The Social Side of Microfinance

Griselda Campos, Mario Olivar and Darwin Herrera are members of a microfinance borrower group in León, Nicaragua. They are on their third loan cycle from Fondo de Desarrollo Local (FDL), a well-known microfinance institution in Nicaragua that focuses largely on the rural agricultural market.

But loans are just one piece of what the God’s Assembly members have received from FDL. FDL also provides technical assistance to each borrower that’s highly specific to his or her loan package. For example, Mario learned how to butcher and package meat for customers. Griselda, who used her loan money to purchase pigs, learned how to care for and feed her animals. And because their loans are part of a special subsidized portfolio for FDL’s poorer clients, they’re paying back the loans at a lower-than-normal interest rate.

Pro Mujer is another microfinance institution (MFI) that offers a powerful combination of financial and non-financial services to help micro-entrepreneurs succeed over the long haul. Pro Mujer in Nicaragua, for example, like the other four branches of Pro Mujer, focuses on very poor women and offers health services and education to all their clients, as well as business training.

In the last five years, 700 out of 9,000 Pro Mujer in Nicaragua clients who have had a Pap examination at a subsidized Pro Mujer clinic were found to have pre-malignant tumors that were treated. Since joining Pro Mujer, more than 95 percent of clients have had a Pap exam, whereas only 36 percent of clients had an exam before joining.

FDL and Pro Mujer in Nicaragua are both partners of Seattle-based nonprofit Global Partnerships, which means that we invest capital and management expertise in their programs. They are examples of what we call “social enterprise” MFIs, microfinance institutions that offer services beyond microcredit aimed at helping clients improve not just their livelihoods, but their lives. GP’s field team conducts exhaustive due diligence screening to identify such partners, who combine both a sustainable business model and an emphasis on social impact.

Evidence suggests that our emphasis on partnering with MFIs that offer services beyond microcredit is growing in importance. A recent survey by Microfinance Insights, for example, found that 85 percent of MFIs and 61 percent of microfinance investors believe that MFIs should “aim for wider social development beyond financial inclusion.”

As Rick Beckett, Global Partnerships’ CEO, notes, “It’s a virtuous circle. By offering non-financial services to clients that help them succeed in business and life, MFIs are both helping the client and helping themselves.”

After all, a client who has received technical assistance for a milk-cow venture, or received a training that encourages healthier choices, is a client much more likely to pay back a loan and take out a new one—and to ensure a brighter future for her family.

Excerpted from a recent GP newsletter article. Read the entire newsletter article here.

See a photo album of FDL clients on GP’s Facebook page.