PEÑA BLANCA, Guatemala—For Rosa, a 21-year old resident of the impoverished village of Peña Blanca, the cost of a better life was $200. A seemingly astronomical sum to someone who lives on roughly a dollar or less a day, this money held a world of potential for Rosa: she could buy a stove to avoid cooking over open flames, buy a loom to begin her own weaving business, or even re-enroll in school (she was forced to drop out in the 6th grade).
All she had to do was show proof of address, provide past electric bills, complete a small mountain of paperwork, pay for a truck ride into the town center, show a history of good credit and sign her name. Rosa tried many times to struggle through the paperwork using broken Spanish—her native language is a Mayan regional dialect called Cakchiquel—but the obstacles proved too great.
In 2012, the rural Guatemalan village of Peña Blanca could not have been further from the public eye. Now, after a 2013 documentary project run by students Zach Ingrasci and Chris Temple, it is perhaps one of the most high profile rural villages in the world. During their documentary project “Living on One Dollar,” Ingrasci and Temple replicated the impoverished existence of many Peña Blanca residents by living on a single dollar a day while meticulously recording the lives of their Guatemalan neighbors. It was during many interviews in which the students documented the savings strategies of the world’s poorest demographics that they met Rosa, and learned about her struggle to manage money through traditional systems.
During their project, the students determined that many members of the Peña Blanca community lacked safe and accessible systems of money management. Where nine of every 10 residents in the United States use a savings account to manage income and save for the future, only one in 10 people living in poverty have a formal savings account. Often times, money is hidden around the house, borrowed from friends, or loaned by neighborhood money lenders, who can demand up to 150 percent interest, according to Ingrasci and Temple’s blog, livingonone.org.
Given these concerns, microfinance institutions have arisen to provide the poor with stable small loans and savings accounts. For Peña Blanca, the primary microfinance institution is run by the Grameen Trust, which has provided many small loans, especially to women, that have helped the poor make large sum investments that would be otherwise impossible given the unpredictability of their small income.
“It’s easier to receive a loan from Grameen because they work with simple things,” said Rosa in an interview for Living on One. “They don’t ask for too many things like other banks.”
All Grameen requires to start a savings account is a form of identification and a commitment to managing money effectively through their array of programs, which includes home visits by Grameen officials to loan recipients. Rosa was given a $200 loan, which she used to create a small weaving business.
Rosa repays the loan every two weeks, including a 15 percent interest which is used to cover Grameen’s management costs, turning it into a self-sustaining non-profit as opposed to a charity. She has used the profits from her business to reenroll in school to realize her dream of becoming a nurse.
Despite the effects that microfinance has had on the lives of women in Peña Blanca, institutions like Grameen operating worldwide have encountered skepticism from the development community. Hugh Sinclair, author of “Confessions of a Microfinance Heretic,” has highlighted the industry’s lack of transparency after his investigation of credit options in 53 developing countries. Many fear that these loans are used primarily for consumption and do little to empower the poor to create sustainable income streams.
“There is no good data on how much is used for consumption and investment,” said Sinclair to the Knowledge@Wharton podcast. Very rarely do you have anyone saying [spending on consumption]is under 50 percent. John Hatch [of Harvard Business School]suggests that its 90 percent.”
While the majority of Grameen loans in Peña Blanca appear to be small-business related, Sinclair’s concerns highlight failings in the microfinance industry that could serve to undermine it in the future. The impact these small loans have had on women like Rosa is life-changing, making it all the more important to keep the industry transparent, effective and focused toward sustainable progress for the world’s poor.
Sources: Living on One 1, Microfinance Transparency, University of Pennsylvania, Netflix, Whole Foods Market, Portfolios of the Poor, Living on One 2