Mark Schreiner and Claudio Gonzalez-Vega
(1995) Report for USAID
/Santo Domingo. Also Economics and Sociology Occasional Paper No. 2247,
Rural Finance Group
in the Department of Agricultural,
Environmental, and Development Economics
at The Ohio State University
.
This report provides a preliminary quantitative analysis of the financial results of five organizations which are clients of FondoMicro. It also includes a qualitative assessment of the long-run vision held by these institutions' managers and of the organizations' ability to allow a transformation into self-sustainable institutions, whose financial contracts are useful to small and micro entrepreneurs.
The five organizations studied are ADEMI (Asociación para el Desarrollo de Microempresas, Inc.), ADEPE (Asociación para el Desarrollo de la Provincia Espaillat, Inc.), ADOPEM (Asociación Dominicana para el Desarrollo de la Mujer), FONDESA (Fondo Para el Desarrollo, Inc.), and the Candelaria Credit Cooperative (Cooperativa Nuestra Señora de la Candelaria, Inc.).
Overall preliminary financial results for these five lenders show a positive trend. Except for ADOPEM in 1992 (to a minor extent) and FONDESA during 1992 and 1993, all have been profitable in accounting terms. In addition, a measure of subsidy dependency suggests that ADEMI could be profitable even if it had to pay market rates of interest for its funds. This is the case of Cooperativa Candelaria, which operates entirely on market terms.
These lending organizations do not, to any great degree, use funds subsidized by donors in order to leverage funds from non-donor sources. Funds borrowed from commercial banks do not make up a significant portion of any of these lenders' liabilities (i.e., they are not used to fund their portfolio). Moreover, only ADEMI and Cooperativa Candelaria accept deposits (or deposit equivalents).
By current standards for microfinance institutions, all of these lenders (except FONDESA in the past) run relatively efficient operations. That is, they do not seem to use excessive resources to produce their financial services, although there is still room for improvement.
Cooperativa Candelaria and the other AIRAC cooperatives (Asociación de Instituciones Rurales de Ahorro y Crédito), upgraded by the earlier Ohio State University's Rural Financial Services Project, are already self-sustainable and operate as full financial intermediaries, with no donor funds. ADEMI would be self-sustainable, if donors would force the issue. ADOPEM is a few steps away from self-sustainability, and the difficulties remaining are not insurmountable.
ADEPE's lending program, in turn, could eventually become independent of subsidies, but it will have to get much bigger and its parent institution will have to adopt the same hard-nosed philosophy as the lending program. Cross-subsidization from the lending program to other activities will have to be avoided. FONDESA has the desire and the vision to be self-sustainable, but its small size and the staggering losses from the past that had to be absorbed in the last two years make realization of such potential less certain.
FondoMicro's funds and technical assistance have been instrumental in bringing the Dominican market for microfinance to its present state, although ADEMI preceded its operations. FondoMicro prodded those lenders whose portfolios reeked with delinquent loans from past years into painful but healthy sanitizations. By basing the maintenance and/or expansion of its lines of credit on financial results and on loan recuperation, FondoMicro has motivated its clients to pay more attention to aspects of lending that matter for self-sustainability. Funds and technical assistance from FondoMicro should continue to be contingent on steady progress of its clients toward self-sustainability.