Nicaragua Financial Services to Microentrepreneurs: A Study Of Rural Credit Unions
Reviews experiences of six credit unions affected by the hurricane that hit Nicaragua in October 1998. The paper focuses on details of their financial services for microenterprises, develops a definition of microenterprise activities and examines the level and use of finance to microenterprises. Business growth is assessed prior to Hurricane Mitch and then afterwards. Stories of individual microenterpreneurs are illustratedPre-hurricane findings show:
- Provision of financial services through the credit unions had a positive impact on microenterprise sales, production, profit margin, negotiating position and graduation to higher loan amounts;
- Microenterprises had a need for further credit training and assistance.
Post-hurricane assessment reveals:
- All microenterprises report a decline in business activity immediately after the hurricane;
- Effects range from lost property, inventory, tools and equipment to a drop in sales;
- Businesses most affected were those with a customer base of rural, agricultural households, enterprises of non-essential items and services, and those selling on credit since the hurricane created delinquency and loan default;
- Microenterprise borrowers were less affected and better able to recover from the hurricane than agricultural borrowers.
As a result of these effects, credit unions explored strategies to diversify their loan portfolios and limit their risks. Households affected by the hurricane also considered possibilities of diversifying income generating activities among family members to limit future risks. The author recommends that credit unions increase documentation of microfinance activity and track microentrepreneurs' savings, increase loan amounts and to continue to target the very small entrepreneur and the poor.
