Peace Corps Ecuador
Community Banking Program
Impact Study
Benjamin Rae
Microfinance Coordinator
Peace Corps Ecuador
Abstract
The Programa de Ahorro y Crédito (PAC) began in Ecuador in 1999 with the creation of six banks in various parts of the country. Over the next seven years, the program has grown very rapidly. Currently there are an estimated seven-hundred community banks throughout the whole country. This study examines twenty-six banks located in four cities, all on the coast, in Ecuador. It seeks to determine the impact this program has had on those who have participated.
The technique used to conduct the study is the following. A survey was given to each bank (Appendix 1) with questions regarding basic facts about the banks, the loan structure, the liquidation process, and qualitative factors associated with the bank. These results were then compiled to obtain overall averages for the banks surveyed (Appendices 2, 3, 4, and 5). These findings were then compared against the results we would have expected based on the model for the community bank program that we created.
The results obtained from the survey show that the community banking program in Ecuador is more advanced than expected. Banks are managing larger sums of money and members are contributing more money on a weekly basis than we thought. This demonstrates that the initial program has been quite successful and individual banks have taken it upon themselves to expand upon the initial model to increase their borrowing and saving capacity. There have also been very few problems in the management of the banks as related through several questions on the survey. This shows that the model is a successful one and the program should continue to be expanded as is presently happening.
It would be a good idea to initiate a larger study of the community banking program in Ecuador to obtain a better and more complete picture of the exact state of the program. While twenty-six banks seems like a relatively large sample size, when compared to the more than seven-hundred banks in existence it is not. The study also only looked at banks located in four cities in the costal region of Ecuador. It would be important in a future study to examine banks from all three regions (the coast, the sierra and the oriente (jungle)) to determine if the results are similar for all three regions or if they are geographical differences.
The program as a whole has been immensely successful and it may be useful to examine new ways to increase the borrowing potential and length of the loans for members so as to be able to invest in more long-term projects (such as agriculture).
Peace Corps Ecuador
Community Banking Program
Impact Study
Benjamin Rae
Microfinance Coordinator
Peace Corps Ecuador
Background
The Programa de Ahorro y Crédito (PAC) was introduced in Ecuador in 1999. About four years before, CARE International started the first community banking program in Niger, a country in Africa, and one of the poorest countries in the world. Within three years, more than 100,000 people in Niger were part of this program. Due to the success of the program in Niger, Peace Corps Ecuador brought the program over and initiated several pilot banks beginning in 1999.
The structure of PAC is very simple and requires no outside funding, which differentiates it from many other microfinance projects around the world. The program is built around a system of trust, where between twenty-five and thirty-five people form a group and start saving money on a weekly basis. Normally, each person saves one dollar weekly, and this money would be stored in a box with three locks. One member of the bank, the treasurer would take the box and store it between meetings, while three other members of the bank would each carry a key to one of the locks. This assures that the box with the money in it cannot be opened without the presence of these four people. After the group has been saving for a month, the group begins to give out small loans to people who belong to the group. These loans generally last for one month and the person who takes the loans pays back the loan with interest (generally 10%). While this interest rate may seem high, it is important to remember that all of the money generated from the interest goes to those who belong to the group. Therefore, the more the group loans out amongst themselves, the more the group makes.
At the end of a predetermined period of time (usually one year), the bank liquidates and each member receives their share of the money: the money they saved throughout the year plus an equal share of the interest generated from the loans. Because of the fact that the money is normally kept in a locked box in someone’s house instead of in a financial institution, this step is necessary to assure the security of the money. This fact leads to one weakness in this community bank model: due to the fact that the money is distributed at the end of one year, the amount of capital available to members of the bank is limited, which in turn prevents group members from taking out larger loans.
The PAC program began in Ecuador in 1999 with the creation of six banks in various parts of the country. Throughout the next six years, the program has expanded at an astounding rate and is considered one of the most successful programs in Peace Corps Ecuador. To date, we estimate there are over 700 community banks in Ecuador and over 30,000 people who participate in these banks.
Process
This study will examine banks in several of the areas where Peace Corps initiated this project in 1999: Bahia de Caraquez, Chone and Canoa in the province of Manabi, and Muisne in the province of Esmeraldas. The data compiled for use in this report was obtained by asking members of community banks in each of these areas to fill out a survey. The form used is attached at the end of the report (Appendix 1). In addition to the survey interviews were conducted with members of these banks to get a more detailed account of exactly the changes and benefits these people experienced as a result of PAC.
During the course of this study, people from twenty-six banks located in these four areas were interviewed and asked to fill out the community bank survey. Eight banks were interviewed in Canoa, eight banks in Bahia de Caraquez, four banks in Chone, and five banks in Muisne.
The questions asked on the survey fall into five general categories, each to be explained in more detail below, bank demographics, how the basic functions of the bank work, the process for obtaining loans and what these loans are then used for, the process for liquidating the bank at the end of the year, and several questions related to qualitative factors associated with the bank. The demographic questions focus on obtaining very basic questions related to the number of people in the bank and the percentage who are male, female and under the age of eighteen. The basic functions of the bank look at the weekly contribution rate of each member of the bank, the interest rate imposed on loans, and whether or not each group decided to create a social fund to be used in case of emergencies. It also looks at the amount of money the bank currently has. The portion of the survey about loans looks at the system in place for giving out loans, the length of the loans, how often the bank gives out loans, the average amount of a loan, and whether or not there is a limit to the amount of money a person can take out in a loan. It also looks at possibly the most important part of this whole survey, the different ways people invest and use the money that they had taken out in the loan. The liquidation section of the survey looks at how much money the bank had when it decided to liquidate, and how much each member received. The final part of the survey is a series of questions detailing qualitative factors associated with PAC. These questions look at whether the bank is known in the community, whether it has created more cohesion amongst community members, if members of the bank have more economic independence as a result of the bank, and various questions pertaining to problems that could occur in a community bank. It also looks at how each banks administrative committee is formed and functions and also examines the internal rules of each bank.
In addition to the questions on this survey, we also spoke with various members of community banks to get their input on the community bank program and how it has affected their lives. This information will also be presented alongside the results from the survey in the next section.
Results
The results from the questionnaires filled out by members of the community banks are as follows. These results will be broken down into the same five sections as described above: bank demographics, basic bank functions, loans, liquidations, and qualitative factors.
Bank Demographics
Of the twenty-six banks surveyed, the following results were obtained in regards to the size of the banks: the average size of the bank was 44.5 people, with a median size of 35.5. This is due to the fact that there were two banks with an unusually large number of members, one with two-hundred and fifty and the other with ninety-seven. The median size for banks is right on target with what we are trying to achieve, groups of around thirty-five people. The percentage of women in these banks is 67%, while that of men is 24%. The remaining nine percent of bank members is made up of youths under the age of eighteen. The average bank was created two years prior to conducting the survey, but many of the banks surveyed had formed within the past year, while many others had been in existence for four or five years. Thirty-eight percent of the banks were formed from already existing groups while the remaining sixty-two percent of the groups were formed with the sole purpose of creating a community bank. These numbers are more or less what we had expected. The target group for community banks was women, due to the fact many women work at home and have limited financial opportunities. The project was designed to give those most in need access to small loans in order to invest in small business projects and these numbers show that this is the case.
Basic Bank Functions
This section looks at weekly contributions of bank members to the overall fund, the number of actions in each bank, the interest rate the bank charges on loans, and whether or not the bank has a social fund and if so for what this fund is used. Of these same twenty-six banks, the mean weekly contribution was $1.90 while the median and mode for this same statistic was $1.00. This also follows with what we are trying to achieve. When helping people to initiate community banks in their communities, we suggest starting with a weekly contribution of $1.00 per member. This appears to be actually happening in the banks that we surveyed. Some of the older banks, having seen the positive affect of the community bank system, have increased their weekly contributions and therefore the mean is somewhat higher than $1.00. The average number of actions in each bank is 64. This is twenty units higher than the number of members in each bank. This is due to the fact that a member of a bank may have more than one action. For instance, if the weekly contribution is $1.00, but a member would like to contribute $2.00 weekly, then this person would have two actions in the bank. The mean interest rate for the banks is 8.8%, however there are only two interest rates that the banks surveyed used: 5% and 10%. 76% of the banks had an interest rate of 10% (what is recommended because the math is easier and generally the population participating in this program has not received a lot of formal education), while the remaining banks had an interest rate of 5%. 73% of the banks surveyed also had some sort of social fund. The banks had various ways of collecting money for this social fund. Some of the ways are a weekly or monthly contribution into this fund in addition to the weekly contribution to the bank, a weekly or monthly raffle to raise money for the fund, or holding games of bingo or other fundraisers. The social fund is used to assist bank members in case of emergency such as a sudden illness, a death in the family, or some other unforeseen disaster. The last statistic we looked at in the general bank information was the total amount of money the banks had at the time surveyed. The mean was $4835.69, while the median amount was $2360. The range on the statistic was a low of $500 to a high of $20,000. Once again the mean is skewed upwards due to the fact there are several banks with substantially higher savings rates than the average bank.
Loans
This section of the study is probably the most important as it examines the process by which bank members take out loans and also for what banks members chose to use this money. Of the twenty-six banks, three function solely as a mechanism for saving money and do not give out any loans. The remaining twenty-three all give out loans and what follows is a summary of their activity. The year-to-date average number of loans these banks gave out was 52 loans. The range of loans given out ranged from a low of three loans in one bank to a high of two-hundred in another bank. The median number of loans was thirty-four. Once again the discrepancy between the mean and median is due to the fact that several of the banks surveyed were much more advanced and larger than the majority. The average loan across all of these banks was $110.65. The range of these loans was from a low of an average of $30 in one bank to a high of $450 in another. The median average loan across all of the banks was $60 with the mode being a loan of $50. We suggest that when starting a bank loans should not exceed $50 so these numbers are surprising in that the loans appear to be larger than we would have anticipated. The next statistic looks at the total amount of money that the bank has lent out throughout the year. The mean on this statistic is $8641.30 while the median is $2300. The range on this statistic is once again very large with a low of $150 to a high of $75,000. Sixty percent of the banks have a limit one the amount a member can take out in a loan. The average limit is $308 dollars while the median is $150. The last statistic examined in this section is earnings from the interest collected on loans. This statistic is important as it shows how much money the bank has made. These numbers range from a low of $20 to a high of $7,000. These numbers once again reflect the fact that there are a group of banks that manage much larger amounts of money.
One other thing to look at when discussing loans is how these loans are used by bank members. Here is a list of the activities for which people have taken out loans, these are arranged from most frequently cited to least frequent: business investments, illnesses, paying for their children’s school, improvements on their house, buying various supplies for the family, and food. It is encouraging to see that the most frequent use of these loans is in business investments. This means that bank members are using these loans to increase their financial capacity.
Liquidation
The liquidation of the community banks usually occurs at the end of a year or when a bank decides to divide up the money and start again. This happens, as explained above because if the money that the bank has in savings is not given out in loans, it is sitting in the box and poses a security risk for the members of the bank. The information obtained on liquidations is slightly more limited than that for the rest of the study because about half of the banks surveyed were in their first year of existence and therefore had not yet liquidated. The information obtained was for fifteen banks that had gone through this process and the information is as follows. The mean number of members in the banks that had liquidated is sixty-five while the median is forty. The total amount of money the banks had when liquidated is as follows: the mean amount is $10,607 while the median is $8,000. The range on these numbers is very variable, from a low of $850 to a high of $40,740. There were two banks with $30,000 or more at the point of liquidation while there were four banks with less than $3,000. The amount of money received by each bank member is the following: the mean is $173.07 while the median is $130. The range on these numbers once again is quite high, from $47.22 for the smallest bank to $420 for the largest. There were six banks whose members each received at least $200 while there were also six banks whose members received less than $100. This is due to the saving capacity of the members and also the number of loans these banks gave out throughout the year.
Qualitative Factors
The qualitative factors refer to a series of a questions dealing with the effects the community banking program has had on its members. There were a total of sixteen questions and in this section each question will be stated along with the responses from the bank members.
Question 1. Is the bank known in the community as a community organization?
100% of banks responded yes to this question.
Question 2. Does the bank serve as a place where there are educational and recreational activities and members take trips together?
54% of banks responded yes to this question.
Question 3. Is there more economic independence amongst members after forming the bank?
87.5% of banks responded yes to this question.
Question 4. Is there more unity in the community as a result of the bank?
87.5% of banks responded yes to this question.
Question 5. Did bank members save before forming the community bank?
25% of banks responded yes to this question.
Question 6. Has the bank initiated participation in community projects?
37.5% of banks responded yes to this question.
Question 7. Has the bank lost money or had a member default on a loan?
12.5% of banks responded yes to this question.
Question 8. Has the bank created conflicts in the community?
4.2% of banks responded yes to this question.
Question 9. Has the bank caused conflicts amongst bank members?
25% of banks responded yes to this question.
Question 10. Who makes the decisions in the bank?
71% of banks responded that the whole bank makes the decisions, 12.5% responded that the administrative committee makes the decisions, while 16.7% responded that the president makes the decisions on behalf of the bank.
Question 11. How many times has the bank elected an administrative committee?
50% of banks responded that they elect a new committee annually, while the rest of the bank responded that they have only elected a committee one time and it has not changed.
Question 12. Have different people had the opportunity to serve on the committee?
Once again, 50% of banks responded yes that they had changed members of the committee.
Question 13. What type of accounting does the bank use, and what records does it keep?
The vast majority of banks responded that they keep track of the following records: weekly contributions, loans, interest earned, and attendance, and that they do this both in a notebook and on a large sheet of paper that all bank members can see throughout the meeting.
Question 14. Has the bank ever changed its internal rules?
25% of banks responded yes to this question.
Question 15. Do bank members follow the rules they have laid out?
96% of banks responded yes to this question.
Question 16. Do bank members feel that having these internal rules is useful?
100% of bank members responded yes to this question.
These questions, related to qualitative factors associated with community banks, along with all of the data that preceded it in this section will be analyzed in the following section to determine what impact the community banking program has had on those people who have participated in it.
Analysis
The above results from the community banking questionnaire demonstrate that the community banking program has had a significant positive impact on the lives of those people who participate in the program. If we first examine the affect of having the opportunity to access these small loans, it is evident how these loans can positively impact these people’s lives.
The average loan among banks surveyed was $110. When one takes into account that the average monthly family income for the members of these banks is around $200, this is a substantial opportunity for these people to invest in small income-generating projects. With an income of $200 in Ecuador, a family has just enough money to feed itself and pay for the essential items it needs in order to survive. However, if a member of the family has an idea for a business or income generating project, this income does not allow a family the luxury of investing to start this project. This is where the community banking programs, and the loans affording to members through them, can have a large impact on these people’s lives. A loan of $110 for a family earning $200 a month gives them the opportunity to invest what amounts to 50% of their total monthly income. This is a substantial amount money for these people and with this loan they can invest in certain activities that improve their economic well-being. However, while this is certainly true, the structure of the loans within PAC limits the types of activities in which people can invest. Loans normally last one month, in some cases two, but in either case this means people cannot invest in agricultural projects. This is due to the fact that crops will take longer than the two months to reach a point of maturation and be ready to be sold. Therefore, people must and do look for other ways to increase their incomes through investments outside of the agricultural market.
While the size of the loan alone gives us a general idea of the impact the community banking program, looking at Question #3 from the section labeled Qualitative Factors shows us explicitly the impact the banks have had on their members. 87.5% of respondents stated that they have more economic independence because of the community banks. This can be taken to mean that these people are better off economically than before because of the loans afforded to them or simply because at the end of the year each member on average receives $173, almost a month’s earnings for these people. Many people will use this money to start a business. Also with this year end sum of money the people have more options. They are not tied down to repaying this money in any specified period of time and therefore, if they normally work in agriculture, they can use this money to invest in improving their crops.
Another way to measure the impact or success of the community banking program is to look at the total number of banks formed over the six years since the program’s inception. One only needs to look at the four communities that were surveyed to see the success of the program. In Bahia de Caraquez, Muisne, and Chone, the program started with one pilot bank in each city. Over the next six years, through word of mouth and the work of Peace Corps volunteers living in these areas, the program has expanded very rapidly. At the end of 2006, there were over sixty banks in Bahia de Caraquez, twenty-three in Muisne, about twenty in Chone, and thirteen in Canoa, which was not even one of the original communities designated at the beginning of the program. If the program has expanded this rapidly in these four communities, from three banks to over 110 currently, one can only imagine how many banks modeled on the Peace Corps program exist throughout the country. We estimate that there are about 700 banks around the country but the actual number could well be higher given the statistics in these four communities.
While analyzing all of these numbers and data can answer some of the questions regarding the impact of this program on the Ecuadorian population, a better understanding can be achieved by talking to members of these banks to figure out exactly what they think about the program and how this program has changed their lives. Almost every person with whom we spoke about the community banking program stated that the program had been and continues to be very beneficial. Several people described to us how they used loans from their community bank to either build themselves a new house or build an addition onto their existing house. While this is not for what we would have expected people to use their loans, the whole idea of this community bank model is that it is community based and that the members set out the guidelines and rules for the banks. For this reason, almost all banks are different and are constantly changing based on what bank members have learned from past experiences. When discussing this program it is important to realize that the actual structure of the bank is not as important as the effectiveness that the bank has had. A basic community bank model is taught to all people who learn about PAC through Peace Corps Ecuador, but individual banks are able to and are encouraged to adapt this basic model to suit their individual needs. This is one of the strengths of this program and one of the main reasons why it has achieved some much success over such a short period of time in Ecuador.
Conclusions, Recommendations and the Future
The results from this study are very uniform in showing that PAC has been very successful and had a positive impact on those people who are members. Over 80% of the banks surveyed state that their members have more economic independence as a result of the community bank. When this program was created in 1999, the main objective of the program was just this: provide access to micro-credit to those people who otherwise would not have access. By doing so, these people would be able to invest in their own small business projects, thereby increasing their income and economic independence. This program has had overwhelming success in this objective.
Another newer objective pertaining to the community bank program is community organization and integration. The community banking program is presented to new Peace Corps volunteers and trainees as a good base project in their sites. This is because it causes the community to meet once a week for the bank meetings and also due to the success of the program it can increase the trust between community members and the volunteer if the project is executed successfully. In many communities, people take advantage of this weekly meeting to discuss other problems and plans associated with the community and it also gives the Peace Corps volunteer a captive audience.
While this study shows the community banking program has had a large impact on those people who participate, it is imperative to conduct a larger study. This study was conducted using data obtained from twenty-six banks, located in four communities, and all of these communities are in the costal region of Ecuador. Assuming there are seven-hundred community banks around the country (which by my calculations is a low estimate), this means a little less than 4% of all banks have been surveyed. This is a very small percentage and it is possible that these numbers do not necessarily represent the community banking program as a whole. It is also very important to gather data from banks from all three regions of the country. There are vast cultural differences between those people that live on the coast, in the sierra, and in the oriente (jungle region). In order to have an accurate picture of the national state of PAC data must be obtained and analyzed from all three regions, not just the coast.
According to the limited study that has been conducted, the program has been very successful, but at the same time it has its limits. Due to the fact that a community bank can only lend out as much money as people have deposited in the bank, sometimes there is a shortage of funds. Also, due to the fact that the duration of the loan is normally one month, sometimes two, this severely limits the types of activities in which someone can invest this money. Several different possibilities have been suggested to address these problems and the one with the most potential is the following. Peace Corps Ecuador and FINCA have talked several times about combining the Peace Corps program with the FINCA program in order to give those banks that would like access to larger loans the opportunity to access them. The project would work as follows: the Peace Corps model community bank would continue to work as it always has, however, if bank members want to take out larger loans, FINCA steps in. The savings of the community bank would be collateral on the loan, and the loan would be given by FINCA and follow the rules designated by FINCA. These loans usually last between six months and a year, enabling people to invest in a much more diverse array of activities and the interest on the loan would be divided between the community bank and FINCA. Talks are still ongoing to figure out the details of this arrangement, but hopefully sometime in the next year a pilot program will be initiated to examine the viability of the project.
Over the past seven year, the Programa de Ahorro y Crédito of Peace Corps Ecuador has been much more successful than anyone could have imagined. It is hard to quantify the impact it has had on the bank members, but it is safe to say that it has provided a great deal of much needed assistance to those generally ignored by traditional financial institutions. Even though there are probably seven-hundred banks already in Ecuador, there is still much more room for growth. Peace Corps Ecuador continues to heavily promote this program and expects it to continue expanding.