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02 September 2008
Microloans Enable Many Bolivians to Become Entrepreneurs

Microfinance is fastest-growing business in South America’s poorest country

By Phillip Kurata
Staff Writer

Washington — Bolivia, the poorest country in South America, has devised a system of microfinance lending that offers poor, often illiterate people the chance to become self-sustaining entrepreneurs.

One such entrepreneur is Flora Callisaya, a 38-year-old single mother of three boys aged 12, 14, and 18. The mother and her boys used to live with Callisaya’s parents as she struggled to support her family. She received her first loan of $17 from the Pro Mujer microfinance institution (MFI), which requires its members to participate in a savings program.

Callisaya used her initial loan to buy materials for a printing business. From that modest beginning, she expanded her enterprise to include a photography studio and dishware and gift boxes that she sells in the market. Her loan now is $1,122.

Thanks to Pro Mujer’s mandatory savings program, Callisaya has bought her own land and a house. She has served as president of the communal bank that the MFI helped organize.

“Pro Mujer is like school for us. Here we can see each other, have fun, relax and learn. For us Pro Mujer is a place we can be together,” Callisaya said, according to the Pro Mujer Web site.

Inter-American Development Bank seed financing has played an important role in the Bolivian and similar microfinance systems throughout the region.

“Microfinance lending is the fastest growing and most profitable sector of the Bolivian economy for the past quarter century,” said Sandra Darville of IDB. “Loan repayment rate is very high. If they want another loan, they have to repay the first one.”

Bolivia seized and redistributed land, nationalized mines and natural gas reserves and imposed exchange rate and price controls from the 1950s to the 1980s with the aim of spurring economic growth, but to little avail.

Then, in the 1980s, Bolivia reversed course and embraced market-based reforms — lifting price controls, encouraging foreign trade, selling off state enterprises and closing unprofitable mines. Those measures stabilized the economy but did not induce economic growth. Poverty remained high, and the rural poor migrated to the cities in search of better economic prospects. Witness the growth of El Alto, a city near the capital, La Paz, from a population of 100,000 to more than 1 million over 15 years.

On the streets of El Alto, as well as other Bolivian cities, vendors sell fruits, vegetables, televisions, refrigerators and clothing. These street businesses are part of the “informal” economy, which provides the livelihood for more than 60 percent of the population.

To enable laid-off miners, landless peasants and others of the impoverished underclass to support themselves, donor countries, charities and the Bolivian government developed ways of identifying prospective entrepreneurs and loaning them small sums of money to launch businesses. Thus was born the microfinance industry, and the collapse of the myth that poor, illiterate people were poor credit risks. The default rate on microloans is less than 5 percent.

About 1 million Bolivians have taken out microloans from about 20 MFIs. Throughout the Latin America and Caribbean region, about 8 million people have taken out microloans, amounting to about $9 billion.

The 2004 Special Summit of the Americas affirmed its support for IDB lending through the banking system to micro-, small-, and medium-sized enterprises. A summit statement praised IDB for “striving to benefit all of the countries that participate in the Summit of the Americas process.”

Referring to Bolivian microloan recipients, the IDB’s Sergio Navajas said, “These people are very, very poor, but they have viable businesses. The key to microfinance is having methodology that distinguishes legitimate business people from would-be beggars.”

“MFIs are part of the financial system,” Darville said. “Certainly, they are sustainable. They have grown, taking deposits, offering checking accounts. Some issue bonds and shares. Increasingly, they are part of the domestic and international capital markets. [Credit rating company] Standard and Poor’s has begun rating them for their credit risk.”

The microfinance lenders form close ties with borrowers, getting to know them and their communities. Often loans are extended to groups, creating “moral collateral” in the absence of material assets. If one person defaults on a loan, then the other members of the group are responsible for repayment. The social network minimizes the default rate.

The interest rates on microloans in Bolivia have fallen from around 60 percent a year in the 1990s to 19 percent now, according to Navajas. As business people have seen that microfinance is a viable service industry, competition has grown and lowered the cost of borrowing, he said.

Most of the microloan recipients are women — by coincidence rather than design, according to Darville, although some MFIs deal exclusively with women. The reason that women constitute the majority of the borrowers is that most microfinance loans go for retail businesses, such as small grocery stores, bakeries, handicrafts, restaurants and market stalls, where women predominate.

Tokyo, Japan, Apr 21, 2008 – (JCN Newswire) – J-Seed Ventures Inc. is pleased to announce the successful completion of a JPY 80 million round of financing in maneo Inc., the pioneer in social lending in Japan. The round was led by J-Seed Ventures and Yasuda Enterprise Development Co., Ltd. J-Seed Ventures also led the company’s first round of financing in April 2007.

maneo expects to be the first company to successfully introduce a social lending market in Japan. The company’s corporate website was launched in March 2008 and the company expects to launch its service this summer.

“We’re excited about launching Japan’s first social lending market,” said Tadatoshi Senoo, CEO and co-founder of maneo. “It’s very simple. By cutting out the banks and consumer finance companies, borrowers get lower rates and lenders get higher ones. We are delighted to find in J-Seed Ventures and Yasuda Enterprise Development partners which share our passion for improving the personal financial lives of people all over Japan.”

“Social lending embraces the trends that are defining the current times and we expect it to provide an important alternative to traditional bank lending and consumer financing,” said C. Jeffrey Char, Representative Director of J-Seed Ventures. “We are excited about the company’s ability to help people achieve their financials goals and improve their quality of life.”

About maneo Inc.

maneo Inc. plans to offer a user friendly and highly secure online community for people to borrow and lend money through an online auction system. maneo is about helping people lend and borrow money with each other, sidestepping the expense and inconvenience of traditional banks and consumer finance companies. People who want to borrow money register with maneo and create loan listings. Potential lenders register with maneo and bid on the loan listings they are interested in. maneo aggregates the bids with the lowest rates to fund the relevent loans and handles all of the administrative matters relating to the loans. For more information about maneo, visit http://www.maneo.jp/ .

About J-Seed Ventures Inc.

J-Seed is a Tokyo-based venture incubator and provider of management and technology consulting services. The Company maintains a close relationship with its various group companies and leverages its network to assist ventures to quickly attain profitability. The Company also assists foreign clients in establishing operations in Japan. For more information about J-Seed Ventures, visit: http://www.j-seed.com .

Contact:

J-Seed Ventures Inc.
Tel: +81-3-3580-1256
e-mail: info@j-seed.com
URL: http://www.j-seed.com/