Micro-finance as livelihood support in urban Argentina (Special Supplement 3)
By Claudio Freda, Marcela Gonzalez and Marta Valdez, ACF Spain (ACF-E)
The December 2001 Argentinean crisis highlighted the serious social and economic problems faced by the population. Several years of negative growth and an increase in unemployment led to social collapse. The dramatic increase in poverty had important consequences in terms of lack of access to food, health care and other basic needs. ACF-E started interventions by supporting community canteens with food aid. Once the emergency was over, ACF-E identified income generation as an intervention that would address the root causes of the crisis and improve the community's capacity.
The food security intervention
In Argentina, more than 80% of the population live in urban areas and are dependent on the market to meet their food and livelihood needs. A significant part of the population coped with the crisis through community canteens. However, the organisations implementing these were not able to cover all the food needs of the population through this programme.
To meet their basic needs, the unemployed developed IGAs within the informal sector. ACF-E's food security strategy was to combine food aid through canteens with income generation support. From November 2002 up to December 2004, a joint food security and nutrition project was implemented in the partido Moreno, a suburb of Buenos Aires. The project consisted of community IGAs and micro credit support for the individual IGA.
The microfinance approach
The objective of the microfinance project was to provide financial services to the poor. ACF-E decided to collaborate with IDEB (Instituto de Desarrollo Empresarial Bonaerense), a non-profit making association specialising in microfinance and working in the targeted area. It was hoped that working with this local agency would lead to a sustainable financial service once the project ended.
The objective of the loans was to finance productive initiatives through investment in productive assets, such as consumable inputs and fixed assets, (like machinery and tools), and strengthening the infrastructure needed for developing the activity.
Collaboration with IDEB
The agreement between ACF-E and IDEB envisaged the creation of a revolving fund of 80,000 pesos funded by ACF-E for:
- Improving access of the canteen beneficiaries to microcredit.
- Inclusion of beneficiaries beginning a new IGA.
- Giving beneficiaries a grace period of one week before beginning repayments.
IDEB was in charge of the financial management, while ACF-E reinforced the training component for the beneficiaries. A micro-credit committee formed by members of both ACF-E and IDEB was created for making decisions about the loans.
Characteristics of the micro-credit scheme
Underpinning the programme was the establishment of 'solidarity groups'. Here, a group of previously uncreditworthy people receive a loan but each one provides some form of collateral loan or loan guarantee through a group repayment pledge, i.e. if one group member defaults, then the other group members make up the payment. The minimum amount of credit was 100 pesos and the maximum 900 pesos . With a monthly interest rate of 6%, the reimbursement was based on weekly instalments with a maximum of 12 instalments.
The first step involved information dissemination regarding the scheme. In order to request a loan, individuals had to form a 'solidarity group' comprising from three to five members. Members from the same group could ask for different amounts and therefore would have different weekly instalment amounts. Training was provided on financial management of the IGA, e.g. calculation of costs, accountancy and commercialisation.
After one week of grace, the weekly instalments began. ACF-E reinforced technical aspects of the IGA through business training and facilitating the exchange of experience between the IGA groups. ACF also negotiated with the municipality to allow the groups access to commercial fairs. Where groups successfully reimbursed credit, they were able to request new microcredits for larger amounts.
Between February and December 2004, a total of 442 microcredits were approved for a total of 116,750 pesos - the estimated average loan was 264.14 pesos. A total of 314 persons benefited from the fund while 40% of the beneficiaries renewed their fixed capital or consumables through a second and, in some cases, third loan.
Overall, 78% of borrowers were women and only 22% men. Table 9 shows the type of activity for which credit was made available, which were mainly based on previous skills and knowledge of the beneficiaries. Most credit was provided for trade activities (72.17%) followed by production (21.95%) and then services (5.88%). One third (30%) of the supported IGAs were newly created activities. The rate of default for the implementation period was low - approximately 5% of borrowers had difficulties repaying, which mostly involved those setting up new IGAs.
A number of strengths and weakness of the initiative have been identified. Microfinance Institution (MFI) IDEB have ensured fund sustainability, while adapting eligibility criteria which allow access of the most vulnerable through more information, more credit agents in the community, and in providing canteen space for sensitisation. ACF-E has improved the capacity of IDEB to cover a broader range of the population while ensuring good financial performance (only 5% default rate). The approach was well adapted to financial capacity and needs, and borrowers began to perceive MFI as a useful support institution.
However the beneficiaries had to rely on their own knowledge and abilities to develop their IGA based activities. Also, market access for the IGA was generally in the close neighbourhood where there were many poor, so that income generation was on the low side. Finally, it was observed that only 11.8% of borrowers were enrolled on the community canteens programme, indicating that many of the most vulnerable still did not benefit from this scheme.
|Table 9 Type of IGA supported in micro-credit scheme
||Proportion by class of activity
||Shop (dry food, dairy products, gas, charcoal, beverage, etc.)
|Sale of clothes
|Articles of cleanliness
|Sale of prepared food
|Greengrocer's / butcher's shop
| Food production (not bakery)
||Hairdresser, electricians, mechanic, repair of domestic appliances, etc.
|Total of provided microcredits
Taken from Field Exchange Issue 103, March 2006