Making Microfinance Work

This story originally appeared in the June 2nd, 2011 issue of Beyond Profit.

Beyond-Profit---The-New-Microfinance-12Aida Patricia took her first microfinance loan of $100 when she was just 20 years old. Fifteen years later, she employs 45 people at her clothing company.

In 1996, Aida Patricia, then a young woman of 20, turned to a small sewing machine in a corner of the house her in-laws owned. To earn extra money to support her family, Patricia began a small clothing enterprise she called Oscaritos. Banks wouldn’t loan her money because she had no assets with which to secure her loan.

A microfinance institution (MFI) based in Masaya, Nicaragua, gave Patricia a loan of 2,000 córdobas—the equivalent of $100. She invested the money in fabrics and materials, and continued to take loans from MFIs to grow her business.

“These loans also allowed us to obtain loans from other institutions, giving us the opportunity to diversify our financial risks,” Patricia recalls.

In 2005, Patricia and her husband, Oscar Garcia, began attending workshops of Agora Partnerships, an impact investment firm that works with early stage companies in Central America. Agora has helped Oscaritos develop a formal accounting system and improve the company’s general business administration.

Today, the company employs about 45 people—mostly single mothers—and provides them with training and support. Patricia is also very conscious of the environmental impact her business is having and tries to lower that where she can.

“Her story is not just about growing a business and employing people but about leadership,” says Ben Powell, the Founder and Managing Partner of Agora Partnerships.

Microfinance has been receiving its fair share of criticism of late—especially in India—but Patricia is an example of one an entrepreneur who benefited from microfinance the way it was intended. This wasn’t by chance but through a deliberate effort.

“We were conscious that the money we handled was not ours, that there was a commitment that we had to grow and return it,” she said. “It’s important to learn a little about how to administer your money.”

As for the problems of the microfinance sector, Patricia hopes they can be turned into solutions and can continue the progress banks have made in lending to small and medium enterprises. She also says it’s important not to forget that microfinance’s mission is reaching the poor and “encouraging them to start small businesses through loans.”

But Patricia also understands the limited benefit of simple credit.

“It is also important to mention that every time I received a loan from an MFI, I was trained in finance, marketing and strategies that helped the growth of my company,” she says.

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