MEDA-backed microfinance institution dreams of serving all of Central America
Veronica Herrara has a grand vision for MiCrédito, the Nicaraguan microfinance institution that MEDA helped launch 20 years ago. She wants to see the organization she leads serving at least one million clients, mostly women. “I see (MiCrédito) all around Central America, including Guatemala, El Salvador, Honduras, Costa Rica, Belize, and Panama,” she said. That may seem an audacious goal for a lender that has touched the lives of 50,000 clients since it began operations in Nicaragua in 2004. It started working in Costa Rica in 2018. But MiCrédito expects that by the end of the year, it will close a deal to acquire the assets of a Honduran microfinance institution. That deal would double its loan portfolio to more than $46 million US and add 100,000 new clients.
MiCrédito’s roots go back to an organization called CHISPA Foundation, which MEDA started in 1991. In 2002, CHISPA’s microfinance operations were transferred to a new organization called CONFIA. In 2003, MEDA sold its shares to Pro-credit Nicaragua, the country’s largest microfinance organization. According to Fred Wall, MEDA hesitated to become involved in another microfinance venture after that sale. Wall is a retired Manitoba businessman and former MEDA board member who was instrumental in getting MiCrédito going. He recalls that part of that reluctance came from a desire to work on other things. But MEDA was also skittish after having a bad experience in Tanzania. He said the management of a MEDA-owned microfinance operation there defrauded them out of a significant amount of money.
Some of CHISPA’s original staff contacted MEDA’s chief financial officer, Gerhard Pries. They asked MEDA to return to Nicaragua and start a new microfinance company. Wall accompanied Pries on an exploratory trip to Nicaragua to judge the group’s proposal. “They had pretty grandiose plans,” Wall said. “They wanted several million dollars invested by MEDA.” Told that their plan was not feasible, they were asked to prepare a new plan involving an investment of $300,000 to $400,000.
MEDA was still skeptical, saying its priorities lay elsewhere. It would only invest if someone were found to provide oversight. Wall had done due diligence on other projects for MEDA. He was asked to consider a five-year commitment to the new venture, which the Nicaraguan group named MiCrédito (Spanish for my credit). Wall accepted that task and also served on the MiCrédito board until 2017, including a term as chair. Six people who were part of the original CHISPA team, most notably Octavio Cortez and Herrara, were the first staff.
Cortez, who is now a MiCrédito board member, was its first CEO. Herrara initially served as chief financial officer. Both people made personal sacrifices to raise money to invest in MiCrédito. Herrara sold her car, and Cortez sold his bicycle. The institution got off to a strong start, inheriting a small core of agricultural loans from a Nicaraguan MEDA project. Word of mouth brought in new clients and new loan requests. MiCrédito opened new branches. But raising capital to fund those loans was not easy, said Wall, who was involved in efforts to bring international microfinance funds on board. “We were very small, and we were considered high-risk. It was difficult, so we didn’t get a lot.” However, funds raised allowed the organization to have steady growth through its first five years.
In 2009, Herrara succeeded Cortez as CEO. Times were tough. The Nicaraguan government supported a nationwide no-pay strike that encouraged borrowers not to make payments on their loans. “It didn’t stop us,” Wall said. “It slowed us down for a while. … We survived it.” MiCrédito not only survived but thrived for a number of years after that. As loan growth outpaced available capital again, the board had to restructure operations. It suggested asking MEDA members who had lent money to MiCrédito to convert those loans to company shares and equity. Several dozen people accepted the offer and have profited from doing so. That process also allowed MiCrédito to become a private company, making subsequent fundraising easier.
“Our DNA, our mission is to change the life of the people through finance.”— Veronica Herrara, CEO of MiCrédito
Elmira entrepreneur Robert Shuh joined MiCrédito’s board in 2013 and has been its chair since then. He was amazed at the reception Herrara received at a microfinance industry conference he attended with her early in his time on the board. “Walking those halls with Veronica was like being with a rock star… They all knew how well MiCrédito was doing, both in terms of financial performance and social impact, and you have to have them both if you’re going to be successful in this industry.”
Things changed when a political and economic crisis hit Nicaragua in 2018. The micro-finance industry faced economic challenges. “People’s businesses, in some cases, were dying,” Shuh said. One of the strategies Herrara designed to weather the storm was studying MiCrédito’s client list to see how they could do business with each other. For instance, she matched a leather manufacturer with a shoemaker so they could get together and help each other’s businesses. “That pattern was repeated over and over again,” Shuh said. “MiCrédito made sure, to the best of our ability, that our borrowers were having a market to sell to or to buy from.”
While the portfolio at risk did rise, only one of MiCrédito’s major lenders called its loan. MiCrédito was able to negotiate a payout at a reduced rate. “They just wanted out,” Shuh said. “They were scared.” Unlike its competitors, MiCrédito did not miss a single payment to its lenders during the crisis, “thanks to fantastic leadership by Veronica.” The lender that recalled its funding has since returned to MiCrédito. “We are a reliable borrower. We pay our bills on time.” Talk of international expansion has always been the vision since MiCrédito began. Discussions ramped up during the political crisis, as an exodus of Nicaraguans to Costa Rica mounted.
MiCrédito saw a business opportunity in serving the more than 300,000 Nicaraguan emigres living in Costa Rica in 2018. The number has since grown to close to 1,000,000. There was an opportunity to lend to them. There was a secondary opportunity in providing remittance services for people wanting to send money back to families in Nicaragua. “They did not have the right documents in terms of residency to deal with a Costa Rican Bank,” Shuh said. That new market, where MiCrédito has two branches, has proved to be challenging. “It’s been a slow go. Starting from nothing in a different country. The Costa Rican government capped the interest rates microfinance firms could charge. “It really hurt us. When you’re making small loans, it’s expensive.”
While MiCrédito’s average loan size is about $1,800 US, 70 percent of its portfolio is loans of under $300.” Shuh thinks the Costa Rican operation is “close to a tipping point,” with break-even expected by the end of the year, five years after entering the market.
In 2019, MiCrédito registered a holding company in Panama, a move that makes regional expansion easier. It now operates 15 branches (13 of them in Nicaragua) and has 128 employees. Almost 70 percent of its staff are women, including six of eight team managers. MiCrédito was honored at an industry conference in Guatemala this spring for its social impact. Inclusion [Social Ratings], the world’s first global social rating agency, gave MiCrédito the award in recognition of products it has introduced to change the lives of its clients.
Those products include small agricultural loans, loans to help entrepreneurial women start a new initiative, loans for solar panels to provide electricity to rural homes, loans for migrants living in Costa Rica, and an alliance with Habitat for Humanity to improve sanitation and water in people’s homes. “Our DNA, our mission is to change the life of the people through finance,” Herrara said.
MiCrédito also has a number of healthcare programs. One of these allows clients quarterly visits to a doctor who offers appointments through MiCrédito’s branches. It also offers subscription-based access to telephone medicine through a cell phone. This service has a doctor available around the clock, 365 days a year. It is a less expensive alternative to private clinics for micro-entrepreneurs who don’t have social security.
MiCrédito is also working to convince the Nicaraguan government to allow microfinance institutions to take deposits. That is a logical step in broadening financial inclusion, Herrara said. She hopes that the law will pass in the coming months. The original MiCrédito logo that Herrara suggested 20 years ago showed all of Central America. Board members encouraged her to start with a smaller vision and just a map of Nicaragua, Wall said. “My motto is: you walk before you run and run before you jump. She was a little bit ahead of that. She was a little bit impatient, to go faster.” Today, Wall is happy with MiCrédito’s regional aspirations. “It won’t be long, and (Herrara will) be in El Salvador, or somewhere else.”
MEDA currently owns about 38 percent of MiCrédito. The Horsch Foundation (Germany) holds 16.4 percent, and American and Canadian investors own 37.2 percent. Herrara is pleased that MiCrédito has grown to become one of Nicaragua’s top three microfinance institutions, and the most profitable in Central America. But her thoughts these days are on longer-term goals. “To build leadership, for me, is really important.” Her efforts to build leadership over the past decade include work “to groom managers to continue the organization over the next 100 years.”