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Los Niños and Micro-Credit: Small Loans for Big Dreams Maria's Story As a single mother living in the chaotic and rapidly expanding city of Tijuana, Mexico, Maria de Jesus Rodriguez struggles with providing a good life for herself and her family. Through the help of the Los Niños Nutri-Ecology classes and micro-credit loan program, however, Maria’s struggles are slowly turning into success stories and she now has the hope of a bright future. While the Nutri-Ecology class taught Maria basic nutrition theory, how to cook with cheaper and healthier ingredients, and how to plant a sustainable organic garden, the micro-credit program is taking these newly acquired self-sufficiency skills to the next level. As Maria previously learned how to save money by substituting soy for expensive beef, growing her own produce, etc., the Los Niños micro-loan she is receiving not only helps her save more money, it enables her to expand her family business and gain a larger profit. Having been a secretary in various government buildings throughout Tijuana for many years, Maria was struck with breast cancer in 1999. The disease robbed her of her position in the public ministry building and forced her to find other avenues of income while battling the disease. Together with her son, Maria turned her weekend hobby of costume-making into a small, informal business venture. When she entered the Los Niños micro-credit program three years ago, she began investing her new loan money in costume materials and kitchen wares. Now, she and her son continue to make traditional Mexican dresses and suits which they rent out to schools and dance groups. Maria also designs and bakes gourmet-style cakes for quinceañera parties, bridal showers, and other events. In addition, she has invested some of her loan money in an elegant white wicker chair which she rents out for parties and photographs. These business ventures have been very successful, shown through Maria’s excited demonstrations of photo books filled with pictures of cakes she has sold and costumes she continues to rent. Her income has risen exponentially and she takes solace in the support she receives from Los Niños and her fellow group members. Instead of turning to a low-paying job in a foreign-owned factory (which is common in the region), Maria has chosen to be her own boss and learn the skills necessary to run her own business. She is, however, only one of the many Los Niños success stories and is an example of what it means to be a strong and self-sufficient woman here in the border region. Micro-Credit Beginnings Microfinance institutions (MFIs) were born out of need. According to PBS, 50-70% of the labor force in developing countries is comprised of the self-employed poor. Though the majority of the labor force in these cases, fewer than 2.5% of these people worldwide are able to obtain loans from banks or other commercial financial institutions to augment their small businesses. Many of these people help make up the 1.3 billion people world-wide living in “absolute poverty,” defined as life on less than $1 dollar per day. Those living in dire poverty without access to commercial loans have been the focus of microfinance institutions since their beginnings. Starting in the 1970s as an alternative to commercial bank loans, micro-credit loans have been given to more than 80 million poor people in developing countries around the world. Most MFIs give individuals small loans ranging from $100-$500 over an established time period. This money is then invested in small business ventures run by these individuals. The loans are paid back in small increments throughout the allotted time period, keeping a consistently low interest rate. As is the case with large commercial banks, the minimal interest rate collected on these small loans does not surpass transaction costs, thus making these loans unattractive to commercial banks. As a result, micro-loans are seen as a viable and welcome alternative. Out of the 1.3 billion people living in dire poverty, 70% are women. Ironically, however, research done by Women’s World Banking in India reveals that only 42% of income earned by men goes back into the household economy whereas women give 92% of their income to the household economy. With this information, it is glaringly obvious that poor women are an untapped resource when it comes to the financial well-being of their families. They are the poorest yet have the most potential to help their families, and, as an indirect consequence, their communities as well. Based on this type of information, most MFIs increasingly specify their focus from that of people living in “absolute poverty” to women living in “absolute poverty.” MFIs commonly bring these women together in a group setting. Usually neighbors or friends, the women encourage each other as well as hold each other responsible for their individual portion of the loan and interest owed. Through accountability measures, most MFIs have found loan repayment to be 95-100% successful – better than that of most commercial banks. Once the loan money is invested in a small business, the interest paid on the loan makes it possible for future loans to be even larger. As a result, the more micro-loan money invested in a project or business over time, the more successful the business becomes. Self-esteem, business skills, and money management skills are consequentially improved as well. These mutually symbiotic processes slowly enable women to sustainably lift themselves and their families out of “absolute poverty” while setting a new standard for gender equality. Los Niños and Micro-Credit: The Beginnings
Using four month loan cycles, the loans are given in the beginning and are to be fully repaid by the cycle end date. Though loans cannot exceed $250 per person during the first four month cycle, if an individual is successful in paying this back, they can request a loan valuing upwards of $500 for each continuing cycle. Each loan is paid back in increments at the group’s bi-weekly meetings, adding 15% interest to the original amount. In order for the group to be eligible for a second cycle loan, the total group credit plus interest must be paid on time with no more than 5% of the payments being irregular. If a single individual does not fully pay back their loan or has more than three irregular payments within the four months, they are ineligible for further loans. Thus, it is to both the individual and group advantage that the loans be repaid fully and punctually. The Unique Border Region An undeniably large factor in the lives of Tijuana and Mexicali inhabitants is the close proximity of the U.S.-Mexico border. A love-hate relationship with the border is undeniable in these regions, especially in the lives of the micro-credit participants. For reasons such as trade agreements, business monopolies, and transportation costs, border area grocery prices are impossibly expensive on a poor Mexican’s salary. Prices comparable to those in the U.S. make even a gallon of milk sometimes unattainable, let alone gasoline to arrive at a job site. For micro-credit participants with a passport, however, the border can be the gateway to additional business profits.
While many participants sell miscellaneous items such as toiletries, cosmetics, clothing, and holidays trinkets, buying bulk products in the U.S. many times proves much cheaper than buying the same goods in Mexico. “Dollar stores” and wholesale warehouses in Chula Vista, CA and Calexico, CA make it easy for participants to buy cheap products and/or raw materials and sell them for double the price in Mexico. Thus, as life on the border region is expensive considering local salaries, many micro-credit participants take advantage of the proximity of the U.S. to increase profit and arm themselves against these expenses. Empowering and Teaching Women through the Micro-Loan Experience While entrusted with the loans, the group is supervised from both the inside and outside so as to reach its maximum potential. Both Los Niños as well as the group members themselves provide encouragement, support, and supervision. Tere Hernandez, the Los Niños micro-credit co-coordinator, attends the bi-weekly meetings and collects the money while the group as a whole has the responsibility of organizing itself and regulating payments. With an average of 2 to 3 groups per cycle in both Tijuana and Mexicali, each group has a democratically-elected president, treasurer, and secretary. Group members also have the power to decide who may enter the group and the ability of individual members to pay for their requested loans. This group mentality and organization adds an increased sense of assurance that loans will be paid on time. In addition to this system, all group members are required to pay a “membership fee” at every bi-weekly meeting. Kept by the treasurer, these fees (minimum of $1 per person) form a type of group savings account. This account also acts as a sort of “safety net” if one member of the group has difficulties repaying their loan. Under this circumstance, the member may borrow “membership fee” money to pay back the portion of the loan they lack. Group members keep watch over this participant, requiring that they reinstate the membership fee money with a small amount of interest. At the end of a year period, the membership fees not utilized are returned to the participants. Thus, while providing the participants with a “safety net” of money in case a participant falters in their payments, the membership fee requirement also teaches the women to save some of their earnings. The learned skill of “saving money” is but one of many things the participants gain from their association with the Los Niños micro-credit program. Many of these women have never before had jobs. Through the organized group setting, they learn professionalism, accountability, and how to work with others. On her bi-weekly visits to the groups, Tere also gives short lessons on accounting, small business maintenance, and stresses the importance of organization in respect to business records. Each woman is asked to hand Tere receipts of the things on which they spent their loans, forcing organization as well as making it possible for the women to calculate their net gains in the end. With these new organizational skills, the women are further prepared to run their small businesses and groups as well as keep track of family and home costs more accurately. Norma, a 38 year old Tijuana participant, has learned smart investing skills, diversifying the items in which she invests so as avoid dependence on only a few products. She mentions that she is also very happy with her new ability to extract more profit from the miscellaneous products she sells. Dona Celia, a 62 year old Tijuana participant, now keeps a book with the costs and gains of her small tourist kiosk. When asked about the growth in profits of her small business, she beams, mentioning, “I’m very content. I’m so much more relaxed knowing we’re more economically stable.” As these skills are honed and practiced, the group as a whole becomes stronger and its actions more fluid. Thus, while both Los Niños and the participants themselves have a hand in group activities and procedures, participants gain outside knowledge as well as unlock abilities they never knew they had. Personal Development On a more personal front, participation in the program provides a forum for friendship and self-realization. Norma, for instance, is rarely able to leave her small store located on a busy street. The bi-weekly meetings provide her with a social setting as the trust and financial support between herself and group members add an extra level to their friendships. In addition to friendships, watching their businesses grow and prosper as a result of their own hard work builds participants’ self-esteem immensely. Many of the participants have never finished elementary or middle school, thus large-scale feelings of achievement may be very new to them. Achievement translates into peace of mind here on the border when the added source of income makes U.S.-priced groceries suddenly more affordable. Furthermore, having money to invest in products and seeing these investments turn into profits gives the participants hope of a sustainable and successful economic future.
Personal development does not just stop at new friendships and growing self-esteem, however. Class accounting and business workshops are sometimes supplemented by more philanthropic discussions. Through suggestions made by Los Niños and Tere, Norma and her group mates have had brainstorming sessions on “how to give to others.” Incorporating this idea into her business, Norma gives needy elderly people free adult diapers that she sells in her small store. She is also now more conscious of the needy, mentioning that she often gives some of her profits to elderly people outside her store to use for food. Though altruism is an inherent part of these women’s characters, its expression through business shows just how multi-faceted the success of the program can be. Los Niños’s Micro-Credit Success Although always looking to expand the micro-credit program, Los Niños counts both the participants’ personal and economic gains as testaments to its success. When the new and improved Los Niños micro-credit model began its first Tijuana cycle in January 2004, the net loan payback with interest totaled $1, 265. This has since grown to a total of $9,900 for loan cycle of February – May 2006. The situation in Mexicali mirrors this growth as the total repayments have grown from $2,530 to $8,970, proving the success of the program as well as the accountability of the chosen group participants. From the first loan given in January 2004 to the present, 146 loans have been given with a 100% payback success rate (91 loans in Tijuana, 55 in Mexicali). Numerous families have been affected by these 146 loans, whether the money is invested in cosmetics, toiletries, Mary Kay products, artisan products, food ingredients, or used clothing to sell. One of the most successful (and unusual) investments has even involved beehives and beekeeping equipment. Six Mexicali promotoras have periodically taken advantage of the loans to augment their continually growing beekeeping project, producing natural honey to sell as well as to give to children as a nutritious alternative to sugar. Due to these well-deserved successes, Los Niños is currently investigating other ways in which to improve the quality of its participants’ lives. It is now in the beginning stages of giving separate loans to participants to invest in things other than their businesses. These “family consumption” loans could be used for home improvements, education for participants’ children, and other things important to their individual well-being. These new loans would enrich the micro-credit program as well as give more back to its hard-working participants, furthering the program’s main objective of helping the area’s poor. Conclusion With its continued growth and success, Los Niños has positively affected a small fraction of the 80+ million receivers of micro-loans worldwide. Hundreds of millions of other potential loan receivers, however, go unattended to as a result of lack of capital for MFIs. Though they may have great programs, this dependence on capital through donations and grants leaves 99% of the world’s MFIs financially unstable (especially the smaller ones). It is one of Los Niños’s dreams to expand its micro-credit program to hundreds more women in both Tijuana and Mexicali. As hundreds of community members take the Nutri-Ecology courses each year, many of these participants are already waiting to form micro-credit groups and begin on the path to economic security and supplementation. As seen through its successful design and participant testimonials, the only thing keeping this dream from becoming a reality is access to additional capital. If you would like to donate to the Los Niños micro-credit fund and help community members expand their small businesses, please click here to make a donation. It is very much appreciated! |
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