MICROCAPITAL STORY: Three Injured in Nicaragua as Thousands Demand Moratorium on Debt Repayment to Microfinance Institutions

The Latin American Herald Tribune reported that thousands of farmers and small businessmen gathered on the night of Monday, January 12, to protest against high interest rates of microfinance institutions in the community of Tipitapa. They lit fire to a number of tires creating a blockade of traffic on the Pan American Highway just north of the Nicaraguan capital, Managua. The protest lasted until early morning on Tuesday, and culminated as the National Police used tear gas to clear away resistant protestors armed with guns, clubs, and stones. Two policemen and one civilian were injured, and 160 were arrested. Paramedics treated hundreds of others who were hurt by the tear gas.

The protests were organized by the Movement of the Producers of the North (MPCN). A leader of the organization, Mr Omar Vilchez, told La Primerisima radio that the protestors demand Congress approve a moratorium on debt to microfinance institutions. Furthermore, he demanded that microfinance institutions suspend seizure of delinquent borrowers’ assets such as houses, property, and other means of subsistence. Mr Vilchez alleged that some MFIs are guilty of changing the conditions of their loans mid-term. Until the moratorium is in place and interest rates are lowered, Mr Vilchez said that the movement will continue.

This is not the first violent protest over microfinance interest rates in Nicaragua. MicroCapital reported on August 11, 2008 that protestors gathered in the offices of microfinance organization Fundacion para el Desarrollo de Nueva Segovia (FUNDENUSE), kidnapped an employee and threatened bodily harm. The protests left five police injured, and a civilian blinded in one eye by a rubber bullet.

In her paper The Micro Financing Institutions are Politically Very Attractive, Ms Patricia Padilla, the exectutive secretary of Asociación Nicaragüense de Instituciones de Microfinazas (ASOMIF), argued that the protests last summer were a part of a non-payment movement that has erupted in Nicaragua. ASOMIF is a network made up of 22 microcredit and credit union entities in Nicaragua that serve 559,267 clients. According to the Mix Market, ASOMIF has a combined loan portfolio of USD 140 million. Its Mission, “To favor the creation of a legal framework specific to microfinance, through a law that norms and regulates this activity, to consolidate the provision of services catered to the needs of the small entrepreneurs, with market interest rates and guarantees of solidarity.”

The executive secretary wrote that the non-payment movement is generally a result of people becoming over indebted to a variety of creditors at once: MFIs, credit cards, pawn shops, etc. She said that problems began in late June, when microfinance institution Pro Credit arrested six people with overdue debts in Jalapa. According to Ms Padilla, financing agencies regulated by the Banking Law are required to have a collector “visit the person with an overdue debt within seven days and then get a judge to execute a sentence within 72 hours. Failure to do so results in a fine by the Superintendence of Banks.” However, she says this is not the manner in which MFIs in ASOMIF operate: “We don’t immediately turn to a judicial process to collect the loan payment. Instead we go to the person’s house and argue that we have a social responsibility to recover the money so we can lend it to others… If we end up taking some collateral, we do it persuasively, negotiating with the person, looking to see if he or she really wants to pay… We only sell it and use the proceeds to reduce the arrears if the debtor authorizes it.”

However, after the judicial actions taken against the debtors in Jalapa, tensions were high. The fire was fueled when Nicaraguan President Daniel Ortega’s visited the region on July 12 and made generalized remarks about high interest rates of microfinance institutions: “We need to end this policy of usury…go march and plant yourselves in front of the offices of the usurers…Be firm! The usurers don’t have any other option: either they renegotiate or they renegotiate.” Weeks later the first protest occurred in the FUNDENUSE office. Subsequent protests by the MPCN left the doors of a number of MFIs closed for weeks.

Ms Padilla wrote that the effect on the local economy was disastrous: “We received a communiqué from Jalapa’s association of cattle ranchers and coffee growers complaining about the debtor movement’s actions and regretting the shutting down of the MFIs. The association members were having problems getting cash to cover their payrolls; they couldn’t deposit their earnings because the regulated MFIs, which are allowed to handle savings, were the only banking expression in the area; remittances from Nicaraguan migrants weren’t circulating; and supplies were running out in the stores and pharmacies. Given this tense atmosphere, we were surprised by the support many people expressed to us, backing the work of the micro-financing institutions.”

In his interview with La Primerisima radio, Omar Vilchez claimed that the most recent protest was not a part of the non-payment movement. He asserted that the protestors were honest people, determined to fulfill their commitments with their creditors, but with “justicia.” ASOMIF, on the other hand, released a note after Monday´s protests saying, “It’s obvious that this movement has the express intention of destabilizing the economy and the country.”

By Ryan Hogarth, Research Assistant

Additional Resources:

Latin American Herald: 3 Injured, 160 Arrested in Protests Over Micro-Loans in Nicaragua,

MicroCapital.org, August 11, 2008: Violent Protests Against Nicaraguan Microfinance Institution

The Mix Market Profile for FUNDENUSE: http://www.mixmarket.org/en/partners/partners.show.profile.asp?ett=1096

Radio La Primerisima: Paran protesta en Carretera pero mantienen demandas

The Micro Financing Institutions are Politically Very Attractive, by Patricia Padilla, Revista Envio: August 2008