An Innovative & Effective Microfinance Model

Intro to EDESA and their network of Empresas de Crédito Comunal

Kiva’s field partner in Costa Rica, EDESA, provides credit services to a network of “Empresas de Crédito Comunal” (Community Credit Enterprises), or ECCs,  established by FINCA Costa Rica.  The ECCs are small, grassroots microfinance organizations formed by rural community members.  The objective of each ECC is to provide financial services to individuals within the community for the development of economic activities that allow them to move out of poverty.  FINCA Costa Rica works to establish ECCs to serve as the financial engines of the neediest communities across the country.  To form the ECCs, FINCA provides comprehensive training to rural community members that includes financial and business elements and culminates in the formal establishment of the ECC as a legal autonomous business.

The capital of each ECC is generated by the investment of its members through the sale and purchase of shares in the organization.  These purchases provide the loan capital that the ECCs then use to issue loans to their members and to invest in other community development projects.  As shareholders, individuals in the community become owners of the ECC, earning dividends on the shares when the business is profitable and fully determining the rules, policies, and projects of the organization. Not only do ECCs provide financial benefits, but many of them also work with other organizations in sectors such as health, education, and sports and often provide other programs such as investment education for children and youth. While each ECC governs its own policies, the average price for a share across the network of ECCs is 2,000 Costa Rica Colones (approximately US$3.50) so becoming a partial owner of the business is fairly accessible, even in the poorest of communities.

Over the years, as the ECCs grew and their members’ businesses expanded, some members began requesting loans that exceeded the ECCs’ lending capacity.  The ECCs started looking for other sources of financing. EDESA was established by FINCA Costa Rica, the ECCs and some individual investors in February of 2005 in response to the ECCs’ growing need for external financing.  EDESA serves as the ECCs’ national financing institution, with the mission of bringing credit services to the ECCs.  EDESA is a firm operated just like an ECC, but on a national level.  The ECCs are the shareholders and receive profits (dividends) if positive financial results are achieved.

This model of community members becoming partial owners of the ECCs and the ECCs being partial owners of EDESA has proven remarkably effective.  Not only does the sale and purchase of shares at the grassroots level facilitate the capital needed to run these organizations, but the fact that the borrowers are receiving loans from an enterprise they partially own creates an additional vested interest in paying back the loans and ensuring future success of the organizations.  As evidence of how effective this strategy is, EDESA maintained a zero percent (0%) delinquency rate in its first four years of lending!  In addition to being effective in terms of loan repayment, this model is also extremely empowering to the individuals and the communities investing in the ECCs and EDESA.  By being participants and owners of these organizations, the beneficiaries also educate themselves on financial and business issues and shape how the businesses grow and what they do within their own communities.

offices of one of the oldest and most developed ECCs, El Sauce

 

ECC El Sauce sign

ECC El Sauce even has internet and bike rental services

 

 

 

 

 

 

 

 

To lend to EDESA’s borrowers, please click here.

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Megan Tatman Montgomery is in her fourth and final placement as a Kiva Fellow.  Prior to EDESA, she served at Friendship Bridge and FAPE in Guatemala and ADEPHCA in Nicaragua.  Please feel free to contact her at megan.montgomery@fellows.kiva.org with any questions, comments, or requests for future blog posts.