Here’s a brief insight into our journey through Ecuador, the last destination on our great American adventure. Although the women in Ecuador wear panama hats rather than the bowler hats favoured by the women in Peru, and use American dollars rather than the Peruvian sol, we felt that there were a number of similarities between the cultures of the two countries. And the reason for this: the territories of the indigenous people of Peru, such as the Incas, extended up as far as modern-day Ecuador.
In Cuenca, we met with Juan Carlos Urgiles, Executive Director of the MFI (microfinance institution) Jardin Azuayo. This savings and credit cooperative was set up in 1996 with the aim of introducing a new approach to development that was based on promoting more efficient production, encouraging saving and providing training and education. Mr. Urgiles explained to us how his institution operates: “Jardin Azuayo actually comprises 30 micro-cooperatives that have grouped together to form a single cooperative. These 30 microfinance institutions realised that by combining their activities they would achieve economies of scale in terms of accounting, IT management, etc.”
All these micro-cooperatives are autonomous: they have their own managing director, finance director, secretary general and their own funds.
Activities within a cooperative are structured around a core administrative body that is composed of its financing members:
“Before turning on the credit tap, the members of the administrative body organise their operating structure and assess their financing capabilities, which they then use as the basis for granting loans. When we talk in general about microfinance, we are talking about a market to which we must respond.
When we talk of a mutual, cooperative economy, we’re talking about a group of people who have specific requirements and who organise themselves to meet these requirements. That is the fundamental difference between microfinance and cooperative microfinance.”
Jardin Azuayo takes a decentralised approach to the running of its activities. Its services are available in each town where the MFI operates, and by appointing an on-site manager from the local area, JA ensures that these services are delivered efficiently and effectively.
The manager knows the people that he or she works with, and all the members know each other as well. Mr Urgiles is a great advocate of decentralised management: “It allows our members to play a role in the decision-making process, which leads in turn to far greater social enrichment.”
The other special characteristic of the cooperative, as distinct from other MFIs, is that it is not profit-oriented. “The prices of our products are set by the average cost of production, not the market. Our aim is just to break even so that we can remain a going concern.”
Jardin Azuayo operates contrary to the traditional system and the free market principle.
As a result, the cooperative can offer members very attractive interest rates and low fees for non-financial services.
“We can reach people that wouldn’t otherwise have access to such a service at such a favourable price, and that should allow their businesses to grow. It’s a synergy: by giving a loan to someone with very little income and ensuring he doesn’t need to pay much for it, you allow him to rise quickly from the depths of poverty to a better standard of living. Furthermore, if that person saves, earns interest on those savings, and if he then capitalises on his business activity and gets further training or education, after a while he can move up to the next rung on the social ladder and so on and so forth.”
Mr. Urgiles goes on to explain: “The particular characteristic of a cooperative is that the financial service is aimed specifically at improving people’s living conditions.” Therefore the cooperative’s objective is neither specifically to make nor to lend money. Jardin Azuayo uses a range of tools to fight poverty, and microfinance is one of them.
On saving: “To save is to invest in hope”, so reads Jardin Azuayo’s motto. The main source of funding for the loans granted by the cooperative comes from its members’ savings.
Consequently, saving is encouraged, with members receiving charge-free banking and an interest rate of 4.5% per annum. Members can equally place their income in a fixed-rate savings account, for which the annual interest rate varies depending on the term: for between 1 and 5 years, the interest rate is 8.5%; more than 5 years, and the rate is 9%.
Furthermore, members are able to check their balance via the internet or their mobile phone and to make deposits on-line. They can also make withdrawals using an ATM card.
Training and education: Jardin Azuayo does not train its members directly, but trains trainers to do so: “The trainers are people in whom our members place their trust – some are members of the community, others are our employees. Jardin Azuayo has set up a training school and has established links with a university.”
Not only is this institution unique, it also places the highest value on the financial and psychological well-being of its members. It can offer an example to many MFIs which, driven by the lure of financial gain, have forgotten that the primary role of microfinance is to support people in their fight against poverty.