Modeling Microcredit in the Dominican Republic

Reflections by Erin McKinney

A couple of weeks ago, The New York Times ran an article discussing a “collapse of microcredit.” The article focused on several emerging microcredit enterprises in India—run mainly for profit—whose loan recipients are defaulting, leading to a crisis in the Indian financial sector. From my experience, these programs are not failing because of something inherently wrong with microcredit, but because they are focused only on the bottom line. A microcredit system that disperses money but does not provide community support or skill development only allows people to drown in debt. If loan recipients experience crisis and are unable to pay their loans, they withdraw more loans to keep up with payments, beginning a vicious cycle that quickly drives people into over-indebtedness. Profit-focused microcredit institutions provide capital, but not true opportunities for the poor.

Not-for-profit or person-centered microcredit programs do much more than provide money; instead, they focus on skill development and community support. Caminante, a non-profit partner of Global Ministries, Church World Service and Week Of Compassion in the Dominican Republic, runs such a program. Caminante’s work focuses on at-risk children, youth and adults, especially those subject to, or victims of, commercial sexual exploitation. Over the past year, they established a ‘person-focused’ microcredit program supported by a small grant from Week of Compassion. Many women do not have economic opportunities in Boca Chica, which can force them into prostitution or their children into labor. The project does not merely give out a loan to be paid back in monthly installments. Instead, every 15 days, the women that have received loans meet together as a support group. Meetings include training and guidance on repayment and other financial skills; group members give one another support—and not just as business owners.

Two stories illustrate how this model truly makes a difference in peoples’ lives.

Graciela’s Story

Graciela and her daughter (center) in a support group meeting in a Caminante homework room. Photo by Erin McKinney.Graciela is a single mother who has borrowed $45 USD in the form of a microcredit loan. She sells women’s undergarments in her community at a lower price than the tourist stores and provides them with convenience. Her customers don’t have to take the day-long trip to the capital city, Santo Domingo. During one of the meetings Graciela expressed her sense of sham, as she is illiterate. She is unable to help her daughter with school work. This severely lowers her self-esteem.

Her daughter is behind in school and is getting additional help through Caminante’s afterschool program, but Graciela feels responsible—she should be able to help her daughter! However, through her microcredit support group, she learned of an adult literacy class. Although her business may not grow into a multi-million dollar corporation, her continued education will help her discover more opportunities as well as improve her ability to help her daughter in school and be a positive role model advocating for the importance of education.

If Graciela becomes ill, her business is put on hold. A bank would not consider this an excuse for missing loan payments, and Graciela would have to take out other loans in order to keep up with payments. In Caminante’s project the circumstances an individual faces are taken into consideration, and the support group would quickly learn of Graciela’s situation and offer support, or allow her extra time to make a payment without increased interest. Profit-focused microcredit banks may allow for missed payments; however, with compound interest, the interest rate could approach 60%, forcing customers further into debt instead of providing them with opportunities to rise out of poverty.

Diurna’s Story

Diurna sewing in her home. Photo by Erin McKinney.Diurna comes from a community in Boca Chica where severe economic need makes women vulnerable to the commercial sex trade and their children vulnerable to hard labor. Diurna took a class in Caminante’s vocational school and learned to sew. With a microloan of $150 USD she was able to purchase a sewing machine and materials to begin working out of her home. Before the loan, she cared for her three young children while her husband worked in a tourist district on the other side of the island, but had no means to make money on her own. If an emergency arose or her children became ill, she wouldn’t have money to pay for any expenses until her husband returned after 2 weeks on the job.

I visited Diurna one morning before she started her business. Unable to pay her electricity bill, her power was turned off. Now a successful “breadwinner,” she is able to sew out of her home and has 3 months worth of alteration and hemming work from people in her community. She has a regular income and can take care of family needs as they arise. She is now known in her community as the seamstress, although traditionally such a job is considered a male enterprise.

On Saturdays Diurna is ‘able to teach some of the neighborhood girls how to sew,’ providing them with a constructive activity and a different perspective on what it means to be a woman. She also encourages other women to take advantage of the opportunities provided by Caminante’s vocational school. Diurna isn’t just a recipient of a loan; she is an empowered woman, balancing caring for her children, working, and continuing her education.

Recognizing the difference between profit-driven and person-centered microcredit is important. While microcredit is no “silver bullet” to end poverty, programs supported by Week of Compassion partners do more than give loans—these programs invest in peoples’ lives.

{Erin McKinney served as a Global Mission Intern from 2008-2010 with Caminante in Boca Chica, Dominican Republic. Global Ministries’ Global Mission Internship program is supported by your Week of Compassion dollars. To help support this program, consider a donation to Week of Compassion.}