Microcredit in Action: Panama
In January I had the privilege of visiting with one of the micro-credit lenders that Natural Investments clients help to fund. We had a trip planned to Panama, so I decided to take the opportunity to meet with PROCAJA, the on-the-ground lending agency that chooses recipients for small loans funded through Envest Microfinance which some of our clients are invested in.
I met the PROCAJA team in the small town of Ocu. The people at the branch were very gracious as they got us up to speed on how they are structured and the types of clients they serve. As with most Envest-funded programs, loans are generally under $1000 and are targeted to individuals who are starting or growing a small business.
Also in keeping with other micro-credit programs, they’re very successful in getting these loans repaid. Unlike many banks, they use a very hands-on approach. In addition to the standard visit with the person requesting the loan, to assess their current business and their plans, the recipients needs to get neighbors to vouch for them; this creates a natural community of support and accountability. After the loan is made, regular follow up visits track how things are going and identify ways to improve. All this ongoing support, including financial training if needed, leads to the failure rate being much lower then at most banks, which often provide no follow up or support.
After this overview at the branch of office we went to visit four people who are currently using microcredit loans to build nancial stability.
First, we visited Artesanías Ocueñas, a woman-owned boutique specializing in traditional clothing, which is incredibly beautiful. Over the years the business has expanded, using the co-op model, and there are now seven women employed here making clothes! They’ve built up quite a book of business from repeat customers, which is always a good thing.
The second visit was with a young man who makes wooden furniture. He used his loan to buy a new saw, which increased the quality of his furniture, while greatly reducing the time it takes to make. His local customers are getting fantastic value, as it was clear to us that the quality was far better then most furniture we buy here in the U.S. He only begins a project when someone contracts with him for a piece, which means he doesn’t have to pay for storage or have leftover inventory sitting around. A very efficiently run business!
Our third stop was with a small farmer who used his loan to buy an old tractor so he can expand his crop production; he’s currently hard at work prepping it for next season. We were very impressed by the large crop of quite gigantic ñamés that was ready for sale (yam-like root veggies). He also has pigs and chickens on his land to diversify his income stream.
The fourth visit was to an individual who grows yucca on land he leases. However, the loan he received was used to buy a school bus. In between his farming responsibilities, this entrepreneur drives people to the university about forty-five minutes away to supplement his family’s income. I particularly enjoyed this visit because not only was he was able to grow a side business to support his family but he was also making it easier for people in the village to access higher educational opportunities. That sounds like a win-win to me!
It is remarkable to see how much improvement can happen from these relatively small loans. The bulk of the loans are under $1,000 and are transformative for the individuals who get them. We’re proud to work with Envest on projects like this and thrilled we can help our clients receive such a hearty social return in addition to the modest but very fair financial returns that these loans provide. Using some of your conservative asset allocation in these ways—rather than in CDs, Treasury Bonds, or other “safe” holdings—is among the most rewarding aspects of a values-based approach to investing.
This article first appeared in the Spring 2017 edition of the Natural Investment News