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The crisis of rural microcredit in Cusco (Peru)/Institutional analysis, satisfaction survey and socio-political analysis

Aurore DE CROMBRUGGHE student laureate

°1978 Belgium
Licence in management studies, Université Catholique de Louvain-la-Neuve, Belgium, 2001

La crise du microcrédit rural dans la région de Cusco (Perou)/Analyse institutionnelle, de satisfaction et socio-politique

The laureate analysed the functioning of three microcredit initiatives in the region of Cusco, Peru. At the time of the study, two of the three credit systems went through a life-threatening repayment crisis. The research focused upon the causes of these crises and related this analysis to the question whether the high expectations in terms of the poverty alleviation capacity of microcredit are justified.

The study presents the results of a comparative enquiry into the causes of the repayment performance of the three credit systems. In this enquiry, attention was given to management issues as well as financial technologies used. To understand the view of the clients, a representative client satisfaction survey was undertaken. The results of these analyses allowed to identify several causes that had contributed to the crises. Examples of these factors are the deficient nature of some financial products (inadequate amounts and repayment terms) and the inappropriate renewal of loans so that new loans could cover up inadequate repayment of old debts.

Two factors, however, catch the eye. The first is the high relative outreach (proportion of clients to the overall population in the villages) of the credit systems in crisis. This reality can be related to the ‘collective’ nature of the Andean communities and to the method of selection of new clients by the community itself. This implied that a rigorous screening of individual clients is practically impossible. In case of subsequent repayment difficulties, this also facilitates a negative collective mobilisation against the external credit enterprise and, therefore, little possibilities remain to pressure individual clients to repay. A second factor is related to the many complaints about the high interest rates (30-40% on a yearly basis in real terms). These complaints indicate that many poor Andean producers are not capable of obtaining the profitability required to repay loans at these interest rates, which are, however, necessary to enable the sustainability of the credit enterprises. This evidently also induces clients to side with the community against the external ‘usurers’.

From these and other research results, the laureate concludes that questions can be raised regarding the exaggerated optimism concerning the poverty alleviation potential of rural microcredit. Microcredit is clearly not a panacea for poverty reduction. It is equally clear that the articulation of a credit enterprise with the local community requires a careful and detailed cultural analysis in order to construct a professionally viable social interface.

report by Prof. Dr. Johan Bastiaensen, Institute of Development Policy and Management, Universiteit Antwerpen, Belgium