the increase of commercial banks moving into the sector,
81 microfinance has changed and is no longer an altruistic endeavor but a profitable business model for many financial institutions. The founding principles of microfinance are currently being pushed out by the profit seeking commercial banks (Kent & Dacin.
2013). These developments could make a bad situation much worse. Without the hands- on approach and philanthropic mission that many NGO microfinance programs operate under, poor and vulnerable borrowers will be left to borrow money from commercial banks that operate with a different set of motives but still market themselves as MFIs.
Even within pro-microfinance circles a consensus is forming that these programs are not a silver bullet to the elimination of poverty (Ghosh, 2013), and while recent studies still show that microfinance has the potential to have positive benefits, these benefits may be minor and only impact a small number of individuals that borrower from
MFIs (Banerjee & Duflo, 2011) .
What are the solutions to eliminating poverty around the world? The answer is elusive but it is important to stay vigilant and try not to cause greater harm by strapping poor people with unmanageable debt loads. Some in the industry have become apathetic and cynics may start to advocate what Sinclair describes as the “Advanced airplane theory of microfinance”
Take 20 percent of the money you wish to donate and throw it over the villages at 6 p.m. on Saturday evening. The men will grab this money, by force if necessary, and get drunk. At 7 a.m. on Sunday, fly over the same region and dump the remaining 80 percent of the funds. The women in the village will be the only people awake, and at least you have a fighting chance of them doing something remotely useful with it (Sinclair, 2012, p.234).
Nonetheless, it is vital to take an honest look at the underlying structural issues that contribute to global poverty and inequality.
82
6.3 Policy Implications of the findings of the study
In this study three major concerns for microfinance borrowers in San Antonio
Aguas Calientes, Guatemala have been identified. These concerns are: 1) use of loans for consumption spending, 2) borrowing from multiple organizations simultaneously, 3) and high interest rates. Each of these has the potential to cause over indebtedness and financial pressure on the borrowers and any combination of the three can make matters worse. After having many discussions with the study participants the author was left with the impression that the borrowers believed that these programs did not have a transformative and financially beneficial effect. While further studies have the possibility of showing a discrepancy between the hard economic data and the opinions and impressions of the study participants, the stories that borrowers shared reveal a situation inundated with problems. There are many possibilities to addressing the issues plaguing the microfinance sector and initiatives can be instigated on a number of different levels.
All parties involved have an opportunity to play a role in implementing solutions that the microfinance industry can use to address the underlying issue of global poverty.
As the institutions operating on the frontline that have direct contact with the customers, MFIs such as Banrural-Grameen have the greatest opportunity to affect change in the industry. Several institutions have already taken steps to confront some of these problems. In order to reduce excessive and multiple borrowing by MFI customers, credit information systems have been employed to track the borrowing patterns of MFI customers. However, these systems have had mixed results in preventing multiple borrowing and they are not used by most MFIs in Guatemala (Luoto, McIntosh &
83 Wydick, 2007). Also, placing the responsibility to address these concerns on the MFIs themselves may prove problematic due to the motivation of MFIs to increase their overall customer base. The motivation to maximize their customer base may be in conflict with what is best for the borrowers. In some circumstances competition between MFIs leads to client poaching and other times it simply leads to borrowers obtaining loans from multiple institutions (Mpogole, 2012).
Other parties that have a vested interest in promoting microfinance regulations and reform in order to address these issues is the local and national governments in which
MFIs operate. Local governments have the opportunity to put in place rules and regulations to protect their citizens from harmful lending practices. A powerful example of the affect local governments can have in influencing the lending practices of MFIs occurred in Nicaragua during the summer of 2008. In June of 2008, a large microfinance institution arrested six people who were overdue on their debt in the northern city of
Jalapa (Padilla, 2008). Several other institutions in the area began legal proceedings to arrest debtors who were behind on their loan payments and they also began to confiscate land and houses that the borrowers had used as collateral (Padilla, 2008).
The families of those arrested, staged a protest and barricaded the highways for 11 days (Panchico, 2009). During this time the mayor of Jalapa, Omar Gonzales Vilchez, took to the streets in support of the arrested borrowers and gave a fiery speech encouraging borrowers to rise up against the microfinance programs that had put them in debt with unfairly high interest rates. With the support of the local government the protest became increasingly violent. Later that summer, protesters attempted to burn down the office of a well-known microfinance institution in the city of Ocotal (Minchew,
84 2011). This series of events and other uprisings against MFIs in Nicaragua became known as the “No Pago” Movement and soon gained the support of Nicaragua’s charismatic president, Daniel Ortega. During a speech in Jalapa, Ortega told borrowers,
“You have done well in protesting against the usurers, but instead of protesting on the highways, you should protest and camp out in front of the usurers’ offices. Be firm; we’ll support you” (Padilla, 2008, p.1).
In the end the “No Pago” Movement and the considerable default rate of borrowers have caused an industry crisis in Nicaragua. A report by La Prensa newspaper estimates that more than 100,000 customers have stopped receiving credit. According to the report, microfinance institutions served approximately 324,000 customers before the crisis and today there are around 225,000 microfinance customers in Nicaragua. The total loan portfolio for the industry has declined from US$420 million in 2008 to US$170 million by 2011 (Microfinance Focus, 2011). In an attempt to reform the industry, leaders of the “No Pago” Movement proposed a law, which would allow a grace period for borrowers who were behind on payments. It would also restructure loans at reasonable interest rates. The Nicaraguan Congress passed the Moratorium Law, in
2010. It mandated the restructuring of loans for clients at 16% interest. The Law on
Promotions and Regulation of Microfinance, which passed in 2011, put in place a number of regulations and clarified many of the ambiguities that plagued the microfinance industry in Nicaragua. These laws have been heavily criticized by the banking and microfinance industry in Nicaragua (USDOS, 2013).
While this may be an extreme example of government intervention, this situation, as well as the microfinance crisis which occurred in Bolivia in 2000 (Lüzenkirchen,
85 2012), should be used as a warning for other developing countries such as Guatemala. If
MFI policies and practices are not closely monitored the motivation of MFIs to recruit new customers and increase profitability may come at the expense of the country’s political stability and overall economic well-being.
6.4 Conclusion
This study has revealed several problems with the current micro finance industry in this particular study area. While it may be possible to find productive and effective
MFIs that have beneficial effects, some argue that the entire system in which these organizations operate in are fundamentally flawed. The focus on individual accumulation of wealth while neglecting the key role that local community cooperation can play in economic development is cited as a key flaw in modern microfinance policy (Harvey,
2011). This study has shown that microfinance, in its current form, has been ineffective for many of its borrowers and the long-term effects of these programs are not yet know.
However, promotion of this type of entrepreneurial capitalism as a panacea to global poverty may in fact prove harmful to economic systems in developing countries due to its narrow approach and disregard for many external economic factors.
The underlying goals of for some microfinance organizations may be well placed. The objective of decreasing global poverty and reducing inequality is a noble one. While economist argue that inequality is acceptable, and many times necessary to motivate individuals to work hard and improve their individual condition, it is also well established that extreme inequality is harmful to democracy and is not required for sustained economic growth (Erlanger, 2014; Piketty & Goldhammer, 2014). Therefore effective poverty alleviation programs should be encouraged.
86 The findings from this study offer a glimpse into one specific village and a small segment of the borrowers that participate in microfinance programs in the country of
Guatemala. However, these findings are in contrast to findings from previous studies
(Islam, 2007; Brau, Hiatt, & Woodsworth, 2009). Out of the many borrowers that participated in this study, none mentioned that the use of microfinance loans had transformed their lives and brought them out of poverty. During the brief time spent in the field the author was unable to locate the dramatic success stories that are advertised on the many of the large MFI websites. If borrowers did mention positive aspects of working with MFIs they usually discussed how the loans helped during difficult times such as illness, and to pay for their children’s education cost. If the main function of these programs is to act as a short-term stop gap to pay bills during difficult financial periods then the MFIs need to be transparent about this and explain this to funding partners.
At the end of this study we are left with many questions. Is the goal of microfinance to simply replace local money lenders at a slightly lower rate of interest?
Or, could it be as David Harvey believes, a way to extract wealth from the poorest of poor in what he calls “the subprime of all subprime forms of lending” (Harvey, 2011 p.106). What is clear is that further studies and continued observation will need to be conducted in order to evaluate the evolving nature of modern microfinance.
87
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USDOS-U.S. Department of State. (2012). 2012 Investment Climate Statement – Nicaragua. Bureau of Economic and Business Affairs. Retrieved April 5, 2014 from http://www.state.gov/e/eb/rls/othr/ics/2012/191209.htm
UNDP (United Nations Development Programme). (2013). Human Development Reports: Guatemala. Retrieved January 10, 2014 from http://hdr.undp.org/en/countries/profiles/GTM
UNDP (United Nations Development Program). (2013). The rise of the South: Human progress in a diverse world. Human Development Report 2013, Guatemala.
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World Bank, (2003). Poverty in Guatemala. Retrieved May 1, 2014 from http://publications.worldbank.org/index.php?main_page=product_info&cPath=0&produc ts_id=21810
Wydick, B. (1999). The effect of microenterprise lending on child schooling in Guatemala”, Economic Development and Cultural Change, 47 (4), 853-859.
Wydick, B. (2001). Tracking the progress of 239 microcredit program participants in Guatemala: 1994-1999. University of San Francisco Press.
Yin, R. K. (1994). Case Study Research: Design and Methods 2md Ed. Thousand Oaks: Sage Publications.
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Appendix A
Summary of Literature Review
Microfinance Overview
Author/Year Title Publisher Objectives of Data Methodology Key Conclusions Policy Study Source Findings Implications
Burra, Deshmukh- Micro-Credit, Sage Examine the impact UNDP and Six case studies of This book The authors explain The study offers Ranadive, & Murthy. Poverty and Publications of a variety of ICICI bank women microfinance outlines the that poverty is not useful information (2005) Empowerment: (Book) microfinance on data. borrowers in India. complex simply a lack of income regarding what types Linking the borrowers in several relationship but an aspect of of programs are Triad Indian states. between poverty, marginalization and proving effective in women’s exclusion from parts of the area of women’s empowerment and society. This in turn empowerment and microfinance and makes it incredibly poverty reduction in shows that difficult to move out of India. different poverty. Therefore, programs have microfinance should varying results. play a role in connecting clients to social programs.
95 Author/Year Title Publisher Objectives of Data Methodology Key Conclusions Policy Study Source Findings Implications
Elahi, & Rahman. Micro-Credit Development in Explain the Previous The authors examine Microcredit The authors conclude This article suggests (2006) and Practice (Journal important literature that the historical programs serve that the conceptual that socially Microfinance: Article) differences between addresses the evolution and the only one purpose differences between conscious Functional and micro-credit and concepts of both corresponding of providing microcredit and microfinance Conceptual microfinance microcredit and differences between loans. On the microfinance are programs are Differences programs. microfinance. micro-credit and other hand, important. They beneficial to the poor microfinance using microfinance believe that while simple current data one these programs provide microfinance programs, microcredit lending institutions and a variety of with all of the added programs may not historical documents. financial services financial services, are be. such as, credit, much more likely to savings, make an impact on insurance, and poverty alleviation. The community authors of this article development. are proponents of the microfinance strategy but not necessarily the microcredit strategy.
Islam. (2007) Microcredit Ashgate Examine the impact Primary data Analysis of previous Grameen Bank The study concludes The and Poverty Publishing of Grameen Bank collected from studies, as well as, would benefit that there may be better recommendations by Alleviation (Book) microfinance the Grameen qualitative and from focusing on poverty alleviation Islam address many program in as a Bank, and quantitative a client-based options and that of the criticism about poverty alleviation secondary data examination of approach that Grameen Bank must microfinance. The tool in Bangladesh. collected from Grameen Bank data. evolves and adapt to embrace new major theme is a published adapts with approaches. focus on clients’ studies. clients’ needs. needs instead of a rigid business model.
96 Author/Year Title Publisher Objectives of Data Methodology Key Conclusions Policy Study Source Findings Implications
Ledgerwood. (2009) Sustainable The World Bank The report is A collection of This report uses The report The field of The World Bank is Banking With (Report) designed as a guide lessons and worldwide data on outlines best microfinance is heavily involved with the Poor: to implementing and experiences from microfinance practices for evolving and microfinance Microfinance managing effective individuals and institutions compiled microfinance growing. The needs programs in many Handbook an microfinance organizations by The World Bank. institutions of clients’ are countries. This Institutional and programs. working in the working with changing and handbook outlines the Financial microfinance field. poor clients. microfinance standard approach to Perspective Examples are institutions must microfinance and given and take the needs of financial inclusion for performance clients into account the poor. measurements are and adjust. outlined.
Lüzenkirchen. Microfinance in Deutsche Bank Explain the current The analysis is The report uses The microfinance The authors Oversight and (2012) Evolution: An Research state of based on data financial analysis and industry suffered conclude that in regulation should play Industry (Report) microfinance and collected by MIX financial projections serious setbacks order to achieve a part in the Between Crisis the challenges Market, a non- to describe the current after the financial sustainable growth, development of the and facing the industry profit organization state of the industry crisis in 2008. the microfinance industry in order to Advancement from a banking based in and make predictions Excessive market industry needs to avoid instability. perspective. Washington D.C. about the future. growth and find a balance which provides excessive profit- between its social financial and oriented and commercial social indicators institutions have objectives. for over 2000 caused instability microfinance in the system and organizations. possibly harmed clients.
97 Author/Year Title Publisher Objectives of Data Methodology Key Conclusions Policy Study Source Findings Implications
Robinson. (2001) The The World Explain how the This report uses a Samples from The author This report is The report offers a Microfinance Bank (Report) demand for wide variety of microfinance shows the wide compiled as a useful background of Revolution: microfinance can be data sources institutions in 6 variety of benefits handbook to show the current practices but Sustainable met on a global including different countries are that microfinance benefits of does not address Finance for scale. aggregate data combined with has on borrowers microfinance many of the issues the Poor from large individual borrower around the world. programs and the that critics of microfinance stories. The findings ideal ways that microfinance point institutions and show microfinance can be to, such as case studies from 6 overwhelmingly implemented. consumption different countries. positive impact spending and on client’s multiple borrowing. economic well- being and quality of life from the implementation of microfinance programs.
Microfinance in Guatemala
Brau, Hiatt, & Evaluating Managerial Analyze and A dataset of 393 Divided clients into The study shows The study concludes This study is can be Woodsworth. (2009) Impacts of Finance measure the impacts clients from three categories (new that these that microfinance used by policy Microfinance (Journal Article) of microfinance on Guatemalan clients, current microfinance shows promise as a makers as evidence Institutions social and financial microfinance clients, graduated programs do tool to improve of the positive Using dimensions in institutions. clients). Measured improve the lives various social impact microfinance Guatemala Guatemala. two financial of clients in the measurements. The can have on clients. Data components and six area of housing, authors contend that social components. health, and client these findings would empowerment. be useful to policy makers and governments focusing on quality of life issues.
98 Author/Year Title Publisher Objectives of Data Methodology Key Conclusions Policy Study Source Findings Implications
Kiser, Trevino, & An Business Explain how a Data obtained This study focuses on This organization This article is an Other microfinance McVicker. (2009) Economically Education & specific organization from the the results of one works with coffee example of the programs and policy and Accreditation works and examine organization As specific microfinance producers and the unique makers may be able Environmenta (Journal Article) the impact/results of Green as it Gets program located near authors found that characteristics of to learn from the As lly the organization. and client Antigua, Guatemala clients working specific Green As it Gets Sustainable interviews. named, As Green as it with this specific microfinance approach as a full Business Gets. organization had programs. Many service microfinance Model very good results microfinance organization. Initiative for from the business programs are simply Micro ventures. The financial institutions Enterprise in article also that grant loans but Guatemala: pointed out that the one examined in Observations this organizations this study is a full from Field is very careful in service provider that Research selecting clients supports its clients in to work with and a variety of ways. that this screening process may contribute to the success rate.
McIntosh & Wydick. Competition Journal Of To show that The authors use a The study is a model Findings include; The study reveals This article (2005) and Development competition may variety of data driven analysis to competition never both positive and addresses two major Microfinance Economics prove harmful to sources, including which shows makes any negative effects of points that are (Journal Article) microfinance USAID reports on cost/benefit profitable competition in important to policy borrowers in a microfinance and relationships based on borrower worse microfinance makers, the optimal microfinance market. data from a variety of scenarios. off and that markets. Overall, the number of individual microfinance study suggests microfinance microfinance programs with competition has a net programs in a region programs in subsidies can positive effect. and the effect that Bangladesh, East always drive any subsidies have on Africa, and Latin unsubsidized competition. America. competitor out of business.
99 Author/Year Title Publisher Objectives Data Methodology Key Findings Conclusions Policy of Study Source Implications
Wydick. (2001) Tracking the University of To follow the Survey data Longitudinal survey The study shows that the A major conclusion The study should be Progress of San Francisco progress of from 239 data was examined small businesses that from this study updated if possible 239 Press (Journal microfinance entrepreneurs to measure a variety receive credit see a growth suggests that it is with the same Microcredit Article) program who of financial in profit. However, this very difficult for entrepreneurs to see Program participants over participated in variables. growth is plateaus after the microfinance if they are still in Participants a 5-year period. microfinance addition of two or three borrowers to grow business and if any in program in and employees. their businesses of them are still Guatemala: around the city beyond a 10 to 15 borrowing from 1994-1999 of employees. microfinance Quetzaltenango programs. , Guatemala.
Critique of Microfinance
Ahamad & Townsend Changing Journal of To explain the Large data Examine the Microcredit is popular but None of the large This study from the (1998) fortunes in International inefficiency of sources, macroeconomic there is little evidence that it MFI programs have 1990s is part of the anti-poverty Development anti-poverty including trends that can be is actually improving the been able to shift early critical work programs in (Journal campaigns in World Bank attributed to large lives of women in India. women out of on microfinance that Bangladesh Article) Bangladesh. economic data scale anti-poverty traditional labor warned of many of and data from programs in roles and little the core problems the Bangladesh. investment is being that are currently Bangladeshi made in skills like facing the government literacy and basic microfinance sector. programs. accounting that are essential to business management.
100 Author/Year Title Publisher Objectives Data Methodology Key Findings Conclusions Policy of Study Source Implications
Banerjee, Duflo, The miracle Massachusetts Evaluate the Microfinance 104 slums in 3 to 4 years after the study The study found no This study does Glennester, & Kinnan of Institute of impact of the program Hyberadad, India began, borrowers were changes in any of the show that (2013) microfinance? Technology:De introduction of a participants in where micro finance taking larger loans while areas that are microfinance does Evidence partment of standard Hyberabad, programs were household consumption did associated with provide a benefit for from a Economics microcredit India. implemented were not change and on average microfinance. comparably randomized (Working group-based randomly selected businesses were no more Including, health, wealthier borrowers. evaluation. Paper) lending project and compared to a profitable. education, and These borrowers in a new market. control group are women’s showed an increase where programs empowerment. in business profits. were not initiated. This reveals that microfinance may not be appropriate for the poorest of the poor in developing countries.
Bateman. & Chang. Microfinance World The article The study uses Economic principles The findings are a step-by- The authors argue Suggestions for (2012) and the Economic contests the a variety of are presented and step explanation of many of that there are serious alternatives to Illusion of Review view that the data sources, compared with the key factors that problems with microfinance are Development: (Journal modern including microfinance theory Bateman and Chang believe modern provided by the From Hubris Article) microfinance reports by to show that they are are the fundamental flaws microfinance authors. These to Nemesis in model has a other in contradiction. of microfinance. The programs and that include financial Thirty Years positive impact academics and Real world examples authors conclude that they are harmful to cooperatives and on poverty synthesizes are provided as microfinance is harmful to economic and social credit unions. reduction. these reports evidence. economic development on development. They into a critique both and individual and go on to list several of modern societal level. possible alternatives microfinance such as credit theory. unions, as well as local and national development banks.
101 Author/Year Title Publisher Objectives Data Methodology Key Findings Conclusions Policy of Study Source Implications
Bateman (2013) The age of OFSE-Austrian Explain the Historical and Comparing Microfinance has become a The bottom-up The expansion of microfinance: Foundation for destructive current macroeconomic data crutch and replaced a large approach of microbusinesses in Destroying Development nature of the macroeconomi before and after portion of the formal microfinance an already crowded Latin Research micro finance c data from micro finance economy that collapsed programs in Latin market is harming America for model that has Latin America. programs became after the recent financial America undermined the overall economy the bottom up been popular in Latin crisis. and harmed the of countries implemented in America. economies of these throughout Latin Latin America countries. America. As the expansion of MFIs increase there is little sign of an improving economy.
Chowdhury (2009) Microfinance United Nations This paper Information is Studies evaluating Microfinance by itself will Government Many organizations as poverty Department of attempts to derived from a the impact of micro not eliminate poverty in regulation and consider United reduction Economic and provide a critical variety of finance programs are developing countries. support, coupled with Nations tool—A Social Affairs assessment of previous compared. Studies business training and recommendations as critical the current studies on the with positive and access to marketing important and this assessment debate effectiveness of negative findings are information are need report could affect surrounding the micro finance.. both used. for microfinance to the way in which effectiveness of have a significant and MFIs are regulated micro finance lasting impact for its in many countries. borrowers.
Copestake (2002) Inequality and Journal of To describe the Research from A case study of Only the richer borrowers The majority of Microfinance can the polarizing International impact of micro finance micro finance in Zambia are benefiting borrowers that used have positive short- impact of Development ingrained programs in the program participants from the microfinance this particular term microcredit: (Journal inequality on the Zambian working the the program examined in the Zambian MFI were macroeconomic Evidence Article) impact of micro Copperbelt. Zambian MFI study. left financially worse impact on poverty from finance CETZAM. off after they used reduction. But for Zambia’s programs. the program. individual copperbelt borrowers the it has little positive effect and can lead to increased inequality.
102 Author/ Title Publisher Objectives of Data Methodology Key Findings Conclusions Policy Year Study Source Implications
Dichter. A Second CATO Institute Claim there is no difference The article This study uses a There is no difference This article suggests Neoliberal (2007) Look at (Report) between the nature of relies on combination of between historical trends that we should not economic Microfinance: economic growth for poor historical historical financial of finance and the current expect very much proponents could The Sequence countries today compared documents theory and current system of microfinance from modern use this information of Growth with the past. Therefore, and previous trends in and that it is not microfinance and that to argue that it is not and Credit in microfinance is not useful. economic microfinance to reasonable to assume that capital accumulation reasonable to Economic studies. examine the limited simply lending the poor and economic assume that simply History benefits that money will create a whole development will lending the poor microcredit loans new class of successful continue to function money will create a have on borrowers entrepreneurs. in much the same whole new class of and overall economy way it has for the last successful several hundred years entrepreneurs.
Hudson. Fair Interest Éthique et The study is an attempt to Previous The article looks at Each of the approaches to The study concludes Fair interest rates (2007) Rates When Économique determine how to judge studies and four popular ways to determining interest rates that many involved in should be Lending to (Journa microfinance interest rates. theoretical determine the has tradeoffs and that the microfinance incorporated into the Poor Articlel) financial and fairness of interest individual agencies and industry agree that microfinance philosophical rates. These institutions should decide lower interest rates programs and concepts. approaches address on an approach that aligns should be promoted policies to promote issues such as with their intended but not imposed and equity and stability. morality and a mission. that microfinance borrower’s ability to institutions should pay. adhere to a long-term sustainable approach to lending.
Karim. Demystifying Journal of Examine the microcredit Evidence Analysis of The findings of this study The author suggests This critique of (2008) Micro-Credit: Business policies of the Grameen from previous competing show that microfinance that unless there is a modern The Grameen Venturing Bank of Bangladesh and studies and macroeconomic, participants have no real popular social microfinance targets Bank, NGOs, (Journal three other non-governmental Grameen gender, and political say in how these policies movement against the entire structure and Article) lending organizations. The Bank data. theories and how are implemented and in microfinance in and leadership of Neoliberalism policies are analyzed in the they play a role in fact they are the end result Bangladesh it is the microfinance in Bangladesh context of gender, modern of a strategy to spread difficult to promote industry. globalization, and the microfinance. neoliberal economic any radical critiques expansion of neoliberalism in policies to the poor across against the system. Bangladesh. Bangladesh.
103
Author/ Title Publisher Objectives Data Source Methodology Key Findings Conclusions Policy Year of Study Implications
Knediding & Variations in Consultant Explain the The data for this Analysis that of This report finds that there The authors point out The findings suggest Rosenberg. Microcredit Group to Assist variations in report was derived factors that contribute are still very few effective that there is no single that regulating (2008) Interest Rates the Poor microfinance from MIX Market; to microfinance regulations regarding explanation regarding agencies and (Report) interest rates. a non-profit interest rates for four microfinance interest rates. the variation in governments should organization based countries. Two There is also limited microfinance interest pay close attention Washington D.C., countries with high research on the effects of rates and that the to factors that which provides interest rates and two competition and reasons are many and contribute to interest financial and social countries with low sustainability relating to usually country rates. indicators for over interest rates. these interest rates. specific. Current 2000 microfinance research is being institutions conducted to address worldwide. these issues.
Luoto, Credit Economic Explain and test The data for this Descriptive approach The authors determined that The CREDIREF The authors McIntosh & Information Development the effectiveness study was obtained to explain the growth credit information systems reporting agency has recommend Wydick. Systems in and Cultural of microfinance from CREDIREF, a of credit information help build and efficient had a strong impact continued expansion (2007) Less Change (Journal based credit specialized credit systems in developing financial system by on decreasing missed of credit reporting Developed Article) information bureau covering the countries. This is promoting transparency in payment by one agencies to ensure Countries: A systems. microfinance sector combined with an lending. popular microfinance the sustainability of Test with of Guatemala. empirical test of the program in the microfinance Microfinance effectiveness of these Guatemala industry. in Guatemala systems.
Rahman. Microcredit World Examine the The study used data Participant This study claims that there The study should be Policies that reflect (1999) Initiatives for Development lending structure collected from 295 observation, is a discrepancy between updated in order to the borrowers’ Equitable and (Journal) of Grameen Bank household, 154 unstructured and in- the ideology of Grameen compare these needs and the Sustainable to explain its Grameen Bank depth interviews in Bank and its actual findings with current microfinance Development, effect on members, and 12 the Tangail region of practices in the field. The data from the field. organizations’ Who Pays? sustainable and bank workers in the Bangladesh. author notes that the major However, it does objectives need to equitable Tangail region of criterion for success is the show that there were be aligned in order development. Bangladesh. sustainability of the serious concerns with maximize benefits. programs instead of the the effectiveness of socio-economic microfinance as far improvement of the clients. back as the 1990s.
104 Author/ Title Publisher Objective Data Source Methodology Key Findings Conclusions Policy Year s of Implications Study
Roodman. Does Center for Explain and Data for this report was Several variations on The findings show The author does not With the addition of (2011) Compartamos Global analyze the obtained from equations to explain how the loan take a side on whether fees and varying Charge 195% Development high interest Compartamos Bank of the Compartamos’ payments and fees the bank is using repayment structures, Interest? (Report) rate charged by Mexico. The data published interest can be broken down deceptive practices or calculating the cost to the includes interest rates rates using a variety to show that if you even excessive borrowers can be Compartamos and payment schedules of variables. include VAT, forced interest rates. complex. With this Bank. for microfinance loans savings, and other Roodman simply complexity comes the provided by the bank. fees it can be argued breaks down the opportunity for that Compartamos equation and explains exploitation. charges 195% the rational. interest on some loans.
Rosenberg, Microcredit Consultant Explain the The data for this report Several equations are Microfinance This report shows the This paper provides Gaul, Ford, & Interest Rates and Group to Assist factors that was derived from MIX explained using a programs nominal evolution of valuable data for those Tomilova. Their the Poor determine Market, a non-profit variety of variables. interest yield microfinance interest with question about (2013) Determinants (Report) microfinance organization based Simple economic averaged about 27% rates and how they are microfinance interest interest rates. Washington D.C., theories are also in 2011. Rates have derived. The authors rates. which provides examined to been rising for use an empirical financial and social determine possible microlenders approach to evaluate indicators for over 2000 cause and effect. focused on low-end the interest rates. microfinance borrowers. Rates institutions worldwide. have dropped for For the years 2004- banks and other 2011. The dataset regulated consist of 6043 microlenders, but observations, each risen for NGOs and covering 48 variables. other unregulated microlenders.
105
Author/ Title Publisher Objectives of Data Source Methodology Key Findings Conclusions Policy Year Study Implications
Saltmarsh & Some Fear New York Times Bring to light the This newspaper Journalistic reporting This article questions Microfinance This article did a lot to Contigugli. Profit Motive (News Report) idea that profits are report uses data using interviews and the impact of institutions need to be bring these concerns (2008) to Trump driving the from several financial reports. microfinance and held accountable to into the mainstream. Poverty Efforts expansion of the microfinance looks at the profits of ethical financial Most of the inner in microfinance investment funds, the large investment practices and workings of finance, Microfinance industry. as well as the views funds that finance regulations may help especially and outlooks of much of the facilitate this. microfinance, are not experts involved microcredit that is very well known and a with microfinance. provided by feature article in the microfinance New York Times can institutions around do a lot to shine a the globe. light on the complex process of the global microfinance industry
Selinger. Does Human Studies Explain and add to This article relies The author applies The article contends This study shows that There are both (2008) Microcredit (Journal) the debate on the on findings from several theories, that findings from the idea of positive and negative "Empower"? effectiveness of the previous studies. including Marxism previous studies empowerment is a implications on a Reflections on Grameen Bank. and feminism to measuring the complex and many marco and micro level the Grameen address questions empowerment of times elusive concept. for many of the Bank Debate surrounding women and the To measure it is very Grameen Bank empowerment and Grameen Bank may difficult and the programs. Constant the specific Village not be accurate results from previous observation and Phone program. because the studies are unclear. updating will help to approaches and optimize these methodology are programs. wrong. The author argues that the studies only take into account options of program participants instead of lived experiences.
106 Author/ Title Publisher Objectives of Data Source Methodology Key Findings Conclusions Policy Year Study Implications
Sinclair. Confessions of Berrett-Koehler To uncover the The data used in This book is a As a whole the The findings are This book is a unique (2012) a Microfinance Publishing (Book) dysfunction and Sinclair's book firsthand account of microfinance highly critical of the look at the inner Heretic: How problems of the comes from a wide the experience of industry is microfinance industry workings of the Microlending microfinance variety of sources someone working in ineffective and many and while he admits microfinance industry Lost its Way industry. including annual the microfinance times it can be that several and exposes many of and Betrayed reports by industry. harmful to microfinance the features that those the Poor microfinance borrowers. programs are at the top of the institutions, beneficial to their microfinance system financial statements clients, many are may not want visible from microfinance actually quite harmful. to the public. investment funds, and firsthand accounts of working in the field.
Vogelgensang. Microfinance World Determine an This study uses Analysis of primary Important findings There are many The study is well (2003) in Times of Development effective way to data from 76,000 data from a large from this study show factors to consider structured and the Crisis. (Journal) select clients who clients and 28,000 sample set of loan that increased when trying to analysis could and will become rejected loan borrowers in Bolivia competition and determine what clients should be applied to successful applicants from is examined to supply leads to will be successful microfinance microfinance Caja Los Andes, a determine financial increased microfinance loan programs in other customers. registered savings impact on clients. indebtedness and borrowers. regions. and loan company multiple borrowing. in La Paz, Bolivia.
107
Appendix B
Microfinance Borrower Survey Questionnaire
General Questions:
1) What is your age?
2) What is your gender? Male Female
3) Are you married? Yes No
4) Number of people in your household:
5) Your highest level of education earned:
6) Do you have a mobile phone? (If yes, which service provider do you use?)
7) Which organization have you borrowed the loan from?
8) Which branch location(s) have you borrowed the loan from?
108 9) Is this your first loan granting organization? If No, What was the last one you worked with and why did you switch?
Questions about Financial Aspects: 10) How long have you been borrowing from this organization?
11) How much have you borrowed for your current loan?
12) What is the interest rate or your loan?
13) What was the main purpose of your microloan? __A Business project (obtaining or improving a business) __A housing project (improving living conditions) __Other: please specify
14) If you took the loan for a business project, what type of business? (If not for a business, go to question #20)
15) Where does your business operate, which city or cities?
16) Since you obtained the microloan, would you say your business situation has: __Greatly improved __Somewhat improved __Remained the same __Somewhat worsened __Greatly worsened
17) Is the change in your business situation directly linked to the microloan? __Yes __No __Somewhat
109 18) What are your monthly sales now?
19) What were your monthly sales before borrowing the loan?
20) What was your average monthly income before the loan?
21) What is your average monthly income now?
22) Since you obtained the microloan, would you say your sales have: __Greatly increased __Somewhat increased __Unchanged __Somewhat worsened __Greatly worsened
23) Since you obtained the microloan, your ability to pay bills has: __Greatly improved __Somewhat improved __Remained the same __Somewhat worsened __Greatly worsened
24) Do you feel that the microloan helped improve your household’s overall financial situation? __Yes __No __Do not know
25) Do you have or have you had difficulties in repaying your microloan (If no, skip next 3 questions and go to question #29)? __Yes, it is very difficult __Yes, a little difficult __No, not really
110 26) Was the microfinance program helpful in working with you to overcome these difficulties by adjusting loan rates and payment plans? __Yes __No
27) Did you receive help for overcoming those difficulties? __Yes __No
28) If you answered “yes” to either of questions 25 or 26, from whom did you receive help from? __Family (if a family member, whom?) ______Friends __Charitable organizations __Micro finance institution __Other, please specify
29) What are your current weekly payments for the loan?
Questions Regarding Customer Satisfaction: 30) Have you attended at least one meeting on managing a budget and your money? __Yes __No
31) Does the microfinance institution offer classes on small business management or entrepreneurship? __Yes __No
32) Since you obtained your microloan, would you say that the relations with your microfinance institution have: __Greatly improved __Somewhat improved __Remained the same __Somewhat worsened __Greatly worsened
111 33) Do you feel your opinion of the micro finance institution has? __Greatly improved __Somewhat improved __Remained the same __Somewhat worsened __Greatly worsened
34) Overall, are you satisfied to have borrowed the loan from the MFI? __Very satisfied __Satisfied __Indifferent/Neutral __Dissatisfied __Very dissatisfied
35) Reason for you satisfaction or dissatisfaction?
36) Do you have any other remarks on the microloan system?
37) Please rate your loan granting institution from the following on a scale of 1 to 10, with 10 as excellent and 1 very bad.
112
Appendix C
Institutional Review Board Approval
113
114
115
Appendix D
List of MFIs the Respondents Borrowed From
Aguadesa: Address: 1a. Ave 2-36, zona 2, Chimaltenango, Guatemala Phone: (502) 7839 2307 Email: [email protected]
Banrural/Grameen Bank: Address: Ave. La Reforma 9-30, Zona 9 Guatemala City, Guatemala Phone: (502) 2339-8888 Email: www.banrural.com.gt
Compartamos: Address: 22 Av. 3-87 Edificio Europa, nivel 4, oficina 407. Quetzaltenango, Guatemala Phone: (502) 7956-3500 ext. 90114 Email: [email protected]
Fafidess: Address: 5 Av. 16-68, Zona 10 Guatemala City, Guatemala Phone: (502) 2311-5800 Email: [email protected] Website: www.fafidess.org
FINCA: Address: 3a. Calle 3-03 Zona 10 Guatemala City, Guatemala Phone: (502) 2312-9292 Email: [email protected] Website: www.FINCA.org
116 FONDESOL: Address: Km. 15 Carretera Roosevelt 4-54 Zona 3 Mixco, Guatemala Phone: (502) 2323-4000 Email: [email protected] Website: www.fondesol.org
FUNDEA: Address: 15 Ave 2-09 Zona 13 Guatemala City, Guatemala Phone: (502) 2444-2222 Email: [email protected] Website: www.fundea.org.gt
Génesis Empresarial: Address: 13 Calle 5-51 zona 9 Guatemala City, Guatemala Phone: (502) 2383-9000 Email: [email protected] Website: www.genesisempresarial.com
Micronegocio (Azteca): Address: 1a Avenida Sur, Antigua Guatemala, Guatemala Phone: 01800 0504 799 Email: [email protected] Website: http://www.micronegocioazteca.com.mx
Mentores: Address: Flores, Guatemala Phone: 502 2435 3926 Email: [email protected]
Puente de Amistad: Address: Avenida Santander 5-38 zona 2 Panajachel, Sololá, Guatemala Phone: (502) 7762 0222 Email: [email protected] Website: http://www.friendshipbridge.org
117
Appendix E
Photographs of Study Area
118
119
120