WCCN expands partnerships to Ecuador

Working Capital for Community Needs started 2010 by adding two new partners in Ecuador: FACES and INSOTEC. This is the fifth country in which WCCN is currently working and the first in South America. Background information about Ecuador and these new partners follows.

Ecuador has a population of approximately 14 million people, plus 3 million more living abroad mainly in Spain, the United States and to a lesser extent, Italy. Geographically, Ecuador has three main regions: the Andes, the Pacific Coast and the Amazon jungle. After Bolivia, Ecuador has the highest number of indigenous peoples in South America. Historically, the indigenous population in Ecuador has been excluded from the political system. But, since the uprising of this population in 1990, the importance of the indigenous movement in the Ecuadorian political system has grown.

Since 1979, only three Ecuadorian presidents -- Febres, Borja and Durán-Ballén -- have finished out their terms. One president died in a plane crash (Roldós), and four were forcibly removed for different reasons (Bucarán in 1997, Mahuad in 2000, Novoa in 2003 and Gutierrez in 2005). The political instability that has affected Ecuador during the last 15 years resulted, in part, from the crisis of the economic model promoted or imposed by the so-called Washington Consensus during the 1980s and 1990s. Privatization and deregulation of Latin American economies went too far.

The magnitude of that crisis in countries such as Venezuela, Argentina, Colombia, Bolivia and Brazil helps explain dramatic changes in the political arena and the rise of leftist forces in most of the region, including Correa in Ecuador. In Ecuador, the financial crisis of 1998-1999 resulted in a full collapse of the financial system. During those years, half the private banks failed. The severity of the economic and financial collapse of 1999 pushed Ecuadorian President Mahuad to dollarize the economy, phasing out the sucre and adopting the U.S. dollar as the nation’s official currency. Notably, microfinance institutions and credit unions were far less impacted by the financial crisis of 1999. In fact, since the crisis, the microfinance industry in Ecuador has taken off and become one of the best performing in the Latin American region, after Peru and Bolivia.

Current President Rafael Correa took office in January 2007. He is an economist with a doctorate from the University of Illinois at Urbana-Champaign. Correa defines himself as a “humanist” and “leftist Christian.” President Correa was elected on the basis of his promise to call a Constitutional Assembly to draft a new political constitution giving more power to the poor and disenfranchised. Through a late 2008 referendum, the vast majority of Ecuadorians approved the new constitution, and, consequently, new presidential elections followed. Voters re-elected Correa in April 2009, and he officially took office again on Aug. 10, 2009.

WCCN is excited about our new partnerships in Ecuador and expects to take full advantage of our 19 years of experience in microfinance to deal with the new political, economic and regulatory challenges we will face through our expansion.

FACES

Founded in 1991 as a holistic development non-governmental organization, FACES organizes activities into two main programs: development and microfinance. The development program encompasses community development, health and environmental management projects.

Social impacts of FACES include these highlights:

• FACES serves remote and rural areas of the province of Loja with a portfolio that is well-balanced across commerce, services, transformation of products, agriculture and livestock.
• The fairly low average loan size of $693 indicates lending operations consistent with the organization’s mission.
• 64% of the total loans are allocated to women, with a total of 62% of the portfolio (in dollars).
• The organization’s development program strengthens communities, helps people access markets, improves the health of families, and promotes reforestation and native plant conservation.

INSOTEC

Founded in 1980, INSOTEC provided consulting services for training and microenterprise development. The Inter-American Foundation helped INSOTEC complement these services with a credit program for trade associations in 1989. By 1993 INSOTEC was expanding credit -- with support from the Inter-American Development Bank and the Ecuadorian-Canadian Development Fund -- and lending directly to end borrowers. In 2002, USAID helped INSOTEC expand deeper into rural areas. Two years later, microfinance became INSOTEC’s core work.

Social impacts of INSOTEC include these highlights:

• INSOTEC’s strategy is to reach further into rural and remote areas, with about half the portfolio dedicated to agriculture and livestock, and the remaining across commerce, services and manufacturing. Note that INSOTEC dedicates the entire portfolio to income-generating activities.
• INSOTEC has a fairly low average loan size of $766.
• 45% of the total loans are allocated to women, with a 44% of the portfolio (in dollars). However, women handle 59% of the commerce loans.
• During the first three quarters of 2009, INSOTEC served more than 5,000 borrowers with services related to entrepreneurial development. The organization specializes in business administration training and in helping borrowers establish marketing channels and develop information systems.
• About 30% of INSOTEC’s borrowers are of indigenous ethnic groups, mainly Tsáchilas.

Ecuador at a glance

• Population: 14 million
• Indigenous peoples: About 60% of the population
• Poverty: Nearly 40% of Ecuadorians live under the poverty line; around 70% in rural areas
• GDP growth 2009: -1.4%
• Inflation rate 2009: 4.3%
• Unemployment: 8.6%

By Carlos Arenas
WCCN Executive Director