Holy Cowllateral!

By Mariela Cedeño, KF16, Bolivia.

“Banking the unbankable“ has always been my favorite nomenclature attached to the microcredit movement that has gained such strong momentum in recent years. When feeling more long-winded, I like to describe microcredit as a useful poverty alleviation tool (a piece of the pie) by which those that have been traditionally left out of the formal banking sector can access capital to help grow their enterprises. Though it’s difficult to measure exactly how many people in the world are unbanked, my overzealous use of cellular technology has made one statistic stick with me: there are twice as many people in the world with cellphones as there are with access to financial services. But why? Well there are many, many reasons and I [un/fortunately] am not a seasoned economist, however, beckoning my finite knowledge I can say that one marginalizing factor that keeps the poor from access to credit is formal collateral – no collateral, no money. Here’s where CIDRE comes in….

CIDRE is one of Kiva’s Field Partners in Bolivia, and though day-to-day they largely look like a typical bank, they have atypical clients, and those atypical clients and CIDRE’s own roots as a research and rural development think tank are the driving engines behind CIDRE’s push to continue to look for ways to provide loans under alternative collateral models.

One of their pioneer alternative credit projects involved providing loans based on community ownership of forested land. In conjunction with the Department of Forestry, CIDRE developed a forested land appraisal system and began granting loans for agricultural production based on the value of the trees on the community owned land. Interestingly enough, this alternative collateral system also furthered the mission of CIDRE’s Habitat and Environment Division, as the loans came with training regarding the importance of protecting natural resources and lessening the use of agrochemicals. Furthermore, because the trees were being used as collateral and every tree, the value of that tree, and the years of life left for that tree were registered with the Forestry Department, it was imperative that the lenders that chose to cut their trees for profit engage in sustainable forestry to replace the value of the trees.

Though in its inception the alternative forestry collateral model worked well, it seems to have somewhat eroded over the years due to evolving loan use. The initial purpose of the forestry collateral loans was for agricultural production, however, as the program expanded lenders began using these loans for lumber ventures as well. Infighting began over how the communal land was divided for the sale of lumber, individual lenders were dissatisfied with trees located on their plot, equipment couldn’t access certain areas, and those with ‘skinny’ trees were not being paid enough to repay their loans and replant. CIDRE continues to work with these borrowers to alleviate the issues that have arisen in hopes of circling back to where things started.

Nevertheless, as CIDRE’s focus has always been on production, we have finally arrived at the type of collateral to which this post owes its name, my recent nearest and dearest friend, the cow.

CIDRE’s lenders are primarily located in the rural areas of Bolivia, as such the vast majority of CIDRE’s loans fund dairy and/or agriculture businesses. In order to ensure that these lenders can access the kind of capital necessary to start or grow their businesses, CIDRE has created an internal policy by which cows become the collateral guarantee. Each cow owned by the lender is assigned a value (according to their breed, size, state, and milk production) and 80% of the cow’s value is then given as a collateral guarantee against which lenders can draw loans. The loans are almost always used to reinvest in their dairy business: to purchase more cattle (most often when a cow is pregnant, nursing, or has fallen to mastitis), for feed, to invest in ‘stock’ for their communal dairy cooperatives, milking machines, to rent land for the cows to pasture, or to buy refrigerated milk holding tanks. By all accounts these cows are in fact the most precious thing that a dairy farmer owns as they are a single source of income, sustenance, and now collateral, so it seems fitting that CIDRE has so readily acknowledged the value of their most popular clients’ trade.

As I sit around the office or head out to make field visits it seems strange that the cowllateral guarantee has become such commonplace in this organization’s day-to-day work, in fact, it’s become a regular part of my own microfinance vernacular. Just as impressive, is the wealth of ‘cow-knowledge’ that the loan officers acquire throughout their tenure with CIDRE — equipped to answer questions and analyze information regarding cows, the dairy business, and the way that community groups operate. To not hog all the cow-knowledge, here are some gems that I’ve acquired in my time with CIDRE:

• Dutch, Jersey, Holstein, and recently Creole cows populate Cochabamba’s dairy farms.
• Cows eat all the time, literally all day. Their feed consists of a balanced mix of Chacla (chopped up corn plants) , minerals, oats, pasture, alfalfa, and soya bean shells. A truck load of feed which will last 6-8 months can run up to $8,000 U.S.
• Due to pachamama (mother eart)h, her pastures, and the way that cows are raised, Cochabamba produces the best quality milk of any department in the country. This could be biased information, but I have tried the milk and cheese that comes from these bovines, and it’s pretty spectacular.
• Last, but not least, this is what a cow milking professional looks like:

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Mariela Cedeño is part of Kiva Fellows 16th Class, serving with CIDRE in Cochabamba, Bolivia. Cows have become her new favorite thing on earth. Please support CIDRE‘s hard-working entrepreneurs by making a loan today and join the Friends of CIDRE/Amigos de CIDRE lending team to stay involved!