A Different (Credit) Culture

By Casey Cline, KF 15, Nicaragua

Leaving behind a developed country that is still trying to deal with the effects of its credit-obsessed culture, I was very interested in seeing first-hand what type of relationship with credit I would find in the developing world. Most would agree that Nicaragua has a recent history marked by political instability, and partially as a result, has an economy that has experienced years of slow (and often negative) growth. As might be expected, the presence of microfinance here is essential to the stagnant economy, providing small business owners much needed capital to survive and ultimately thrive.

As a Kiva Fellow working with a well-established field partner, Fundación Leon, the experiences I was looking forward to most were being out in the field, meeting with entrepreneur borrowers and hearing their stories. I was fortunate to do just that on a recent trip to Chinandega and then further north to the Honduran border town, Somotillo. In all, I met with six clients of Fundación Leon (these are the borrowers of the loans made through the Kiva website). I reached several of these borrowers by traveling across fields, through woods, and over small tributaries on the back of a motorcycle.

The first entrepreneur I met, Genara, used her loan to buy a new motor for her family’s fishing boat (which is more like a rowboat with a motor). I didn’t understand why she was at home and not at the market selling her husband’s catches. What I learned was that she recently had an operation and was not able to leave the house. Amazingly, in anticipation of not being able to work for much of the month, Genara made her monthly payment in advance (no easy feat, when you’re earning barely enough to meet your daily living expenses).

Another Fundación Leon client, Evert, is one of the minority of men to whom this Kiva field partner lends. He is a young husband and father of a two-year old boy. Evert’s house was little more than a one-room cement structure with a small backyard of packed dirt. When I first arrived, he was out selling some of his goods (rice, beans, flour, etc.) in the market. I told his wife, who was caring for their son, that I would come back around lunchtime. When I returned and interrupted his lunch, Evert graciously explained how helpful his loan had been to help buy new grain products that he could then sell to his clients that he has diligently cultivated over the last five years. His primary focus is to grow his business in order to provide a better home for his family.

During these visits, I was struck by the different attitude towards credit when compared with many borrowers from a developed country like the United States. These loans are the lifeline of their family. Clearly neither Genara nor Evert are looking to leverage up to take an exotic vacation, purchase a second home, or buy the latest electronic gadget. Rather, for them credit is a means of survival. How is Genara going to put food on the table? And how can Evert keep the rain from leaking though his roof or provide shoes for his growing child? These entrepreneurs depend on your small loans to maintain and hopefully grow their businesses. When you ask each borrower about their dreams, it typically begins and ends with an earnest desire to improve the well-being of their family.

Additionally, the importance Nicaraguan entrepreneurs place on servicing their loans is remarkable. In many ways, I believe it is inherent in the culture here to pay one’s debts, as a matter of course. But, it is also quite practical. These borrowers realize that if they become delinquent or even worse, default, there’s a chance they will not be able to get another loan. If that were to happen, the ripple effect to the welfare of the family could be devastating. At least partially as a result, the historical default rate in Nicaragua for all the loans in Kiva’s portfolio is less than one-half percent. Compare this to borrowers in the developed world where default rates reached the high single digits (and beyond) for various loan types over the last several years.

Surely as my fellowship continues and I become more involved in the microfinance industry here, my views on Nicaraguan entrepreneur borrowers and their relationship with credit will continue to evolve and be shaped. Regardless of the differences I have noticed with the developed world, there is little doubt that the culture of credit in Nicaragua is one that is very much dependent on the microloans that each Kiva lender helps provide.

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Casey Cline is a Kiva Fellow (KF 15) working with Fundación Leon 2000 in Leon, Nicaragua. If you would like to learn more about Fundación Leon 2000, please visit its partner page. You can also show your support by joining the Fundación Leon 2000 lending team.