Padre Peter Marchetti

From Rural Credit to Cows for Rent

In the shade of Nitlapán (which means
“I plant” in Nahuatl), the nickname used by the Instituto de Investigación y Desarrollo (Institute for Research and Development)
of the Universidad Centroamericana el Nicaragua (Central American University of Nicaragua), the Fondo de Desarrollo Local (FDL, or Local Development Fund) was born some 15 years ago. It is a nonprofit organization that promotes rural credit, a particularly difficult sector for Latin American finance institutions.

“Some 60% of our clients are farmers, and of those, some 45% are women, [while] some 50% of the credit is offered in terms of more than 18 months,” says Father Peter Marchetti, FDL president and a Jesuit priest in the United States and PhD economist from Yale University.

Currently, FDL’s operating portfolio contains some 36,000 active loans for more than US$21 million, which means that FDL is the largest institution of its type in Nicaragua. But FDL’s vision goes beyond simply offering credit to individuals and cooperatives.

“We want people to be able to rise above poverty; credit is not a panacea, it is also essential to take care of health and education,” Marchetti says vigorously. He also points out that the FDL maintains solid relations with five other non-financial service companies, which allows FDL to offer technical assistance and training to its clients, as well as other innovative products.

Among these is the program for renting milking cows, an initiative that Marchetti describes as an exemption for the impoverished. “Small producers are risk-adverse, they do not invest in top genetic- quality cows that will produce high volumes of milk since it costs so much, and they don’t want to put all their hope in one single animal. We buy the cow and they rent her, paying a fixed charge based on the productivity of the animal,” he explains. The renters become small entrepreneurs since they assume the risk of selling the milk for profit. As a sound exemption, this requires the beneficiaries to follow certain regulations, such as building a barn and keeping it in optimum condition.

Reaching this point has not been easy, says FDL manager Julio Francisco Flores. Conquering the rural market has been hindered by the geographically isolated clients, the poor conditions of the roads, and the fact that half the clients are women, while farming activities continue to be viewed as men’s work. But it has been worth the effort to see “how our work has influenced the development of rural families,” says Flores. FDL’s successes were also recognized in 2005, when the institution received the Inter-American Development Bank (IDB) Award of Excellence in Microfinance in the category of unregulated entity.

Marchetti passionately defends the unregulated microfinance institutions, since, according to him, regulation “would kill rural microcredit as it is now.” He promotes flexible rules of the game, affirming, “Rural credit is high risk and we would be obligated to provide everything; this is not possible, and we have less risk than a commercial bank; our arrears are only 1%.”