Financial institutions providing small loans to the self-employed poor are becoming more common in Latin America. Micro-financing is gaining ground in Brazil, which lags behind its neighbors in adopting the practice.
In the Rio shantytown of Rocinha, three women sit inside a tiny office discussing a loan for their pastry business.
"We make small pastries now," said a woman called Margaret, "but we want to expand to make different kinds of cakes so we can make more money."
The women, who want to borrow about $300, say they will use the money to buy a bigger oven and more supplies.
Normally, most banks would not even consider lending them the money.
But the three have come to Viva Cred, a non-governmental organization that specializes in making short-term loans of a few hundred dollars to the self-employed poor in Rocinha. It charges below-market interest rates, does not demand collateral, and provides expertise and advice to its clients on running their businesses.
With a default rate of less than four percent, Viva Cred has become self-sustaining and its loan portfolio totals about $400,000.
Cesar Martins, a supervisor at Viva Cred, says its success during the past six years has brought competition from more traditional lenders.
"When Viva Cred began its operations the micro-entrepreneurs here in the favela [shantytown] had no access whatsoever to the banks," he said. "Even if they opened a savings account, they could not get a loan. But now they are viewed differently, and banks have begun opening agencies here to get their business. So the whole attitude changed, they are now seen as good clients."
Despite the success in Rocinha, micro-financing in Brazil is still in its infancy. Estimates show that only about two percent of the millions of self-employed poor in Brazil have access to financing for their tiny businesses.
But the picture is brighter elsewhere in Latin America, where micro-lending has been underway since the 1970s. A micro-enterprise specialist at the Inter-American Development Bank, Dieter Wittkowski, says these micro-loans reach an important sector of the economy in these nations.
"We see that in all of the countries of Latin America the numbers of people that are working in the micro-enterprise sector range from 30 to 40 to 60 percent in some countries," he said. "They contribute a very large proportion of the value of the gross domestic product. ...and because they do not have access to financial services from the traditional banking sector, helping to develop the industry allows them to have access to these resources and to generate income and stabilize employment and hopefully generate new employment as well." Non-governmental organizations were the first in Latin America to make these micro-loans. But as time passed, many of these groups became chartered as banks or finance companies.
Maria Otero of Accion International, a group that provides micro-finance consulting services, says even traditional banks are discovering that a profit can be made from micro-lending. Ms. Otero says micro-lending also can foster economic development by changing the lives of the poor.
"Their lives can be completely transformed by accessing a loan as small as $50, $100," she said. "The average size loan of the institutions we work with is just about $500. Access, Accion believes, is one of the components of pulling people out of poverty, and the access to capital in countries where capital is so concentrated, from our perspective, can change people's lives."
Lives such as those of Rocinha resident Alexandre Leite, who runs a computer graphics firm.
Two years ago, he was working out of his home. Today, his business is inside a commercial building in Rocinha, thanks to a loan from Viva Cred. He says if he had not received the loan, he would still be eking out a living.
Like Mr. Leite, there are hundreds of thousands of other borrowers in Latin America whose lives have substantially improved because of micro-financing.