"We should not let our fears hold us back from pursuing our hopes."
- John F. Kennedy
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"We should not let our fears hold us back from pursuing our hopes." - John F. Kennedy
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Get Involved
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March 12, 2010 | |||||||
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 A Little Means A Lot by David Satterthwaite Posted May 30, 2002 One entrepreneur learns from experience in Latin America that when you build a business and double the bottom line, everybody wins. NEW Reader Responses are a goodthing! Join the conversation! Dear GoodLetter readers, As our bus bumped over pot-holed roads in southern Mexico, I thought about what was drawing me to Nicaragua. I had just finished college, where I spent 4 years studying entrenched world poverty and its underpinnings. I learned of the millions of people in developing countries who only hear of the virtues and benefits of a democratic society, without ever experiencing them firsthand. I learned that so-called "developed countries" like to export the ideas of democracy and the "American Dream," without delivering the capital to bring it about. I learned that Nicaragua was the poorest country in Central America, where the average worker earned less than $500 a year. The country had spent much of the last century mired in civil violence and brutal political dictatorships and suffered from a very weak economy. I finally decided it was time to leave the classroom and its theoretical world behind. My goal was to understand the situation at a tangible, grassroots level and see how I could contribute to improvement. In December 1995, I boarded a bus to Nicaragua with little money, even less Spanish, and an unwavering determination to help the Nicaraguan people in whatever way I could. The bus ride alone was an adventure. I made the mistake of traveling during the region's busiest travel time of the year and, once I crossed the US/Mexico border, found myself fighting aggressive throngs of people to secure any bus ticket at all. I considered myself lucky to get a seat on what turned out to be a 36-hour, non-stop ride south. It wasn't until I arrived in Nicaragua and had spent some time there that I discovered how I could make a difference in people's lives. After talking with many working-class Nicaraguans and observing their subsistence-level existence, I discovered what they needed most was a financial boost -- a small loan (by developed-world standards) to help them either grow an existing business or start a new effort that could provide a comfortable income and a higher standard of living. The catch-22 for average Nicaraguans, however, is that banks, as in many developing countries, are largely inaccessible. ATMs and credit cards are rare. Fewer than 25% of people in Nicaragua have a savings account. Even fewer have bank loans. In fact, when I tried to obtain a loan myself to build a house in Managua after having been there for three years, even with collateral and money in reserve, I was turned down. I began to formulate the idea of a finance company that had the amenities often found in larger banks -- tellers, polite customer service, and quick turn-around -- that would cater specifically to low-income people who could not obtain loans any other way. As this idea was germinating, I had the good fortune of meeting Roger Aburto, a Nicaraguan who was working for a non-profit microfinance organization. The concept of microfinance is best known for providing small loans, primarily to women. These organizations usually raise money from donors in wealthy, developed nations to be used in poorer countries. Recipients are people without access to such funds, and they use the money to purchase what they need to support their businesses. Loans range from $50 to $10,000, although typical microfinance loans are under $200. They are used to buy such things as inventory for a corner store, fabric for a seamstress, or chickens for a farmer. But the survival of enterprises that are supported with such loans can make the difference between a life of poverty and a life of financial stability for the business owner and her or his family. Though well-intended, the organization where my friend Roger worked attached many strings to its loans. The loans themselves were not cheap; they charged an 80% yearly APR (annual percentage rate). After several conversations, Roger and I realized we shared a vision of a microfinance company that would offer both professional financial services and affordable interest rates. So, in 1996, with $4,000 of our own money and a loan from an investor, we started a financial services co-operative out of Roger's house, offering lending and savings. That co-operative grew into our current company, Prisma Microfinance, a small enterprise headquartered in the US and operating in Nicaragua, currently with $800,000 in loans to people in Managua. We have issued nearly 2,000 loans since our inception, providing people the credit they need to produce their own economic solutions. In addition, our borrowers have created more than 800 new jobs. One of our borrowers used the money to buy corn for her tortillas. With a loan, she can afford to buy whole bags of corn wholesale. She saves money on her inventory, and now sells corn itself at retail prices to her neighbors. She has doubled her income from the loan Prisma provided. This small amount of money, which she paid back with interest, had a huge impact on her family's well-being, as she can now afford to keep her children in school. Through larger loans -- around $4,000 -- we have enabled more than 100 people to buy their own taxis and start taxi services. In Nicaragua, a hard-working taxi driver can readily earn a middle-class income. Prisma is as committed to its investors as it is to its customers. By running our company efficiently and effectively, we have provided investors with market rate returns, while at the same time offering well-priced credit to our customers. Historically, we have borrowed money from investors at interest rates ranging from 8-17%. This creates a "double bottom line": we operate a business at a profit and support a social mission of equal opportunity and job creation. The success of Prisma and other microfinance organizations like it demonstrates there is indeed market demand for this kind of socially conscious financial organization. My dream is to see 1% of the investment money of people in "developed nations," or even just 1% of their retirement portfolios, put into international microfinance. With this volume of resources, we can make a significant step towards reducing world poverty. Unfortunately, existing donations dedicated to poverty eradication -- which comes primarily from governments and charities -- fall far short of providing a real solution to the problem, given the vast number who live in poverty (more than two billion people live on less than $1 a day). But perhaps by drawing upon the enormity of capital markets, through methods like microfinance, we can more adequately address global poverty and move toward creating a more just and equitable world. :: David Satterthwaite David has six years of microfinance experience in Nicaragua and Latin America. He has also worked as a business consultant, researcher, and teaching assistant. He enjoys books, yoga, and bicycle riding, and is currently completing graduate work in Social Economy at Boston College. (Thoughts on David's GoodLetter? Inspired by what you've read? E-mail us -- don't forget to tell us your name, where you're from, and if we can use your words in a future GoodLetter or on our Web site.) |
TALK ABOUT IT What's your "big idea"? If you could put into action your most creative, innovative idea for making the biggest possible difference in the world, what would it be? Share your stories and ideas . LEARN ABOUT IT :: Please visit the Web site of Prisma Microfinance More about microfinance: :: MicroCapital Insitute :: Microfinance Network :: International Development Network :: The Microfinance Gateway (UK) :: World Bank Group :: OneWorld.org :: Journal of Microfinance :: Microfinance.com :: RenewingIndia.org :: Microfinance for Nepal DO SOMETHING ABOUT IT :: Donate directly to the non-profit MicroCapital Institute to support their work in Latin America Readers Respond Want to share your thoughts or ideas with other people who care about good things? Send 'em our way.
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