While billions of dollars are donated each year to aid developing countries, there is growing evidence that these aid efforts are distressingly ineffective. In fact, donations may actually cause unintended, negative consequences to their beneficiaries.
The money is reinvested, continually benefitting clients and reaching even more qualified people in need. For example, when a coffee producer finishes paying for the fertilizers and tools he (or she) used to make this year's harvest a success. He will have the opportunity to take out a larger loan to perhaps plant a new field, thereby continually growing his longterm investments. The hope of rising out of poverty strengthens year after year.
All donations received by Unión MicroFinanza go directly toward our microfinance program. To date, we have had an average of 95% repayment rate. This means that, for a given donation, 100% will be given out in loans, and at least 95% will be reinvested!
People in rural areas face even larger difficulties accessing financial services because banks avoid their remote locations altogether. We go to the them; our office and homes are in La Unión.
As for the lack of collateral, that is why we do research. We investigate and utilize the power of social capital, from which we derive social collateral instead of financial collateral. That means we rely on the strength of community to insure the responsible action of the individual.
La Unión is a remote, rural area. Not only does this keep traditional banks away, but it poses a wide range of other issues that we have had to address. Follow the link to learn more about our approach to microfinance, specially tailored to La Unión.
"One challenge of microfinance is to remedy the absence of collateral and use innovative mechanisms as a substitute." —Morduch and Armendáriz,
The Economics of Microfinance
Aldea Development is a 501(c)(3) nonprofit organization.
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