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. ..................................