Micro-loans to start and grow businesses in La Limonada, fighting poverty in this vulnerable area of Guatemala
Contribution by Samuel Brizuela, director of The Community Empowerment International Fund (FAC)
La Limonada used to be nothing more than a ravine running through Guatemala City, Guatemala. During a decade-long civil war which began in the 1950’s, many Guatemalans fled the guerrilla warfare in mountain villages and began to inhabit the ravine, which approximately 60,000 Guatemalans now call home. Composed of informal settlements, La Limonada is marked by a lack of quality education, poverty, sexual abuse, substance abuse, gang activity and violence. Running water and electricity are available only to some, and trash lines the stream which runs through the ravine. It is considered one of the poorest and most dangerous neighbourhoods in the city. The people of La Limonada are caught in a never-ending cycle of poverty without viable options of healthy, sustainable livelihoods for themselves and for their families. Due to the social stigma attached to the community, most organizations will not operate directly within the borders of La Limonada to help the people. It is said that “even Santa Claus doesn’t go to La Limonada.”
However, there are a few from the outside who do go to La Limonada. Those who do enter often see the beauty of hope and the exuberance of the lives which are lived there. Tita Evertsz, a Guatemalan lady with a passion for the people of the La Limonada community, began her work there in 1994, originally focusing on preventing gang violence and healing the scars of violence on the community. Tita had a vision for setting up a school in La Limonada and in 2004 she founded Vidas Plenas, a Guatemalan NGO. After having visited the location in 2004, some members of a U.S. group founded another NGO called Lemonade International in 2008. Based in the United States, Lemonade International provided additional funding and support for the schools, as well as expanding other programs, such as a scholarship program, a safe home for vulnerable children, and other initiatives.
In addition to its focus on expanding opportunities for La Limonada children, Lemonade International also wanted to offer programs to benefit the working poor of La Limonada. Although simply having a La Limonada address is grounds for being excluded from consideration for most jobs in Guatemala, some residents have their own micro-enterprises. However, starting up or expanding a small business in or around La Limonada is difficult since formal lenders usually won’t extend credit to those who live in the informal settlement. Recognizing the need for micro-credit to kick-start micro-enterprise opportunities, and with no established microfinance lender willing to be a partner, Lemonade International decided to act.
In the summer of 2010, Lemonade International partnered with a focus group of three students from the University of North Carolina at Chapel Hill (UNC) to start FAC, El Fondo de Apoyo Comunitario Internacional (“The Community Empowerment International Fund”). This student-led initiative used the Grameen group lending model, establishing an initial group of five borrowers who would guarantee another’s loans and provide mutual support. Initially given a loan of about $60 apiece for three months with 10% total interest, this group met weekly to repay loan instalments and to have an hour-long education session with FAC’s loan officer. Most clients run very small businesses, such as making tortillas, selling sponges on the street or operating a small store. As clients progress, they’re able to grow with their group and take out larger loan amounts. With its focus on small, relational support and quality business education, FAC strives to provide for the individual needs of each of the women with which it works.
Because of the uncertainties inherent in La Limonada, FAC is flexible with its repayment schedule. Although each client is expected to repay a fixed instalment each week, clients often miss one or two repayments, only to pay back the amount missed in subsequent weeks. Despite these challenges, FAC’s total repayment rate stands at over 98%. This way, clients are able to continue in the program, grow their businesses, and sustain their families, even when times are tough. While interest income is small, it is important that money which is lent out can be channelled through the program and lent again to the same borrowers or to new borrowers. Clients are also incentivised to save money to build on their successes and to create a safety net for themselves in case of any personal or family emergency.
After hiring a new director in October 2012, FAC has gained the capacity to take on new initiatives and to increase the number of clients. As UNC students continue their engagement, FAC is able to harness college volunteers to enhance its programs and increase its fund-raising power. Since it is focused on community welfare and socially beneficial enterprises in La Limonada, FAC places relational support and responsible growth at the top of its list of priorities. By recognising that microfinance must be made personal and educational in order to be successful in La Limonada, FAC has been able to focus on a small population of established microbusinesses and enhance their potential for success in a vulnerable area.
http://www.facintl.org – Official Website
http://www.lemonadeinternational.org – Lemonade International Website