Hacia un nuevo sistema financero rural

I spent the better part of the past three days at an international microfinance conference outside of Xela. Entitled “Hacia un nuevo sistema financiero rural” (Towards a new rural finance system), the conference hosted presenters from throughout Central and South America discussing challenges, opportunities and innovations to providing financial services in rural areas of Latin America. The organization I’m working with, the Union de Agricultores Minifundistas, was one of the sponsoring organizations of the conference, so I’ve been involved with some of the planning for the past two months (making menu suggestions, aiding with other logistics, but basically just watching other people do these things and realizing that my idea of a good mid-conference snack may not be the same as the average Guatemalan’s and it’s probably best to keep my mouth shut). I’ve been waiting for the conference and hoping that it will provide some more context and depth of understanding for the work I’m involved with at UAM.

Microfinance is one of UAM’s program areas, though not really the area I’ve most been involved with and a topic I have minimal experience with beyond case studies of the Grameen Bank I read in college and Muhammud Yunus’ autobiography I found in out apartment in Xela. UAM is in the process of reviewing all of their micro-finance policies, and through reading these documents and participating in a few meetings (and side conversations with another intern focusing on micro-finance) I have learned quite a bit. But what I’ve most learned is that rural micro-finance is damn hard.

The conference confirmed that, yes, micro-finance is incredibly tricky to implement in extremely poor rural areas, but did provide several strategies for success and examples of creative innovations that were quite inspiring. These included financial products that I had not traditional associated with micro-finance but that are an essential part of rural financial services-products such as affordable life insurance policies (an excellent example from Mexico), and access to savings accounts. Many countries have laws strictly forbidding micro-finance organizations from providing savings account services, so the obstacles to widening access to rural savings accounts are formidable. However, Brazil offers a really interesting example of an innovative approach to rural savings. In Brazil, tiny, rural tiendas have been granted status as banking institutions to host savings accounts for local residents and the number of rural residents with savings accounts has skyrocketed.

The importance of savings was emphasized throughout the conference as a means of promoting decreasing vulnerability of rural residents where micro-loans often have the opposite effect. While micro-loans can be incredibly helpful, they are always a risk and can create an ensuing sense of insecurity, especially when the loan has been used for agricultural production which is dependent on many factors beyond the borrowers control-including weather and international markets. Savings were also highlighted as a strategy to help make better use of remittances to help people in rural areas escape cycles of poverty. Without a place to put remittances, they are spent rapidly on home construction or other durable goods. While these are certainly essential investments, I seen first hand in Guatemala the construction of very elaborate houses in rural areas and wonder whether with better access to savings, people would construct the same kind of houses or would choose to construct something more economical and save the remaining funds to help avert potential future destabilizing events (family illness, bad weather, fall in prices etc.) When there’s no safe place to put the dollars, why not invest them in fancy construction materials?

The topic that seemed to be looming over the whole conference was the current world economic crisis. While so much media attention has been paid to job loss and recession in developed countries, little media attention has been directed to the impacts on people in developing countries, especially Central and South America. Central American economies rely heavily on remittances from family members working in the states to meet the needs of their citizens and particularly those form rural areas with fewer job opportunities. (By 2006, remittances were composing close to 10% of the Guatemalan GDP). With job loss in the US, particularly in industries heavily populated by immigrants such as construction, restaurants etc. remittances are definitely going to continue to decrease. Donations to organizations working in Latin America have decreased as well. (As an example, US-based Heifer International, a fabulous organization and one of UAM’s main partners, was forced to cut their Guatemala staff by 50% this year! In testament of the amazing dedication of their staff, all 7 employees who were laid off are working this entire year without pay to continue the level of work they had been doing previously).

While these are clearly all incredibly negative impacts of the economic crisis on rural development in Latin America, there was also a prevailing sense of hope amongst conference i in the potential long-term impacts of the crisis on the financial sector. What speaker after speaker continued to emphasize was the importance of confidence and relationships between micro-finance lenders and clients in creating a successful financial system. This kind of confidence, the accessibility and the direct relationships, the transparency and accountability inherent in these examples of rural micro-finance are in complete contrast to the financial system that created the current economic crisis—a financial system based on speculation and lack of regulation and transparency. While it may be a bit too early to be looking for silver linings to the economic crisis, there was hope amongst conference participants that the kind of financial system they are trying to create will not only gain legitimacy in the current climate, but may even serve as a model for reform of the world financial market. I must admit that my cynisim is a little bit too high to have much faith in the latter, but I do see alternative financial systems and micro-credit in particular gaining both respectability and prominence.