Modernization in provision of microfinance has continued to push the microfinance institutions (MFIs) to design services and products that are optimally suitable for needs of the low social class. In the recent past, MFIs globally have begun to embrace microfinance as a foundation for a variety of development services, and not just a pure financial product. Some of the innovative industry professionals and institutions have realized the massive potential for capitalizing on the infrastructure that is already established by the microfinance sector in their endeavor to provide social services to their micro entrepreneurs. Grameen Foundation (GF) has shown a keen interest in its continued development and innovation as a microfinance institution. The Foundation has a passion to in social development. To this end the Foundation has explored the concept of Microfinance Plus (includes the integration of financial as well as non-financial products and services aimed at amplifying the development capacity of the microfinance services). Esperanza International is one of the Grameen’s fastest developing partners in the Latin America. Esperanza is a practitioner of integral services, providing its clients business training, education, as well as health service, in addition to the financial services (Greer, 2009).
The Overview of the Organization
Esperanza International Inc. is a microfinance organization seeking to promote the holistic and economic development of poor communities within the Dominican Republic. Through provision of microfinance for the income generation and the related services of training and education, health services and technology access development, the organization works to offer an effective solution to the reduction of poverty in Dominican Republic. Since their inception in 1999, Esperanza’s microfinance programs have availed more than 40,000 loans to poor families in the country for micro enterprise development. Most of these loans have been availed to the eastern region of Dominican Republic; in total the organization has lent approximately US $ 5.8 million with a significant repayment rate of about 98%. By the end of 2006, the organization’s microfinance program was providing its services to more than 8700 client and had an active credit portfolio of approximately US $ 820,000. Microfinance programs and the related services are operated in a strategic association with the health centers, technical and formal education centers, religious organization, neighborhood associations and both national and international non-governmental organizations. Esperanza’s programs cover most of the eastern region of the nation and include programs integrating microfinance services to poor families that are affected of infected by HIV/AIDS within Santo Domingo and other areas such as Puerto Plata.
The Target Population
Esperanza has been convinced that through provision of financial assistance, most of poor families in Dominican Republic would have the capacity to make a living and start living dignified life. Therefore, Esperanza’s target is mainly the cohort of the poorest and relatively poor, most specifically women living in the rural as well as semi-rural regions of the country. The eligibility for the program is mainly determined by the use of an analytical tool that assesses the socioeconomic situation of the client based on levels of income and sources of income; living conditions and housing; socio-cultural development level and total assets.
All the potential program clients are presently being involved in an income generating activity or are running a micro business, or are at the point of starting such activity. To qualify, the associates must not have a permanent job with income that is higher than the minimum salary according to the national standards. The organization has trained its field work staff to evaluate and present the households that are below the set poverty line, specifically below the mean of poor population from a given community.
Income-generating Activities of the Target Population
The clients (associates) of Esperanza microfinance programs work in a diverged income generating activities in areas such as commerce, production and services. In general, the commerce is more common: food sales, clothes and other small scale businesses. In services, the most frequent services are: beauty salons and motor bike transportation services, while in production there is the rearing of chicken, dairy farming and clothes production among others.
Esperanza’s main microfinance program is made up of solidarity lending cohorts that are referred to as Bank of Hope. The Bank of Hope groups are founded on the same fundamental principles as that of the Grameen Bank. The principles’ aspects are:
The poorest group of clients is those people who do not have any physical assets that can be used to guarantee a loan. In this case, a number of borrowers under this category comes together and form groups that assume collective accountability for payments for each of their members.
The provision of financial services in the society allows the poorest of the rural community to avoid costs inquired through travelling to the banking facilities. The literate are allowed to fill out the forms for loan application while the illiterates are assisted to do so.
Products According to the Needs
The organization has designed loan services that need a small quota by weekly repayments. This corresponds to the local consumption and payment systems. The initial amounts borrowed for income generation are usually small to develop a sense of financial discipline of collective and credit accountability. The loans repayment and interest calculations are done in simplified manners that are easily understood.
Poorest of the Poor Women
Esperanza microfinance programs are designed to give preference in its financial services to poor women since they have been identified as the most marginalized among the cohort of poor, and since they tend to invest bigger portion of their income in development of their children and society at large. Women typically perform manageable activities. About 15% of the current credit portfolio, which is representing about four per cent of the clientele, is made up of individual loans. The individual loans are inherently availed to the former clients of the Bank of Hope who have recorded fast growth in their income-generating activities and need larger loans for capital (Bank, 2004).
The Esperanza International microfinance programs are currently based in the rural and semi-rural regions of the provinces of El Seydo, San Pedro de Macoris, Santo Domingo, HatoMayor, and Puetro Plata. These areas and communities are highly underserved with microfinance service, an aspect that has given Esperanza a sense of monopoly, facing no competition from any microfinance organization, banks or non-governmental organizations. A few available money lender institutes charge extremely high interest rates as high as 120 to 140 per cent per annum. Though they are widespread, the majority of the Esperanza’s associates are too poor to afford such loans.
The above map shows the geographical regions that are served by the Esperanza Microfinance office that is based at Santo Domingo (Head Office) (Hurston, 2008).
The lending model at Esperanza is designed from the Grameen solidarity lending model. According to this model, a group of five women from different households composes a lending group. This group receives a loan, and they must pay it back as a group. Each member of the lending group is accountable for her share for repayment at group level and the group will only be considered to have cleared the loan once, every member’s share is cleared. Since the Esperanza staff visits each group only every fortnight to confirm the status of these women groups, and to collect the payments, the members are forced to inspire each other constantly to ensure that they are making their repayment in time. This has made the bank staff’s job easier since they do not have to follow every borrower. Accordingly, this practice has resulted into a high rate of repayment, which stands at 98 per cent according to Esperanza MIS as of the end of 2008.
Before loans are distributed, all members undergo a one week training session, considering that these members have little or no exposure to the business operation. The potential borrowers are allowed to choose members of their group who they trust that are reliable and would pay back their loans. The training has been deemed to last for a long period, and some borrowers are concerned about it. Although clients appreciate the skills obtained from the training, they are usually anxious to receive the funds. Most members argue that the time spent in training about money management skills could be best spent working. Nevertheless, with the training and finances, these women have been able to manage their loans and run their businesses successfully. When a loan cycle is completed, the group of borrowers is allowed to apply for a subsequent loan with an allowance of 25% more than their previous borrowing. For profit and sustainability, Esperanza charges 48 per cent annual interest on the loans. The mean loan cycle takes approximately six months (Franko, 2007).
In addition to providing loans to women’s groups, Esperanza operates Microfinance Plus program to offer other products of life-enhancing services. Approximately 2 per cent of every loan is put in saving accounts for clients. All Esperanza clients are provided with an insurance cover where they visit the Esperanza supported clinic – Clinica Esperanza Caridad. The clinic is based in San Pedro de Macoris where its clients obtain drugs and other supplies at a subsidized fee in addition to pap smears and immunizations that are offered at no fee. The insurance cover permits that should the client becomes sick and is unable to pay the loan, then the family of the ill person is allowed to keep the remaining balance without repaying. However, not all members of Esperanza have access to the clinic services, though, for those who are closer to Santo Domingo, the service is optimal.
Esperanza International runs the Clinica Esperanza Caridad aiming to provide health services to both its clients and members of poor community. The clinic is specialized in the rehabilitation and HIV treatment, being the only rehabilitation clinic in the eastern side of Dominican Republic. By the end of 2007, about 3000 patients received health services, while in 2008 approximately 4000 patients were treated in the clinic. In addition, due to the partnership between the Operation Rainbow and Esperanza International, the organization has been in a position to hire orthopedic surgeons to provide services to their clients at no fee.
Computer services and education, as well as general literacy courses, are provided to adults, including those who have never completed their formal education. The organization also creates business schemes with the assistance of its field officers. They also provide learning programs on budgeting, pricing, marketing, as well as the logistics on where to sell products. Home improvement loans are provided through a special Home of Hope Program that was designed to help in creation of optimal conditions for the borrowers. The Esperanza’s clients receive these loans at significantly reduced interest rates. In addition to funding of home improvement for its clients, the organization provides services of Esperanza-owned development teams to assist in making the home improvements.
A learning institute was developed in 2008 with an aim to provide education services to the youths and women in rural regions of the Dominican Republic. Since its inception, approximately 400 learners have been enrolled in this school in grade K-8. The current head teacher was once a beneficiary of Esperanza loans and became a teacher only when members of the neighborhood were impressed by the mannerism of her children. Esperanza has tailored a program for prostitutes through the prostitute-to-work scheme; organization has been able to empower female prostitutes and get them out of brothels of Puerto Plata, give them confidence and self-respect, help to learn a trade and become a loan beneficiary. Through leading them to religion institutes, Esperanza has instilled within these ladies that their bodies deserve respect as a gift from God; this has empowered them and made them more determined to provide their families’ needs in dignified ways (DeRose, 2010).
The Esperanza Vida program has been designed to allow the HIV-positive women to borrow at lowered rates, reduced payment and at lowered form of collateral where each member receives a loan as an individual as opposed to the common five-member group. When Esperanza’s client is diagnosed with HIV, it has been observed that his or her living standards decrease drastically. They become depressed and are unable to take proper care of their families. This program has represented Esperanza’s motto to improve the living standards of poor Dominicans effectively (Franko, 2007).
Some Esperanza’s clients have raised problems with the Esperanza lending technique, where they argue against borrowing as a group in preference to single loans. However, the group borrowing method makes the borrowers interdependent and works in a form of social collateral that ensures the repayments are made in time. Single borrowing method has proved over time to have significantly lower impact to the society, not to mention the low rates of repayments. The Esperanza’s clients have also complained about high interest rates attached to the loans. Considering that commercial banks in Dominican Republic charge lower interest, they seem to be more accessible. Nevertheless, the commercial institutions lack the saving programs, demands for physical collateral, lend rarely to the poor, and are oftentimes hard to reach, considering their location in urban areas.
The other problem is the demand made by some clients to make their repayment installment on the monthly basis as opposed to fortnightly. However, it has been proven that repayments made biweekly are more effective. With the increase of time at which deposits for repayment are made, many clients tend to forget to save the amount for repayment until some days before the repayment is due. There are clients who complain regarding the training programs as taking too much of their time, about a week, prior to the disbursement of loans. However, the training has ensured that clients will be accountable for their loans and use them properly. One restriction with Esperanza is its NGO system. As a NGO, the organization is limited to hold and lend clients’ savings. If it had a regulated banking structure, Esperanza would be able to access more capital from the Central Bank and have control over the clients’ savings (Franko, 2007).
Presently, Esperanza has to deposit its customers’ savings with various commercial banks of the country. To access these funds from the intermediary banks, members have to fill some forms and wait for a few days for the approval of transfer, and have their transaction completed by the bank. Esperanza’s motto is to serve the poorest families among the poor. This mission necessitates creation of banking facilities in rural regions of Dominican Republic. These rural areas provide few potential clients for microfinance, eventually raising the costs that are associated with distribution of loans (DeRose, 2010).