Innovative approaches to rural lending: Financiera Calpia in El Salvador
Given the increased interest in rural lending, it is important to understand how a few financial organizations have been successful in reaching the rural areas. One of these organizations is Financiera Calpiá in El Salvador. Understanding the lending technology of Calpiá, the problems this technology has solved, and the challenges the organization still faces, is important for helping others to draw lessons about what can be done and what cannot be done in rural lending.
The paper is organized in six parts.
- The first part briefly discusses the difficulties of rural lending, in order to identify the problems that Calpiá’s lending technology has been asked to solve.
- The second part describes the Salvadoran context, with emphasis on the target markets reached by Calpiá and on the obstacles emerging from the environment.
- The third part presents a snapshot of Financiera Calpiá.
- The fourth one identifies the general principles followed by Calpiá in designing and implementing its lending technology.
- The fifth part describes the rural lending technology of Calpiá in depth. This part examines actual procedures, as they are implemented, and, when possible, it compares the procedures used in rural areas with those used in urban areas. This part also discusses, step-by-step, the problems that each procedure solves during the lending process.
- The last part summarizes lessons, presents conclusions, and explores future challenges.
To manage systemic risk, Calpiá undertakes portfolio diversification at three levels (the household, the rural portfolio, and at the total portfolio level). The institution also accepts diverse types of assets as collateral. The most outstanding feature, however, is the attention to ensuring availability of appropriate human capital. The selection and training of loan officers receives substantial and competent attention. Calpiá’s training program is outstanding. They have found that the stock of knowledge needed to understand agricultural activities and to establish farm repayment capacity is considerably more complex than in urban environments.
The experience of Financiera Calpiá in rural lending has much to teach others and this paper provides a detailed insight into how they have developed this side of their business.