Seek and
Ye Shall Find

"Julio Alem Rojo—a native Cochabamban, chemical engineer and rural development enthusiast—is a man who speaks his mind. Last year, when he received the Award for Excellence in Business Development Services, he went right to the point. In Bolivia, a credit apartheid exists, he said.

Alem backs his statement up with numbers: of 2.2 million Bolivian families, only 650,000 have access to credit. Of that group, an elite 2% holds 60% of the bank credit. “And this is in Bolivia, supposedly the star of inclusive financial systems,” he adds.

From the Center for Investigation and Regional Development (CIDRE)—a nonprofit, nongovernment organization that he has headed since 1994—Alem is working to change that reality, especially in the challenging field of agricultural finance.

Driven by a personal mission to help put an end to the persistent poverty and inequality suffered by Bolivia’s peasants, Alem left a career in the oil industry in 1983 to devote himself to full-time work promoting development in some of Cochabamba’s most impoverished zones.

Like the great majority of peasants throughout the rest of the world, those in Bolivia have difficulty getting credit at terms convenient in the agriculture calendar, which typically has longer cycles than those of commercial negotiations that microfinance institutions tend to finance. Yet small Bolivian farmers also face legal obstacles, as regulations prohibit small landowners from using their land as collateral for credit.

While such legislation aims at protecting peasants from losing the main asset of their livelihood, such a restriction hinders the possibilities of obtaining credit. This pitfall, added to the fact that few of Bolivia’s small farmers have titles to their land, led Alem and his team to get creative.

CIDRE’s latest innovation in alternative collateral for agricultural credit is the use of forest assets. Two decades ago, under a reforestation program supported by the Swiss government, some 10,000 hectares were planted with trees in marginated land of the Cochabamban mountains. The goal was to protect the slopes, improve water retention and establish sustainable sources of wood and firewood for the small farmers who work on land 3,000 to 4,000 meters above sea level. Almost all the plantations are small; the largest is barely 131 hectares. Altogether, some US$10 million worth of trees were planted.

For CIDRE, these trees represented an asset that could be exploited more fully. The small farmers were making a living not off the wood but from raising vegetables and cattle. Although they had no formal titles to the land they were working, they could claim ownership of the plantation of trees. On this basis, CIDRE designed a program for sustainable forest development to promote these assets and use them as collateral for credit.

The concept is based on recognizing the small farmers’ rights of ownership to the trees. An expert can come to a lot and verify the existence and dimension of the trees. Then, the Forestry Superintendency issues certificates with data generated by satellite imaging. CIDRE takes these certificates as collateral for credit. In two years, 4,000 peasant families have registered 1,400 plantations. They use the loans to expand the forest plantations as well as to improve other productive activities.

CIDRE applies interest rates of 12% to 14% to its loans, notably lower than those offered by other Bolivian microfinance institutions. How does CIDRE do it? Alem says that a balance exists between income and expenses. “Nobody gives us money,” he explains. “CIDRE’s financial profit is low, but its profitability in social terms is extremely high.”

Another notable CIDRE program is “Agua Tuya” (“Your Water”), which funds the installation of small drinking- water systems in marginal Cochabamban communities, including the site of the first battle of the so-called “water war” after the failed privatization of the municipal public works company. Under the program, the communities themselves own and operate their own water services, instead of waiting for the municipal network to expand. Through this line of activity, water service has reached 4% of the population that previously lacked it.

As proof that it does not shy away from controversy, CIDRE also operates in Chapare, a Cochabamban region where coca grows and violence is rampant (one of the most violent areas in all of Bolivia). Of course, CIDRE does not make loans to people with a history of drug trafficking. Loan agents, who speak the native languages, use geopositioning information for each lot to verify what each client is cultivating.

Alem stresses that many people in Chapare earn a decent living with legal products, such as peppers, palms, papaya, pineapples and bananas. Thanks to the zone’s particular climate and geographical location, tomatoes grow in August, unlike anywhere else in Latin America, except in greenhouses. But it’s not enough to plant a hectare of papaya: eight or nine hectares should be planted, and for this, credit is necessary. Alem has also seen that farmers are fed up with illegal crops. Given opportunities for a respectable livelihood, they’ll never return to planting coca, he says. Based on these factors, CIDRE’s program is reaching further into the community. “We don’t practice counterinsurgency; we just offer people wider options,” Alem explains.