Morality Play in Nicaragua

In 2007, when microfinance investment fund assets under management grew 80 percent worldwide, Nicaraguan microfinance institutions (MFIs) had easy access to capital. Yet having grown 87 percent from 2005 to 2007, the MFIs were strained. According to Julio Flores, Director of Nicaraguan MFI Fondo de Desarrollo Local (FDL), “it took restraint for some of us not to borrow as much as was being offered.” Founded by Jesuits, FDL has a reputation for mission-led policies and programs. “Restraint” is a relative word, of course: FDL’s portfolio grew 21 percent during 2007. However, larger, regulated institutions like Banex and ProCredit grew 42 percent and 37 percent, respectively, taking market share and fueling competition. Loan sizes rose, clients borrowed from multiple institutions and overindebtedness ensued. When the world financial crisis hit in 2008, a mix of [factors] unraveled the industry. Banex, a favorite of investors, subsequently failed, while the market leader, ProCredit, was recapitalized, abandoned the bottom segment of the microfinance market and lost almost 75 percent of its clients in two years....Some MFIs, however, are back to pre-crisis credit quality. Those institutions with commitments to their missions and good governance have shown that this mix can be a recipe for survival. One example is Pro Mujer Nicaragua, which was once seen as a noble yet tiny player. It now serves 26,000 clients, more than the former behemoth ProCredit. Another is FDL, which has held on to almost 70 percent of its clients with nearly 60,000 in total.