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UBC Theses and Dissertations

Micro-credit in Managua, Nicaragua : assessingthe effectiveness of small-scale lending as a socio-economic development tool Ferguson, Gretchen Stacey


Micro-credit is the practice of making small loans to people with little or no collateral to help sustain and develop self-employment initiatives. It has been hailed as a tool for poverty alleviation, economic growth, community development and reducing gender inequities. The acclaimed effectiveness of this development strategy has resulted in an international movement to replicate it around the world, raising significant questions for planners about the transferability of the model. The purpose of the thesis is to examine micro-credit in the context of Nicaragua, seeking to determine the 'replicability' of the strategy and its socio-economic development potential, particularly for women. The study focused on five micro-credit programs operating in and around the capital city Managua. Research methods included a literature review, interviews with credit program administrators, with relevant government agencies, and with a sample of borrowers from each of the programs. The study indicates that micro-credit is an appropriate development strategy in Nicaragua. A convergence of factors has made self-employment a vital part of urban survival strategies, particularly for women and their families. With little government support for this sector, nongovernmental programs are timely. Micro-credit was also revealed as an effective strategy, helping to sustain self-employment in a country with few social safety nets. In some cases, it is helping people develop viable businesses The study nonetheless pointed to several limitations to micro-credit as a poverty alleviation strategy. People in the lowest income sections of the population were not as likely to benefit from the business development potential of credit and were most burdened by the cost recovery policies of the programs. Although women make up 80% of borrowers, few programs address women's need to move out of traditional occupations in which they experience inadequate income earning opportunities. As an economic development tool, micro-credit cannot address issues like market saturation, or lack of markets for crafts and other products. Recommendations focus on ways that credit programs could improve their socio-economic development potential by expanding training and marketing opportunities for borrowers. The national government is encouraged to recognise the importance of the micro-enterprise sector and to remove legislative barriers to profitability. Finally, international development agencies are cautioned not to overemphasise the poverty alleviation potential of micro-credit, nor to promote cost recovery goals at the expense of providing low-cost loans to the poor.

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