Citadel '98 grad creates loans for Peru’s poor businesswomen
By Dennis Quick
Charleston Regional Business Journal
Senior Staff Writer
Reprinted with permission (Appeared March 19, 2007)
Iquitos is the largest city in Peru’s section of the Amazon Rainforest. Located on the headwaters of the Amazon River, the city, with a population of 400,000, is one of the lumber capitals of South America as well as an oil, beer and rum producer.
A tourist destination for explorers of the Amazon, Iquitos is considered the largest city in the world not reachable by road. Travelers must either fly or boat there. Most traveling within the city is done by motorcycle, bus or auto rickshaw—a three-wheeled motorized taxi.
It was in Iquitos a year ago that Todd Garrett, a real estate broker with the Charleston-based Arthur Ravenel Jr. Co., took advantage of his Harvard University master’s degree in public policy, for which he wrote a thesis on micro-financing, and started a lending company that makes small loans to businesswomen living in Iquitos’ poverty-stricken outskirts.
Garrett was first introduced to Iquitos in 1998, the year he graduated from The Citadel. He came to the city as a missionary with Medical Missions Inc., a Columbia-based nonprofit charity that builds hospitals, churches, schools and vocational training centers in developing countries.
He traveled to Iquitos’ outlying areas such as Belén, where the roofs of the houses are made of thatch or secondhand tin and the floors are dirt. The people either are barefoot or wear flip-flops. The daily diet for a family of four consists roughly of a pound and a half of rice, three-quarters of a pound of beans, two eggs and a quarter of a chicken. Sometimes fish is included, Garrett said.
While with Medical Missions, Garrett decided the dry goods sellers, the merchants, the fish peddlers and other similar small business owners in Belén and nearby villages needed a financial boost to help eradicate the poverty.
And so, with a nod from Medical Missions, Garrett collected the $25,000 he saved during his one-year deployment as a U.S. Marine in Iraq, invested the money in a Peruvian bank, which paid a 1% monthly interest rate, and started MicroCapital, a nonprofit company that gives micro-loans ranging from $50 to $500—amounts rarely exceed $100—to poor businesswomen with no collateral.
Garrett defines “poor” as those whose family members survive on less than $2 a day.
Because banks in Iquitos do not grant loans smaller than $300, MicroCapital serves a definite niche, Garrett said.
MicroCapital serves women rather than men because women in developing countries are more reliable clients, Garrett said.
“The experiences of microcredit institutions in Bangladesh, India, Ghana, Nicaragua, Mexico, Peru and most locations have shown that women, especially women with children, are much better credit risks for non-collateralized loans. With men, in general, the experience has been that they are more likely to default on the loan,” Garrett said.
“In contrast, women, particularly those who are very poor and have children, have fewer options for employment, credit and self-sustenance. As a result, they value the opportunity for credit and the corresponding ability to provide for themselves and their families, and they are less likely to default and lose that opportunity.”
Garrett based his lending company on Bangladesh’s Grameen Bank, founded by Muhammad Yunus, who is now the bank’s managing director. His efforts to lend money to the poor of Bangladesh won Yunus the 2006 Nobel Peace Prize.
As of January, the Grameen Bank has nearly 7 million borrowers, 97% of whom are women. The bank’s 2,343 branches serve more than 90% of Bangladesh’s villages, according to the bank’s Web site.
Yunus said he believes that if financial resources can be made available to the poor on reasonable and appropriate terms and conditions, “these millions of small people with their millions of small pursuits can add up to create the biggest development wonder.”
Garrett took that philosophy and put it to use in a small corner of the Amazon Basin, which stretches across nine nations and covers 40% of the land mass of South America. He trained a young schoolteacher in the Grameen method and then, with $250 of his Marine Corps savings, lent $50 to five businesswomen.
MicroCapital dispenses loans to groups of women numbering no more than five, with each woman getting her own loan. The women are collectively responsible for one another’s loans; if one woman in the group cannot pay back the loan, another woman in the group will. This has kept the default rate at 1%, Garrett said.
Today, MicroCapital, which includes two loan officers, an accountant, Garrett’s trainee and Garrett himself, has made more than 1,500 loans in amounts of generally $50 to $100 per woman, and serves 350 clients in the Iquitos area.
The company charges 5% interest for two- to three-month loans. To instill self-sufficiency, MicroCapital requires its clients to build savings from the loans received, Garrett said.
Businesses have grown. Village merchants now have money to travel to a central marketplace or to Iquitos proper, buy goods in bulk and resell them in the villages.
A $50 loan enabled a Belén baker, who once sold small quantities of cakes strictly from her house, to bake more cakes and sell them from house to house and from village to village, Garrett said.
Garrett’s trainee runs MicroCapital’s operations from the Amazon while Garrett keeps in touch from Charleston via e-mail. He plans to visit Iquitos in May and anticipates no more than one trip a year to Peru.
Garrett considers loaning money to the poor as important as building homes and schools for them.
“It’s a satisfying way of helping people,” he said.