Gaining credit with ICT in rural Ecuador

In order to prosper, smallholders need to have access to rural credit. To meet this demand, it is essential that the local finance sector works efficiently so that it can keep track of transactions, particularly with regard to loans and debt repayments. Setting up an automated credit registration system on debtors and debt repayment schedules can make a significant contribution to strengthening the position of local financing bodies. This is the thinking behind the SERVIR project which was set up in March 2005 as a collaborative effort between three very different organizations: SEDAL (a small non-governmental organisation that provides micro-credit loans); Acción Rural (a large micro-credit cooperative); and la Red Financiera Rural (RFR) (a network that supports and promotes the use of micro-credit in rural areas). At the end of 2005, this consortium entered into a partnership with a fourth organization, Creditreport, which offers software and services to the financial sector. 

The project set out to involve informal credit providers in gathering and sharing data on credit information to help farmers avoid falling into serious debt and to help micro-credit organizations avoid risk. The project has been a success in so far as it has helped to significantly reduce the number of bad loans while generating more new loans at the same time. The project team had hoped to construct a client database but this proved impossible because of government regulations. Instead, a central database maintained by the credit purveyor Creditreport was fed with data generated within the framework of the project.

Results so far…

To date, the project has managed to:

• Design a credit information system that can be accessed 24/7 and which is now used by all 33 micro-finance bodies.
• Have the system validated and thoroughly tested through some 58,000 consults.
• Compile a situation analysis of access to credit in the three provinces.
• Share results and disseminate lessons learned through a series of regional workshops around the various EFLs.
• Create an inter-institutional space for information exchange and dialogue among the EFLs. Some of the issues covered so far include: socio-economic reality in Tungurahua and Chimborazo; the role of the state in developing micro-finance structures; the impact of micro-finance on the local economy; practical lessons learned from the SERVIR Project; approaches to providing and following up on small loans.
• Train 60 individuals within the EFLs to use the tools that have been developed and to improve their understanding of some of the themes linked to micro-credit.
• Use the data to develop a set of criteria that has to be met in order to obtain a loan. As a result of the project it has become impossible for a lot of families to apply for a loan at two or more different regional credit banks. While it can be said that, in the short term, these families do not benefit from this new database, in the long term it is better for them. In addition, the credit banks themselves can now work more efficiently and will be more sustainable in the long term.

Long-term plan

The long-term plan for the project is to focus mainly on improving services in the region by developing a credit scoring method. At the same time, there are also plans to involve more micro-finance institutions in the Sierra region, possibly through other donors, and to document the experiences and lessons learned from the project so that they can be shared with other EFLs in Ecuador’s eight other provinces. Ultimately, SERVIR’s systematic and practical approach has enabled an impressive number of EFLs to cooperate together in a single network and, in so doing, improve credit services to smallholders in Chimboraza and Tungurahua within just two years.

For more detailed information about the SERVIR project, click here