New Loan Institution Aids Small Businesses
Wire services, El Universal, May 02, 2007

There is something of a Dickensian feel about the makeshift factory at the bottom of Álvaro Avelár López’s garden in Amecameca, a quiet town that sits under the Popocatépetl volcano.

A few yards from Avelár´s front door women sift through black bags of waste brought by pick-up truck from the municipal dump. In a shed nearby their colleagues - young men wearing T-shirts and back-to-front baseball caps - feed waste plastics into two gas-heated tanks, perched on top of a metal frame.

When Avelár talks about his business from the simply decorated front room that he uses as an office, he displays the down-to-earth, almost Gradgrindian, practicality of the self-made man. "Here you have it," he says. "It is all real, nothing painted, nothing for show."

But there is nothing old-fashioned about his business. Avelár is a plastics recycler. The material he collects from rubbish tips is mixed with pigment, converted into a rust-colored sludge and then rolled out into sheets of plastic lamina.

The sheets are molded and cut as roofing tiles that are sold mostly to the building trade. Avelop –as the company is called – also makes septic tanks, cisterns and ecological toilets and has latched on to the contemporary marketing appeal of a green brand.

It is a formula that has served Avelár well. At the factory, 27 workers – three times more than in 2000 – work round the clock to produce 250 meters of plastic lamina each day.

Annual turnover from sales amounts to more than 3.6 million pesos (US$330,000) and has also more than tripled since 2000.

Avelár´s father, Miguel, who died seven years ago, invented the recycling machines that can process waste directly rather than using plastic that has first been converted into granules.

Mexico´s enormous self-build housing market – poorer Mexicans build their own homes – provide a ready demand for the tiles.

But until Banco Compartamos, a microfinance institution, offered to help, shortage of finance was a problem. Conventional banks had rejected early approaches and local money- lenders would have charged the company a prohibitively expensive 10 percent interest a month.

"We were often at a point where we nearly threw in the towel," says Avelár.

Avelop´s sales, once limited to the State of Mexico, are now taking place across the country and – though an intermediary – in McAllen, Texas. Avelár is even eyeing export markets in Canada and Costa Rica.

His success is testament to the importance in Latin America of microfinance, a practice that aims to empower the poor by extending small loans which has been popularized by the award last year of the Nobel Peace Prize to Muhammad Yunus, the founder of Bangladesh´s Grameen Bank.

For the past two years, Avelár has obtained part of his working capital as well as money to buy additional waste material from Compartamos, a bank that began life as a non-governmental organization in the poor southern states of Chiapas and Oaxaca 17 years ago, but is now one of the biggest microfinance institutions in Latin America.

The bank’s growth has highlighted a take-off in microfinance and the extension of financial services to less well-off Mexicans. Compartamos has seen its client base increase tenfold since 2001 and last week it successfully listed on Mexico’s stock exchange, raising US$407m.

The microfinance sector here has benefited from an increase in government backing, with 156 mainly smaller organizations receiving 1,961 million pesos in funding in 2006, compared with 52 millions pesos in 2002.

But Carlos Danel, deputy director of Compartamos, estimates that only a small fraction of Mexico´s estimated 17 million microenterprises have access to credit, in spite of the rapid expansion in the market since 2000.

Avelár is borrowing more money - 50,000 pesos - than the typical Compartamos client and paying a percentage point a month less in interest than the usual 4 percent to 6 percent per month.

But his success, say bank officials, demonstrates the untapped entrepreneurial potential of the huge informal sectors where up to a third of Mexicans make their living.