ACCION International

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ACCION International

HELPING PEOPLE HELP THEMSELVES: 1961–72

FOCUS ON MICROLENDING FROM 1973

MICROLENDING IN THE UNITED STATES FROM 1991

ACCION INTERNATIONAL IN 2005

HELPING PEOPLE HELP THEMSELVES: 1961–72

ACCION International was founded in 1961 by Joseph Blatchford, an idealistic law student who had just completed a goodwill tennis tour of 30 Latin American cities. He returned haunted by the images of Latin America’s urban poor living in crowded shantytowns without elementary sanitary facilities. Blatchford and his law school friends raised $90,000 from U.S. companies to start a new kind of organization: a community development effort intended to help the poor help themselves. ACCION was adopted as an acronym for Americans for Community Cooperation in Other Nations.

That summer, Blatchford and 30 volunteers flew to Venezuela. They were soon living and working with local residents to identify the most pressing community needs. The volunteers and residents installed electricity and sewer lines, started training and nutrition programs, and built schools and community centers. By the end of 1964, when the volunteers completed this pilot program, turning it over to Venezuelans, they and local residents had initiated 5,015 self-help projects affecting 200,000 persons, and had stimulated investments amounting to $476,000, including contributions of material and the value of volunteer labor. Although unskilled and often illiterate, the people in these communities had completed such projects as laying water mains and building schools, roads, community centers, and an array of small industries, gaining training, experience, and confidence as they worked. In Caracas, ACCION helped start a cooperative bakery, which became self-supporting by selling its goods through a supermarket chain. A construction company organized in a new model city built ten homes, employing 27 workers.

Blatchford recruited a board of directors headed by Donald M. Kendall, president of PepsiCo Inc., and including ten other corporate executives, one of them Rodman C. Rockefeller. Now incorporated and with headquarters in New York City (although it later moved to the Boston area), ACCION International chose Brazil for its next stage of operations. By 1970 the organization also had entered Peru, aiding Lima businesses ranging from dressmaking to burials. Soon after, it extended its activities to Colombia. By this time ACCION had a staff of 32, supported by 127 private businesses and banks. During the 1960s and early 1970s the organization placed over 1,000 volunteers and contributed more than $9 million to development in some of the poorest communities of Latin America.

Blatchford left ACCION in 1969 to become head of the Peace Corps. He was succeeded as executive director by Terry Holcombe. During the next few years, he and other ACCION leaders became increasingly aware that their projects did not address the major cause of urban poverty in Latin America: lack of economic opportunity. “We began to sense that a school or a water system didn’t necessarily have long-term impact,” said Holcombe. “We were simply reorganizing the resources that a community already had within it, rather than increasing their resources.” ACCION felt that it could harness the energy of the unemployed, many of whom had started their own small enterprises. No effort was too humble: they wove belts, banged out pots, and sold potatoes. Yet they had no way to grow larger because, lacking funds to buy supplies, they often had to borrow from informal lenders at rates as high as 10 percent a day.

FOCUS ON MICROLENDING FROM 1973

In 1973, ACCION’s staff in Recife, Brazil, began issuing small loans at commercial interest rates to what it called “microenterprises.” The organization believes these first loans launched the field of microcredit. Within four years, ACCION provided 885 loans, helping to create or stabilize 1,386 new jobs and finding—the group believed—a way to generate new wealth for the working poor of Latin America. These loans were far from charity; in the late 1980s, for example, ACCION’s affiliates were charging from 2.5 to 8 percent interest per month. Nevertheless, they were available, required little or no paperwork, and were repaid at a rate of 97 percent. The interest each borrower paid helped cover the cost of lending to another, convincing ACCION that microlending had the potential to transform the economic landscape of Latin America. The ability to cover its costs, aided by ACCION’s new loan guarantee fund, the Bridge Fund, enabled the organization’s partners to reach many more microentrepreneurs. Between 1989 and 1995, the amount of money lent by ACCION’s Latin American Network increased more than twentyfold.

COMPANY PERSPECTIVES

The mission of ACCION International is to give people the tools they need to work their way out of poverty. By providing “micro” loans and business training to poor women and men who start their own businesses, ACCION’s partner lending organizations help people work their own way up the economic ladder, with dignity and pride. With capital, people can grow their own businesses. They can earn enough to afford basics like running water, better food and school for their children.

In a world where three billion people live on less than $2 a day, it is not enough to help 1,000 or even 100,000 individuals. Our goal is to bring microfinance to tens of millions of people—enough to help change the world. We know that there will never be enough donations to do this. That’s why ACCION has created an anti-poverty strategy that is permanent and self-sustaining.

During the 1980s, ACCION helped start micro-lending programs in 14 Latin American countries. In the beginning, financial institutions affiliated with ACCION offered collectively guaranteed “solidarity loans” to groups of five people. Although collectively responsible for making payments, the members received a tiny amount allocated individually, allowing them personally to establish a credit history that would qualify them for further loans. Over time, a growing number of ACCION affiliates came to see limitations in this model. Since businesses financed by group members grew at different rates, the more successful entrepreneurs were not able to borrow as much as they wanted, while the less successful found they were guaranteeing loans for others. The time spent holding group meetings limited the amount available to individual businesses. Perhaps most significantly, group members no longer felt the need for collective guarantees once they had developed personal credit histories through their loan payments. Successful clients were also demanding more capital and other financial products, but governments were reluctant to grant banking licenses to microfinance institutions.

As a result of these limitations, ACCION’s micro-credit network, though greatly enlarged in size, was still reaching less than 2 percent of the microentrepreneurs in need of its services. In response, ACCION helped create BancoSol, the world’s first commercial bank dedicated solely to microenterprise. Founded in Bolivia in 1992, BancoSol was established to serve the poor, with its clients typically market vendors, sandal makers, and seamstresses. Two years later, ACCION helped BancoSol sell certificates of deposit in the United States that were, in effect, typically backed only by the word of a vendor plying the streets of La Paz. According to the organization, “For the first time, the world’s premier financial institutions invested in microenterprise, not out of charity, but because it was good business.” By 2005, 15 ACCION-affiliated organizations were regulated financial institutions.

Among ACCION’s lending partners, Mexico’s Financiera Compartamos stood out as the largest microfinance institution in Latin America. The two formed a strategic alliance to help Compartamos transform itself into a regulated financial institution. By 2005, Compartamos was present in 26 Mexican states and also had 16 branches in Mexico City. Over 95 percent of its clients lived in the rural areas of Mexico, and 95 percent of its 453,131 active clients were women.

Another notable partner was Banco de la Microempresa S.A. (Mibanco), founded in 1998 as Peru’s first for-profit, fully regulated commercial bank dedicated to microenterprise. Mibanco’s majority shareholder and operative manager was Comunitaria del Perú, a private nonprofit community development organization founded in 1982 with assistance from ACCION, whose Gateway Fund became an investor in Mibanco.

In 2000 ACCION International began working in partnership with microlending organizations in sub-Saharan Africa, its first such initiative outside the Americas. By 2005 it was providing technical assistance to microlenders in Angola, Benin, Mozambique, Nigeria, Tanzania, Uganda, and Zimbabwe. In that year it began work in Asia for the first time when it teamed with Unitus to establish the Unitus-ACCION Alliance for India.

MICROLENDING IN THE UNITED STATES FROM 1991

Concerned about growing income inequality and unemployment in the United States, ACCION brought its microlending model home. Like microentrepreneurs abroad, small business owners in the United States faced many significant barriers to financing: no credit history, a bad credit background, or loan requirements too small for a bank to handle profitably. New York City’s borough of Brooklyn was the first to get a U.S. ACCION office, in 1991. Many of the people helped were Hispanics, such as Ulvada Alvarado, a Mexican immigrant and single mother of four who rose in less than a decade from taco street vendor to owner of four restaurants, with the help of six loans totaling $23,000, all of them at 16 percent annual interest, less than many Americans paid on their credit cards. By 1997, this program had 344 active borrowers who had taken out a total of $1.4 million in loans. In 1996 ACCION New York became the first microcredit organization to sell a package of loans to an investor. In 1999 revenue from interest and fees paid 45 percent of the organization’s operating costs, with the remainder covered by grants.

ACCION Texas began in 1994 by making loans in San Antonio, armed with a $50,000 grant and $125,000 to lend. In 2004 it was operating offices in eight Texas cities and had lent in more than 200 communities in the state. By midyear 2004 the organization had booked 5,678 loans totaling $29.46 million to 3,460 small business owners. The average loan that year was $7,256, and the average interest rate only 12 percent annually. ACCION Texas was losing money on the loans but was making up the deficit in grants and donations, often from banks meeting their Community Reinvestment Act requirements.

KEY DATES

1961:: Joseph Blatchford founds ACCION International.
1964:: ACCION and local residents have initiated 5,015 self-help projects in Venezuela.
1970:: The organization is active in four countries.
1973:: ACCION changes its focus to providing small loans to microenterprises.
1991:: The organization begins the domestic activities that result in ACCION USA.
1992:: ACCION helps found the first commercial bank dedicated solely to microenterprises.
2005:: ACCION has 27 affiliated members in 22 countries and direct investments in ten.

ACCION’s U.S. initiative was renamed ACCION USA in 2000, when there were offices in Atlanta, Miami, and New England, and licensees in California, Illinois, New Mexico, New York, and Texas. ACCION USA and its licensees made up the U.S. ACCION Network, the largest microlending network in the country. By the end of 2003, the U.S. ACCION Network had lent more than $90 million to more than 10,000 low-income entrepreneurs in over 30 cities and towns across these nine states. First loans were as low as $500. The average loan in 2006, when ACCION USA had 1,031 active clients at year-end, was $5,197.

ACCION INTERNATIONAL IN 2005

ACCION, in 2005, had 27 loosely affiliated members in 22 countries and direct investments in ten. Besides its Boston headquarters, the organization had offices in Washington, D.C.; Bogotá, Colombia; and Bangalore, India. Its partner programs were continuing to work with poor, self-employed women and men who relied on microenterprise as their main source of income. Its borrowers abroad were among their regions’ poorest people at the time of their loan. They usually had no collateral, might not be able to read or write, and might not have enough capital to open for business every day. Some 65 percent were women.

Because of the poverty of its clients, ACCION was sending loan officers to meet potential borrowers in their places of work. ACCION’s character based lending approach allowed these officers to go beyond the numbers and consider such intangibles as references from customers and neighbors and their own gut feelings about a microentrepreneur’s drive to succeed in order to develop a more complete picture of a potential borrower than a traditional credit score. Borrowers either applied for loans individually or, if they lacked material collateral or a cosigner, to team up with a few other borrowers. First loans were as low as $100 in Latin America. Borrowers who repaid their loans on time were eligible for increasingly larger loans in a process called stepped lending.

Several of ACCION International’s partners had transformed themselves from nonprofit, charity-dependent organizations to banks or other regulated financial institutions. The three largest—Ecuador’s Banco Solidario, Mexico’s Financiera Compartamos, and Peru’s Mibanco—each were reaching more than 100,000 poor and low-income microentrepreneurs. ACCION International also had helped Haiti’s Sogebank, Ecuador’s Banco del Pichincha, and Brazil’s Banco ABN-AMRO Real begin lending to the self-employed.

In the United States, ACCION USA was working with low- and moderate-income borrowers who had their own businesses but were economically marginalized and had no access to commercial business loans. They were typically unable to afford formal business training, receive peer support, or form their own business contacts. They often relied on their microbusinesses for half or more of their family income and generally had business assets of less than $5,000. Many had no personal or business credit or had bad credit prior to receiving an ACCION loan. Some were storefront owners with small but well established businesses; others were single mothers on public assistance. Accion USA borrowers in 2005 were 87 percent minority and 52 percent Hispanic. Some 35 percent were women.

Robert Halasz