Sowing Seeds of Sustainability

November 2, 2009


Microlending in rural areas restores more than just financial stability
By Bob Morikawa

Flourish Magazine, Fall 2009
Haitian farmers, desperate for both healthy land and money to support their families, have a common saying about the choice they often have to make between the two: “If this tree does not die, then I must die in its place.”

Such is the reality of many rural farmers in poor countries, who are forced to cut down mature trees bearing still-ripening fruit for charcoal to sell to feed their families, pay for their children’s school fees, cover for a shortage until the corn crop is harvested, or buy inventory for their small businesses.

The rural poor are often vilified for cutting down trees to make a profit. And they who live off of the land are keenly aware that this destruction sacrifices environmental capital for economic capital. But credit is often in short supply in rural regions of poor nations, in spite of the expansion of the microfinance movement. As a result, impoverished farmers turn to trees, selling either timber or charcoal to make up their short-term deficit. The resort to deforestation is their last resort.

A movement’s missing link
Microcredit has become one of the most widely used and successful tools in the fight against poverty. The need for a financial catalyst, or a financial bridge, as a means for assisting the poor is now well understood and commonly accepted. And the fact that the capital involved can be small, often in the range of $50-500, and that loans with interest are more effective than handouts, is one of the most exciting discoveries in the history of modern community development.

But if microcredit is an effective tool for getting people out of poverty, and if poor farmers, like those in Haiti, could so clearly benefit from access to credit, why does the microfinance movement seem absent from many rural areas?

One explanation is that modern microfinance industry places great importance, and rightfully so, on financial sustainability. Lower risk loans mean lower operating costs and greater returns on investment. Many microfinance institutions (MFI’s) that have adopted this strategy have been able to graduate from MFI status to commercial bank status, and some commercial banks have been able to enter the microfinance market and maintain a profit margin.

This is a win-win situation, where commercial institutions profit and the poor gain greater access to credit. However, rural areas often do not meet the criteria for this scenario. Risk in farm- and forest-dependent communities is high, and transportation costs can be an order of magnitude greater than in urban areas. For example, the distance from Port-au-Prince, the capital of Haiti, to a rural farming community can be approximately 30 miles in a straight line, but take three hours in a pickup truck. The last three miles can take one hour.

These simple—but daunting—realities have led some organizations to consider how microcredit tools might be adapted to benefit the rural poor. Floresta, as an organization looking at the problem from a Christian perspective, takes the challenge a step further: It is seeking to both transform lives among the rural poor and reverse deforestation through the innovative use of specific microcredit strategies. Here are the transformative stories Floresta has encountered in that process.

Growing wealth on trees: Agroforestry loans
Nicolas Ruiz, a farmer living in Haiti’s neighboring country, the Dominican Republic, worked his land for 30 years, only to watch weeds thrive on it, year after year. But that began to change after Ruiz received both an agroforesty loan and training in innovative, sustainable farming techniques.

Agroforestry loans were first effectively used in the 1980s and 1990s by Floresta’s partner organization in the Dominican Republic, Floresta Incorporada. The credit is coupled with training in agroforestry, a farming system that integrates trees with cropping and animals. Although more complex than monoculture, agroforestry allows farmers to diversify their production, make optimal use of limited resources on a small piece of land, and lower their risk. Initially, large individual loans were offered to farmers, along with training to encourage them to plant a combination of fast-growing trees for poles and timber, citrus trees for fruit, and oregano as a source of annual income. Loan repayment was expected to begin when timber trees were harvested, usually after seven to ten years. Although these loans effectively promoted reforestation and helped farmers increase their income, the loan accounts were difficult to manage, and repayment was often late or unreliable. Now smaller loans are offered for shorter time periods, increasing repayment rates and extending microcredit to more communities.

With his access to an agroforestry loan, Ruiz has been able to improve his farm’s soil quality and production of crops, producing a variety of fruits and an abundance of trees for timber. The income generated from these healthy crops has allowed for Ruiz’s son to graduate from high school, and his daughter to attend a university. At the root of all of these good things is Ruiz’s new understanding of how to work with the land, instead of against it.

Cooperative Credit
In Kandi, in northern Haiti, Montes Pierre leads a group of entrepreneurs participating in the microcredit system of credit cooperatives, which gathers groups of 30 to 60 community members to support each other economically and socially. Groups like Pierre’s receive training and support in group formation, bylaw writing, conducting elections for group leadership, and leadership training. They also learn how to build their own savings accounts, and make loans from those accounts at interest, to grow their investments.

Once a group has demonstrated financial management proficiency, the supporting organization—in Pierre’s case, another Floresta partner, Floresta-Haiti—offers it a loan. The group receives and is responsible for the loan collectively, but then grants loans to individuals from within the group. Pierre received a loan for 1,000 gourdes (about $250), and invested it in a small business selling rice, cooking oil, beans, and other supplies. In an agricultural context, applicants must demonstrate that they are practicing sustainable farming methods, such as tree planting and soil conservation, to receive a loan from their credit cooperative.

The profit on Pierre’s loan investment was 1250 gourdes (about $300), which he used to buy a goat. That goat, in turn, will continue to benefit Pierre and enhance his business as it produces offspring for him to sell. The approach of credit cooperatives can be costly to the supporting organization, and does not equal the levels of organizational sustainability common in conventional microfinance operations. But it promotes practices that directly reduce deforestation, and even benefit ecosystems, while providing sustainable income for innovative businessmen like Pierre.

It Takes a Village
A collaborative microcredit model similar to Pierre’s—but with much more ownership on the part of group members—is the system of Village Community Banks (VICOBA), which developed in West Africa. Unlike in the credit cooperative model, no outside credit is offered to VICOBAs by a supporting institution. Instead, villagers form groups that are provided with training and support in group formation, bylaw writing, leadership election, leadership training, and savings and loan management. The group bylaws then require that every member contributes at least one share per week to the group savings fund, and when this fund is large enough, the group begins to make loans to selected members. In this way, the group not only gains access to credit, but also gets returns on its investment in the savings fund. Transparency among members is an essential aspect of the VICOBA model, and great emphasis is placed on member participation. Although the amount of credit available is small, compared with local demand, this approach reduces cost and risk to the supporting organization, and puts more responsibility for community development in the hands of villagers.

Some of these villagers, in VICOBA groups in the Malindi area of Kenya, have taken special notice of the water shortage problems in their region. They are pooling their resources, both labor and cash, to build a large water tank on a local hill and provide a more reliable water supply to the surrounding villages. The self-sustaining group model of VICOBAs has so empowered these community leaders that they are taking this step toward environmental sustainability without the assistance or intervention of any outside supporting organization.

A risk worth taking
Entrusting financial accountability to rural communities is a risk worth taking when it leads to that somewhat elusive goal of sustainability. Freeing poor farmers from the heartbreaking decision to cut down the family mango tree in exchange for food, innovative rural microcredit systems allow farmers the economic liberty to plant new trees for their children and grandchildren to inherit.

Kendra Langdon Juskus contributed to this article.

Bob-Morikawa-headshotBob Morikawa is Floresta’s Technical Director. He facilitates the initiation of new Floresta programs and promotes technical innovation amongst field staff and farmers. Floresta is a non-profit organization that reverses deforestation and poverty in the world by transforming the lives of the rural poor. They teach, they plant, they create enterprise, and they share the gospel.

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