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By Karla Jacobs, January 9th 2011
On April 19th 2010 the state-owned production bank, Produzcamos, commenced operations – an event long overdue as far as small and medium producers in Nicaragua were concerned. Figures recently released about its first eight months of operation show that the long awaited bank has got off to a slow but steady start, although small producers across the board in Nicaragua hope and expect to see greater availability of affordable credit from the institution in the years to come.
During the previous three neo-liberal governments (which ruled Nicaragua between 1990 and 2006), constant calls for a public production bank catering to the needs of the country’s small-scale producers fell on deaf ears. That same sixteen-year period saw dramatic changes in the type of loans available on the national market as affordable credit all but dried up for small and medium producers while credit opportunities for big business grew, as did the availability of consumer credit.
Government and other statistics have shown over and over again that in excess of 70% of jobs in Nicaragua are accounted for by micro, small and medium production in the agricultural, commercial and industrial sectors. During their time in power, however, Nicaragua’s right wing politicians demonstrated no interest in encouraging the national financial system to accommodate the needs of those sectors.
By 2006, though, public demand for a production bank was so strong that all the main presidential candidates running in the 2006 national elections (even the candidates representing a neo-liberal ideology like Eduardo Montealegre and Jose Rizo) had no choice but to commit themselves to policies favourable to affordable credit for small producers.
After the FSLN came to power in January 2007 the government prioritized the creation of a production bank and was able to push through initial legislation, effectively installing Produzcamos as a legal state entity in November 2007.
Depressingly, though, it took another two years before that legislative process was completed due to the right wing opposition boycott strategy that stymied progress in the National Assembly (where the right wing have an overall majority) for most of 2008 and 2009. Evidently, the opposition had no qualms about going back on the promises their candidates had made on the campaign trail regarding the introduction of affordable credit.
It was not, therefore, until mid-July 2009 that President Ortega was able to swear in the members of the Produzcamos board of directors. Nine months later, the bank opened it doors to the public with C$2,400 million in financial assets (approximately US$100 million) and branches in most of Nicaragua’s main towns and cities.
The legislation concerning Nicaragua’s new production bank describes the gap in the financial market that it is hoped Produzcamos will come to fill as: “the need to provide credit to … micro, small and medium producers within the agricultural, livestock farming, fishing, forestry, artisan, industrial, agro-industrial, commercial and tourism sectors with a special emphasis on [programs which] contribute to greater food security … .”
And, although loans for all those sectors have been made available by Produzcamos, General Manager Joaquin Lovo Tellez has described the bank’s “raison d’etre” as being specifically “to stimulate the arable and cattle farming sectors in Nicaragua.” Indeed during the bank’s first eight months of operations 58% of loans issued went to these two sectors.
During that initial period Produzcamos lent a total of C$315.1 million (approximately US$15 million) to 4,423 clients around the country. Of course this is not a very significant number of clients considering the sort of demand that exists in the country - ASOMIF, the association of commercial micro credit institutions in Nicaragua, lent money to more than 290,000 clients in 2009. While frustrated that Produzcamos has been unable to make more progress over a shorter period of time, however, producer organizations say they are just happy (and relieved) that Produzcamos has managed to get itself off the ground.
In statements to the national press Alvaro Fiallos, President of the National Union of Farmers and Ranchers (UNAG), recently described the bank’s progress so far as “slow but sure” saying that in Nicaragua there is no other affordable credit option for small farmers, “so we prefer that the bank gets off to a slow start … than for it [to rush] to failure.
At present Produzcamos offers loans of between C$3,000 and C$22,000 (approx. US$140 to US$1,025) for micro and small producers while medium producers can borrow up to C$5.4 million (US$250,000).
Interest rates on Produzcamos loans are between 8 and 12% depending on the payback period, the size of the loan and the sector into which the money is invested.
The main novelty Produzcamos has brought to the Nicaraguan financial market is accessible, affordable credit of as little as C$3,000 for micro producers (farmers who own less than a hectare of land, for example) with the sort of interest rate you would expect to pay on a bank loan, in this case just 8%.
Until now, loans of such small amounts have only been available from the commercial micro credit institutions, which not only charge between 18% and 60% interest plus extortionate fines and other charges for late payments, but also entail devastating consequences for clients who default on their loans, including the expropriation of assets such as land and other property. Until recent changes to national legislation debtors even risked jail for defaulting on micro loans.
Unlike its micro credit counterparts, Produzcamos does not require valuable assets as guarantees for micro loans. A small farmer who wants to borrow from the bank, for example, simply needs to be able to prove he owns his land and to provide two letters of recommendation confirming that he, indeed, is a farmer. The bank’s representatives are adamant, however, that, unlike in the 1980s, this time around the Sandinista government will not contemplate lending again to producers who have failed to pay previous loans.
One of the obstacles the bank has stumbled across in terms of providing agricultural credit since it began operations last year is that many producers are unable to fulfil even these minimal prerequisites. It has become clear that, despite the government’s massive efforts in this field since 2007, a significant number of producers still do not have their land titles in order.
General Manager Lovo says the bank is developing a strategy to overcome this problem in 2011 as a way of meeting this year’s more ambitious aims to support small agricultural production.
During 2011, he says, the bank hopes to lend over CS$1,200 million (approx. US$54 million). Additionally, the Inter American Development Bank (BID) has loaned Nicaragua C$440 million (US$20 million) to be administered by Produzcamos as part of its small production credit programs. This decision on behalf of the BID suggests that during its first months in operation, Produzcamos has managed to inspire a high level of trust among international financial institutions.