MFI Partner Spotlight: Banigualdad Foundation

Explore the World. Invest in People.

This has been our credo since 2011 and it drives our approach to adventure  travel, ensuring that 10% of your trip cost is invested in the local economy through microfinance institutions (MFIs). Thanks to our travelers, as of March 2018 over $2900,000 has been invested in small businesses around the world, with 90% funneled to women entrepreneurs. That’s 619 loans in 5 countries! (For most recent numbers, visit the Invest page)

The Banigualdad Foundation is instrumental in engaging our borrowers in Chile. Working directly with MFIs like Banigualdad ensures that local experts drive loan approval and investment. Whether it’s a training session on how to open a hair salon or seed funding that can turn a small cooking business into something more, Banigualdad helps through financial planning, training, and loan distribution for small-scale entrepreneurs.

Banigualdad Foundation is non-profit foundation that has spent over 10 years providing small loans and training to groups of low-income entrepreneurs. They currently support more than 45,400 entrepreneurs from La Serena to Puerto Montt, with 89% of the beneficiaries being women and 53% heads of household.

The mission is to invest in entrepreneurs from vulnerable sectors throughout Chile so that through their own means and support, they can improve their quality of life and be an example for their communities.

Their work methodology is based on groups of at least 18 entrepreneurs who take out individual loans ranging from $165 to $1,650 but which are jointly guaranteed, that is, if one person can’t pay the weekly fee, the other 17 members assume it collectively (Banigualdad’s repayment rate is 99.9%).

Each loan, which has a fixed duration of 5 months, goes hand in hand with a weekly training provided by social workers who work in the field with entrepreneur groups. Subjects include business, finance, basic accounting, marketing, as well as personal development (self-knowledge, healthy eating, etc.).

Small business owners like Chilean artisan Karola Vera can access services that make opening or expanding a business more manageable. When she was unsure about how to move forward, Banigualdad stepped in to help guide Karola through the loan application process that allowed her to expand her craft business.

“I wanted to work and take care of my children at the same time. I have a craft business and work with recycled materials: the wood I use for hoops comes from furniture, copper from electrical installations, and leftover fabric that other artisans do not use...When I [needed] to invest in machines and keep growing, Banigualdad appeared. The loan and the training sessions have helped me a lot, as have networking with other entrepreneurs.”

— Karola Vera, Los Lagos Region, Chile

For updates on the total amount invested with Banigualdad and our other MFI partners, please visit our Invest page. All numbers are updated quarterly. 

7 Questions You May Have About Microfinance Answered

OneSeed plays a small role in the big world of microfinance. Here's a run-down of some of the most important questions and issues within microfinance.

1. What exactly is microfinance?

Microfinance is the term used for the provision of financial services to the working poor. Currently, microfinance loans are aiding 160 million people around the globe. For all the visual learners: Check this video out!

2. What is the difference between microfinance and microcredit?

Getting a loan from a bank can be extremely difficult for someone with little cash income. Microcredit is a loan to the microentrepreneur by an MFI (microfinance institution). Microcredit is one component of microfinance.  Other growing services include microsavings, microinsurance, and financial training programs offered by a number of MFIs.

3. Why are the interest rates so high?

Microfinance interest rates vary greatly by region and market and average 35% globally. This might seem crazy; however, there are a lot of unseen risks and costs of sustaining an MFI.

• Because the loans are typically for small amounts, MFIs need to charge interest to cover administrative costs. If you think about it, giving a $1,000 loan requires the same amount of employee attention as a $25 loan. Giving a large number of small loans is time intensive with smaller returns and administrative costs are around 10-25% of the total loans given.

• MFIs take on risk by giving collateral-free loans. Well-established MFIs still lose about 1-2% of their loans. Without physical assets to secure the loan, there is no guarantee and the interest rates help to compensate for that risk.

• Inflation and currency exchange rate fluctuation also plays into this problem. For example, in Nepal, the rupee has slowly been losing value against the dollar while annual inflation rates can reach double-digits. Each subsequent month the borrowers pay a portion of their loans, its value decreases against the currency in which may MFIs receive funding. In order for an MFI to grow, the need for additional operational margins (around 5-15%) to compensate for the losses incurred by inflation and currency exchange fluctuation.

Here is a video created by OneSeed’s founder Chris Baker about a field visit in Nepal to follow up on the impact of OneSeed's microfinance loans.

4. What is an MFI?

An MFI is a microfinance institution that provides the microcredit and financial services to microentrepreneurs.

Learn more about our partner MFIs: WEAN, FINAM, and BPW.

5. Are all MFIs non-profit?

Many MFIs began as a non-profits, however, a for-profit sector has developed more recently. For-profit MFIs have drawn on large investments which allow them to distribute more funds by (at times) more efficient means. The challenge for many for-profit MFIs is achieving a balance between financial sustainability and the poverty-alleviation mission of the microfinance sector. At OneSeed, all of our partners have been carefully selected because they meet our criteria and they all also happen to be non-profit MFIs.

Here are some of the most prominent global MFIs and organizations furthering the mission of microfinance:

• Grameen Foundation was an expansion of the Grameen Bank, which began in 1976 in Bangladesh. The foundation remains non-profit but the bank has converted to for-profit.

• BRAC is the largest MFI in the world aiding 126 million people with its non-profit services.

• Compartamos Banco is based in Mexico and is most known for is success after converting from a non-profit to a for profit. Its share price increased 22% in the first day of trading. However, the bank has received criticism surrounding the extreme profitability of the company and its interest rates of up to 90%.

• Truelift is designed to rate how well an MFI serves those living in poverty. They give their ‘Pro-Poor Seal of Excellence’ to MFIs who meet their standards.

• Cerise is a network for MFIs to share and learn from one another.

6. What are some of the risks or controversies?

The provision of financial services is neither without risk nor controversy. As the field of microfinance has grown and evolved, predatory lending practices and a lack of risk management by a small number of MFIs have raised important and fundamental critiques of lending practices.

• Although similar movements have occurred in other Latin American countries, the “No Payment Movement” in Nicaragua is a prime example of one of the risks with microfinance. In 2008, several thousand people occupied an MFI in the city of Jalapa. The protesting turned violent and the leaders of the movement demanded that Congress accept a 10 year amortization period with 8% APR or less for all loans. This movement has put many MFIs at risk and therefore reduced the available microcredit in Nicaragua.

• In India, there have been cases of suicide due to unpaid microcredit loans. When interest rates skyrocket and borrowers are unable to repay their loans, a cycle of debt can result in personal financial ruin.

OneSeed works with carefully selected MFIs that meet our criteria of low-interest rates and high social performance. While microfinance is an important tool that aids millions of people, we recognize the importance of supporting best practices that support the poverty alleviation goals of OneSeed and our partners.

7. What happens to the 10% after my trek?

In the subsequent month after your trip, OneSeed sends the money to partner MFIs in all over the world. The MFIs disburse the loans in local currency and begin to pay back OneSeed the following month in that currency. While our partners charge an extremely low interest rate compared to the national average (BPW: 10%, WEAN: 15%, FINAM: 30%), OneSeed does not charge any interest. We receive exactly what we gave (minus the inflation rate).

Interested in learning more?  Check out the resources below:

Books:

• Banker To The Poor: Micro-Lending and the Battle Against World Poverty by Muhammad Yunus

• Microfinance: The Way of Grassroots Finance by Satyananda Gabriel

Websites:

• CGAP (Consultative Group to Assist the Poorest)

• The MIX (Microfinance Information eXchange)

• The Virtual Library on Microcredit

Videos:

• What is Microfinance?: talk by Geoff Davis