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Housing microfinance story series: Factoring remittances in Nicaragua

March 15, 2010

In March of 2008, the Local Development Fund (FDL in Spanish), a microfinance institution in Nicaragua, launched a pilot project to improve access to home improvement credits for low-income families who receive remittances from abroad. The Housing Finance department at Habitat for Humanity’s Latin American and Caribbean regional office is providing technical support for the design, implementation and monitoring of the project.

As a result of the pilot, more than 170 families have accessed small loans that allow them to build an extra bedroom, repair a roof, install a latrine, pour a cement floor or buy a piece of land, among other home improvements.

International remittances are transfers of money made by people living overseas to their families in their home country. In 2008, Nicaraguans received one billion dollars in remittances, mainly from the United States and Costa Rica, making remittances one of the prime sources of foreign exchange in the country. On average, Nicaraguan families receive nine remittances per year of US$175 each.*

Remittances have not traditionally counted as income when microfinance institutions such as the FDL evaluate a family’s capacity to repay a loan. The result is often that, though they are technically able to repay a loan, families who receive regular funds from the exterior may only qualify for very small loan amounts, or often not qualify at all.

The pilot allows for an innovative break in this practice. With support from businesses that specialize in estimating remittance income, the FDL calculates each family’s capacity to repay the loans—as a result extending access to housing improvements to 170 families that may not otherwise have been eligible.

Roughly a year and half after launching the pilot, Habitat for Humanity and the FDL looked into how the families had benefited from technical assistance in construction and home improvement credits.

The effects of the current global financial crisis, such as decreased remittances to Nicaragua and late payments of some FDL’s clients were also investigated.

To help accomplish this, Habitat consultant Brendan McBride presents personal interviews with eight of FDL’s clients.** The interviews provide a better understanding of how families build progressively and the role of microcredits in this process. Additionally, Brendan presents a brief glance into the migration history of family members that send home regular remittances from abroad. These testimonies remind us of the huge challenges faced by transnational families in their search for a better life.

We would like to thank the families that shared their stories and Brendan for his efforts to capture them. In addition, we would like to thank the staff of FDL and Habitat for Humanity Latin America and the Caribbean who worked to move this pilot forward, even during a time of decreased remittances toward Nicaragua and many other countries. We especially highlight the work of Edwin Flores, Gilmer Gutiérrez, Marvín Morales y Ramón Canales, who worked directly with the target families. Finally, we would like to thank PRODEL for their support in several steps of the process, including training of FDL’s field staff.

For more information, please contact:

Julio Flores
General Manager
Local Development Fund

Managua, Nicaragua

Christy Stickney and María Sáenz
Housing Finance Department
Habitat for Humanity International

Latin America and the Caribbean office

Email: msaenz@habitat.org

*Sources: Multilateral Investment Fund and “Centro América: remesas, economía y Finanzas con aproximación al caso nicaragüense” Orozco, Manuel, 2008.
**The names of the families have been changed to protect their identity.