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Microfinance in Nicaragua

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Microfinance gained a foothold in Nicaragua during the 1990s as a response to the void left by the departure of the state bank from large sectors of the economy, including the least developed. The private banks were unable to satisfy the demand for financial services. Now it is estimated that approximately 20% of the population receive financial services from the organizations that provide microfinance, among them NGOs, savings and credit cooperatives, anonymous societies, and financial organizations. For more than a decade, many microfinance institutions (MFIs) have managed to maintain a significant presence in terms of outreach, service provision, and institutional strength, not only as organizations but also at a national level.

This workbook focuses on the situation of microfinance in Nicaragua by looking at five articles. The first article focuses on the dimensions of the microfinance market by looking at five common themes. The first theme describes the antecedents to the financial sector in Nicaragua; the second the theme presents the potential demand for microfinance services; the third theme evaluates the state of microfinance in Nicaragua, taking into account its actors, coverage, and sustainability; the fourth theme presents the initiatives taken by various actors with regards to financial regulation; the fifth theme outlines the opportunities, limitations and recommendations for the development of the sector.

The next article attempts to demonstrate the relationship that exists between micro-credit and the reduction of poverty in rural zones by means of an analysis of the efforts by microfinance institutions and socio-political arenas, which can be influential in helping the poor. The article is based in a case study by the IMF’s Local Development Fund (FDL) and its experience in Valle de Quilali. The article analyzes the local enrichment brought about by FDL and offers a tentative analysis of the process of social exclusion, as well as general observations about the intervention strategy of the FDL.

The third article analyzes the viability of financial services which are focused on one segment of society. The article centers on the question of how to obtain the optimal conditions to balance the services targeted at women clients and allowing greater access to the community at large. The article consists of the following sections, the first looks at the former analysis of the experience of micro-credit for women in Nicaragua; the second presents this experience, its limitations, and lessons learned; the third presents a recommended model with two perspectives, financial (sustainability and reduction of costs of financial services) and social (defining financial services and non-financial services, reflection on the influence of credit for women).

The fourth article analyzes the sustainability, reach, and impact of microfinance, through the experience of the project in the Dry Region of the South Pacific (PROSESUR), with respect to the development of the market of microfinance in the south of Nicaragua. The project promotes various innovative mechanisms. One of these was the channeling of funds across local private microfinance entities, by means of a credit fund called the Peasant Development Fund (FONDECA) that is the object of study for this article. FONDECA creates a source of funds for small producers for the development of their agricultural activities and small businesses, and for the commercialization of their products.

The fifth and final article deals with the regulation and supervision of microfinance. It offers an initial overview of the current legal situation of microfinance, in order to analyze beforehand the costs and benefits of supervision for entities that are not as of yet regulated. Also in the article they discuss the actual legal situation of microfinance in Nicaragua, which presents a series of limitations and dilemmas. The author concludes that a degree of prudent supervision for microfinance in Nicaragua would have good consequences, in that it would allow an environment of factors conducive to the development of the sector through market principles, and he indicates a series of strategies for the realization of this idea.

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