International aid experts are increasingly promoting microcredits -- small loans to self-employed individuals -- as a form of development aid for countries ranging from Latin America to Central Asia. The U.S. Agency for International Development spends $155 million per year on microfinancing programs and is drawing attention to them on the sidelines of the UN conference on financing for development being held in Monterrey, Mexico. RFE/RL's Robert McMahon visited a neighborhood of Monterrey where these small loans have started to make a difference.
Monterrey, Mexico; 21 March 2002 (RFE/RL) -- It is easy to look past the neighborhood of Las Sabinitas as one drives to the outskirts of the Mexican city of Monterrey.
Rows of dusty cinderblock houses crowd against one another. Scraps of wood and tin provide makeshift roofs. Filthy dogs lie about or mingle with crowds of children.
But a closer look reveals signs of promise. In the past three years, roads have been paved through Las Sabinitas. There is new electricity. Many of the residents, especially the numerous children, appear healthy.
Las Sabinitas is one of a growing number of poor communities in Mexico targeted for microfinancing, in which poor entrepreneurs are given small loans to move from subsistence-level employment to owners of growing businesses. Through a combination of aid from international, national, and nongovernmental groups, residents of this neighborhood have begun to make gains.
Worldwide there are an estimated 25 million microenterprises, including a growing network in Central Asia. They are among the lesser-known sectors of development aid, which is under discussion this week at the UN Conference on Financing for Development in Monterrey.
Original loans start as low as $100 and increase as businesses grow, providing borrowers with good credit records and the chance to lift themselves out of poverty.
For Maria Ramona Moyeda and Jose Guadalupe Acosta, microloans have helped them change from street vending to owning the main grocery store in Las Sabinitas. The husband-and-wife team received their first loan -- of about $150 -- from a Mexican nongovernmental organization known as ADMIC.
Three years and 12 loans later, the couple has a well-stocked grocery store adjoining their house and revenues of as much as $300 a day. Acosta tells RFE/RL he expects the business to grow further.
"We would greatly encourage (people to do this) because when we started no one would even loan us 50 pesos ($5) and we would encourage people who have a productive activity to go ahead and get close to ADMIC and try out their program."
The couple used their loan money to purchase washing machines, which they rent and have invested in a video game machine. Now they extend credit themselves to neighbors unable to afford groceries between paychecks.
Aid experts say entrepreneurs like Moyeda and Acosta typify the success stories they have seen in such small-loan programs. Though lacking in resources, such borrowers usually show creativity in building small businesses, whether providing a service, running a shop, or manufacturing goods.
The loan repayment rate for such programs in Mexico ranges from 95 to 98 percent, similar to figures for microcredit programs elsewhere in the world.
In Mexico, 80 percent of the microfinance clients are women. Women lag far behind men economically in most of the developing world but have excelled in small-loan programs. Moyeda says she's convinced women can profit from these programs.
"It's very productive because in the past nobody would loan anything. We went to the banks but they would not give loans. If you don't have money, nobody will loan it to you, but through ADMIC this is possible. They give you a loan and you make the kind of business you decide. [This system works] particularly well for women."
Down the street from Moyeda's grocery lives Manuel Sandoval, who supports his family by collecting and recycling trash. Starting with an initial loan of $80 from ADMIC three years ago, he has built up a collecting team of three horses and carts.
With his increased income, Sandoval is able to support his wife and gradually improve conditions for their six children and eight grandchildren. The grandchildren attend school. Sandoval is preparing to purchase the land his cinder-block home rests on.
Sandoval says trash hauling is hard work, but through the small-loan program, has become a reliable way to pay the bills. "It's work for me. It's hard to handle every day. It's just for living."
The borrowers in Las Sabinitas are among 5,000 people receiving support from ADMIC, says Jose Benito Cabello, the organization's general manager. He said it plans to increase lending to 25,000 clients in the next three years, working closely with a U.S. NGO known as ACCION and receiving funding from the Mexican government and the U.S. Agency for International Development.
Cabello says the rare incidence of loan defaults shows that a little trust by a lender can go a long way in poor areas.
"We feel that this is a something natural in the market. People have the expectation of help and once you open the door for them and leave them the opportunity, they will want to leave the door open. They will pay back because they want to continue growing."
The administrator of the U.S. Agency for International Development, Andrew Natsios, tells RFE/RL he has repeatedly seen the success of microfinancing programs in his career in government and with the nongovernmental organization, World Vision U.S. He says such programs have an effect on the way people view themselves and their communities.
"One of the most important, unanticipated side effects of microfinance programs is the change of people's values. Their world view changes, their cooperation with each other changes, their willingness to work with each other, their understanding of financial systems and all that."
Natsios says this change is the basis for the creation of a middle class in countries where none exists. He says the lack of a stable middle class throughout Latin America has contributed to the region's political volatility.
Small credit programs -- to which USAID provides $155 million worldwide annually -- help to establish this middle class, Natsios says:
"These kinds of programs help create the value system to allow, generationally, people to move up into the middle class, and that stabilizes the whole society economically and politically."
In addition to USAID, individual U.S. government missions, other governments, and UN agencies provide microcredit financing. The UN's 1995 world conference on women in Beijing launched a campaign to help 100 million of the world's poorest families by giving them small loans.