This summer, students participating in the Costa Rica Study Tour program got a first-hand look at community microcredit in action — during the trip, they visited with officials of the Bancre de San Tiago, known as “El Bankito,” an unusual community bank.
El Bankito was founded when the farmers of San Tiago put up their own capital to buy the failed coffee co-op their community depended upon. Now the bank issues loans to community members who would otherwise not have access to credit.
“It was far more personal than any banking experience I have had here in the U.S.,” says Ryan Lawson (BSBA MIS, Operations Management, and Entrepreneurship ’11). “Here, we all bank at a commercial entity that uses our cash as capital for its investment projects. For the residents of San Tiago, each stakeholder in the bank is a dear friend, neighbor, or teacher. Everybody knows everybody, including the president of the bank. The sense of community is strong enough that such banking activities don’t yield high default rates.”
The interest rate on a typical El Bankito loan — which can be as high as 24 percent — seems less than optimal, but villagers would not qualify for traditional loans at commercial banks, and their financial situations make them vulnerable to predatory lending. If payback rate is an indicator of success, El Bankito is doing well.
“Because Latin American culture emphasizes the community over the individual, people are more than obliged to pay back loans,” Lawson says. “The sense of guilt and shame that they would feel is far more unbearable than a fine or other monetary penalties. With a 98 percent success rate, the interest earned by the bank allows the disbursement of dividends to each shareholder.”
“The trust that is imparted to all of the shareholders is immense,” says pre-business major Hannah Teplitsky. “A microfinance bank in which everyone relies on everyone else makes more sense than a corporate institution; the absolute and undeniable sense of community – of wanting to help each other out in times of financial duress – was extremely apparent.” One recent loan, for example, was granted to a single mother who needed to repair her roof.
“Maybe developed nations like the U.S. can learn a thing or two about the integrity and honesty of these cultures,” says Lawson. “Their ability to live up to their word and trust each other allows them to improve.”