Known for its tropical vistas and banana plantations, Costa Rica has also developed a well-deserved reputation for stability. Indeed, since abolishing its military in 1949, the small Central American nation has celebrated seven decades of uninterrupted democracy. While this stability has allowed Costa Rica to make great strides in alleviating poverty, however, nearly 21 percent of the country still remains impoverished. To this end, many in Costa Rica are increasingly turning to microfinance as a potential remedy.

Why Microfinance?

Microfinance is a banking service that focuses on delivering small loans to communities underserved by traditional banks. These ‘microloans’ can be as low as $100 and are specifically designed to help meet the needs of low-income families.

Because the principal of a microloan is much smaller than that of a traditional loan, lenders can afford to take on risks they otherwise could not. This means less stringent requirements on things like documentation and property, which are traditionally the largest obstacles to acquiring credit for those living in poverty. As a result, microfinance has become a favorite tool of activists in the developing world.

Costa Rica is no exception in that regard. With more than half of Costa Ricans unable to raise needed funds in an emergency, microfinanciers provide the country a crucial service.

Keeping Small Farmers and Rural Communities Afloat

One reason microfinance has been able to take off so quickly in Costa Rica lies in the country’s history. In the 1980s, a prolonged economic crisis prompted traditional banks to retreat en masse from Costa Rica’s rural areas. This left many small farmers suddenly lacking access to badly needed credit.

To help combat this issue, organizations like FINCA began seeking ways to encourage sustainability in rural financial markets. One such solution was microfinance.

Beginning in 1984, FINCA Costa Rica set about building a series of ‘village banks’ in the areas hit hardest by the loss of financial services. These were largely community-run, shared-liability ventures whose purpose would be to offer microloans to farmers. It did not take long for the model to become a success. Village banks quickly began to attract Costa Rican farmers, many of whom would have had difficulty acquiring a standard loan. In fact, the village banks would prove so popular that within a decade they had already become self-sustaining.

Others in Costa Rica soon took note of FINCA’s success. Though not all would copy the village bank model, many other microfinancing operations began to sprout up around the country.

Empowering Costa Rican Women

While FINCA’s village banks primarily served a demographic consisting of rural, male farmers, modern microfinanciers pursue a more diverse client base. Women in particular are a focus for many.

Research demonstrates a sharp gap in financial access along gender lines in Costa Rica. Thirty-nine percent of Costa Rican women lack a bank account, for instance, compared to 25 percent of men. This is a pattern that largely holds consistent across the developing world. Although in many cases women provide necessary income for their families, they often lack the means to build upon those earnings. This leaves them more vulnerable to the sudden economic shocks that can devastate a household, like personal medical emergencies and unexpected changes in consumer trends.

Microfinance institutions empower these women, however, by offering them the credit needed to start a business of their own, and by providing them with a newfound resiliency.

Thanks to the efforts of organizations like Fundación Mujer, women now own more than 22 percent of Costa Rican businesses. And, as the number of women gaining access to loans and other financial services increases, that percentage is only expected to grow. This means greater social mobility for Costa Rican women and a stronger ability to weather the storm in times of crisis.

The Future of Microfinance in Costa Rica

Microfinance in Costa Rica has come a long way from its first experiments with village banks in the 1980s. As it stands, Costa Rica is now one of the world’s largest microfinance markets. And, with the industry expected to grow by a further 5-10 percent in Latin America over the next decade, it is unlikely that will change any time soon.

While experts caution that microfinance cannot be seen as a ‘miracle cure’ for poverty, it is undeniable that it can provide real benefits to those in need. To see that, one only has to consider the success of microfinance in Costa Rica.

– James Roark

Photo: Pixabay.com

Microlending Organizations
In the fight against global poverty, one hot-button issue is how to provide aid without the implication of paternalism, the idea that one person or group knows the interests of another group better than that group knows its own interests. Tariq Fancy, the founder of the nonprofit The Rumie Initiative, recalls hearing a Kenyan relative’s view on problems with international aid, saying “don’t walk in assuming that from your perch in North America you figured out all the answers for Africa.” Putting resources and power in the hands of communities both provides aid and acknowledges that they can make decisions about local interests. Microlending organizations have the power to do just that

Microloans are small loans at low-interest rates. Individuals living in poverty often have difficulty securing loans from traditional financial institutions due to a lack of borrowing history and assets to use as collateral. Even when people can get loans, interest rates are often high. People often use microloans to finance small businesses in their early stages, enabling people to overcome barriers and progress toward lifting themselves and their families out of poverty.

Microlending organizations can also issue loans for community projects, like building wells or funding schools. Microlending organizations typically, but not always, issue loans funded by individuals rather than by banks or other financial institutions. Here are four companies and organizations that use microlending in different forms to empower people living in poverty.

Four Microlending Organizations that Empower the Poor

  1. Kiva: Kiva crowdfunds loans from people around the world and uses partners to issue them. The nonprofit has enabled the funding of more than $1.33 billion in loans. Kiva emerged in 2005 and has partnerships with financial institutions throughout the world, where it transfers the crowdfunded money. The local field partners then loan money to Kiva’s lenders. Kiva has a 96.8 percent repayment rate and operates in 78 countries. On Kiva’s website, lenders can sort loans by region or category, such as agriculture, women and eco-friendly.
  2. Zidisha: Zidisha is the first direct person-to-person microlending service that focuses on entrepreneurs and job creation. Its name” comes from the Swahili word meaning “grow.” Unlike Kiva, Zidisha does not loan through financial institutions but facilitates direct lending between people. Zidisha’s loans total more than $16 million and have financed more than 240,000 projects.
  3. Building Resources Across Communities: Building Resources Across Communities (BRAC) is the largest non-governmental development organization in the world in terms of number of employees. Hasan founded BRAC in 1972 and it employs more than 120,000 people in 11 countries. BRAC has a microfinance program, primarily in Bangladesh, which has loaned to 5.6 million borrowers, 87 percent of whom are women. Unlike Kiva and Zidisha, which operate person-to-person lending services, BRAC distributes loans to lenders on its own using donations and other funds. BRAC also does work unrelated to microfinance, investing in schools and in water, hygiene and sanitation services.
  4. Women’s Microfinance Initiative (WMI): Women’s Microfinance Initiative (WMI) began issuing loans in 2008 and trains local women in managing loan hubs. WMI has loaned more than $4.5 million to rural women in amounts of $100 to $250 at an interest rate of 10 percent. According to WMI, 99 percent of its borrowers report doubling their income within six months of being involved in the program. WMI reports a 98 percent repayment rate.

The efficacy of microlending in pulling people out of poverty is up for debate, but some cases have shown promising results. A microfinance program in Uzbekistan resulted in 71 percent of participants reporting an increase in food intake quality. One study showed that when a microfinance program was put in place, there was an 18 percent decline in extreme poverty. While different studies report differing results, microlending organizations like Kiva, Zidisha, BRAC and WMI have certainly been a success.

– Meredith Charney
Photo: Flickr

Poverty and Patriarchy
While poverty and patriarchy may seem like separate issues, the two connect deeply. As long as poverty exists, women’s rights and livelihoods will suffer. Likewise, women’s oppression leads to their inability to contribute to the economy and prevents a family’s escape from cycles of poverty. Here are some examples from around the world of poverty and patriarchy reinforcing each other, and some ways humanitarian aid can improve these situations.

Microcredit in Bangladesh Has Left Millions of Women At High Risk For Domestic Violence

From the 1980s to the mid-2000s, people thought that micro-loans would be the future of international development. In Bangladesh, most of these loans went to women on the belief that women could handle money more responsibly than their male counterparts. They received a small amount of money to invest in materials to start a business and earn an independent livelihood in order to bring their families financial stability. Unfortunately, when these women were unsuccessful at lifting their families out of poverty and their families plunged into greater debt as a result of the loans, they often suffered spousal abuse. For other women, as soon as they received the money, the men and their families took it and used it, leaving them to pay off the loans by themselves. As a whole, micro-credit has not had the intended impact on the people of Bangladesh that the international community once hoped for, and rates of violence against women have climbed, increasing the correlation between poverty and patriarchy

Solution: Investing in women’s education will provide them with the knowledge they need to become financially independent and ensure greater legal protection for victims of domestic violence could greatly combat this issue.

Poverty As a Weapon Against Women in the Democratic Republic of the Congo

Sixty-one percent of women living in the Democratic Republic of the Congo live in poverty, compared to only fifty-one percent of men. This is because people have systematically excluded women from peace-building efforts in the country. Because there are no women’s voices at the decision-making table, countries set policies that prioritize men, often at women’s expense. Disturbingly, women’s rights activists in the country are often a target for violence. Many think that those who advocate for women-centered poverty-relief efforts are distracting from larger issues within the country.

Solution: Studies that researchers conducted in the Democratic Republic of the Congo demonstrate that in areas with high levels of poverty, there are high levels of violence against women. Providing food security, as well as funding institutions and organizations to empower women, are important steps in relieving both poverty and oppression in the DRC.

Time Poverty Makes it Nearly Impossible for Indian Women to Contribute to the Economy

In India, the average man works seven hours per day. Although women usually work for nine hours a day, the vast majority of their labor is unpaid housework and childminding. This means that they have little time to earn any outside wages, and therefore, remain financially dependent on the men in their families.  The power dynamic that this situation creates is extremely dangerous. Women lose any agency they may have because they depend on their fathers, husbands or brothers for everything. This means that they have no power to go against their male relative’s wills. It also hurts the Indian economy, as women have little ability to contribute to it.

Solution: In rural India, women spend upwards of four hours each day gathering fuel and cleaning utensils to cook with. Providing them with solar or electric cookers could save them three hours of unpaid labor, giving them more time to do what they want to do or contribute to the economy as an untapped workforce.

These examples display just how poverty and patriarchy intertwine and push women and their families into poverty. If women could gain an education, receive food security or use alternative cooking equipment to limit labor, they might be able to improve their situation and lift themselves out of poverty.

Gillian Buckley
Photo: Wikimedia

Mann Deshi Bank is Changing Lives
A time-tested way out of the poverty cycle is starting a small business. Talent and hard work, when supported by capital investment, can build a business, bringing an idea to life. Today, rural micro-credit institutions like Mann Deshi Bank are changing lives by doing this as the next chapter of the small entrepreneurship revolution story is underway.

The Foundation

Chetna Gala Sinha, the founder of the Mann Deshi Bank, started the bank in 1996 with a determined team of a few rural illiterate neighborhood women. It all started when Chetna’s friend and neighbor, Kantabai, came to her for some friendly advice.

Kantabai wanted to open a savings account to make a daily deposit of 10 rupees (less than 15 cents), but the Bank would not open her account as the amount was too small. According to a recent World Bank report, India has around 224 million people living under the poverty line of $1.90 a day; there are millions of women facing the same predicament.

Unfazed by hurdles, Chetna and her friends decided to take matters in their own hands. After months of persistent effort, they were able to obtain a banking license from the Reserve Bank of India. They started Mann Deshi Mahila Sehkari Bank, the first cooperative bank in India solely run and owned by rural women.

There are numerous rural banks in India today that bolster the growth of small-scale businesses and first-time business owners through micro-loans, loans that are only a fraction of a traditional loan amount at maybe $25 or less. What makes Mann Deshi Bank unique, though, is the extra mile it goes. It builds community and long-term support helping customers along the tumultuous journey of a small-scale woman entrepreneur.

Support Group

Mann Deshi Bank started in Mhaswad, a drought-prone village in the state of Maharashtra, India. Today, the bank has branches at six different locations within the state. When a customer borrows money from any of the bank branches, she comes in contact with a family of female entrepreneurs. These individuals face similar socio-economic hurdles in their entrepreneurship journey including the facts that:

  • They are women who are traditionally dependent on male family members for money.
  • They live in small villages.
  • They save small amounts of money on an everyday basis.
  • They want to start a business.

Workshops, classroom lessons and annual cultural events give a sense of belonging to women entrepreneurs by regularly discussing motivational success stories, offering them customized advisory services and providing a place to network. Together they build a community that engages small business owners, providing them strong emotional and social support essential for successful entrepreneurship. Sugrabi Mulani, one of the beneficiaries of the Bank says, “Mann Deshi’s financial management training was very helpful and the bank also gave me several loans to expand my business. But most of all, I met so many women and I knew I was not alone.”

Financial Literacy

Most customers of Mann Deshi Bank have never been to school. Many of them run businesses that survive on daily or weekly income. To help them overcome everyday challenges, Mann Deshi Bank is changing lives by offering short-term vocational training courses in sewing, basic computers and cattle breeding, etc. In addition, business development workshops that the Bank offers helps new entrepreneurs understand key aspects of running a profitable business, such as:

  • The ratio of profit and investment.
  • The importance of insurance.
  • The significance of marketing.
  • Inventory management among others.

On average, trainees report a 25 percent increase in average annual income which includes 35 percent of women who expanded their business through weekly/regional markets.

In 2006, Mann Deshi Bank established Mann Deshi Business School for Rural Women and designed an affordable year-long MBA program in collaboration with CRISIL and National Payments Corporation. Students can leverage this program to learn essential skills related to marketing, expansion and management of a business. To date, 40,000 women have participated in various programs that the Bank and its schools run.

One of these women is Kavita Bhivre. Kavita participated in one of the Business Development Workshops offered by the Bank. After learning the basics of profit and loan, she went on to pursue her MBA that Mann Deshi Bank Business School offered. Employing her newly earned skills and a small loan from the bank, she opened a bangle shop and successfully turned herself from a stay-at-home mom into a businesswoman. Today, she is not only financially independent but also supports her family. Like her, 67 percent of women have started earning an income after graduating from the specially designed MBA program.

Sports Tournaments

Sports can act as a lever to uplift a whole family from poverty in a single lifetime. A state-level player can easily afford a house, electricity, clean water and education for children. However, less than 2 percent of girls participate in sports in Maharashtra. The bank took the initiative to organize open-house sporting events under the scheme called Mann Deshi Champions. The initiative serves two important purposes including to:

  1. Nourish physical and mental well-being.
  2. Promote sports as a viable career option in drought-prone villages.

In 2010, when the tournament started, 500 children participated in various racing competitions. Over the course of nine years, 4,000 children have benefitted from such events. Every year, hundreds of school-going children between the age of 10 and 16 go to the tournament grounds to participate in sporting events like wrestling, long jump and marathon running.

Under the program, children receive sports training sessions under the guidance of qualified sports coaches. Moreover, prospective outstanding athletes garner specialized professional training.

Young girls like Vaishnavi Sawant, Reshma Kewate and Poonam Kalel, who received training through initiatives of Mann Deshi and went on to win medals at a Northern Virginia regional competition in 2017, inspire the Champions. They hope to play in the Olympics and win medals for their country one day.

The Impact

Mann Deshi Bank is changing lives and has become a way of life for thousands of people. What started as a microfinance bank 30 years ago, is now a reliable partner in growth for women who want to earn a livelihood or financially support their families. With $13 million in deposits spread across 90,000 women account holders, Mann Deshi has become a force to reckon with. The Bank also broadcasts a community radio which has 150,000 listeners spread across 110 villages within a 50 km radius. The radio programs consistently encourage women to start their own business. Last year, with six other peers, Chetna Sinha, the Chairman and Founder of Mann Deshi Bank, chaired the 48th Annual Meeting of World Economic Forum in Switzerland.

– Himja Sethi
Photo: Flickr