New Horizons > December 1999

As a young boy, Avelino Yujra learnt to make children’s clothing in his father’s workshop. When he grew up, Avelino began his own small business in La Paz, Bolivia. His wife worked with him and sold the finished garments in a street market early each morning from 5 a.m. to 7 a.m. The Yujras have four young children, two of whom helped in the family business. Avelino also employed José, his younger brother, and his wife. This couple has three small children.
Avelino obtamined his first loan from the Centre for the Promotion of Economic Initiatives (FIE) in 1994. It was for US$550 and Avelino used part of the money to buy a second-hand sewing machine for doing special small finishing stitches. The rest became working capital. The business grew and with further loans from FIE Avelino purchased industrial machinery and was able to take on his brother, José and his wife, plus two other workers. In time Avelino’s good credit record with FIE meant other microfinance institutions in La Paz were willing to lend him money. Client information shared by these institutions showed Avelino to be a good risk client. Avelino made good use of all of his loans and honoured all his debts.

Too good to be true
Late in 1997, a ‘promoter’ from a private loan finance company visited Avelino at his workshop and offered him a loan. The ‘promoter’ told Avelino the application process was easy, no guarantees were required and bigger loans were avail-
able than those from microfinance institutions.

Avelino accepted the offer, which seemed to be attractive. For example, where he needed perhaps a US$1000 loan, the finance company approved a US$3000 loan without any assessment of Avelino’s current level of business activity or his existing loans. He was simply told it was sufficient that he was already a good client of FIE and other microfinance institutions. Avelino’s brother was also enticed into taking out a similar loan.

What at first had seemed a great deal quickly turned into a nightmare. Avelino and José were not able to keep up with the loan repayments to the finance company or the microfinance institutions from which they also had loans. The brothers ended up as bad risks on a central credit register, which meant they were unable to get any new loans.

Deceptive ‘solution’
Then the finance company to which they were in debt offered what they called a ‘commercial solution’. The brothers thought this meant a re-scheduling of their loan and accepted the offer. They were not told it would, in fact, mean taking out a new loan to cover the capital they still owed, plus their outstanding repayments and the penalty interest that had also been added. Although this practice is forbidden by law, finance companies still market these ‘solutions’. When the brothers read their new contract they discovered their original US$3000 loan had grown to US$4,300! This may have got them removed from the central risk register but it put them in deep trouble with the microfinance institutions to whom they also owed money because they still could not repay these debts.

As a result of all this, Avelino and José have had to hand over their machinery to the financial institutions to whom they owe money, or have sold machinery elsewhere along with finished products and materials. The brothers have had to dismiss their workers and close the enterprise. Now, both men are looking for work as labourers on construction sites while their wives sell food or do a variety of odd jobs in order to earn some income to allow their families to live.
This is a sad outcome to an enterprise that had positive prospects before the offer of an ‘easy’ loan came from the private loan finance company. Avelino visited FIE, as have others in similar situations, to tell them, “This will only be temporary», and “I will get myself back on my feet”. FIE staff admire Avelino’s resilience and wish him well but cannot stop feeling angry that this kind of thing is happening in Bolivia.