In the coastal region of Ecuador, a large majority of people, ranging from 74 to 94 percent of the population, live below the national poverty line. Approximately 60 percent of households receive government assistance, and education and skill levels are low. As a result, these rural areas are unattractive...

Building the Capacity of Savings and Credit Cooperatives

In the coastal region of Ecuador, a large majority of people, ranging from 74 to 94 percent of the population, live below the national poverty line. Approximately 60 percent of households receive government assistance, and education and skill levels are low. As a result, these rural areas are unattractive to formal financial institutions, leaving small savings and credit cooperatives as the only alternative for provision of financial services.

The Ecuador Economic Empowerment Initiative established a two-year partnership (2007 and 2008) between Swisscontact (Swiss Foundation for Technical Cooperation), the Legatum Foundation and our grant manager, Geneva Global, in the coastal region of Ecuador. With an investment of US$ 820,000, the initiative focussed on building the institutional capacity of four small, undersourced cooperatives through the provision of technical assistance and lines of credit for loan capital.


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Strategic Initiative

SECTOR

Economic Empowerment

TOTAL INVESTMENT

US$ 820,000

LOCATION

Ecuador

LIVES CHANGED

1,996

SOCIAL IMPACT INDEX

57.0 (out of 100)

AVERAGE COST PER LIFE

US$ 410.82

Expand All

SI Breakdown:

Key Achievements

 

  • Improved access to microloans – 1,996 people obtained access to microloans through solidarity groups, benefiting themselves and their families, ultimately impacting 9,980 people.
  • Families increased savings – 762 people increased their savings, positively impacting themselves and their families.
  • Improved knowledge of business management and how to address social issues – 1,996 people were trained on business planning and saving, as well as social topics such as sexual abuse, domestic violence, family planning, and HIV prevention.
  • Cooperatives increased their capacity – Four cooperatives increased their overall capacity and implemented the solidarity group methodology, allowing them to expand their services to provide microloans to the poor. During the first months of this Initiative, Swisscontact worked with the cooperatives on institutional changes, which included financial, strategic and operation planning. During the last six months, Swisscontact reinforced the changes carried out in each of the cooperatives and also monitored their financial, operational and strategic plans to reach the established goals.

 

The Problem

In the coastal region of Ecuador, a large majority of people, ranging from 74 to 94 percent of the population, live below the national poverty line. Approximately 60 percent of households receive government assistance, and education and skill levels are low. As a result, these rural areas are unattractive to formal financial institutions, leaving small savings and credit cooperatives as the only alternative for provision of financial services. The majority of these cooperatives are constrained by a lack of management capacity and access to capital, inhibiting their ability to serve large numbers of the poor in their communities.

Solution

The Ecuador Economic Empowerment Initiative established a two-year partnership (2007 and 2008) between Swisscontact (Swiss Foundation for Technical Cooperation), the Legatum Foundation and our grant manager, Geneva Global, in the coastal region of Ecuador. With an investment of US$ 820,000, the Initiative focussed on building the institutional capacity of four small, under sourced cooperatives through the provision of technical assistance and lines of credit for loan capital. The Initiative also included training these four cooperatives in solidarity group methodology which focussed on creating opportunities for the poorest clients, without collateral, to access small loans at lower cost and with fewer delinquencies. As a result, these local cooperatives aimed to:

  • Increase access of 2,000 people to microloans and improve their small business management skills
  • Increase the savings of 800 people
  • Equip solidarity groups to take action to address social problems affecting their communities

The technical assistance provided by Swiss contact to cooperatives was individualised, as the four cooperatives are located in different geographical zones and serve clients with different needs. Other microfinance programmes differ somewhat from this Initiative in that here, cooperatives offer services under the principles of sustainability for both the client and the institution. Employing fair costs ensures that interest rates charged are sufficient to cover the institution’s costs while still permitting clients to improve their incomes through access to loan funds.

Critical Analysis

This Initiative has proved that solidarity groups are an efficient mechanism to provide loans on a non-collateralised basis. The cooperatives have met their goals and, with Swisscontact’s support and orientation, the cooperatives experienced significant growth in their financial indicators including credit portfolio and deposit growth, decreased portfolio risk, increased repayment rates, and growth of assets. In fact, before the intervention, the annual growth of the cooperatives, in terms of deposits, was no higher than 25 percent, and now the annual growth is over 60 percent. Important groups of beneficiaries were already in their second or even third loan cycle by the end of the two-year Initiative, each time with a larger loan amount. This illustrates that beneficiaries’ capacity of repayment is increasing, indicating that their socio-economic situation is improving.

Through this programme, the cooperatives’ clients have had the opportunity to start or improve their small businesses, and social charity has been replaced by access to opportunities; the programme treated the poor with the dignity they deserve.

One of the unexpected results of this Initiative was the relationship generated between the four cooperatives. Before the Initiative began, there was no relationship but now they know and support each other.

The partnership Initiative between Swisscontact and our grant manager was very fruitful. Their work together was a mutually beneficial learning process. Our grant manager increased its expertise in microfinance through Swisscontact’s technical skills. For Swisscontact, this was the first time they added a “social component” to the workshops with the solidarity groups and community in order to address relevant community problems. The social component helped to make the microfinance programme more holistic.

Lessons Learned

Successes:

Cooperatives empowered by solidarity group approach – The solidarity group methodology is an important tool to capture new clients and provides the cooperatives the capacity to offer services to new social and geographical segments that did not previously have access to financial services.

New transactional software system adopted by cooperatives – In order to guarantee the institutional sustainability of the Initiative, Swisscontact worked diligently to reinforce accountability with each of the cooperatives. The new transactional software system improves controls and facilitates the development of new products such as mobile tools for credit repayments.

Cooperatives experienced substantial improvement in key financial indicators – The cooperatives have all shown positive increases in a number of key financial indicators assessed at the beginning of the Initiative, including credit portfolio and deposit growth, decreased portfolio risk and increased repayment rates, and growth of assets.

Challenges:

Cooperative implementation of institutional changes – Changed behaviour needed to become ingrained practice. Swisscontact realised that, unless best practices were reinforced, it was easy for the cooperatives to return to old practices. So, the frequency of ongoing technical assistance and monitoring was increased. This resulted in initial resistance to change. Old, ineffective practices (such as keeping financial records with pencil and paper, instead of on computer systems with financial software) needed to shift among some cooperative staff. As a result of Swisscontact’s ongoing technical assistance, however, the staff was able to see the value of changing to accepted industry best practices.

Winter flooding – Annual flooding (January to April) often affects normal productivity, especially in the agricultural sector. Fortunately, this external factor did not negatively impact the repayment rates of the solidarity groups.

Ecuador Economic Empowerment: Featured Projects

SII ScoreProject NameGrantLives ChangedCost Per LifeSector
57.00 COAC Nueva Huacavilca$198,750650$305.77
57.00 COAC Nuestra Senora de las Mercedes$198,750530$375.00
57.00 COAC San Antonio$198,750416$477.76
57.00 COAC Olmedo$198,750400$496.88
Note: The Social Impact Index Score reflects the relative social impact of a given development project. The lowest possible score is 20; the highest possible score is 100.

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