IAF2 NC 227.Pdf

1 - 1 9 - 9 6 “PROGRAMA DE DESARROLLO LOCAL SOSTENIBLE DE LA MICRO,, PEQUENA Y MEDIANA EMPRESA EN EL MUNICIPIO DE LEON,, NICARAGUA” Project NC – 227 LEON 2000 Micro-credit Impact Evaluation Ana Beatriz Urbano Andari Pedro Roberto Jacobi Marcelo Cortes Neri Project Coordinator: Marcelo Neri Centro de Políticas Sociais/IBRE/FGV Rio de Janeiro, October 2007. 2 Micro-credit Impact Evaluation: Project NC – 227 LEON 2000 I. Executive Summary - Micro-credit: Lessons Learned History of the project Financial Environment Role of the grants Credit History and Profile of Borrowers Reaching the poorest Role of technical assistance Institutional features II. Overview of the Project III. Micro-credit Impact Evaluation Are IAF-supported credit funds reaching the poorest? If not, why? Can IAF-supported credit funds help the poorest? If so, how? What are the impacts of credit funds with technical assistance? Did the management of credit funds build a stronger institutions? What have been the winning features? What are the institutional challenges for managing a micro-credit fund portfolio? IV. Conclusions V. References VI. Acknowledgements 3 I. Executive Summary - Micro-credit: Lessons Learned History of the project Fundación León 2000 is a Non Governmental Organization that develops its activities as a microfinance institution in Leon since 1993. It is created by citizens of the city of Leon that gather with the finality of searching alternatives to support the socioeconomic and cultural development in the western part of Nicaragua. Its focus is mainly the micro- entrepreneurial activity to assist the urban sector. It has concentrated mainly in rendering services to the urban micro-entrepreneurial sector in the areas where it operates, reaching part of the peri-urban and practically it does not operate with micro-credit for farming activities. The main activities covered by its programs are small business, small industries, services and consumption and improvement of housing. Its emphasis is in the small business, mainly comestibles and grocery shops and services. Besides favoring the development of micro, small and medium entrepreneurs, through credit services and in management, it has developed activities in training and technical assistance. The covenant between IAF and Fundación León 2000 – NC 227, was to establish and manage a small loan fund that will provide credit, technical assistance, and training to rural and urban participants, the majority of them women, in both new and established micro-enterprises in León, benefiting directly 5,040 persons. The resources were destined to award approximately 1.800 loans within an average of US$ 2.500,00 for solidarity groups, cooperatives and individual small businesses. History of Leon 2000 According to Marcos Hernandez, the executive director of Leon 2000, as well as one of the founders. “Our institution started in 1994, after a period of war we went through in our country and a transition for a left-wing to a right-wing government. The government created The Program for Support of Small and Medium Enterprises (PAMIC), which fostered the beginning of many of the microfinance institutions that exist today in the country. It was based on funds from Norway and Holland. PAMIC then started to give 4 place to international institutions, such as the IDB, the IAF. Some funds were based on donations, others in credit.” Nowadays, Leon 2000 has many projects with international organisms, such as Global Partnership, Micafon, with IMF we have a project involving renewable energy, and with Proder - an institution from here - we have a project involving housing improvement. Leon 2000 is carrying out at the moment 7 projects. Its focus and objective has always been to finance the very poor and rural sectors, because the traditional banks do not think it is worth to reach them. Fundación Leon 2000 focus its operation in the provision of credit mainly for low income borrowers concentrated in the urban areas Financial Environment The financial system is highly concentrated in three large banks and favors corporate clients and offshore activity, and most institutions that center their activities in micro- finance1 emerged during the 1990s based strongly on support from international donors, for which microfinance is a tool to reduce poverty. After Hurricane Mitch, in 1998 many donor agencies increased their support to the country. The micro-finance growth is being led by 2 regulated finance companies, 21 non-governmental organizations (NGOs), and 12 finance cooperatives. Presently the number of organizations that provide financial services to people that have very limited access or no access to the traditional banking represents around 300 institutions, which are composed of 2 regulated finance companies and approximately 7 private unregulated corporations, 100 private NGOs, and 190 cooperatives, around 300 organizations with a combined portfolio of US $240 million (ASOMIF, 2007). Micro-credit providers have increased the number of credit clients they serve by approximately 26 percent per year since 1999. This growth has, however, been concentrated in a few institutions: 12 out of the 35 largest MFIs (including 2 finance companies and ASOMIF affiliates) accounted for 80 percent of the increase in number 5 of credit clients and 90 percent of the growth in outstanding portfolios between 1999 and 2004. Within this context, microfinance emerged as an alternative to include those that are not reached by formal financial market, and according to recent studies nearly 20 percent of the Nicaraguan population is either a direct or indirect user of microfinance services. Role of the grant The IAF donated U$ 367.580.00 to Leon 2000. These donations enabled to leverage a credit fund whose main objectives are to concede credit, guarantee, capacity building, technical assistance and technology transfer to urban and rural borrowers. Leon 2000 is 80% to leverage a credit fund. Leon 2000 fund did grow significantly in number of loans beneficiaries from 2,904 in 1999 and at the end of 2006 it reaches 9,430. The IAF donation was instrumental in strengthening the organization institutional basis. Credit Methodology Leon 2000 started to work at the same time with the methodology of group lending as well as individual lending. It also had an experience with the methodology of communal banks with 5 communal banks at the same time. The communal bank work is determined by its statute, involving the issues of control, savings, association, loans, etc. To give an example, it is common that non-members should borrow at higher interest rates than members. But it was discontinued due to transportation problems they had to get back to work with group lending. Others, in turn, start to work individually. But after all the methodology was a steeping stone to other methodologies. According to Maria Dolores, from Leon 2000 staff, this experience with communal banks has been a key source of knowledge and produced positive results. The clients have done well and many of them still work within groups. The combination between individual with group lending is decided in the field. The credit assessor offers both type of products and the client chooses which one she will 6 have. It depends as well on certain pre-conditions. If one, for example, has neither collateral nor bailer, he has to borrow within a group. The issue of collateral depends on the methodology of the loan. Individual loans involve clients that have better conditions of repayment, because their businesses are larger, and therefore they can borrow higher amounts. They can use as mortgage collateral, pignoratious collateral or fiduciary collateral. Those who borrow with the methodology of group lending are the ones that have fewer resources. They borrow using only pignoratious or fiduciary collateral, since they cannot provide any property as collateral. In Nicaragua it is quite slow, a judicial process takes usually from eight months to more than one year o recover the collateral. The loan conditions have exactly the same conditions, the same interest rates, the same payment periods independently on it being provided within a group or individually. Leon 2000 is an institution that lives up to the History of the city that it carries in its name. Leon 2000 developed the ability of allowing people to recover from the climatic and other types of natural shocks. For example in the case of exogenous events such as climatic shocks – one might think also about the constant switches in Nicaragua’s political pendulum - there is a fund destined to help with shocks. Besides, in such cases Leon 2000 provides loans at smoother conditions than the usual ones and refinance the old loans. This winning feature is a source of knowledge for IAF partners elsewhere. Credit History and Profile of Borrowers Leon 2000 has in 2007, nine offices distributed in the western region of Nicaragua, with a directive board composed of seven members and a professional body of 73 persons. An important issue presented by the interviewed from the direction is the stability of its employees, who stay an average of six years. The number of clients per credit agent is around 300. The percentage women promoters represents 14% of 29 (ASOMIF, 2006), In 2005, according to data from MicroRate, it is ranked in 11th place within microfinance institutions belonging to the Nicaraguan network ASOMIF. 7 Leon 2000 average loan was seven months at 1.2% per month rates of interest rate. The interest rates are at the moment 1,76% per month Most of the clients are women, representing 72% in Leon 2000. The report of Fundación Leon 2000 indicates that the annual rotation rate for urban microentrepreneurship is 1.2, while for housing it reaches 0.5. As in many cases the loan brings very small profitability, the small shop owners have to make two loans per year, so that their business can survive.

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