Microcredit in Bolivia: What Impact on the Lives of the Poor?

Readers:

In 2006, the Nobel Prize for Peace was awarded to the Grameen Bank of Bangladesh, putting a global spotlight on the enterprise of providing microcredit for the poor. The Grameen system of putting small bits of capital in the hands of fruit sellers, seamstresses and other especially small businesses has been repeated al over the world in developing countries, including here in Bolivia. What that actually means for the lives of the people who receive this credit is a debated point.

In this Blog we have invited our colleague from the UK, Adam Kemmis Betty, to offer an inside look at microfinance in Bolivia. Adam is a researcher and microfinance specialist based currently in La Paz. His work carries him all across Bolivia, meeting the recipients of microfinance and analysing its impact.

[A special note: Sources of ours in both Bolivia and Venezuela are reporting bits and pieces of a very strange story and we are trying to assemble the facts as soon as we can. Please keep posted to the Blog and we'll do our best to have the story up in a few days.]

Jim Shultz


Microcredit in Bolivia: What Impact on the Lives of the Poor?

Written by Adam Kemmis Betty

Meet Rosa, who sells fruit in the markets of El Alto. She travels every fortnight to Alto Beni to buy fruit – mainly bananas – from her vendors, and is able to sell at a price that covers her travel costs and leaves her with a small profit. For many years, Rosa has also been a customer at one of Bolivia’s many microfinance institutions (MFIs). In many ways Rosa is a typical customer: microfinance borrowers mainly live in urban or semi-urban areas and work in the informal economy, buying and selling in Bolivia’s sprawling markets or perhaps producing goods in a home workshop. Like many customers, Rosa doesn’t just have a loan with her MFI, but also a savings account (the MFI requires that she makes deposits along with each loan payment) and a life insurance policy.

Rosa once tried to get a loan from a larger bank, but she didn’t have the necessary paperwork. She couldn’t provide proof of income and she didn’t possess anything that the bank would accept as collateral. At her MFI, she is a member of a lending group that is bound together by a group guarantee. This means that if one borrower doesn’t pay, it falls on the others in the group to cover the difference. The idea is that social pressure created within the group ensures that everyone will pay if they are able. By using this method MFIs are able to offer credit to those without paperwork and guarantees.

But Rosa recalls that there have been occasions when one member of the group wasn’t able to pay, putting additional financial strain on the other members. For this reason, Rosa is thinking about taking out an individual loan- now that she has an established credit history. MFIs in Bolivia are increasingly offering individual loans to customers such as Rosa, where the collateral might be a market post, a cow or even a tree.

To be certain, non-profit microfinance loans do not come cheap in Bolivia. Although she is a customer of a non-profit MFI, Rosa’s annualized interest rate is over 30 percent, a figure that makes even credit card rates in the US or UK look like a bargain. Indeed, it is often the poorest clients, taking out the smallest loans, who are paying the highest rates of interest.

Why so high? The main reason is that the administrative costs of servicing so many small loans are much higher than for traditional banks making fewer, larger loans. This is particularly true if the institution has clients in remote locations that need to be visited, taking up loan officers’ time. Interest rates also cover the risk that borrowers may not pay back their loans, as well as the cost of borrowing for the institution itself: most MFIs aim to be fully sustainable.

Although improving efficiency and bringing down costs is something the industry needs to keep working at, the Bolivian microfinance market still has some of the lowest rates in Latin America. And while the rates charged are high relative to the traditional banking sector, they tend to be low compared to other informal sources of credit available to the poor, who may charge 10% a day.

Is Rosa actually better off for her MFI loan, given the price she’s paying? Has the loan helped her exit poverty? Rosa’s business has grown gradually over the years – she’s been able to buy larger quantities of fruit with the capital from her MFI – and her income has grown as a result. But the impact has hardly been dramatic: Rosa still sells fruit at the same stall, lives in the same house and is still poor. Indeed, a recent review by the World Bank’s Consultative Group to Help the Poor points out that we don’t really know the impact that microfinance has in terms of poverty alleviation at the aggregate level. The methodology of studies to assess the social impact of microfinance has always been a source of contention, and the few randomized controlled trials have produced inconclusive results.

The real value of microfinance might be more subtle. A groundbreaking study published in 2009, which put together detailed financial diaries for over 250 families, shows that for someone such as Rosa, whose income and expenses are not only low but also seasonal and unpredictable, day-to-day cash flow management can be very complex.

Rosa, like most people in her economic position, needs to carefully manage her finances to ensure that she has enough to pay for everyday necessities, her journeys to the tropics, and to cover larger one-time expenses. Both savings and loans are important financial tools for poor households to have the money they need in hand when they need it, given the bumpiness of when they have income. This is one of the key values of MFI credit as opposed to informal sources.

In the end, is microcredit a magic wand that ends poverty? Not based on the current evidence, to be sure. But as in most markets, the real test of a product's value is whether there is a demand for it. Despite the high costs, the impoverished themselves clearly see a value in microfinance, as evidenced by strong demand and high repayment rates.

Twenty years of microfinance in Bolivia has not eradicated poverty, not by a long shot. But it has provided a large number of the country's poor with access to more reliable, and cheaper credit then they would have been able to obtain otherwise. And as a result many people have managed to lift themselves at least a little higher on the economic ladder as a result.

Bolivia's Easter Elections

Readers:

Sunday two weeks from now will bring more to Bolivia than Easter (and at my house a visit from the Easter Bunny). It will bring, yet another round of national elections. Just four months after the December vote that swept President Evo Morales solidly into a second term, Bolivians are headed back to the ballot box, this time to select the nation's governors and mayors.

While none of the races on the April 4th ballot offer up as much drama as some of the more recent votes – for President, for a new constitution, etc. – the vote represents another contest between Morales and his adversaries, and it will define much about the shape of Morales' dominance over Bolivian politics for the next five years.

The following report was prepared by Democracy Center staff members Jessica Aguirre, Aldo Orellana, and myself.

Jim Shultz

Bolivia's Easter Elections

Once upon a time the dance between Bolivia's ruling parties and the opposition was much like it is elsewhere in the world. The parties in power controlled the national government and used it to do their will (and in the case of Bolivia a good deal of graft as well). The opposition was focused at the national level, in the Congress. It's primary objective was to make the ruling parties look bad and try to position themselves to win the next national vote. For decades this formula produced a game of political musical chairs in which three national parties – the MNR, MIR, and ADN – rotated the presidency, all with an ideological consistent embrace of Washington Consensus economic policies.

The 2005 vote changed all that for three reasons. One was the historic election of Evo Morales and MAS, a candidate and party who were never a part of that happy tripod of old parties. The second was the virtual collapse of those parties (today only the MNR really exists, but in such an anemic state that "exist" is a generous word). The third was that, for the first time, Bolivia's nine departmental governors were elected directly instead of being appointed by the President, as they had always been.

The Governors Become the Opposition

When those three ingredients were mixed into a new Bolivian political soup the result was a big change in the way political power worked in the country. A national opposition to Morales became virtually non-existent. Instead the voice of opposition shifted to a handful of governors in the nation's eastern departments. They challenged Morales on the constitutional reform process, helped lead mass protests in the streets, and threatened mild forms of succession.

For a while that worked and the Morales presidency seemed stymied. Then three important elections in a row turned even the governors into a marginal force. In an August 2008 vote, Bolivians confirmed Morales' mandate but tossed out two of the leading opposition governors, in La Paz and Cochabamba. Then the MAS constitution was swept into effect by voters in January 2009, followed by Morales' landslide reelection last December.

So, what does it look like going into the April 4th vote?

Currently MAS controls five governorships, in Potosi, Oruro, La Paz, Cochabamba, and Pando. The latter three are departments where the MAS candidates lost in 2005 but where Morales was able to appoint successors to the three governors – two ousted in the 2008 vote and another currently in jail.

This time around, MAS aims to hold onto those and also expand its reach. According to polls MAS is poised to win the governorships in five departments. It also has a clear strategy for doing that, by reaching out beyond the traditional MAS base and recruiting candidates that, in 2005, would not have seemed like likely MAS faces.

The Races to Watch

In five of the departments the results are a virtual certainty, based on current polling, and the campaigns not especially interesting. In Cochabamba, La Paz, Oruro and Potosi MAS is expected to lock up four governorships in a cakewalk. In Chuquisaca, Sabina Cuellar, an indigenous woman who was elected to her first term after breaking with MAS, is expected to be a win for the opposition.

Here then are the four governor contests worth watching April 4th:

Santa Cruz: MAS Makes a Challenge in the Opposition Heartland

Ruben Costas is a Santa Cruz staple. He has been governor of the most anti-Morales department in the country for five years (Costas, like most every other returning politician on the ballot resigned his office three months ago as is required under Bolivian law, but is still, for political purposes, the incumbent) Recent polls indicate make him a certain favorite to win another term, registering a lopsided 58 percent of voter support in the department.

Nevertheless, MAS has decided to give Costas a spirited challenge, in the candidacy of Jerjes Justiniano, a well-known activist who gained notoriety during the most heated of the Santa Cruz conflicts by calling for conciliation between the autonomist movement and supporters of the central government in 2005. When a recent poll showed the MAS candidate with just 22% voter support he optimistically noted, “I began at zero and now I have more than 20 percent." But most observers consider the chances of a MAS victory in Santa Cruz as being roughly that of the mountaintop Jesus in Cochabamba strolling down to Burger King for lunch.

Beni: MAS Pins Its Political Hopes on a Pin-Up

In another department that had previously been a hotbed of opposition to Morales, MAS is trying to pull a political rabbit out of a hat with the candidacy of 26-year old candidate Jessica Jordan, the former Miss Bolivia (pictured above). While the former beauty queen is definitely drawing more media attention than any other candidate on the April ballot in Bolivia, polls show her running with just 25 percent voter support, leading some to question the wisdom of the MAS nomination. The candidacy has, however, attracted the strong interest of Vice-president Alvaro Garcia Linera (a known aficionado of beauty pageants) who pledged recently that if Jordan wins, he and Morales will become “foot soldiers” to fulfill her campaign promises.

Pando: MAS Seems Positioned to Win in an Opposition Bastion

A year and a half ago the department of Pando drew word attention when a band of MAS opponents attacked a group of Morales supporters in a bloody attack that left more than a dozen dead. The last governor elected in the region was arrested and jailed on charges of having planned the attack. Now MAS seems poised to win the governorship outright with the candidacy of the former mayor of the department's only city, Cobija. The race is close, to be certain, but recent polls show the MAS candidate with a slim 41% to 35% lead.

Tarija: An anti-MAS Incumbent in a Toss-up

Among the opposition governors, Tarija's Mario Cossio, the former head of the lower house of Congress, has usually tried to position himself as the moderate voice among them. But MAS is fielding a very strong challenge to Cossio with a popular former university rector, Carlos Cabrera. Polls show the race currently tied.

What Does it All Mean?

Regardless of the final MAS/Opposition split among the governorships, what is certain is that the opposition will be in a far, far weaker position then after the 2005 elections that thrust the governors into the leading role. There will be fewer opposition governors and those that remain will have political bases that are much less secure. Nor will there be any genuinely effective opposition to MAS and Morales at the national level. His December opponent, former Cochabamba Governor Manfred Reyes Villa, is now living in Miami to escape prosecution on corruption charges (which he claims are a political ploy by MAS).

With a strong majority in Congress, a weakened opposition among the Governors, and a MAS appointed judiciary, there are few obstacles in the way of Morales doing what he chooses in the foreseeable future.

To be clear, Morales and MAS are in such a dominant political position because the Bolivian people have willed it, in election after election for four years running. However, there are also many in Bolivia who worry that unchecked power is a threat to democracy and an invitation to authoritarian tendencies. And it is true that governments tend not to operate as honestly or as effectively as they should if they are not held in check by an opposition with real teeth. Nevertheless, no politician seems poised to offer MAS such an opposition because to do so would require winning a part of MAS' rock-solid-for-now base among the rural and the poor.
MAS supporters argue that its accountability comes from within, from the social movements that form its central base. But how that accountability from within actually happens in concrete ways is still unclear.

MAS has succeeded in becoming what is known in political terms as a "big tent", a tent so big that it includes not only MAS' core original base but a beauty queen and long-time functionaries of the old parties. The thing to watch now is how a base so broad will hold together. The thing to watch after the Easter eggs have all been eaten is whether the one called MAS begins to show cracks in its formidable shell.

Global Climate Change Conference Coming to Bolivia in April

Here is my nightmare, and it should be the nightmare of everyone of my generation.

It's two decades from now and my life is approaching an end. The realities of global climate change are no longer debated. They are clear, enormous, and worsening with great speed. Draught and rising seas are converting millions into climate refugees. Whole regions lack basic access to water and others are battered by increasingly erratic weather patterns, from deadly hurricanes to chilling blizzards.

And it is now too late to take the actions we could have taken to prevent the much worse conditions that are now coming. My seven-years old daughter will be a young adult, and along with the rest of her global generation she will be looking at a lifetime marked by a planet in deepening disarray. Nothing she and they can do at that point will prevent it. We will have failed them all, and their children even more so, because when there was still time, we denied and dawdled.

In Copenhagen last December we learned that the governments of the world are unable to reach a binding agreement to address this crisis. Blame it on whatever you care to – nationalism, corporate influence, blindness, extremism, resistance to compromise, grandstanding, or anything else. The point here is that we can't count on those with the authority to act to do so and we don't have time to wait and hope they change their minds.

That is why I welcome the fact that, in the aftermath of the failure in Copenhagen, many of the organizations that were left on the outside of that process will gather themselves here in Cochabamba next month (April 19-22), in a new global meeting on climate change initiated by President Morales. The meeting bears the official title: The First World Conference of the People on Climate Change and the Rights of Mother Earth.

The Criticism

Let’s begin with the criticism that will be aimed at this meeting, much of it certainly valid.

From one perspective the meeting will be labeled as a gathering of the left – an assortment of environmentalists, capitalism-haters, indigenous peoples, so-called socialists, and others who will only marginalize themselves more by engaging in a process so disengaged from the places where actual policy decisions and agreements are made. True enough. The Cochabamba conference is not a forum that will take any action that binds anyone to any concrete change of the system. The only agreements that it can reach will be about clearer goals for the climate change movement and clearer strategies for how to go after those goals. But those are both not only good things, they are essential things and worth the effort to aim for.

From yet another perspective, the meeting will be looked at as just one more gathering of the professional NGO crowd, leaving behind little more than a massive new carbon footprint to fly people in and out of Bolivia and never really addressing the fundamental change in consciousness required to save the planet. Some of those with this view will actively criticize the event, others will just ignore it entirely. But however valid the criticisms might be, we still have to find a unified way forward. Self-righteous memories of being more pure will be of little value to our children a generation hence. To be clear, there are some real charges to be discussed about how some leading environmental groups have intertwined corporate financing into their genetic code, about the role of compromise, and real conversations about equity and power. I hope those conversations also happen in Cochabamba next month.

Lastly, more than a few Bolivian eyes have rolled upwards at the new image of Evo Morales as an environmental crusader and "spiritual protector of la Pachamama." Morales has never, until Copenhagen, made the environment a centerpiece of his political agenda. And if one looks to extraction issues in particular (oil and gas, iron, silver, lithium) the Morales government has clearly made getting the wealth out of the ground the real priority and protecting the environment as secondary at best. On this score Bolivia, an impoverished nation, falls into the same trap impoverished people do when faced with an Income vs. Earth tradeoff. Income wins. It's the same reason people clear-cut land here in Tiquipaya. You can't eat trees.

There will certainly be some Bolivian environmental groups who will seek to use the conference to confront the Bolivian government with these contradictions between word and action. They should. But all that said, it is still a valuable thing that Morales has done, to use his clout on the global stage to convene this meeting. Climate change is an issue larger than Bolivia and larger than Morales and the meeting in April remains a critical opportunity to not be lost.

It is also appropriate that Bolivia host such a meeting, given that it is already one of the planet's first serious victims of climate change, with its glaciers melting fast (see the Democracy Center's video report here.)

How the Meeting will be Organized

The Bolivian government's invitation to the meeting is open. Anyone can register and attend. Most of the participants, however, are expected to come from NGOs and social movements in Bolivia, South America, and other regions of the world. Official estimates began at 15,000 foreigners were coming, then shrunk to 10,000, and now seem to have settled at 5,000 (though it could easily be less). What governments will be formally represented besides Bolivia's remains unclear, thought no one expects it to attract any real engagement by the world's wealthier nations, whose actions on the climate issue are so critical.

For those considering coming to Cochabamba for the meeting, here is a preview of how the conference will be organized.

1. Workshops and Events Organized by Participants: This is likely to be the real soul of the conference, with more than 30 of these two-hour sessions are already registered and new ones being added until the deadline for submission on March 15th. These sessions will range from ethereal ("Conversations with Mother Earth") to hard-edged ("Compromising and Caving In: The Nemesis of Climate Change Justice").

2. Working Groups: The conference will also include an ongoing thread of 17 working groups organized around specific issues. These include (among others): the structural roots of climate change, indigenous peoples, and plans for a global referendum on climate change issues.

3. Mass Gatherings: While much of the conference will take place in smaller groups, there will also be a few events that will seek to assemble all the participants together, culminating in an event in the Cochabamba soccer stadium on the evening of April 22.

Additional information about the meeting can be found (in English) here.

What the Democracy Center Will be Doing at the Conference

The April meeting on climate change is taking place, almost literally, on the Democracy Center's doorstep. And we plan to be deeply involved in it. Here are a few of the things we'll be doing:

1. Taking Strategic Action Against the Corporations Damaging the Earth's Climate

If we look behind both the damage being done to the Earth's climate and at the inability of governments to take aggressive action, it is obvious that some of the most onerous actors are multinational corporations that have put profit above the planet. The Democracy Center and other groups will be putting together a workshop to look at how we can take the most strategic action possible to stop dangerous corporate actions.

2. Global Trade Courts: A Threat to the Planet's Health

One of the most important tools that corporations use to undermine government protections of the environment is the system of global trade courts, such as the International Center for the Settlement of Investment Disputes at the World Bank, where Bechtel filed its $50 million case against Bolivia following the Cochabamba Water Revolt. In another workshop the Democracy Center and its allies will help people understand more about the tribunal system and offer a chance to engage in the debate over how the system needs to be changed. This builds on our work with the Network for Justice in Global Investment.

3. Bolivia and its Lithium: Will Electric Cars Lift a Nation out of Poverty?

The Democracy Center is just wrapping up work on an extensive study of Bolivia's plans to develop its vast lithium reserves, a study which has included multiple visits to the region and interviews all of the key actors involved. We'll be releasing our report during the climate change meeting, and announcing it and posting it on-line as well.

4. Reporting from the Conference

If you are interested in the conference but can't come, have no fears. The Democracy Center team is preparing to offer our readers a wide range of coverage from the meeting, including many of the voices and ideas you might not otherwise hear.

Stay tuned here to the Blog for additional information and analysis about the climate change conference as the date approaches. And if you are headed this way, let us know, by sending us an email here.

The U.S./Bolivia Drug Show

The beginning of March in Bolivia. Some things just come around as predictable as the seasons.

The hills of Cochabamba have turned a lush green from the late summer rains. I can walk safely down the street again without fear of the water balloons of Carnival coming down upon my targeted gringo head. And the governments of Bolivia and the U.S. are launching broadsides against one another over the coca leaf. Predictability in all its various forms.

For years here, when the nation was governed by men the U.S. government liked, March 1st was known as "certification day." This is the date when, each year, the U.S. State Department releases its annual report card on the drug-fighting efforts of the rest of the world, the International Narcotics Control Strategy Report to the Congress (INCSR).

The report comes in at a hefty 900 pages and runs through the U.S. version of how 139 different nations are or are not battling substances ranging from marijuana to the poppy flower.

Norwegians readers will be relieved to learn that illicit drug production in that country "remained insignificant in 2009." But Canadians may be dismayed to learn that their country, "remains a significant source" for marijuana entering the U.S. market. Or perhaps they will be unmoved. Who truly understands the Canadian soul?

Nevertheless, the State Department's report card on Bolivia goes well beyond whatever warnings it has to offer about Sweden, Latvia, and the Maldives. For the second year in a row, the U.S. has made a formal finding that its distant neighbor to the south has “failed demonstrably to adhere to its obligations under international counternarcotics conventions." Now in Bolivia March 1st into "de-certification day."

Punch and Counter Punch

Here, in a nutshell, is what the U.S. has to say about Bolivia and the war on drugs (page 149):

Bolivia is the world’s third largest producer of cocaine. In 2009, although the government met its minimum bilateral requirement to eradicate 5,000 hectares of coca, these efforts have not kept pace with rising coca cultivation and cocaine production. In other words, in the U.S. view Bolivia's anti-coca efforts are the equivalent of tossing out five bags of trash while filling up seven more. Or as the assistant secretary of state put it in Washington on Monday, "Bolivia has a continuing trend of a step up per year in the neighborhood of 10 to 15 percent that’s taken place over the course of the last several years."

Now to be sure, the government of Bolivia has a different view of events, which basically comes to this:

The government of Bolivia has a clear declared policy of " coca yes, cocaine zero." Despite the fact that Bolivia lacks a whole host of resources important to fighting the illegal drug trade – including soldiers, vehicles, and planes with radar – the country has still made substantial progress. In the past four years during the Morales presidency it has seized more than 91 tons of illegal drugs, up from 49 tons seized in the four years just prior to Morales becoming President. A Bolivian government spokesman branded the U.S. report, "a lie" and declared that its neighbor to the distant north has no right to "certify or decertify" any other country's anti-drug efforts.

So goes the annual U.S. vs. Bolivia coca debate. And I am willing to bet you two unhindered water balloon shots at my gringo head during next year's carnival that a few days afterwards that debate will remain exactly the same, and the year after that, and the year after that. Both sides have their view and both sides have numbers and statistics they can call up to support that view.

Some Simple Facts

Over the course of living here for a dozen years I have had a chance to talk to a lot of smart people sitting on all sides of the coca issue – Bolivian officials, U.S. officials, women in jail on drug charges, scientific experts, researchers, lawyers, judges, and reporters, among others. Here are a few things that everyone who really knows this issue knows and is wiling to say in private:

1. The coca leaf is not cocaine. It becomes cocaine only after an elaborate chemical process that leeches out the cocaine alkaloid that was also once the secret additive to Coca Cola, in addition to being the essential ingredient for the popular white powder that shares its name.

2. Not all coca grown in Bolivia is destined to be chewed, made into tea, or used for some other traditional purpose. Some of it, a lot of it, is aimed at the cocaine market, especially the coca grown in the Chapare. And here in Cochabamba on the outskirts of the city the green hillsides are becoming increasingly populated with new-tech processing labs to start the chemical metamorphosis involved.

3. The reason that the U.S. "War on Drugs" here is so suspected and loathed is because for decades it was not really a war on drugs but an all-out assault on human rights. Set aside the issue of eradication and its impact on coca farmers (many of them, thought not all, living in extreme poverty). Let's talk about the fact that Bolivian prosecutors on the U.S. payroll put thousands of innocent people in jail each year just to keep the U.S. Embassy and State Department stocked with happy arrest stats to show off to their superiors in Washington and help them build careers.

4. It is silly and ridiculous to maintain the current UN (and U.S. backed) prohibition against the exportation of non-narcotic products such as coca tea. You have to be quite the fool to believe that someone is going to start tearing apart those little paper tea bags to convert the miniscule amounts of coca leaf crumbs inside into cocaine powder. But it is equally silly to believe that the export of products like coca tea is going to suck up all the coca headed for the drug market. It won't.

5. Bolivian coca is not a U.S. problem. Cocaine that comes from Bolivian coca is not primarily headed for the U.S. (it can thank Colombia, a country that the U.S. does certify, for serving the U.S. market). Cocaine with Bolivian roots is headed for Brazil, Argentina and Europe. If there are countries beyond Bolivia's borders that have an interest in what happens here and ought to be working with the Bolivian government on the problem, it is those governments not the U.S., and each is in a far better political position to actually do so.

6. If the U.S. is genuinely serious about its drug problem then it should stop a decades-old show called the War on Drugs, and adopt a series of public policies that nearly every serious analyst knows is the most effective course, including: free drug treatment for those addicted the moment they ask for it (because that's when it has a shot at working); treating addiction as a disease instead of a criminal offense; and sucking billions of dollars out of the hands of criminal syndicates and into the coffers of public treasuries by legalizing marijuana, regulating it, and taxing it.

These are the facts that stand waiting behind the curtain while the U.S. vs. Bolivia show keeps rolling out in endless reruns on stage. It's run from here looks long, I am sad to say. The facts above will continue to remain out of the bilateral discourse and out of the policy equation.

And a year from now I will once again breath a sigh of relief as February leaves us and March begins. The hills will once more be green and the water balloons, like the truth about the War on Drugs, will have been laid to rest for another year.