By Zach Weishar
I stand 11,152 feet above sea level in the Peruvian Andes, just outside the city of Cusco. The air is thin and my breath comes in short, unfulfilling spurts, but I am excited to get to work. I’m here to meet one of our new partners, Credinka, a microfinance institution that is reaching underserved clients in rural Peru. We will spend a week on the road meeting entrepreneurs from Cusco to Puno, and many places in between. What follows are first-hand observations about what microfinance looks like on the ground.
We interviewed clients in their place of work (usually also their home), accompanied by their loan officer, hoping to capture a snapshot of their world — to experience life through their eyes. We were lucky to have the loan officers with us because the strength of the relationship between a client and their loan officer is impressive — far more robust than any bank in the States. Credinka’s loan officers travel long distances, often on public transportation, to meet clients in their homes. This is a dedicated group of individuals, especially when you consider that they often manage upward of 100 clients, all of whom are spread across the countryside. In order to understand how dynamic the client-loan officer relationship is, you have to understand the cultural context surrounding the banking system in Peru.
Many of Credinka’s clients grew up with an intense mistrust of financial institutions, which stems back to a series of financial collapses that rocked Peru in the 1980s and 90s. One of Credinka’s employees told us how her mother used to hide money in sacks of corn to save. One day she woke up to a collapsing financial system and a worthless stash of paper bills. Others told us of banks that would collect deposits, only to close one day and swallow their client’s money, never to be seen again. Stories like this are commonplace, which means loan officers have to build trust slowly and deliberately.
Each village we entered was more picturesque than the next, all nestled into the mountains surrounded by green, luscious farmland. The villages were often small, and always tightknit. This is part of why Credinka focuses on rural lending — these small villages are bound together by a social fabric, and the thought of taking a loan that can’t be repaid is unthinkable for many clients — the shame would be immense. Before a client ever takes a loan, members of the community share what financial knowledge they have, educating their neighbors about interest rates, repayment terms, and credit history. When a loan officer gets to a village, many clients often already know the right questions to ask. As a result, rural repayment rates are often higher than urban — communities work together to keep each other focused.
As we moved through the countryside, meeting one client after another, something I often hear in the office began reverberating through my subconscious: “Our clients live complex financial lives.” Despite the fact that they live largely outside of the regulated financial system, they conduct transactions and manage money in complicated, interconnecting ways. The fact that this all takes place in the informal economy just adds an extra layer of complexity. This also means that they have multiple streams of income, mostly generated by entrepreneurial enterprise. Not one client that we met worked a 9–5 — that type of opportunity is uncommon in rural Peru. Instead, a single client might raise chickens for personal consumption, pigs to sell for meat, and cows to sell milk and make cheese. This same client might also rent rooms in her home, or in a separate hostel she built, or make handicrafts to sell to tourists, or even make paintings to sell to galleries in the big city. The list is endless, but what’s astounding is how they are able to create so much value in a setting with so little structured economic opportunity. In my experience, that type of resourceful, entrepreneurial mindset is far rarer in affluent nations; here, it is a necessity.
That is why organizations like Credinka are so valuable in these kinds of communities. Their clients have the drive, ambition, and capability to create streams of income for themselves, but they often need a lump sum to get started. The farmer I mentioned above might need a loan to buy her cows, to expand her home, or to build her hostel, and there often isn’t any other way to access this startup capital. Walter, a loan officer with whom we spent several days, told us about NGOs and small, local nonprofits that used to provide small amounts of working capital, but they slowly closed their doors over the years — charity alone wasn’t enough to meet the need. It’s organizations like Credinka that fill the gaps and provide these rural Peruvians with the resources that they need to thrive.