Necessary “No”

By Marcus Berkowitz, KF16, Ecuador

When I was a kid and I asked for something I wasn’t going to get, my mother would start snidely singing, “You Can’t Always Get What You Want”. Unfortunately for borrowers with a lot of outstanding debt, nobody is there to sing to them if they don’t get the loan they are looking for.

My first experience meeting borrowers several weeks ago was thus a complicated one. First, a little background.

The Cooperativa San Jose (CSJ), a credit union, has been implementing its Ventanillas Rurales micro-loan product in the remote Ecuadorian countryside for more than 5 years now. It was one of the first institutions to effectively penetrate some of the most remote markets in the state, and it is no exaggeration to say that through this product and the financial education that comes with it CSJ has single-handedly turned thousands of rural entrepreneurs who were once excluded from the financial system into savvy savers and borrowers.


The West Andean valley served by CSJ, among others.


Recently, the government here has been doing all it can to promote the establishment and growth of the part of the Ecuadorian financial sector that is composed of credit unions. It is succeeding, but the results are a mixed blessing. One walks around the capital of Bolivar, the country’s poorest state in which CSJ is located, and credit unions are more omnipresent than Starbucks in a college town. Many of these new institutions are lightly regulated, marginally solvent, and desperate for custom. As a result, they offer competitive savings and interest rates that are hard for newer borrowers, who are often unaware of the benefits of sticking with more established and stable institutions, to say no to. Thus, often CSJ will make folks aware of the system and help them establish a credit history, only to see them run off to a new institution that may not be around next time a crisis hits.


Cooperativa de Ahorro y Credito means Credit Union in Spanish.


The aggressive policies of these new institutions are leading to concerns of over-indebtedness as well. In their enthusiasm for market share, these new credit unions are in some cases operating under fairly lax lending policies, for example by allowing borrowers to take out several loans from multiple institutions or simply lending at the limits of borrowers’ capacity to repay.

Aside from the potential for this behavior to expedite lending crises, it also makes policy tricky for prudent and regulated institutions such as CSJ. Especially in certain cantons, it has meant paying close attention to the country’s central risk database to make sure that they don’t offer loans to folks who already have a lot of debt. This, in turn, has meant saying no to a lot of people.


A walk down just one of Guaranda's main streets reveals 5 unregulated credit unions (two of which I hadn't even noticed before I walked down the street to take pictures for this post). This one is a mere few months old.

These are by no means the only credit unions in Guaranda. Off the top of my head I can think of at least 5 more.

This one is in the process of becoming a regulated institution.

These 5 are in addition to the 3 banks on the same street (Garcia Moreno Ave).


Which brings us back to the first time I met a group of borrowers. It was several weeks ago now, but it was memorable for being so hard to watch. At the time I had an incomplete picture of the market, so watching the loan officer go through the group members’ outstanding external debts one by one as an explanation for why CSJ couldn’t offer them a loan was confusing and a little bit heartbreaking.

Hardly inspiring stuff, you might think. But actually, under the surface, CSJ’s willingness to say no to certain borrowers is very inspiring. It inspires faith that CSJ is an institution that is truly dedicated to accepting its responsibility to serve the public with appropriate products. To give a loan to the particular group I met with would have been a disservice both to its indebted members and to CSJ itself. What good does it do to loan money that is unlikely to be paid back? None; it saddles the client with a mountain of debt, and eventually can lead to the re-exclusion of certain people from the financial system if they prove unable to pay and their credit history is affected. The long struggle CSJ has undertaken to introduce the excluded into the financial system would thus all be in vain. This is clearly counter-productive.

Conversely, I had the privilege recently of sharing a dinner with a group of very punctual borrowers who were about to finish repaying a loan, and were looking to take out a new one. Ximena, one of CSJ’s most capable loan officers, was explaining to them why the institution keeps such tight limits on loan amounts, which increase slowly from year to year for groups who maintain timely repayment.

“It is our responsibility”, she explained (translation mine, emphasis hers) “to only offer products that are in line with your capacity to repay.”

I was impressed; and happily, this group did receive the loan they were looking for. So support our field partners in their deft navigation of their local markets. Trust them to do good work as they assist their entrepreneurial clients; but trust them also to say the occasional necessary “No”.


CSJ; Kiva partner, Smart Campaign signatory, and model of financial responsibility


Marcus Berkowitz is a first-time fellow with Cooperativa San José (CSJ) in the western Andes of Ecuador’s Bolívar province. Show support for CSJ´s hardworking rural borrowers by making a loan. Or get even more involved by joining CSJ’s lending team!

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