A large portion of the employed population in Paraguay works in the microenterprise sector, which has produced many successful and dynamic businesses.
More than 150,000 microentrepreneurs have accessed financing through specialized microcredit institutions. However, many microenterprises do not provide their proprietors and workers with a
significant and steady source of income due to low productivity, limited management capacity, and ack of access to financing.This underdeveloped group of microenterprises, which accounts for 85% of the total, is an important and interesting potential market for microcredit and non-financial enterprise development services.
The microenterprise sector employs about 74% of the population in businesses with 10 employees or less. A signifi cant number of microenterprises are rural with 57% of self-employed workers living in the countryside.
Most microenterprises are run by a single person working alone (63.1%), followedby those in which two to fi ve people work (35.8%). Only 1% of microenterprises employ six to 10 workers.
Microentrepreneurial activities are diverse. In urban areas, commercial businesses are common (43%), including small grocery stores, food vendors, street vendors, stalls in streets or in markets (clothing, electronics, telephones and accessories, vegetables, fruit, medicinal herbs, and refreshments), and hardware stores, among others.
Service microenterprises include mechanic shops, electronics repair shops, garden shops, laundries, beauty parlors, pawn shops and construction contractors, among others. The goods produced in productive microenterprises include construction material, crafts, ironwork, and carpentry. In rural areas, agricultural activities predominate (76%).
In terms of potential growth, a large number of microenterprises survive at the subsistence level (85%
in the rural area); the rest earn above the minimum salary. Approximately 87% of urban microenterprises do not save, the majority due to lack of capacity—after the monthly bills are paid, nothing is left over. Only 28.7% of microentrepreneurs are in the position to save, investing their money in the business or in their home.
Higher profi ts are more common in service microenterprises, compared with those dedicated to commercial activities, the majority of which register income levels of less than 50%. Productive enterprises, however, show an equitable distribution among the different income levels in the sector.
The stability of Paraguayan microenterprises is refl ected in the fact that 87% have been in the same line of business for more than a year, and only 13% are less than a year old. Furthermore, the majority of microenterprises operate 10–12 months per year.
However, the high proportion of lowskilled workers is a concern. Many take in low earnings and work long days, and most workers lack access to services that could help protect them in times of illness, incapacity, or old age. An estimated two-thirds of the country’s micro enterprises operate informally, although in legal activities.
Microenterprise has traditionally been an employment-generating resource. Despite recent economic growth rates of nearly 7%, employment has risen at a slower rate. As a result, one in three Paraguayans has employment problems, either being unemployed or underemployed. In recent years the macroeconomic environment has undergone some critical changes. The reevaluation of the national currency (or 35% depreciation of the dollar) in the last three years has had a negative impact on exports. However, commercial microenterprises have been more dynamic, especially those that work with imported products. Another key macroeconomic variable, the financial interest rate, has dropped from 35% to 20% over the last five years, with constant levels, even higher than inflation. This shift has translated into relative reductions in lending rates for microenterprise.
However, excessive regulations are unfavorable to competition, and the problem is growing worse with
inconsistencies in how the regulatory framework is implemented. The consequences for entrepreneurs are high costs in money and time. The situation is also fomenting a source of corruption, since the regulatory agency has signifi cant discretionary power. The regulations do not suit the vast heterogeneity of businesses in the sector and lack the fl exibility needed to adapt to the shifting conditions that are indicative of an open market economy. The result has been that Paraguay has received low marks in various rankings on “business climate,” even though the last issue of FORBES Magazine advanced Paraguay from 98th place to 70th among the 121 countries analyzed.
While non-financial enterprise development services may be limited, credit for microentrepreneurs
has generated a portfolio of nearly US$200 million and more than 150,000 borrowers over the last 10
years. However, microenterprises continue to lack access to these services, especially those located at the bottom of the pyramid, where only 15% have any kind of loan.
The institutions regulated by branch management (banks and financial institutions) reach just over 60% of the market with loans that average US$1,200. Cooperatives cover one-quarter of the market with a similar average balance but wider variation in amounts (from US$200 to US$3,000). Non-regulated institutions cover the remaining 10% with credit levels slightly below US$400.
Paraguay’s microfinance industry is distinctive because of its valuable experience with technology
developed to expand microcredit into rural areas, along with a strong and growing presence of savings
and loan cooperatives with microcredit programs. And though low coverage persists, at the same time
it offers broad market potential and poses new challenges to serve this segment with technologies
and instruments that respond to the tremendous needs existing in the country.