Microfinance & Microenterprise Issues in Nicaragua

Nicaragua is the poorest country in Latin America and second poorest in the Western Hemisphere. Currently, over 50 percent of the 5.5 million residents are living below the poverty line. High unemployment and underemployment have resulted in this widespread poverty and country-wide economic instability. As a whole, Nicaraguans lack access to the work and borrowing ability that are needed to build a strong economy.

In 1979, the Sandinistas nationalized the country's banking system in an attempt to promote community banking and support the rural poor. Although the National Development Bank, BANADES, was able to temporarily assist many peasant farmers, it struggled with serious problems such as high losses due to unsuccessful lending programs and low loan recovery rates. By late 1987, the annual inflation rate in Nicaragua was nearly 1300 percent and rising.

High inflation contributed to an almost complete turnaround in economic policy with the election of conservative candidate Violeta Chamorro in 1990. Encouraged by the International Monetary Fund and the World Bank, Nicaragua devalued its currency (córdoba), privatized all state-owned firms, and re-privatized the banking sector. BANADES, meanwhile, was dismantled by the late 1990s. The privatization effect on the majority of Nicaraguans was dismal and seemed to offer no improvement to the previous nationalization. Strict credit restrictions only served to tighten or prevent financial assistance, forcing poor families to default on loans.

By the end of 2002, there were only six banks in Nicaragua (most of them headquartered in Managua or other metropolitan areas), as compared to a regional average of 107 per country. The total assets of these Nicaraguan banks (in millions of U.S. dollars) were $2,009 compared to a Central American average of $30,133. Having 15 times less banking resources than its Central American counterparts means that Nicaragua struggles to provide enough lending opportunities for its citizens.

With public investment shifted away from private institutions and abysmally low salaries given to those working in the formal sector, Nicaragua's economy shifted. People turned to "informal production" to make ends meet. These activities included peddling goods and food in street markets, operating informal taxis and minibuses, and artisanship. Often referred to as a shadow economy, informal production soared in the last few decades, particularly affecting women. In 2000, 75 percent of women worked in businesses with one or two employees.

Into this melee, microenterprises supported by microfinancing emerged as both a business tool and a successful development plan, reaching out to those who have been left out of the formal financial market. A recent study estimated that nearly 20 percent of the Nicaraguan population is either a direct or indirect user of microfinance services. The Nicaraguan Association of Microfinance Institutions (ASOMIF) comprises a huge aggregate of financial organizations—a total of 20 united nongovernmental institutions that provide community support and credit cooperatives. The 217 branches of ASOMIF members reach nearly 290,000 clients with a total portfolio of nearly $149 million (USD). FSD works directly with ASOMIF branches and other organizations to grow microfinance and microenterprises throughout Nicaragua.

Microenterprise/microfinance NGOs address Nicaragua's poverty directly by providing financial resources and solutions for people to create businesses, and secure employment, schooling, and health care. Work produced by FSD volunteers and interns is interdisciplinary and rooted in client empowerment, supporting citizens to foster their own microenterprises. Whether you assist the teaching of workshops in strategic management to local artisans, facilitate youth entrepreneurship programs, or help negotiate loans for women's microenterprises, your work will immerse you into local culture and expose the challenges and current solutions Nicaragua faces in microeconomic development.

Read more about Microfinance & Microenterprise programs and opportunities initiated by our Community Partners in Nicaragua.

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