Program Coverage: Now twelve years old, FINCA presently works in 14 countries globally, assigning 70,000 borrowers-95% of them women-organized in 2,900 village banks. FINCA's current loan portfolio is about US$ 7 million; the average loan being $101 per borrower; the average repayment rate is 95%. Even more remarkable, FINCA's 70,000 current borrowers have also accumulated over $3.5 million in savings. Furthermore, FINCA has also taught its village banking methodology to over 40 other nonprofit organizations, who themselves now operate over 80 village banking programs in 32 countries.
Methodology: A village bank is a support group whose membership averages 25 low-income mothers. The group meets once a week in the home of one of its members to obtain three essential services: (1) working capital loans for self-employment (2) a safe place to accumulate savings, and (3) motivation for personal and group empowerment.
FINCA's strategy is quite simple. There is no more powerful energy in the world than a mother's love for her children. And for a low-income mother, lifting her family out of poverty becomes her highest aspiration. But to do this she needs additional income generated from self-employment. To be viably self-employed, she needs access to loans to build the working capital to expand her business. If a mother can earn an additional $3-5 per day from self-employment, this will be enough to double her current food expenditures. The resulting improvement in food availability for her family will virtually close the nutritional gap, thereby preventing chronic malnutrition. Then, as family nutrition stabilizes, the mother's net income can be increasingly directed to other necessities--like payment of school fees, purchase of medicines, and the financing of modest home improvements.
FINCA village banks are targeted to serve the very poor--those living not only below the poverty line, but in the lowest 50% of that population, which is precisely those families surviving on a per capita income of less than about $1.25 per day in most third world settings. And of this group, FINCA lends almost exclusively to female heads of household, precisely because they carry the greatest child-support responsibilities. Also like most other microcredit programs, village banks promote individual loans which are backed by moral collateral, or the collective guarantee of the other members: if one member fails to pay, the others are responsible for covering her debt.
Local Participation: Aside from its success in reaching the very poor, FINCA village banking has been uniquely effective in three different areas. The first is its eminently democratic and participatory structure. Village bankers select and monitor their own members, they elect their own leaders, they create and amend their own bylaws, they keep their own books, they disburse, collect, and deposit all funds, they supervise loan repayment and meeting attendance, they keep surplus funds in their own commercial bank account, and they reinvest their own savings in additional loans to their members.
Savings Mobilization: Because village bank members and borrowers are legitimate stake-holders and managers of their own credit system, this leads to a second unique strength of FINCA village banking: namely, its ability to mobilize large amounts of member savings. The methodology provides a linked credit-savings system: the more a member saves, the more she can borrow. And the more she saves, the greater is her participation in the distribution of profits from her bank's relending of savings. So even though a borrower's average loan from FINCA may be $101, she may be borrowing another $50 or more from her group's savings fund. Furthermore, it was mentioned earlier that FINCA village bankers have mobilized $3.5 million in accumulated savings, which represents about 55% of the value of their borrowing from FINCA. However, this does not include the savings of tens of thousands of ex-members who have already graduated from their respective village banks to depend on their own savings. For example, recent research on our El Salvador program indicates that the departing FINCA borrower graduates from her village bank with an average $255 in accumulated savings.
Management & Governance: A final strength of FINCA village banking is its tight program accountability, management, and governance. In every country where it works, FINCA creates a local nonprofit entity, legally recognized under local law, to supervise program operations. Such affiliates now exist in Peru, Ecuador, Costa Rica, Nicaragua, Honduras, El Salvador, Guatemala, Mexico, Haiti, Dominican Republic, Uganda, Malawi, Krygryzstan, and the US. Over the next two years additional affiliates will be created in Tanzania, Armenia, Azerbaijan, and ex-Soviet Georgia. Six of these affiliates are self-sufficient, already able to cover their own operating costs with interest income and now ready to further their expansion, not with grants, but with funds borrowed from local commercial banks. By the year 2005, FINCA expects to extend this management infrastructure into 35 countries, with program outreach to 40,000 village banks and 1,000,000 borrowers. By that time at least 20 of these country programs will have achieved self-sufficiency.
Founder/Director of Research
FINCA International , Inc.