Micamericas

Oct 15, 2008

The Neighborhood Bank

CrediAmigo - Award for Excellence in Microfinance (Regulated Institution)

By Diego Fonseca

In 2005, Stelio Gama Lyra, Jr., had worked at Banco do Nordeste in Brazil for 32 years and had been the executive director of CrediAmigo, the bank’s microfinance program, for five years. In 1998 he helped launch the division of Microfinance and Special Programs, and then managed its implementation. CrediAmigo showed positive results and its prospects were solid, but Stelio felt the program needed more. “I was interested in developing a more inclusive line of credit, which could help microentrepreneurs or the unemployed at the bottom of the pyramid to start their own businesses and improve their families’ lives,” he explained.

A year earlier, Stelio had exchanged information with executives from ACCION International, which coordinates with Banco do Nordeste (“Northeast Bank”), and heard about Village Banking, a popular system in Asia that has assisted extremely poor communities in remote areas. In Latin America, Village Banking was being used on a large scale in Mexico by Compartamos, among other institutions, and Stelio decided to travel there and study the product. When he returned, he was convinced to start his own project at Banco do Nordeste – CrediAmigo Comunidade (CrediAmigo Community).

The first goal was to launch the new project in all 170 branches in Brazil, train 600 advisors and position the project to reach 40,000 clients by 2008. In October 2005, on the outskirts of Caucaia, in the Northeast state of Ceara, the first CrediAmigo Comunidade affiliate branch was opened. Bank Vitória, a small community bank, provided financial  services  for  its 18 founding members.

By last September, CrediAmigo Comunidade boasted 33,400 active clients in 11 Brazilian states. Its 1,925 microbanks are each comprised of 15-30 friends who live in the same towns and neighborhoods, and want to start a business. The banks have regular meetings where they are assisted by a Banco do Nordeste advisor who helps members develop their businesses. Each microbank has accounts that are managed by members of the cooperative in which a percentage of individual loans is deposited as guarantees for repayment. In total, the program has managed $23.3 million in capital since 2005, with an average loan of $223.60. The delinquency rate (1-90 days) has been 1.37% and the default rate, 0.23%.

CrediAmigo Comunidade is one of the pillars that earned Banco do Nordeste the IDB´s Microfinance Award for Regulated Institutions at the XI Inter-American Forum on Microenterprise in Asuncion, Paraguay, in October 2008. But that is not their only distinction. Founded in 1953, Banco do Nordeste has been a pioneer in public banking in Latin America and introduced its microfinance programs more than 10 years ago. The Bank then proposed – and maintains its vision still – to be the leader in microcredit in South America.

CrediAmigo, the mother ship, operates in association with the Brazilian government’s National Program for Guided and Productive Microcredit (PNMPO). Banco do Nordeste has joined forces with the Northeast Citizenship Institute, an independent NGO, to train its 1,517 employees. One of CrediAmigo is particularly concerned with sustainability, one of its ongoing objectives. “There is a myth that government banks are always subsidized, but we have shown that it is possible to invest capital in accordance with market regulations,” says Marecelo Azevedo Teixeira, Banco do Nordeste’s manager for CrediAmigo.

The Bank makes small loans of working capital to community groups – ranging from $56 to $564 – and loans as high as $5,650 to individuals investing in productive activities. Among the 825,000 microloans made in 2007, the average was approximately $565. The majority of loans only required a guarantee – most require a co-signer – and represent 90% of the bank’s operations. For a clientele made up almost entirely (95%) of groups of relatives and friends who are mostly women (64%) dedicated to commerce (92%) and well-distributed in age (70% between 25-50 years old), these amounts are proving to be reasonable.

Of course, not all problems have been solved. “Loans are not enough to bring Brazil out of poverty,” says Stelio. “We face very high costs in formalizing the population, which limits many customers from entering the system.” Efforts to address these barriers include a partnership with the Ministry of Industrial and Commercial Development to train clients with educational materials, as well as numerous agreements with municipalities and state governments to promote CrediAmigo.Stelio Gama also plans to expand services in other parts of the country and affiliate CrediAmigo more closely with Bolsa Familia (a federal grants program) to help generate more income for family groups.

A recent study by the Bank shows great promise for this idea, just as CrediAmigo Comunidade demonstrated at its onset. In 2007, thanks to CrediAmigo Comunidade, 97% of Bolsa Familia constituents surveyed by Banco do Nordeste were able to access credit for the first time. Approximately 99% improved family income with the capital. The money allowed them to buy more products and with a real possibility of payment in sight, they could lower their prices – in some cases up to 40% – to increase profit and even initiate self-employment activities.

Empowerment has been encouraged by CrediAmigo Comunidade and, furthermore, is fostering an environment for sharing experiences within communities, inter-group networking, and even the realization of some small fairs and trade shows. But can these developments survive a crippling global economic crisis? Banco do Nordeste believes the project has solid footing and does not foresee obstacles to funding that could hinder the program. Portfolio quality also remains stable. This year, CrediAmigo has an overall budget of $196 million and expects a net gain of $4.2 million. “It is time for more empowerment,” says Stelio Gama. “With 45% of our clients receiving support from Bolsa Familia, we need to add more value, lower costs and offer the same business guidance, so that the entrepreneurs at the base of the pyramid will continue to thrive.”

Award’s Finalists:

- ADOPEM (República Dominicana)

- CMAC (Arequipa, Perú)

- CMAC (Trujillo, Perú)

- EDPYME Crear (Arequipa, Perú)

- FIE FFP (Bolivia)

The Inter-American Development Bank is not responsible for the editorial content; the views expressed in the article are those of the author.

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