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Micro-Lending Puts Dent in Poverty of Rio's Slums - 2003-03-05

The Rio shantytown of Rocinha, one of Latin America's largest, is home to more than 200,000 people. There, in the slum's alleys and byways, hundreds of tiny businesses flourish.

Fruit vendor Nivaldo Dos Santos is among them. His business improved after he was able to borrow money to pay his suppliers.

"When I buy my fruit, I have to pay for it right away, so I got a loan to have more money on hand to do this. Even though I have cash, the more money the better so I don't miss a good opportunity," he said.

The loan came from Viva Cred, a non-governmental organization in Rocinha that works somewhat like a bank. However, it lends money at below market interest rates, does not demand collateral, and its customers are the self-employed poor.

Alexandre Leite runs a computer graphics firm in Rocinha. Two years ago, he was working out of his home, but after getting a loan from Viva Cred he and his wife now run their business out of a building.

"The money came at a good time, when I really needed it. I tried to borrow money from other places but there was too much bureaucracy involved. That influenced me to try Viva Cred, and it really made my life easier," he said.

Micro-entrepreneurs like Mr. Leite are now being viewed as the cutting edge for economic development. Maria Otero heads Accion International, which provides advice to groups like Viva Cred.

"You put some capital into the hands of a poor person who has never really had access, and they can not only produce and improve the life of their family, but they can become empowered and develop a voice, and the ability to make decisions for the future," said Maris Otero, head of Accion International.

But it's a slow process, and requires microlenders to offer more than just money. They have to get to know their clients and become their partners.

"Here we invest in a person, in the person's business, his character. We ask around about that person. That's why our default rate is so low, just four percent," said Viva Cred's Francisco Jose.

The Inter-American Development Bank, which held a conference in Rio on microfinancing, says low default rates are not unusual. Instead, experience has shown the poor can pay back loans with interest.

"What we've seen is that the interest rate is an important factor in making these institutions sustainable and not dependent upon donations and that the poor can pay the interest rates necessary and that their main limitation is access to the credit and not necessarily the cost of the credit," said the I.D.B.'s Dieter Wittkowski.

With 940 borrowers, Viva Cred continues to search for new clients, an example of how microlending can put a dent in the poverty of slums like Rocinha.