Access to Credit in Guatemala

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This is a story of success of the Opportunities for My Community Project, which links remittances, education and savings to promote economic and human development in Guatemala.
Cecilia is the owner of a small business offering office supplies and computer tech support in the town of Aguacatán, Huehuetenango in Guatemala

Founded in 1966, La Encarnación Cooperative Credit Union has contributed to the financial inclusion and economic development of its community for over 50 years. La Encarnación Cooperative forms part of the MICOOPE system, a network of small cooperative credit unions in Guatemala.

La Encarnación Cooperative and the Opportunities for my Community project formed a partnership to help small businesses through technical assistance and access to credit. Given the nature of the cooperative, any credits that are issued come directly from the pool of savings that its members invest. Therefore, the responsible management of the funds is of the utmost importance.

La Encarnación and the project have worked closely together to demonstrate their accountability to members, participants, and the general public, conducting their partnership in a transparent manner that builds community trust and openly shares information on the use of resources.

The work responds to local needs for credit and for economic innovation as part of Guatemala’s knowledge economy[1]. The example of MICOOPE La Encarnación has been especially important in terms of the accountability, transparency, and ownership that the institution has demonstrated as a project partner.

Access to Credit in Guatemala

In 2014, 15.3 percent of Guatemalans had a loan, according to the National Statistical Institute of Guatemala (INE). Among people with credit, 61.4 percent had a loan from a bank, while 18.5 percent had a loan from a credit union. However, as the following graphic shows, a large percentage of people are accessing credit through informal means, including loans from friends and family.[2]

Graphic 1. Loans in Guatemala

Source: Prepared using INE data from the 2014 ENCOVI survey.

These figures also show that access to credit is highest in Guatemala City. Only 15.1 percent of all credits in the country are in the Western Highlands (including the departments of Quetzaltenango, Huehuetenango, San Marcos, Totonicapán and Quiché) though 30 percent of the country’s population lives in the region.[3]

The primary reason that Guatemalans access credit is to invest in businesses. Table 1 provides additional detail on the types of businesses in which people are investing.

 

 

Table 1. Loan Purpose for Credits in Guatemala

Purpose

Percentage

Business use:

Investment in agricultural business

23.4

Investment in non-agricultural business

14.6

Other use:

Housing

30

Home expenses

14.1

Emergency or health expenses

6.6

Other

11.3

Source: Prepared using INE data from the 2014 ENCOVI survey.

As Table 1 suggests, Guatemalan entrepreneurs need access to credit in order to strengthen their businesses. Responding to this need, the Opportunities for My Community project includes strategies to connect small business owners with access to credit that is accompanied by business coaching that strengthens their products and services. 

Guatemala’s economy is highly dependent on labor-intensive activities such as agriculture, tourism, and economic enclaves in the ‘maquila industry’ and informal sector. More than 80 percent of the country’s gross domestic product (GDP) is derived from these activities. In light of this, it is not surprising to find high levels of poverty and low salaries, which are in many ways the product of an informal, uneducated, unskilled and underpaid workforce.

In this context, it is difficult for Guatemalans to achieve a better quality of life. The knowledge economy, which derives economic value from human capital, innovation, and the use of technology, is very incipient in Guatemala.

“I’m truly grateful to the Opportunities for My Community project for the business coaching I’ve received. I’m also grateful to MICOOPE La Encarnación, which is dedicated to improving the lives of its members and improving the communities where it operates.” – Cindy Mérida, Entrepreneur

To strengthen the knowledge economy, the Opportunities for My Community project, in partnership with Banco Industrial, Banrural and seven cooperative credit unions in the MICOOPE system, are supporting small businesses through credit and technical assistance that helps them to grow their business. 

The program works with businesses who need financing and who have begun to participate in the knowledge economy, helping them to grow and to achieve greater impact. These businesses include, for example, internet cafes, educational services, tutoring services, foreign language schools, and businesses that teach IT skills. At the same time, the project works with traditional businesses that express interest in joining the knowledge economy by applying innovation, technology and information into their business processes or products, for example.

The knowledge economy is important because it generates value-added for products and services through the use of technology. In addition, it stimulates innovation, as well as the creation of new ideas and products. Finally, it develops entrepreneurial skills and abilities that help to move Guatemala forward economically.

By building their capacities, people can access better paying, more diverse, and less labor-intensive forms of work. This in turn helps Guatemala to successfully join an increasingly competitive and globalized economy.

Partnership with MICOOPE La Encarnación

“Tecno Media” Internet Café

In order to satisfy the need for credits as well as to contribute to local investment and to strengthen the knowledge economy, the cooperative has joined efforts with the Opportunities for My Community project to benefit even more local entrepreneurs.

More than 20 entrepreneurs have participated in business coaching provided by the project. MICOOPE La Encarnación has actively participated in the process and most entrepreneurs have received credit to invest in their businesses, with amounts ranging from Q4,000 to Q150,000 (approximately $530-$20,000).

The cooperative has shown a high level of commitment and leadership throughout the process, setting its own work plan with specific goals, and training its staff to identify people in the community who are working in the knowledge economy or show potential to do so in the future. The cooperative has established a process for identifying and referring entrepreneurs and the project then matches them with a business coach who can work with them to strengthen their business.

At the same time, the cooperative has demonstrated interest and commitment in engaging the entire organization in these efforts, a sign of the importance of the project. The cooperative’s goal is to bring this benefit to more of their members. To share the results, and as part of a large accountability process within the institution, they have produced a video documenting the experience of four entrepreneurs who participated in the project.

“We would like to thank USAID and The Dialogue for including us as project partners. This means offering business coaching and training to our members, who have started personal projects and small businesses. With the support of the Opportunities for My Community project and MICOOPE La Encarnacion, they see a more promising future, where their dreams can be realized.” – Fabiola Argueta, Business Manager, MICOOPE La Encarnación

Recording entrepreneurs in Aguacatán. TodoRecords, the video production company, is also participating in the Opportunities for My Community project

The video was presented to the cooperative’s members at the 2018 general assembly meeting. The testimonies of the entrepreneurs are part of the accountability that the cooperative has with its members. Through the video, the cooperative makes information available to its members and to the general public in a transparent, reliable way. The collaboration with the Opportunities for My Community project is no exception.

The transparency that characterizes the Cooperative’s engagement with the Opportunities for My Community project also serves to build confidence among participants and promote sustainability.

 

 

[1] The knowledge economy generates value-added for products and services through the use of technology. In addition, it stimulates innovation, as well as the creation of new ideas and products. Finally, it develops entrepreneurial skills and abilities that help to move Guatemala forward economically.
[2] Data from the National Statistical Institute of Guatemala (Instituto Nacional de Estadística de Guatemala or INE) from their survey, “Encuesta Nacional de Condiciones de VIDA 2014.”. ENCOVI 2014: Préstamos recibidos -detalle-. Available at: https://www.ine.gob.gt/index.php/encuestas-de-hogares-y-personas/condiciones-de-vida
[3] INE. Guatemala: Estimaciones de la Población total por municipio. Available at http://www.oj.gob.gt/estadisticaj/reportes/poblacion-total-por-municipio(1).pdf