Sustainability in Microfinance: Canadian and Bolivian Models

The objective of this workshop was to undertake a comparison between a Canadian mircrofinance organization, ACEM and 3 Bolivian ones with a special focus on strategies used to pursue the sustainability of initiatives.

Panellists: Anne Keitenbeil, Director, ACEM (Montreal Community Credit Association)
Gerardo Mendieta, Director, ANED (National Ecumenical Development Association) Gustavo Diez de Median, Director, Foncresol (Solidarity Credit Fund)
Maria-Renee Bejarano, Director, Pro-Rural, venture capital for micro enterprise
Total Attendance: 28

ACEM is one of Montreal’s oldest community credit associations. For more than 20 years, it has been providing small loans for micro enterprise to Montreal’s poorest. Interest is charged in order to be able to grow the fund and extend credit to more people, but it never goes to cover salaries of staff or operational costs, which are covered by government subsidies. ACEM’s funds come from all local sources and the projects which its beneficiaries undertake with the loans must be of benefit to the community as well. ACEM considers its objectives to be primarily social rather than economic and small business development is seen as a means, rather than an end in itself. As only the poorest and most ‘risky’ individuals from the point of view of a financial institution can apply for funding, ACEM refuses to undertake risk analysis of their loans portfolios. Despite this, they have enjoyed high repayment rates and substantial social impacts from their loans.
Mr. de Medina takes up the financial context into which microfinance in Bolivia fits. A series of
graphs indicate that in Bolivia, mainstream banks have begun to enter into the realm of microfinance. This is in response to the discovery that default rates among the poor are low and that microcredit especially, is profitable. The problem with this, according to Mr. de Medina is that the profit that is being made is being extracted through exorbitant interest rates. Thus the financial sustainability of what are considered the world’s most efficient microfinance institutions are achieved at considerable social costs. Mexico’s MFIs for example have been lauded as the
world’s most efficient, yet some of their interest rates reach as high as 46% annually.
With over $12 million in active capital, ANED is likely the largest of the institutions profiled. Its fund comes from an ecumenical foundation based in Geneva and from government loans given at
low interest rates. Sustainability is key in ANED’s work. In the first place this means an institutional sustainability. It has achieved this through being efficient in controlling its administrative costs. But it has not been led to abandon its social mission in pursuit of financial viability. Its detailed risk assessment has not led it to become risk-averse. It also employs an approach which allows it to transfer gains from most profitable areas to subsidize losing ones, thus being able to extend subsidized services without incurring losses. In addition, sustainability refers to the complimentary services such as insurance, technical support and savings instrument which it offers to borrowers.
Pro-Rural’s focus is comprehensive rural development. It builds partnerships with governments, NGOs and funders to help develop the entire supply chain of a given industry. It seeks to generate capital for business, not primarily through loans, or the purveyance of seed capital, but by essentially functioning as a venture capitalist firm in buying up shares of a company. As pro- rural is not interested in controlling the company however, it never purchases more than 49% of shares, and only seeks to hold them for a short time until the owners of the company can buy them back. Any profits generated in the meantime are distributed according to the shares. Pro- rural provides very little seed capital which the beneficiaries must meet with a similar contribution of their own money. This kind of loan is targeted to addressing specific bottlenecks in production which an enterprise may have. Pro-rural follows a market logic and investments must be profitable.