The number of small businesses in Argentina receiving microcredit is expected to double to 100,000 within the next three years, creating opportunities for banks in the country. Experts say there is the potential for about one million small businesses to take out microcredit in Argentina. However, realistically, they expect the number to rise to 500,000 within 10 years.
Raúl Zavalia, president of the Argentine Network of Microcredit Institutions (ANMI) and executive director of Fundación Pro-Vivienda, a microcredit organisation, says: “Argentina’s economic crisis of 2001 to 2002 changed everything. Before that disaster, Argentines preferred to get salaried employment and were reluctant to work for themselves.
“This wasn’t an entrepreneurial society, unlike Bolivia where microcredit has been much more successful, but now the people’s mentality has changed. This creates many more opportunities for microcredit.”
Slow start
Bob Hannan, microcredit co-ordinator of Help Argentina, a non-governmental organisation (NGO) in Argentina run by North Americans, says: “I think microcredit has been slower to take off here than in other Latin American countries because the perception of this country by international financial institutions has been different.
“It was seen as having a bigger middle class, with less people in need, and a more sophisticated banking system, with loans more readily available.
“However, since the crisis, it has been perceived in a similar way to the rest of Latin America.”
One of the major problems for microcredit in Argentina has been the sheer number of institutions offering it – there are roughly 200, although only about 40 are active.
“A microcredit institution needs around 10,000 clients for a critical mass,” says Mr Zavalia. “In Argentina, there are only three organisations of any size – Formentando Iniciativas Empresarias, Fondo Inversión Social and Fundación Pro-Vivienda – and they only have 3000 to 3500 clients each.”
Banks catch on
The ANMI is in talks with a number of banks about providing funding to microcredit institutions. Until now, banks have avoided the sector because the organisations have lacked volume. But Banco Santander, Banco Colombia and Banco de la Provincia de Buenos Aires are now considering offering loans – with annual interest rates of only 14% to 15%, according to Mr Zavalia, much lower than the current rates from other institutions, which are as high as 70%.
Last year, Planet Finance, the Paris-based international NGO focusing on microcredit, signed up Alfonso Prat Gay, a former governor of the Argentine central bank, to run its newly-created operations in Argentina. The organisation is working closer with the ANMI to improve the microcredit institutions’ efficiency.
Mr Prat Gay says: “Many Argentines were shocked by the rise in poverty after the economic crisis. We were accustomed to poverty levels in the single digits but it shot up to around 35% to 40%.
“We cannot rely on trickle down to reduce poverty. I think microcredit can provide a more permanent solution, by building a bridge towards social inclusion.”
VAT burden
Experts blame the punitively high annual interest rates on microcredit in Argentina on the size of the microcredit institutions – they have to charge high rates to cover their administrative costs – and on the value-added tax (VAT) charged on the loans. They say the VAT, 30% on microcredit but zero on mortgages, is highly regressive. Senator Alicia Kirchner, the sister of Argentina’s president Néstor Kirchner, is backing new legislation to remove the tax, but experts are not confident it will be passed soon.
The average microentrepreneur takes out a loan for four months and borrows 1450 pesos ($470).
One of the major hurdles for microenterprises in Argentina is the red tape involved in becoming a bona fide company. “This is a chronic problem,” says Oscar de Lena, president of the Social Capital Fund, an NGO set up by the state in 1997 that has provided $10m in microcredit. “We only provide loans to microenterprises in the formal sector but the number of transactions a company must do is ridiculous. It must be simplified.”
Argentina’s economic crisis has created a new generation of entrepreneurs and microcredit is likely to play a much more important role in the country’s future.
