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Microfinance

Beyond more income

by Inka Rank
Over the past decades, the granting of microcredits has caused quite a stir in international development cooperation – especially because of Muhammad Yunus and his Grameen Bank in Bangladesh. Today, his concept is copied in many different countries – including Argentina. Microcredits of Fundación León have a greater impact there than just boosting incomes. [ By Inka Rank ]

Soledad is 37 years old. Together with her family, she lives inside a large concrete apartment building, a governmental housing construction located in the outskirts of San Miguel de Tucumán, the capital of the northwestern Argentinean province of the same name. Her neighbourhood “West II” is a social hot spot. Many of the residents work in the informal sector, making ends meet by way of occasional jobs. Most of them have no health insurance, although they are particularly prone to illnesses due to the precarious housing situation and malnutrition. The crime rate is high, a lot of men are alcoholics or drug-­addicts, and many of the women are depressive.

Soledad’s ­life also used to be miserable at times. She ­hasn’t finished secondary school, “that’s why I didn’t have a regular job and felt useless.” But one day a neighbour told her about the Fundación León. This foundation grants microcredits in the disadvantaged neighbourhoods of San Miguel de Tucumán. Their concept is the same as the original Grameen Bank concept in Bangladesh. In order to be granted a credit, ­those interested have to join forces with four other neighbours. In most cases, ­applicants are women – although men can equally apply for credits. Collateral security is interdependent among group members. If one member gets into trouble and fails to pay the rates, the five women have to find a joint solution.

Recognition and financial independence

For Soledad and her neighbours, this was an entirely new experience. “I was astonished that the foundation’s employees wanted to grant us a credit without asking for signatures. Our counsellor encouraged every one of us to come up with a project that she felt like doing.”

Soledad took part in a computer course. Today, she designs greeting and business cards as well as promotional flyers. She used the credit of 600 Pesos (roughly € 110) to purchase a printer, cartridges, coloured cardboard and paper. Soon, neighbours came to her with special requests for invitations and business cards, as this kind of offer was new to the neighbourhood. “Today, I feel self-confident,” says Soledad. “I have my own project and my own responsibility. I feel recognised and I earn my own money.”

Every week, Soledad meets with her group and up to 40 other credit users in the neighbourhood centre. This is where the members pay back their credits on a weekly basis and discuss achievements and problems. Like this, everyone learns who is making progress and who is having difficulties. This promotes social control and stimulates mutual support. The women deal with cosmetics, clothes, toys and handicrafts. They sell handmade empanadas or run a grocery store or a hair salon. Ana deals with clothes. She argues: “The exchange of information is very helpful. One tells a problem, the ­other finds a solution. Maybe I’ve never had this or that problem before, but once it comes up, I know what to do. This is essential.” Her friend Veronica says: “I like the experience. The foundation counsellors have shown us what solidarity is all about.” Ana agrees: “We help each other. If one of the others gets sick, I take her things and sell them for her.”

Poverty is more than just low income

Fighting poverty is the aim of microcredits. However, does the offer of microcredits actually reach the poor? And is the credit an actual way out of poverty? Both questions are being discussed controversially in the world of microfinance.

The income alone is not satisfactory for a consideration of poverty. It is just one of many indicators. Nobel prize winner Amartya Sen regards poverty as a lack of capabilities or chances of fulfilment. From that point of view, it is not only ­about quantitative measurability such as income, food security and education, but also about subjective things such as quality of life, social participation, confidence in the future, self-determination and self-esteem.

The clients of Fundación León are poor. Their diet is unbalanced and at times reduced. Like Soledad, most women have no secondary school qualifications, no heating despite the cold winter ­seasons and they complain about the high crime ­rate. Nevertheless, they do not count among the poorest of the poor. Their families do not ­have to eat in charity institutions; they are socially integrated.

As a matter of fact, the poorest of the poor are excluded. Unlike microfinance institutions in countries like Bangladesh, the Fundación ­León offers microcredits in an urban region. In the countryside, the poor are more likely to provide for themselves. This is more complicated in the city. Those suffering from hunger will be tempted to invest their credits in food instead of an income-generating activity. The urban poor depend on government aid – such as public soup kitchens. With a microcredit they cannot pay back, they might easily get stuck in a debt trap.

Initiative and perseverance

But also those who are less unfortunate have hurdles to overcome. A lack of confidence often keeps them from getting involved in the programme. Beti, for instance, founded a group with four other neighbours a couple of months ago. ­However, she was soon disappointed: “I came to every meeting, whether in pouring rain or scorching mid-day heat – but the others were never there.” She quit the group. “I didn’t want to be answerable for women who are unwilling to keep their word. And there were no other four neighbours whom I would trust.”

Those asking for a microcredit have to show initiative, come up with a business project and show perseverance. Norberto Kleiman, president of the Grameen Foundation of Buenos Aires says: “The Fundación León has been operating since 2007. It is normal that after such a short time, the poorest haven’t been reached yet. Many say: ‘This won’t do for me. I can’t make it.’ But once they see that their neighbours, in a similar situation, can make it – they will have the courage themselves. In the long run, we believe in the imitational effect.”

Enhanced quality of life

Surveys carried out by the author have shown that credit-using women in Tucumán have a monthly plus of 400 Pesos (roughly € 73) due to the foundation or expansion of their microbusiness. Some invest the money in the expansion of their stock. “I now sell more because I have ­more,” says Ana. “People come, knowing that they’ll find what they are looking for.” The microcredit has launched a positive cycle and it provides material securities.

To these women, having their own money and the freedom to decide what to do with it means an increase in the quality of life. “My husband has different priorities. So I save my own money and buy what I like to. Once in a while, I can afford perfume and put on some make-up,” says Ana. “Maybe it’s just small things, but they make me feel better.” For the first ­time, Ana is financially independent of her husband. This apparently increases her self-confidence. “But I’ve also learned not to waste the money. I value what I ­have worked hard for. Most of the money goes into new stock.” And Soledad adds: “I can now support my husband. Financial decisions are taken on equal terms; this has changed our relationship. And because I feel much better altogether, the family situation is now much more relaxed.”

Veronica’s life has changed by selling empanadas. “Now, all of my neighbours know who I am. I used to be very suspicious. But now I go outside, chat with people and sell my merchandise. I am much more communicative.” This creates new opportunities of exchange or the pursuit of common interests. Soledad (Spanish for solitude) and her comrades aren’t ­lonesome any more. But most of all, they have realised that poverty is not a given characteristic – and it can be abandoned. This is the most important step on the way out of poverty.

Soledad knows: “It wasn’t a big credit, but it was surely great for us.”