Microfinance crisis in Nicaragua: BIO contributes to the recovery

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On 15th of October 2013, BIO signed a USD 4 million senior loan contract with Fondo de Desarollo Local (FDL), a microfinance institution in Nicaragua. The investment is a much needed sign to other investors that the Nicaraguan microfinance market is ready to climb out of the steep crisis it has suffered since 2009.

The microfinance sector in Nicaragua was booming when in 2008 the global financial crisis hit. This originated an abrupt decline in remittances, which quickly led to repayment problems as clients were over indebted. As the economy deteriorated, the microfinance industry was further affected by a political and social movement of delinquent borrowers known as the “No Pago” (No Payment) movement. In this context MFIs and banks, needed to reschedule and restructure loans, and some of the MFIs went bankrupt. International funders grew nervous about the country risk and massively and abruptly retrieved their investments causing further trouble in the sector.

After 3 years, signs of improvement are arising. The worst impacts of the crisis have been overcome and there is a positive outlook for the future of the microfinance industry in Nicaragua. Lessons have been learnt from the crisis, the MFIs now focus on sustainable growth through a balance in their growth objectives and the use of credit information bureaus to improve credit risk management and manage multiple borrowing. Furthermore, new microfinance law closes any space for the non-payment movement to maneuver, and the government is putting its best efforts to regulate and supervise the Microfinance Sector through the creation of a new organism CONAMI.

In terms of demand, there is still a big underserved market in an economy in which 66% of the active population is self-employed or works in microbusiness. Main banks are not interested in financing small or medium-sized agricultural producers. FDL focusses on micro and small entrepreneurs with a mix of loans for the agricultural sector (36%), for commerce (33%), services and consumption (18%), and housing loans (14%).

BIO is leading the way in mobilizing funds to Nicaragua, while other investors have been steering clear of the country ever since the crisis. This investment will strengthen an MFI with a strong social mission, it will improve financial access to those at the bottom of the pyramid, while stimulating economic growth and generating jobs.

“Today, I am thankful to God and to FDL, which has given me a little support. The training sessions they’ve given me have been real useful. I didn’t even know what accounting was, but now my wife and I keep the books, not perfectly, but we do understand a bit of it.

With the loans that FDL has granted me I’ve really been able to achieve big things, like my little house, and now I have this workshop, which before was just some poles with a plastic sheet roof. And not only that, but before I didn’t have any way to pay for my son’s schooling, and now he has a technical career.” Germán García, client of FDL, with a small industry in Masaya

Website of FDL : www.fdl.org.ni

Read more on BIO’s investment in FDL