It’s Time to Disrupt the Microfinance Industry

Written by Global Brigades Steve Atamian, Global Brigades Co-Founder and Chief Strategy Officer

So, I’ve made an important life decision. I’m all-in on microfinance; I love it. I’m ready to dedicate the rest of my professional life to proliferate it. But, I propose that our next order of business should be to radically and fundamentally change it until it’s no longer recognizable in its current form. 

Microfinance’s criticisms are widely published and have been elaborated on ad nauseum. So, for a 500-word blog, I’ll just boil down its problem to one word: Extraction. 

Yes, the “E” word of the post-colonial critique of development; not pretty. 

The Vision for a New Model

Microfinance can extract due to three fundamental issues. These are inherent in a traditional banking institution when trying to foster economic development: the minimal amount of community ownership of the lending institution, potentially high-interest rates, and limited circulation of capital within communities before repaying back out to a foreign entity. And when I say foreign, I don’t mean Canada, I mean any entity outside of the community where the loan originates.

Fortunately for Global Brigades, when developing our microfinance model, we weren’t locked in on the fundamentals of a microfinance institution. We had the benefit of thousands of volunteers and millions of dollars in donations to achieve a different, more ambitious task. Our goal was to not just provide loans and garner interest, but build community assets and create the financial backbone that would enable communities to finance water, sanitation, and health infrastructure that collectively could break the poverty cycle.  

Members of the Pueblo Nuevo Caja in Panama

Somewhere in all the development-speak and logic models, we found the “caja” (literally translated as a box). A simple name with an infinitely profound impact. What if we could set up banks owned by the community themselves, led by local leaders, lending to local families, and provide lower interest rates than the market provided? Working with cajas, we can do all of that and there are thousands of them in existence in Honduras alone. 

Read related blog: The Power of Community Banks and Access to Loans

So, why aren’t they being utilized to their full potential? It’s because of the same reason thousands of other businesses in Central America are not maximized, there is not an investment community to scale them. Further, access to capital is still a tremendous challenge even with the hundreds of microfinance institutions present. 

Forging a New Path

That’s where Eskala comes in. A lovely E word and the spin-off of Global Brigades’ microfinance and microequity model that invests in cajas to forage a path to alleviate poverty in 20,000 Central American communities. 

The name Eskala is a reference to the Spanish word “escala” which is a command verb “to climb.” The slogan, also in Spanish for a Central American market, is a future tense inspirational phrase “Juntos Podremos”, “together we will.” 

Will you join us? To learn how you can get involved with Eskala, email me at steve@globalbrigades.org. Check our recent podcast on the evolution into Eskala and Global Brigades’ impact investment strategy:

Microfinance for Real People

To close, let’s remember why this industry started. Let’s provide an example of Eskala in real life. Her name is Urda, she’s one of the female members of the Pueblo Nuevo Caja from the Wounaan Indigenous group of Panama. Prior to having a caja, she lacked access to basic financial services and education. Even if able to afford the trip to the nearest commercial bank, it was unlikely that Urda could obtain credit approval to improve her small business.

Today, Urda, her family, and other community members of Pueblo Nuevo can open savings accounts and take out low-interest loans through their Community Bank, established in 2014.  The Caja, led by women from the community, has 34 active members, and a portfolio of over $30,000. It has disbursed over 300 loans to community members, with a 0% default rate.

Juntos podremos! Together, we will replicate Pueblo Nuevo’s successes throughout Central America and beyond. Together, we will radically and fundamentally change microfinance. 

Head to our website to donate to Global Brigades’ microfinance initiatives.

Global Brigades

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