María Otero: End the Credit Squeeze on Latin America's Poor

Americas Quarterly, Fall 2008 | Go to article overview

María Otero: End the Credit Squeeze on Latin America's Poor


OVER THE PAST TWO DECADES, DEMOCRACY has taken hold in the vast majority of Latin American countries. Notwithstanding an anti-market backlash led by Venezuela, the region as a whole has benefited from stable economic policies and improved growth rates. Yet these gains remain imperiled by persistent poverty and income inequality.

According to a May 2008 report from the Council on Foreign Relations (CFR) Task Force on U.S.-Latin American relations, to which I contributed as the president and CEO of ACCION International, economic growth in Latin America has lagged behind that of other developing regions. The CFR report, citing figures provided by the World Bank and World Economic Forum, noted that Latin America's combined economies grew a scant 2.1 percent between 1995 and 2005. The regional poverty rate, now 37 percent, has barely budged in a quarter century. Indeed, the number of poor has risen from 136 million in 1980 to nearly 200 million today.1

The United States plainly has a vital interest in reversing these bleak statistics. Failure to increase wealth more quickly and to reduce income inequality undermines support for democracy. A survey of 19,000 people across Latin America by the polling firm Latinobarómetro found that the percentage that preferred democracy to all other forms of government dropped from 63 percent to 54 percent between 1997 and 2007.2

By working with Latin American governments to reduce poverty and inequality throughout the hemisphere, the incoming administration can also ease immigration pressure on the United States. Indeed, an enlightened immigration policy would aim not only to provide decent options for guest workers in the U.S., but also to help Latin American nationals who work in the U.S. put their earnings to productive use back home. An important means to that end is microfinance-the provision of small business loans (and, increasingly, other financial services) to the self-employed poor.

Lack of access to core financial services-credit, savings, insurance, pensions, electronic payments-is a major impediment to upward mobility for Latin America's poor. Throughout the region, according to a 2006 Inter-American Development Bank report, just 10 percent of the population has access to credit accounts, and total lending to the private sector is just 25 per cent of GDP, compared to 76 percent in developed countries.3

The new president should therefore boost U.S. support for the growing microfinance movement. Microfinance in the region began in Brazil in 1973 and has since developed a strong footprint throughout Latin America. In 2006, the top 10 microfinance institutions in the region increased their lending by 36 percent, according to MicroCapital Monitor.4 To date, approximately 10 percent of the region's estimated 50 million micro-entrepreneurs have received at least one micro-loan. That's a significant start, but a tenth is just a tenth. And micro-lending is just one step.

What's required is an active effort by the new administration to support the spread throughout the region of truly inclusive finance. That means access not just to credit but also to savings accounts, checking and electronic payment services and insurance. Without financial services, life is a precarious, day-to-day enterprise, in which a fire, a poor growing season or an illness can cripple a family's fortunes and stunt its children's future prospects.

Over the past 30 years, pioneering microfinance institutions (MFIs) have proved that the poor are "bankable," and that providing access to credit and other financial services increases the ability of the self-employed poor to boost their income, mitigate the risks that accompany poverty and improve their living conditions. Well-targeted and responsibly delivered micro-loans, in concert with financial education, can increase the earning power of self-employed Latin Americans.

While government should support efforts to scale up provision of financial services to the poor, the job belongs primarily to the private sector. …

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