Frequently Asked Questions
What is a Bank of Esperanza?A Bank of Esperanza is a group of women and men (15 to 40) who agree to work together and support each other in their businesses and other aspects of community life. The group does not become a bank until each individual in the entire group has met the conditions for becoming a bank. A loan officer will visit the associates in their community for an initial meeting. The program is explained and the objectives outlined. The expectations for the bank are carefully explained.
The Esperanza loan is made to the group (Bank of Esperanza). Each member must have a business plan that is reviewed and approved by the loan officer.
The associates are all dependent on each other for their eventual success and the loan officer takes on an essential leadership role in mentoring and leading the bank. If one member defaults on their loan, the group is responsible for paying it back. This creates a high level of energy focused on helping each associate succeed and reinforces the solidarity of the bank. Only when each individual succeeds does the group succeed.
How big are the loans?
Initial loan amounts are, on average, about $160 for each new associate. Overall, loan amounts for associates can range anywhere from $30 to $8000. Associates have the opportunity to advance to higher levels of loans based on successful borrowing and expanding business needs.
Do associates pay interest?
Yes, associates do pay interest. For our group model lending, first-time borrowers are charged two percent of the principal at each bi-weekly meeting on a declining balance over the course of a 24 week loan term. Interest rates for our various loan products, including group, home improvement, and individual business loans, vary based on the size of the loan and the loan recipient’s history with Esperanza. The normal “loan shark” rate is 200% per year and commercial interest rates in the Dominican Republic are usually between 30-35% annually. Usually, this is the only money available to poor people.
It is essential that we charge interest in order to move towards becoming self-sufficient and sustainable. The Banks of Esperanza are filling an urgent need, and are a welcome relief from the informal loan system.
Are poor women good credit risks? Over the last twenty years, since these kinds of programs began in Bangladesh, poor women have proven to be extremely reliable. Worldwide, there is between a 95-97% repayment rate. In the Dominican Republic the program is matching those statistics. We choose to mostly lend to women as research proves that they are more likely to utilize profits from their business to provide for the health and education of their children and their families.
What about personal emergencies that might inhibit loan repayment? Esperanza has a self-funded life insurance program that the associates can purchase at the time of receiving their loan. It pays off 100% of the remaining loan balance if the associate dies or is completely physically disabled.
For other emergencies, the bank loan members cash from their group savings. This has assisted many families in times of need.
What kinds of businesses do associates start?
There is wide range of business opportunities undertaken through these loans. Some of the most common businesses include: colmados (corner stores), food preparation, vegetable/fruit sales, baking, used clothing sales, tailoring, piece work for larger manufacturing companies, crafts, beauty salons, sandal making, etc.
How is Esperanza funded?
For any microfinance plus organization, achieving operational sustainability is a challenge. Over the past sixteen years Esperanza has worked hard to become both efficient and effective in our service to the poor. We’re proud to state that roughly sixty-five percent of all operational costs are now sustained by our microcredit programs. The balance of annual funding needed for microcredit and complimentary human development services is met by the generous support of churches, grants, individuals, organizations and universities.