For the poor inhabitants of the region, microcredit serves as an instrument of light. Through small loans and other financial services, microcredit has positioned itself as a source of hope which gives dignity and allows the neediest to be saved from poverty.

For the 220 million poor people that inhabit the region of Latin America and the Caribbean, microcredit has become the great hope for overcoming the misery they are consumed by. Through small loans of money and other services, such as capacity-building and trainings on the best use of their resources, the poor are able to choose a job which not only will give them money to survive and satisfy their basic needs, but will give them dignity as persons.

Due to their condition of poverty and the corresponding lack of confidence in their ability to repay their debts, the majority of people with few assets are not considered credit-worthy by the traditional banks. For this reason, microfinance institutions appear on the horizon as an oasis in the midst of the region’s financial draught for the poor segments of the population. Microcredit shows itself as a fundamental instrument for the economic and social salvation of those excluded from the networks of power. In Latin America and the Caribbean more than 400 financial institutions have been created which give credits to the people marginalized by the conventional banks.

The Success of Microcredit

Microcredit programs have functioned successfully for many years in different cultures. The systematization of these schemes reveals various important reasons why Microcredit is such a strong force for alleviating poverty.

Among these reasons are the following:

Microentrepreneurs in Latin America and the Caribbean

Microcredit has had a great impact on the countries of the region. Fifty million microenterprises have been created in the region, and have as a consequence generated employment, reduced the poverty levels, improved the distribution of income, and given advancement opportunities to people with few assets, particularly women and youth. This means that approximately 110 million inhabitants of the region make a living from their own business.

In Peru and Bolivia, for example, the microentrepreneurs play an important role within their respective economies. In Bolivia, microenterprises -as opposed to medium and large ones- stay dynamic, producing and commercializing the goods which the majority of the population consumes. Likewise, the number of clients who gain access to financing through the entities affiliated to the Association of Financial Entities Specialized in Microfinance (ASOFIN) in Bolivia is 235,000 –which reflects that there is a large number of people that are creating their own businesses.

In other Latin American countries, the microentrepreneurs have also had a deep impact. In Chile, for example, there are 1.2 million enterprises, practically one per 13 inhabitants. Of these, according to the numbers provided by the Internal Revenue Service, during the year 2001 there were 652,455 formal enterprises and 550,000 informal ones. By analyzing the size of the formal enterprises, 82.08% of them are microenterprises.

In Central America there are more than 2,500,000 people that are either self-employed or work in one of the existing 228,892 microenterprises that exist in the region. Of these the majority work in the rural sectors, such as agriculture, ranching and handicrafts.

As a result of the growth of microcredit and the increasing need of the region to create new microenterprises, a variety of banks, NGOs and microfinance institutions (MFIs) have been created in Latin America with the chief aim of improving access to financial services for broad sectors of the lowest income populations.