PROPUESTAS DE TRABAJO PARA MANEJAR EL RIESGO PSICOSOCIAL

MFIs have been innovative in expanding the financial frontier to serve more poor clients. As a result, large numbers of poor borrowers now have access to formal financial services without the collateral normally required by banks. The latest estimate from the Micro-credit Summit indicates that nearly 2,200 microfinance institutions globally reach a little more than 80 million clients, of whom 54 million are considered among the world’s poorest (i.e., living on less than US$1 per day) (Daley, 2004).

Microfinance technology, without a doubt, has relaxed the constraints faced by the poor in accessing financial services due to collateral requirements, size and age of the firms, and gender. Since it is flexible, it can be adopted by diverse types of financial agents willing to serve the poor clientele. Microfinance can also be adapted to rural areas in some developing countries where rural poverty is more acute than urban poverty.

Many MFIs now exist to serve the rural poor. They use several methodologies such as individual and solidarity- group lending and village banking to provide services through a variety of agents including NGOs, non-bank finan- cial institutions, financieras, commercial banks, rural banks, village banks, and member-owned institutions. Village banks are more commonly found in rural Latin America than in rural areas of other parts of the world.11

The majority of MFIs, especially new and small ones, offer only microcredit. A typical microloan is small and made for a short term at interest rates higher than banks normally charge. The loans are often secured only by peer guarantees but some MFIs also accept as collateral household goods and other assets of high value to their clients. Loan payments are collected on a frequent basis to ensure close monitoring. Incentives are created for clients to maintain good repayment records by rewarding them with (almost automatic) repeat loans. For some lenders, the size of the first and repeat loans follows a pre-determined formula. These techniques are in sharp contrast with the old paradigm agricultural credit projects, which often made large, long-term loans based on collateral primarily to finance agriculture activities.

There are limitations, however, in the applicability of microcredit technologies for rural areas. First, they appear to be best suited to urban enterprises or rural non-farm households and firms with regular and frequent cash incomes such as found with dairy and poultry. They have yet to be rigorously tested with specialized farmers who have highly seasonal cash flows or for medium- and long-term lending.

Second, transaction costs for the financial institutions and their clients are likely to be higher in rural than in ur- ban areas. The clients are more dispersed so travel costs are higher for loan officers, and it is difficult for them to serve as many clients. Some MFIs reduce transaction costs through group lending, but this raises borrower transac-

11 _{A recent study at the IADB (Westley, 2004) shows that of the 176 of the largest and most sustainable MFIs in 17 Latin Ameri-} can countries, 47 are village banking institutions and several of them function in rural areas, including remote areas. The percent- age of clients residing in rural areas is higher for village banking institutions than for group or individual loan clients. In addition to this greater rural focus, the target clientele of most village banks are very poor microentrepreneurs, virtually all of them are women.

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tion costs. Moreover, peer pressure may not be as effective in sparsely populated areas where group members have less information about each other and where peer monitoring is more costly.

A third limitation in microlending is that, except for some urban locations, financial markets for the poor are highly segmented with each microlender usually serving only a small market niche. Like most informal lenders, small MFIs often serve only a local clientele because high information and transaction costs discourage competition and constrain them from rapidly expanding to serve new clients and regions. Being limited to local markets, they have concentrated portfolios with a large covariant risk.

Fourth, most MFIs have paid little attention to providing savings services, but a safe and secure place to deposit savings may be more important than credit for farm households that need to smooth consumption in the absence of insurance markets. Many MFIs obtain their resources from subsidized sources, have little experience in mobilizing savings, and conclude that the cost of mobilizing resources from clients is high by comparison. Almost all develop- ing countries restrict deposit mobilization by MFIs from the public since the majority of the MFIs are unregulated institutions (Gonzalez-Vega et al., 2003).

As a result of these factors, microfinance in most rural areas is limited despite its potential to serve rural clients. Rural areas that are not densely populated, or that are dependent on a few principal crops and livestock activities, have generally been avoided by MFIs because of higher transaction costs and risks. For example, MFIs that expand into rural areas in Latin America tend to serve only areas with diversified economies and clients with multiple sources of income. Examples include Caja Los Andes in Bolivia and Financiera Calpiá in El Salvador (Meyer and Buchenau, 2003).

Many lessons learned from urban-based microfinance are, however, considered relevant for rural and agricultural microfinance. It seems that several similarities exist between urban and rural microcredit technologies with respect to lending methodology, interest rates, and term structure. Some modifications in term structure and slight variations for microcredit in collateral requirements have often proven useful in accommodating rural clients (see Table 1 be- low). As a result, it is now shown that expanding microfinance into rural areas is possible.

Some innovative MFIs are leading the way in adapting their operations and products to expand viably into rural and agricultural lending. Indeed, in densely populated rural Asia, especially Bangladesh, MFIs have always been active but often limit their clients to those with enterprises with quick turnover and a limited number of standardized

products. There have been problems in developing appropriate products, so some MFIs are now attempting to de- velop and test flexible products for rural clients (Meyer, 2003; Wright, 2000).

In Latin America, by contrast, MFIs have tended to serve urban areas, but some innovative ones are now experi- menting with modifying their products to serve rural areas. This trend is also emerging in Africa, especially in Uganda. Donor support is now available to help existing MFIs with innovative outreach expand into rural areas and agricultural finance. For example, CGAP and IFAD make small grants through the Rural Pro-Poor Innovation Chal- lenge (RPPIC) awards. Since 2000, the program has recognized more than 25 MFIs around the world that are pilot- ing new products and services to reach the rural poor (for a listing, see www.cgap.org/projects/PPIC/ppic.html). Some MFIs in Latin America are now expanding in rural areas, primarily to find new clientele, reach scale, and compete. PRODEM in Bolivia is one of the largest providers of rural financial services. It researched the market and developed products with donor support, then adapted its range of financial products to better fit the needs of its cli- ents. A customized repayment scheme was introduced for small farmers, with different repayment schedules, even for members of the same solidarity group. For example, soybean farmers only repay the loan principal during peri- ods of income from the soy harvest. Individual agricultural loans have also been offered with collateral valued at 1.5 times the loan amount. PRODEM further minimizes risk by restricting final loan payments to a maximum of 60 per- cent of the loan amount, and by limiting each office’s portfolio to 30 percent in each economic sector (otherwise provisioning has to be increased appropriately). Money transfer, microleasing, and, later, savings products, were also offered. Agricultural lending now accounts for about one-fifth of PRODEM’s loan portfolio (Manndorff, 2004). Another MFI with good rural outreach in Latin America, Calpiá in El Salvador, has been successful largely as a result of its flexibility on timing, amount disbursed, and repayment schedules. With regular bimonthly, trimester, semester, annual, or even end-of-crop-cycle and irregular repayment schedules, loans are sufficiently flexible to be attractive and fit a range of agricultural activities. Calpiá’s agricultural lending product treats the farm household as a financial unit (which is typical for those MFIs that provide financing in rural areas) and bases lending decisions on overall repayment capacity (Buchenau 2003; Manndorff, 2004; Meyer and Buchenau, 2003).

In Asia, BASIX in India can be cited as an example of a MFI that provides credit, deposit and crop and livestock insurance in rural areas to farm and non-farm households. This MFI has successfully accessed commercial funds from within and outside the country to expand its rural outreach. It has also developed partnerships with existing institutions to provide insurance services.

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