Keep the Car Running

I love my supervisor Dustin, but like many Bolivians he doesn’t like to give direct or detailed answers. Usually I’m OK with the ambiguity, but on Tuesday it ended up being somewhat problematic. We were going to go visit a community outside of Sucre that FONCRESOL works with because Dustin needed to talk to them about the fact that their 3-year loan has now become a 10-year loan. I asked how far away it was, how long we would be gone and if I should bring my wallet or phone etc., but since I didn’t get any sort of helpful indication from him I assumed it wasn’t that far and decided to bring nothing at all.

An hour and a half later, after crossing a river in FONCRESOL’s tiny red Suzuki (there was no bridge involved) we arrived at Teja Huasi. I walked into the school room where the meeting was held to find about 30 people sitting on the floor- men on one side of the room smoking cigarettes and chewing coca leaves, and women on the other side selling food stuffs to one another and dealing with their children as they ran about. The meeting was entirely in Quechua (the native language of the region) and so I didn’t understand a thing, but I got the point- FONCRESOL wants to help, but they can't let this loan go any longer. The cycle has been drawn out for so long that some people in the group have even died and now other members are having to absorb their debts in addition to their own unmanageable debt. Reasons for being unable to pay back loans range from bad weather and ruined crops to lack of jobs and family emergencies. FONCRESOL is sympathetic to this, but they can no longer operate at such a loss. Furthermore, because this is a group loan the fact that some people haven't canceled their debts keeps everyone in La Central de Información de Riesgo Crediticio (CIRC), which means that they are sort of blacklisted by financial institutions. The CIRC is an instrument used to check up on people when they apply for credit. It keeps track of people's previous loans and whether or not they hold any outstanding debts. It is equivalent to the credit bureaus at home that keep track of our credit approval ratings. Anyway, Dustin doesn’t like being the bad guy, but this is part of the job. FONCRESOL has to put the pressure on, but there is no other way of doing it other than going out and lecturing people.

After the meeting we drove for another hour or so into the valley to visit some other clients who were also behind with their loans. Dustin was again forced to collect money from people who are barley making ends meet. Just as we were climbing out of the valley and headed back to Sucre in our little FONCRESOL automobile it decided to breakdown- on a narrow windy, uphill road on the edge of cliff. We were stranded there on the side of the highway in a desert like environment for over an hour before anyone came by. This is why it would have been handy to have known how far away we were going in advance because then I would have at least brought some water with me, or maybe even some money. Soon it was four o’clock and we had not eaten all day. Delirium was starting to hit. Finally, a pick up truck filled with men traveling from Santa Cruz pulled up and agreed to drive us back to Sucre. I had the pleasure of sitting on the lap of a large, sweaty man who insisted on putting his arm around me the whole time, which meant that his wet armpit was pressed up against my back for the entire journey. It was lovely. Moral of the story- we got back to Sucre safe and sound, but by that time it was close to 6pm and I just went straight home and cooked up everything in my fridge. The result was some revolting concoction that I hovered down in 10 minutes and that left me feeling toxic in addition to completely drained- and not ‘toxic’ in a sexy Britney Spears sense of the word...

Aside from that unfortunate ending, the day was really interesting and I’m glad to have had the experience. Not only to see the beautiful landscapes that lie just outside the city, but also because it was good for me to see a somewhat unsuccessful example of microfinance. The system has not been able to take off with certain groups and this realization has helped me get closer to figuring out what exactly I want to tackle while I’m here.

What keeps shining through as a common theme/obstacle with every group I’ve visited whether rural or urban, and even with the individual loan clients I’ve met, is the issue of financial literacy, or the lack thereof. Due to Bolivia’s competitive microfinance industry, credit is so readily available that individuals have begun to immediately take out loans in financial hard times without considering other options. This has created a ‘bicycle effect’- the settling of one debt by contracting another. Over the years, microfinance organizations have just assumed that poor people know how to handle debt and clients themselves have just accepted being in debt as a fact of life. Speaking with FONCRESOL clients it is rare to find someone who doesn’t have at least one other loan with another microfinance organization. This is partially because the loans offered aren’t always big enough to cover one’s perceived costs, but also because loans are so readily available that many people use them without fully understanding how they work. There is a limited awareness of the risk of over indebtedness and juggling multiple microfinance loans requires a certain level of financial education, especially for clients who are illiterate.
The situation isn’t actually much different from what goes on in the developed world with credit misuse. It’s like people who have 3 credit cards and are using one to pay off the other. In developed economies financial education is actually starting to get some play as it becomes evident that the majority of the population, regardless of class, doesn’t know the basics of money management. From making a budget to the difference between compound and simple interest- just because someone has money doesn't mean they know how to manage it. As the banking system gets more and more complicated and more financial products and services become available, one's ability to make sense of it all is diminished. Knowing how the financial world works, how to manage your money effectively, and how to make the most of the services and products offered are the first steps towards empowerment in today's volatile economic climate. Financial illiteracy is a worldwide epidemic, but it's effects are more drastic in developing economies where people can't afford to have sloppy accounting and overspend here and there. The importance of financial literacy hasn't been made clear in these societies however, because people tend to view personal financial planning and saving as something that only rich people with extra money can do.
What I’d like to do with FONCRESOL is try and increase the amount of financial education that the institution provides their clients. Increased financial capability will increase the transparency of the institution by allowing clients to understand and exercise their rights, it will also allow clients to maximize the impact of their loans, and it will help the institution retain and attract clients while keeping loan defaults to a minimum. Clients could have more discretionary cash if they were able to manage their household and business cash flows better. For the most part financial behavior among microfinance clients is reactive and people lack the skills and confidence to properly plan their cash flow. Unfortunately changing this behavior will not be easy and it will require a greater understanding of people's attitudes and habits towards money It will also mean figuring out a way to encourage people to plan ahead instead of living day-to-day, hand-to-mouth. Learning how to save is only part of the equation though, learning how to use available financial instruments and determining which are most appropriate for different situations is the other half.