An Innovative Approach to Rural Lending: Financiera Calpia in El Salvador

Publication Date: 1999
Published by: OSU Rural Finance Program
Document Type: Case Study

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Learning from the lending technologies of successful microfinance organizations

Rural lending is difficult. For this reason, it is important to understand the performance of the few microfinance organizations (MFOs) that have successfully reached rural areas. It would be valuable to know how they have accomplished this and if this outcome could be replicated elsewhere

Draws on the example of Financiera Calpiᠩn El Salvador, one of the Latin American leaders in the field, whose accomplishments in terms of outreach and sustainability are impressive

Notes that its success has been a result of a combination of factors such as a conducive legal environment, features of the market niche, and an innovative lending technology. The rural lending technology of Calpiᠩs an adaptation of its earlier urban technology. Its general principles include:

• loan officers are the most important link between Calpiᠡnd its borrowers
• a lengthy process of recruitment and selection of loan officers
• performance-based wages for inducing appropriate behavior
• an efficient management and information system (MIS)
• permanent monitoring in the form of casual visits or greeting
• enforcing contracts
• promptness in the loan granting decision
• loans tailored to individual demands

• the stock of knowledge needed to understand agricultural activities is far more complex than what is needed in urban environments
• appliances (high consumption value) can be used as collateral items
• the risk of specialized agricultural portfolios is counterbalanced by combining it with lending for non-farm activities
• systemic risk is a much more serious problem in rural than in urban areas
• lending to farmers who do not own land is possible