Imagine yourself as an idealistic new graduate eager to make a difference in the world. You probably don’t want to come home to a malevolent old dictatorship. When Martin Burt returned to his native Paraguay in 1983 after graduate studies in public administration in the US, he saw no room for his new skills in the oppressive government run by General Alfredo Stroessner, then in his 39th year in office.
Burt could have easily fled and become part of the Latin American brain drain. But he never seriously considered that option. “In a poor country, if you’re born into a family that can send you to a good school, you have a moral obligation to help the less fortunate,” he explains.
Attacking Poverty from the Private Sphere
Burt zeroed in on the problem of chronic unemployment in urban slums and rural areas, and in 1985 he created Fundación Paraguaya (FP), a microfinance NGO and affiliate of Accion. FP grew to be one of Latin America’s best-performing microfinance institutions, and today serves 70,000 clients, most below the poverty line. FP was the first development NGO in Paraguay and the country’s first microenterprise program.
Burt hoped that FP’s success would provoke bigger changes in the way government and the business community related to the informal sector. “There was a market failure we wanted to help address—so the government would reduce entry barriers to the informal sector,” Burt explains. “The informal sector has always been excluded from government notice—you don’t get government services if your business is informal, and the barriers are government-created.”
“Our first challenge was to convince the business community and the government of the feasibility of supporting the informal sector,” he recalls. “We formed solidarity groups and did individual loans, and proved on the street that the poor paid back.”
Initially, the central bank prohibited banks and financial institutions from lending to the poor without collateral, but Burt lobbied and his business connections lobbied. They argued that equal opportunity is essential for an effective free market. “I told them that our program met three objectives: Strengthen precarious jobs, increase family income, and create new jobs. Ultimately, we convinced the central bank to promote microfinance” after the regime changed, he said.
An early marker of success came in 1988, when Fundación Paraguaya became the first MFI to issue bonds in the stock market. In addition, FP issued a small securitization. Once FP reached break-even, it was able to rely on capitalizing its earnings and borrowing to fund its portfolio.
After the Stroessner regime fell in 1989, Burt entered public service, first as vice minister of commerce, and later as elected mayor of Asunción. He returned to Fundación Paraguaya a decade ago. “When I came back to FP,” he recalls, “I had a broader vision of the limitations of government policy to uplift people from poverty. I saw the limitations of doing only structural adjustment reforms—that was part of the pie but only one-fourth of the pie. We think that much of the instability of Latin America has to do with poverty, and it is a code that has not been cracked.” On his return he began a series of bold experiments in social entrepreneurship.
Microfinance as a Service Platform
A visionary social entrepreneur, Burt views the loans and savings provided by microfinance as a necessary but insufficient condition for development. Starting from the Fundación Paraguaya microfinance platform, Burt created, among other initiatives, financial literacy training, youth entrepreneurship programs, an agricultural school and microfranchises to enable poor clients to better their economic status.
Today, loan officers with Fundación Paraguaya promote savings among children of clients. They also offer services that link borrowers to local government services, and they even screen clients for eye disease and make referrals to a low-cost service provider. “Our contention is that providing only financial services is a lost opportunity. We would like to have a lifelong relationship with clients,” he says.
Burt also pioneered agriculture schools for the rural poor that pay for themselves by selling the crops, livestock, and processed farm products raised by the students. This model is now at work in 13 countries on four continents, thanks to the Teach A Man To Fish global network co-founded by Burt. “The agriculture school and the microfinance program are both based on the concept that the poor can help themselves—that is what makes development click,” Burt explains. “We apply the same methodology of self-financing to schools that we use for MFIs.”
Next Up: Microfranchising
Burt has further ambitious plans to build microfinance’s potential as a tool to help people lift themselves out of poverty. “If we want to graduate people across the poverty line, we have to visualize what that means—what type of latrine they should have, what vaccinations,” he says. “Any family can obtain a good latrine or stove if they have the will; they usually are held back by a lack of motivation and skills, as well as by doubts—can I do it? We’re working on motivation and skills.”
To help develop that can-do attitude, Burt is turning to microfranchising—providing clients not just with a loan, but also with a template and tools to launch a micro-business that will meet their needs and goals. “We are measuring the poverty of our clients, trying to figure out the income gap between what they earn and what they need to cross the poverty line.”
FP will then assist clients with closing that gap through offering them microfranchising opportunities. “What we envision is to conduct market research, bag a combination of products that people need at a good price, and give these kits to poor people to sell. The products would include eyeglasses, school supplies, cleaning products, food and medicine.”
Infrastructure and Activism
In deepening its engagement with the poor, FP is also training client groups to develop yet another set of skills: to lobby the government and act as a pressure group to demand a police station, road, or other services in their neighborhoods.
Why go in so many directions at once? Burt explains: “If you have an office in poor areas, you can't pass up the opportunity to reduce negative externalities. MFIs are uniquely placed to have a very positive impact on the lives of the borrowers, because you already have a profitable tool and financial weapons—loans and savings. These financial tools are almost a sine qua non for development.”
An MFI, he continues, “is a fighting machine, a sharp tool. With it we can revisit the issues of housing and water that too many MFIs have left behind with the minimalist approach. Providing water in Latin America without microfinance is impossible—you finance families to lay pipe and connect it to the water tank.”
“It is beautiful to give people the financial tools they need to work their way out of poverty,” he allows. “But given such tools, we can’t presume that clients know how to do it. Everything that microfinance does is necessary—including IPOs—but is not sufficient. Providing financial services in isolation is a lost opportunity to leverage other things—such as medical services, housing, clean water."
This high-touch approach to microfinance has placed FP somewhat out of step with broader trends in the industry. Burt sees the need for a course correction: “When microenterprise promotion moved to the concept of ‘microfinance’ 15 years ago, they dropped important components of the original process. It was thought you could compensate for dropping microenterprise development aid by coming up with a great microfinance service system—which hasn’t happened. Trickle-down economics applied to microfinance is insufficient. There is a hard-core 20 percent of the population that is difficult to reach, even in growing economies. If you are already working in a slum, you can do more than just lend—it makes business sense.”
Widening the Vision for Microfinance Investors and Providers
“Business sense” does not mean profit maximization. Indeed, Burt regards for-profit structure as something of a shackle—at least for him. “Non-profit status allows you maneuvering space for R&D,” he says. “Since neither the board nor I want to make money, we get more thrill out of developing new programs than we do from maximizing profit in old ones.”
But what about MFIs that are answerable to investors? Can they afford to branch into high-touch social services? Burt thinks so. "Today, the world is ready and demanding that profits be plowed back into communities," he says. "A minimum of corporate social responsibility is required. Our job in Fundación Paraguaya is to show investors how they can have their cake and eat it, too. The board requires a minimum of 10 percent ROE. That is the necessary threshold for borrowing from local banks. Investors get their money, banks get their money and we try to attain a triple bottom line: economic, social, and environmental. We are discovering that these goals are completely compatible. We have high loyalty from our borrowers because they see that FP cares. We are not minimalist; we are not trying to do the least with the most profit.”
“The biggest achievement of microfinance was to show the poor can help themselves,” he asserts. “Before that, the street vendor was not considered useful to society. The discovery of microenterprise at the base of the pyramid was fantastic, it was making the invisible visible. It debunked many theses, such as that the poor can’t help themselves, can’t work under market conditions, can only do finance with soft money, long-term loans.”
As a microfinance provider, Burt believes, "You must see social problems as opportunities to do things for the poor, opportunities for microfinance. If MFIs are there just to reap benefits, if people think microfinance has become cynical, there will be a backlash. If we say we are working in the social sector, that’s a strong responsibility we cannot take lightly.”
