Communities in Guatemala have seen the departure of their youth. “We have no future here: no jobs, no money”, Josué, 12 years old, from San Pedro told us. So, the communities turn to their credit unions for a solution.
Twenty years ago, the majority of credit union lending was for production: agriculture, commerce and small cottage industry. Today the majority of lending is for housing and consumption. We had worked on expanding agricultural lending with some success. Now it is time to look to how to provide lending for small businesses.
Why so? This is what their communities are asking the credit unions to do: to support their local economy, to support their members’ ability to generate income and to provide jobs for their children. “We will do this,” Oswaldo from MICOOPE committed. “We have the liquidity. It can be profitable if done correctly. It is risky. The survival rate of a business startup in Guatemala is 7%.”
After the long trek across the mountains we spent the night in Panajacel and took the boat across the lake to COLUA credit union. “We need to grow with the members,” Enrique explained, “so that we can finance their businesses and provide jobs here.” We visited the leather goods maker’s shop where Nicholas works to send his sons to school and employs six people. We visited the women’s weaving cooperative which employs 24 women who work to support their children and to keep alive their Mayan traditions.We issued our call for volunteers to help the Guatemalans shift their lending paradigm for small and medium business lending. Bob, Maurice, John, Terri, Cathy and the other John answered the call. We met in Guatemala City and traveled to San Juan Sacatapequez to visit ECOSABA credit union and its small business members: the furniture maker and the flower grower.
Down out of the hills, we returned to Guatemala City and spent two days in an interactive training workshop on how to do business lending. “This is how we do it. How do we adjust to the local context? We do not have reliable credit bureaus, collateral, titling. How about this? KPIs, cost of goods sold, consumer term lending, will not work for business lending. Debt coverage ratio ash is king. What are the principles that we need to draw out? Let’s try this.”
From the discussion emerged a commitment to a national credit union system strategic plan to grow the small business portfolio and the beginning of principles to build on. Develop a structured business lending methodology which is sector specific, robustly measures cash flow and collateral, uses key indicators and accesses market peer indicator data bases. Program the lending tools and methodologies into the system data processing system from the very beginning. Establish a business lending support unit within the national association and hire specialized personnel for business lending within the credit unions. Establish frameworks for when and how participation loans would be appropriate. Consider when a business lending CUSO might be useful. Establish strategic alliances for business management training in accounting, cash flow management, credit management and budgeting for business owners. Establish strategic alliances for vocational training as well as for market access for particular sectors. Establish pricing methodologies which include the risks and the costs of not just capital but the training costs involved in this type of lending.
While this took place in Guatemala, we hear the calls for addressing this type of lending to support local community income generation and employment from several countries today. Thank you for your support which allows us to develop models that we can then share with several countries. Thank you for the volunteers who share their Talent, Time and Treasure to address these challenges.
President and CEO
World Council of Credit Unions