Innovative Approaches to Rural Lending: Fininciera Calpia in El Salvador

This paper states that Financiera Calpia is one of the few financial institutions that have been successful in reaching the rural areas in El Salvador. It argues that understanding the technology of a microfinancial organization such as Calpia, the problems this technology has solved and the challenges the organization still faces are important for understanding what can/cannot be done in rural lending.

The paper:

• Discusses the difficulties in rural lending;
• Presents data to show the company's achievements in the areas of outreach and sustainability;
• States that while designing and implementing its lending methodology, Calpia looks at its clients (demand) and the type of services it can offer them (supply).

The paper states that in the rural areas, Calpia's clients are traders, farmers and micro entrepreneurs. It then analyzes the rural lending technology of Calpia, by:

• Examining the selection, training and profile of loan officers;
• Studying the process of screening of borrowers by the organization;
• Presenting in detail the procedure of loan transactions;
• Showing how each problem is solved in the process of the loan transaction.

The paper concludes with important lessons that can be learnt from Calpia, some of which are:

• Companies should hire rural loan officers who are trained in agriculture;
• There is a need for diversification in rural activities to cope with systemic risks;
• Collateral can be diverse and does not have to mean only land.