Communal banks extend credit, empower women and build equity in rural Bolivia
May 23, 2011 - unicef.org
UNICEF's equity-based approach to achieving the Millennium Development Goals aims to reach the poorest and most vulnerable children and families with cost-effective interventions for sustainable progress. Here is one in a series of stories that make the case for equity.
By Tanya Turkovich
POCOATA, Bolivia, 23 May 2011 -- It takes money to make money. Just ask Pilar Rueda, 38, a Quechua mother of two from this remote rural town in the Bolivian department of Potosí. She and much of her community have lifted themselves out of extreme poverty through ‘Bancos Comunales' -- Communal Banks -- an innovative project developed by UNICEF.
The project extends credit to indigenous people, mainly women, in 13 remote municipalities of northern Potosí. Normally, it is almost impossible for the population in these areas to get loans for small, income-generating ventures. But unlike the microcredit schemes of traditional banks, which charge high interest rates, the Bancos Comunales project offers very low rates and is entirely directed and driven by the community.
The project now comprises an association of some 70 communal banks in Potosí. Besides extending loans, it trains participants in microcredit financing, gender equality, leadership and basic rights.
Increased income and opportunities
"This store just used to have a couple of things," Ms. Rueda says about the shop she owns and operates with her family. "Now it has so many products and provides us with a good source of income."
(right) Pilar Rueda, a Quechua mother of two from Pocoata, in the Bolivian department of Potosí, sells goods in the store she has stocked with a loan from the UNICEF-supported Bancos Comunales initiative. Photo © UNICEF video
And she has not stopped there. After an initial loan from Bancos Comunales allowed Ms. Rueda to increase the stock and revenue from her store, she purchased and started using an ice cream maker for additional income. She also began knitting and painting textiles to sell in the shop.
"Women can now do business. They don't depend on the men anymore," notes Ms. Rueda. "So now mothers can buy whatever their children need." As a result, she adds, "Men are feeling proud of their women."
Ms. Rueda has always been an industrious worker. Now she has become a community leader and savvy businesswoman. Access to credit and information about women's and children's rights has expanded opportunities for her and for her children. Although Ms. Rueda never had the chance for a secondary education, for example, her son is in college and she has enough money to buy the supplies that keep her daughter in school.
Breaking the cycle of poverty
Ms. Rueda's family and other Bancos Comunales beneficiaries live in South America's poorest country. Out of Bolivia's population of 9.1 million, nearly 6 million -- half of them children -- are in impoverished households.
In rural areas, almost two-thirds of the population is considered extremely poor. They do not have enough money to cover their basic necessities, food and health care, much less education.
Moreover, the rural population is primarily indigenous, historically the most disadvantaged group in Bolivia and other countries in the region.
(left) Local stakeholders from the communal bank in the town of Jarana, located in rural Potosí, Bolivia, hold a meeting to discuss lending for income-generating activities in the indigenous community. Photo © UNICEF video
In fact, the profile of an indigenous, impoverished girl living in a rural area is a precise picture of social exclusion and inequality in Bolivia. Progress and prosperity have passed these girls by -- and are likely to pass by their children.
Yet schemes such as Bancos Comunales are based on the conviction that when governments and international aid organizations invest in meeting the essential needs of the poor, the intergenerational cycle of poverty can be broken. To that end, the banking initiative serves disenfranchised and socially excluded families who live at least 70 km from the nearest paved road and 175 km from the nearest city, and who survive primarily on farming.
An equity-based approach
UNICEF Bolivia Chief of Policy Claudio Santibanez explains that the initiative is unique in that it focuses on improving child rights through women's empowerment. In addition, it takes an equity-based approach to human development by targeting the poorest of the poor.
"Unlike other microfinance initiatives, communal banks are created in the most extremely poor communities and thus have a strong equity approach," says Mr. Santibanez. "They engage with a socially vulnerable population that otherwise would be excluded from financial markets."
Because local residents own the communal banks, money and capital stay in the community. Combined with training in agricultural and trade techniques, this provides food security and a sustainable economic base even for the poorest families.
(left) Vilma Huaype works on accounts at the communal bank in Jarana, Bolivia, where she received a loan to improve her family's situation and has risen in status to become the bank's treasurer. Photo © UNICEF video
At the same time, Mr. Santibanez points out, Bancos Comunales trains women in understanding and advocating for their rights and those of their children. "Providing access to micro-loans jointly with other initiatives that empower communities on protecting their children's rights is a strong combination," he says.
How loans are structured
To achieve its aims, the Bancos Comunales project offers loans of up to 3,000 bolivianos (about $425) at an interest rate of 2 per cent. Three-quarters of the interest goes toward increasing the communal bank's reserves, while the rest goes into a savings account for the borrower. This amount is returned once he or she has finished paying the loan, usually within 12 months.
Borrowers must begin repayments a month after the loan is provided. If they are late, it is the community that pressures neighbours to meet their obligations. Social pressure and reputation are still powerful forces in the rural Andes.
Even though some loan repayments have been delayed, the organizers of the communal banking association report that only a few borrowers have defaulted.
Empowered women
While the project loans money to both women and men, women have -- by design -- taken an increasingly prominent role. This is especially significant in a culture where women are often not in charge of household decision-making and are not generally the primary earners.
Women involved in Bancos Comunales express a strong commitment to helping their children achieve better lives than they've had. To that end, they use the income from their businesses to enhance child health and education.
Loan recipient Vilma Huaype lives with her husband and two children in Jarana, about an hour's walk from Pocoata. Like Ms. Rueda, she has improved her family's situation through direct access to financial resources. She has also gained new status in the community as the bank treasurer, and has more say in the household than she did before.
Ms. Huaype's store, once stocked with meagre supplies, has grown into a thriving business. "I have taken advantage of this opportunity for my family," she says, "so we do not have to remain poor."