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John Hoffmire: Microfinance success in Nogales, Sonora, Mexico

Published: Monday, Feb. 24 2014 12:00 a.m. MST

Olivia (left) stands with Patricia, one of the bankers at EnComun.

Wayne Rish

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Craig Wilson wrote the vast majority of this piece.

Nobel Peace Prize winner Muhammed Yunus (Banker to the Poor) once said that for each problem of society there is a social business to combat it. He also said that a social business is one “created to fill a need, not make money.” While we are in favor of people making money, there are times when it is heartwarming to see what someone does when they set up a business such as the one described below.

Worldwide, perhaps 100 million microfinance loans have been made since Professor Yunus issued his first loan of $27 to 42 impoverished borrowers in Bangladesh in 1976.

Unfortunately, and as was pointed out in the Economist in “Big Trouble for Microfinance” (Dec. 2, 2010), too often some microfinance institutions have not learned enough about their borrowers before making loans. Too often these businesses did not focus on the social context and the borrowers’ strengths and weaknesses. In good situations, “Implementing systems to observe clients, listening to them and exploiting client data is essential,” according to Microfinance Barometer 2012.

Wayne Rish of Scottsdale, Ariz., knew to listen to borrowers when he began in 2008 to facilitate lending to businesses in Nogales, Sonora, Mexico. These tiny but high-margin businesses provided a way out of abject poverty for families. In cooperation with the Rotary Foundation of Rotary International (TRF) and Encomun Crecemos, Rish began to build upon Yunus’ ideal of client-centered lending. Today, with 1,100 loans totaling some $300,000, Rish has developed what he believes to be one of the largest microfinance operations in the Rotary world (34,000 clubs in more than 200 countries).

Rish’s formula for success starts with a belief that businesses can help make society better. Combined with the Rotary Foundation’s belief in “doing good in the world” and EnComun’s focus on very small businesses, good things happen. But it is not simply that, it’s hard work too.

Borrowers are thoroughly reviewed by EnComun. “[T]he analysis that goes into a small loan ($200 to $1,200) to ensure it is for business only and will be possible to repay from cash flow is actually amazing,” Rish says. The average four-month loan is about $470.

The vetted borrowers form into groups of four to 10 people who are based in the local community. “Borrowers know who they want to be part of the group and it is actually up to them to decide who to invite to join” not EnComun or TRF, says Rish. Each borrower is provided with a bank account into which the loan proceeds are deposited. The borrower draws down the balance as needed. EnComun’s bankers (“promoters” in local parlance) meet with the group every two weeks to provide advice and guidance to the members. The group collects payments during this meeting and deposits them to an ATM or other outlet. The group receives deposit receipts for each deposit. Once a borrowing group has repaid its respective loans, it becomes eligible for another, larger loan. Groups often tell others about their experience, which provides more clients and more opportunities.

Microfinance in Rish’s experience is not a zero sum game. There are clear winners, like Olivia who has expanded her businesses (small store and MaryKay) by 30 percent, added two employees and wants “to help others get ahead.”

We are told that there will always be poor and perhaps that is true, but individuals need not be without a real chance of success. Social business and people like Rish provide a way out of poverty, and that makes all the difference.

John Hoffmire teaches at SaÏd Business School at the University of Oxford.

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