Armando Huerta lives in San Jose, Costa Rica where he just completed one year managing Whole Planet Foundation’s Latin America and Caribbean portfolio.
So you’re participating in our Courage of One Challenge with The Hunger Games: Mockingjay – Part I and you want to learn more about poverty alleviation in South America?
How did you do on the quiz? Here’s more information on South America to help you understand how microcredit helps alleviate poverty.
According to the World Bank, over 51% of non-agriculture employment in South America comes from the informal sector. Of these jobs, 60% come from self-employment which includes:
- micro-enterprises (an employer + some employees)
- family businesses (an owner operator + unpaid family workers)
- own account operations (an individual owner operator) (1)
This is a direct result of several factors, including a lack of formal sector jobs, a lack of sufficient education required to access formal sector jobs and not being in a part of the country where formal sector jobs are readily available.
Microfinance is a useful tool for helping business owners in the informal sector by giving them access to credit usually reserved by the banks for workers and business owners involved in the formal sector of the economy. By relaxing the financial and legal requirements needed to access a loan, microfinance institutions provide micro-entrepreneurs sorely needed capital to help their businesses grow. These funds can be used to buy assets (a cart used by a fruit seller), inventory (the fruits in the cart) or working capital to cover the day-to-day expenses of running a business (storage fees for where the vendor leaves his/her cart at night).
Family members who take over the family’s business already begin with a deep understanding of how the business works, its costs and challenges. The same can be said for employees who decide to use a loan to strike out on their own using the knowledge they accumulated working for another micro entrepreneur. For clients using their loans for their first business or to start a business in a field they have had no previous experience in, the challenge can be more daunting. Many microfinance institutions in South America try to decrease that risk by providing training to their clients in order to make them more effective business owners. This not only helps increase the chances that their client’s business will succeed, but also minimizes the risk to the institution since a successful client is more able to pay back the loan that was given to them.
A Fundación Paraguaya field officer demonstrates a micro-franchise option, consisting of bottling and selling cleaning products, at a group meeting
The Whole Planet Foundation values and searches for partners that provide added value to their clients in addition to the loan capital. It is a strong signal that the institution is dedicated to their clients’ success and focused on helping them escape the grips of poverty. Our partner in Paraguay, the Fundación Paraguaya, is a prime example of a microfinance institution that utilizes various tools to help the micro entrepreneurs accessing their loans succeed. These include:
- Micro-Franchise (“business in a bag”) options such as jewelry making kits, kits for making baked goods and reading glasses sales kits for clients who need help establishing a business. These simple and low-cost starter businesses give clients the opportunity to quickly master a business without a large investment in time or money.
- Business Training for clients to help them learn business-enhancing skills such as cost accounting, inventory management and cash flow analysis. These skills are not only useful to new business owners but also useful for established micro entrepreneurs looking to increase their profitability and efficiency.
- Business and Marketing Plans to help clients envision and plan for the next stage of growth of their businesses. Credit agents will work with the Fundación Paraguaya clients to analyze growth opportunities in their business and draft financing and marketing strategies to achieve them.
A Fundación Paraguaya field officer conducts a client survey utilizing their tablet-based “semaforo” software.
A Fundación Paraguaya field officer conducts a client survey utilizing their tablet-based “semaforo” software.
Not only does Fundación Paraguaya provide the above, but it also uses their proprietary Semaforo (“Stoplight”) tool to track their clients’ progress out of poverty once their first loan begins. This insures that their efforts and the funds from the Whole Planet Foundation are being used is the most effective way possible.
Sources