The thesis is built around a Non-Governmental Organization in Nicaragua that offers micro-credit to its members, and investigates how access to credit affects the borrowers. It is an NGO that has a focus on development in rural areas and the thesis looks at how micro-credit can be beneficial both for the lender and the borrower in this specific context.
Cipres consists of mainly farmers living in rural Nicaragua, who are organized in cooperatives on community level. The cooperatives are again organized under eight regional offices. The organization of the members is important in understanding the concepts behind the micro-credit, and how problems related to offering credit to poor people are met.
Cipres offers credit both through specific projects and through their own circulating fund in every cooperative. The projects are funded by Cipres, the government or international NGOs. They support projects of production of Nicaraguan staple foods such as beans, maize and rice, other vegetables, coffee, tobacco, animal breeding or other types of projects. Through these projects, the member families can receive credit to initiate production on their own. The same is for the circulating fund in the cooperative, but this fund is much smaller, and covers a smaller range of activities and lower lending amounts.
When asked about the effects of micro-credit on the social development level among the members in Cipres, it is obvious that it has had a positive impact. Levels of income, predictability of income, quality of housing, amount of production equipment, ability of sending children to school, quality of life and access to health services have risen for about 74% of the informants.
Access to basic services has also risen, but the conclusions are more difficult to interpret, when taking into account the general development level on the community level.
When Cipres is offering micro-credit to its members, there are several factors to take into account. Moral hazard and adverse selection problems can arise because of asymmetric information between the lender and the borrower. It is however shown how this can be solved by monitoring among the members in community-based cooperatives. There are also problems concerning incentives for repayment and the threat of losing clients to other institutions offering micro-credit. A solution that can secure for this is by offering progressive lending, that gives incentives both to repayment and a long-term commitment of the borrowers. The thesis also covers the problem with risk in agricultural production. The farmer meets a wide range of risk factors in production, and this must be taken into consideration both by the lending institution and the farmer. The farmer can self-insure through product- and income diversification, and Cipres can offer flexible repayment contidions to easen the economic shock for the farmers in case of for example extreme weather conditions. This is shown in a simple model.