Community banking in the land of fiao

Each country that invites Peace Corps to send volunteers has it's own priorities. Some countries could benefit from assistance with environmental education, others want their citizenry to learn English, etc. In the Dominican Republic, volunteers serve in one of three sectors: Youth Development, Education, and Community Economic Development.

Cat's an education volunteer. I'm in CED, or, as I often explain in Spanish, negocios ("business").

There's a joke among CED volunteers that the least useful thing you bring to country is the business casual clothes that Peace Corps insists you pack. While presenting oneself as serio is definitely important in la capital, it's not so necessary in the campo where people are way more casual. What good are khakis when you are working with campesinos in baseball caps and gomas (rubber boots)?

Me, I wear my business casual clothes everyday. This is because my project is una cooperativa de ahorro y crédito – a community bank.

The cooperativa has about 500 members and, aside from some seed money kindly donated by an international NGO a few years back, the funding is composed entirely of the contributions of los socios (members). When the campesinos in my pueblito take out a préstamo (loan) to finance next seasons crop they are using the money of their friends and neighbors.

It's a beautiful thing - and a necessary one given that most of the socios are considered too high a lending risk by other financial institutions. Those big banks are too far away, anyhow. Our nearest "big city" (24,000 people!) is two hours drive and the the trip is expensive. If you make 800 pesos profit on a sack of habichuelas (beans) and it costs you 300 pesos roundtrip to deposit it and another 300 pesos to withdraw it next month, how much money are you really saving?

In the campo, the "bank" part of community bank it not always clearly understood. A friend of a friend, upon discovering that I worked with el banquito whispered to me about some cosas muy malas (very bad things) that were going on. "If you lend me 5000 pesos," he demanded, "How can you can charge me more than those same 5000 pesos? ¡Muy mal!"

To be fair, let's try to see it from his perspective. Say you're a campesino with no real education. Big banks won't give you the time of day and the financial institution set up in your town is only a few years old. It's financed in part by your money and staffed by people you have known your whole life. On top off that you're a Dominicano used to the interest-free credit system known as fiao. 

Fiao is a Dominican version of the Spanish word fiado ("credit"). When you buy something on fiao the store owner trusts you to pay them back later. Bigger stores don't do fiao, but virtually every smaller business does. In the campo, where people often only have cash after each seasons harvest and sometimes not even then, fiao is a necessity. It's how friends and neighbors support each other through the hard times.

The other credit option available to poor Dominicans are prestamistas - loan sharks. Your average Dominican prestamista isn't a dangerous criminal like your average American loan shark, but they still mean business. A "good" prestamista will only charge 20% interest, but  100% is not unheard of.

In this context, the standard banking practice of charging interest might seem fishy. Why would a financial cooperative composed of friends and neighbors do something like that?

I also wonder if religion plays a role. Usury (Bible-speak for charging interest) is denounced in multiple books of the Old Testament. It's literally a sin. “If your brother becomes poor and cannot maintain himself . . . you shall not lend him your money at interest, nor give him your food for profit.” So if our socios know their Leviticus, what are they supposed to think?

But charge interest we must. I work for free but the other staff doesn't. And the lending fund must grow if we are to keep making loans. Interest, implemented at non-sinful rates, helps the “community” part of our community bank grow. A neighbor down the street is using one of our loans to build a new house. A peluquero friend of mine wants to use one to buy an inversor so he can continue cutting hair when there's no luz.

The system works! Kind of.

Because the same lack of education that makes common financial practices seem suspect also makes for poor financial literacy. My neighbors started building the house without a budget, so they ran out of money and had to apply for another loan. And many loans just don't get paid back. To be fair, living off the land is tough – if it rains too much, or too little, your crops just die – but far too many of the cooperative's loans are in default.

My peluquero friend, at least, is willing to listen to me about the importance of keeping books. Maybe it's confianza but I like to think it's part of a general shift in awareness. The board of directors recognizes the need to improve our lending controls. Our general manager, my project partner, is excited about expanding services to neighboring communities.

I think for campesinos, money is like smart phones and computers. It's all so new! And when you've never had access to something before it usually takes a while to figure out how to use it right.