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THE HEAD OF THE MOUSE: DOMINICAN MICROENTERPRISES' FORMAL AND
INFORMAL CREDIT DECISIONS
DEREK BRANDON LEWIS
A THESIS PRESENTED TO THE GRADUATE SCHOOL
OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT
OF THE REQUIREMENTS FOR THE DEGREE OF
MASTER OF ARTS
UNIVERSITY OF FLORIDA
O 2007 Derek Brandon Lewis
To all the Dominicans I met, especially the friends and family I left
My summer research in the Dominican Republic and the analysis of the data gathered were
possible because of the many people who supported me. The opportunity began with a summer
research grant from the Tinker Foundation. I appreciate the effort of the faculty and staff of the
Center for Latin American Studies for soliciting those grants and helping me to receive funding.
Dr. Terry McCoy, the director of my degree program, Latin American Business
Environment, encouraged me to pursue my interest in microenterprise development. I appreciate
that he has always been accessible, supportive, and encouraging. At the outset he referred me to
Dr. Gerald Murray who has been an excellent advisor. Without Dr. Murray's insights, constant
support, availability, and true passion to see me succeed I know this thesis would be far less than
what it is.
It was Dr. Murray's idea to approach Dr. Frank Moya Pons for research topics in the
Dominican Republic. One meeting with him provided the platform and direction of my future
research. Upon arriving in the Dominican Republic he introduced to me to Sra. Marina Ortiz, the
director of research at the NGO el Fondo para el Financiamniento de la 2icroempresa, Inc.
(FondoMicro). The list of contacts she provided were invaluable: within thirty minutes I had
standing invitations to interview a handful of the highest-profile microfinance providers in the
Dominican Republic. I truly appreciate her kindness and eagerness to help a student.
I must thank Mr. Matthew Kaye many times over for putting me in contact with such a
precious woman as Dofia Julia, my host mother in Los Alcarrizos. Aside from my research
pursuits, I had a wonderful time simply living with her and her wonderful family. She is truly a
gem. Mr. Kaye also introduced me to the owners of a colmado where I spent many afternoons
drinking Cafd Santo Domingo and watching Dominican life. Sara (not her real name) was my
constant companion and led me to a number of microentrepreneurs as well as introducing me to a
prestamis~~~ttt~~~tttta.~~ I would not have accomplished half of what I did in Los Alcarrizos without Sara.
Time and space does not allow me to thank all the wonderful people throughout the
Dominican Republic who gave so much of their time to speak with me and help in whatever way
they could. This list includes the upper management and branch managers of the microfinancial
institutions, all my microenterprise respondents, the prestamis~~~~ttt~~~~tttta who were so open and who
patiently explained an unknown world to me, my friends around Los Alcarrizos, the United
Pentecostal Church of the Caribbean, and many, many others.
Then there are the other people stateside who contributed to this thesis. Dr. Charles Wood
truly inspires me in the logic of inquiry and in writing, but also to have a love for learning; I am
grateful he agreed to serve on my thesis committee. Tess Kulstad has been an invaluable
resource on Dominican culture and has always been enthusiastic about my work. Vanessa Vargas
has combed through my recorded interviews again with me to help my poor Spanish understand
what my informants were trying to tell me.
I owe a lifetime of thanks to my parents, John and Joy Lewis, who have always
encouraged me in every endeavor I have undertaken. Besides all their emotional support, they
also helped to make my summer research financially feasible.
Last, but yet most important, is my wife, Amanda Elise Lewis. In pragmatic terms, she has
financially supported us while I have been a full-time graduate student as well as sending me to
the Dominican Republic. Far more than that, however, she has always supported and encouraged
me with her love and understanding; I could not have done anything herein without her.
TABLE OF CONTENTS
ACKNOWLEDGMENTS .............. ...............4.....
LIST OF TABLES ................ ...............11........... ....
LIST OF FIGURES .............. ...............12....
AB S TRAC T ............._. .......... ..............._ 14...
1 INTRODUCTION ................. ...............16.......... ......
Thesi s Question and Hypothesi s.........._.... ......__. ...............16..
Overview of Microenterprise Development ................ ...............16................
Research M ethodology ................. ...............17.......... .....
Research Site .............. ...............17....
Data Collection ................. ...............17.................
Additional Research Aim .............. ...............18....
Thesis Form at ................. ...............18.......... .....
2 THEORY AND CONTEXT OF MICROENTERPRISES ......____ ........_ ...............20
Why Microenterprises? ................ ...............20.................
Microenterprises in Theory............... ...............20.
Demographic Beginnings .............. ...............20....
Perspectives on the Phenomenon .............. ...............21....
The marginal classes .............. ...............21....
The extralegal sector .............. ...............21....
Portes and Shauffler's theory ................. .......... ................................22
Microenterprises in Economic Development ................. ...............22................
Evolution of Microenterprise Development ................. .......... ............... 23.....
The Informal Economy versus Microenterprise Development .............. ...................23
Theoretical Framework Modification for Thesis ............... ..... ...............24
The Head of the Mouse: Microenterprises in the Dominican Republic .............. ... ........._....24
Economic Significance of Microenterprises ................. ................ ......... ...._24
Microenterprises in Los Alcarrizos .............. ...............25....
3 FORMAL CREDIT PROVIDERS .............. ...............27....
Banking on the Poor: ADOPEM .............. ...............27....
Introductions ................. ...............27.................
ADOPEM' sHistory ................ ............... ......... ........ ......... ...._..29
ADOPEM' s Loan Process ................. ...............30................
ADOPEM' S Interest Rates ................. ...............32................
For-Profit All the Way: PyME BHD ............ ..... __ ...............33
First Impressions .............. ...............33....
PyM E's Orientation............... ..............3
PyME's Loan Process............... ...............35
PyME' s Interest Rates ................ ...............36................
PyM E's Clients............... ..... .... .. .. .......3
Microfinance Pioneer: The Dominican Development Foundation............. ..._.........__ ...38
Dominican Development Foundation' s Environment ................. ................. ...._.38
Dominican Development Foundation's Loan Process .............. ...............39....
FDD' s Interest Rates .............. ...............41....
State Sponsorship: PROMiPY ME ................. ...............41.......... .....
PROMiPYME' s Loan Processes ................. ...............42................
Interesting) Rates .............. ...............43....
Los Usureros Usurers .................. .......... ...............43. ....
Summary of Formal Credit Provider Interviews .............. ...............44....
4 INFORMAL CREDIT PROVIDERS ................. ...............46................
Introduction to Prestamistasttt~~~ttt~~~tt in Research and the Literature................ ..............4
(M ostly) By The Book: Prest amista~ttt~~~ttt~~~tt Patricia .............. ...............49....
An Altered Impression ................. ... ...............49.
The Business of Being a Prestamista~~tttt~~~~tttt~ ................. ...............50...............
Friendly exceptions .............. ...............51....
Repayments and/or collections............... ..............5
Questions of aggression .............. ...............52....
Family Life and Business .............. .... ... .... .. ... .... ...........5
From Groceries in Brooklyn to Pawnshops on the Island: Prestamista~ttt~~~ttt~~~tt Yanqui ....................54
First and Second Impressions ................. ...............54................
A Pawnbroker' s Business ................ .............. .................. ...............56
A typical deal .............. ...............56....
An exceptional deal ................. ...............56....... .....
Paperwork ................. ............. ...............56.......
The informal credit market............... ...............57.
An Answer to a Thesis .............. ...............57....
A History of Emigration ................. ...... ..... ..... ...............58......
Banker By Day, Dancer By Night: Prestamista~ttt~~~ttt~~~tt Chaso ................. ................ ......... .59
Dispelling Images ............... .... ....._ ...............59...
Extralegal Services for Legitimate Businesses............... ...............6
Finding a client ................. ...............60........... ....
A selective lender ................. ...............60........... ....
Dealing with a customer............... ...............61
Collecting the rent ................ ...............62........... ....
Mind Games for Non-payments .............. ...............62....
Escalating pressure ................. ...............62.................
Recouping losses ................. ...............63.................
Contradictions in explanations ................. ...............63........... ....
The Birth of a Prest amista~ttt~~~ttt~~~tt .............. ...............64....
The beginning .............. ......__ ...............64...
Evolution of a moneylender ............. .....__ ....._ ... ........6
The Family Life of the Dancing Daddy ............. .....__ ....._ ..........6
Other Affairs................. .........__ ...............65...
Vendor and Lender: Prestamista~ttt~~~ttt~~~tt Pelo ............. ....._ ...............67.
Finding Him............... ...............67..
Awkward Acquaintance .............. ...............67....
Pelo' s Practice .............. .. ...............68...
To lend or not to lend ............. ...... ...............68.
Negotiations .............. .... ...............69..
Repayments (via freewill) .............. ...............70....
Merciful renegotiations .............. ........ ..............7
Repayments (via "psychological pressure") .............. ...............70....
Lawyers? ............ ...............71.....
Formal financing .............. ...............71....
Questions of competition .............. ...............72....
Interest rates ............... ....... ... ..............7
Pelo's History: "Country Come to Town" ............ ....... ...............73..
Accountant, Entrepreneur, and Financier: Prestamista~ttt~~~ttt~~~tt Pablo............... .................7
An Introduction to Pablo .............. ...............74....
Modus Operandi .............. ...............75....
Initiating contact............... ...............75
Getting a loan .............. ...............75....
Collections and defaults .............. ...............76....
Microenterprise clients ................. ...............77.................
Interest rates .............. ...............78....
The Life of Pablo .................... ... ........... ...............79......
Synthesis and Analysis of Presttttamistatt~~ttt~~tt Data .............. ...............80....
Establishing Creditworthiness ................. ...............81.................
Setting Terms and Conditions .............. ...............82....
Loan amount............... ...............82.
Collateral ............... ........ ... .. .. ........8
Formalizing Agreement and Disbursements .............. ...............84....
Collections and Defaults............... ...............86
Determining Interest Rates ................. ...............88................
Loan amount............... ...............88.
Length of loan ............... .... ...............89
Creditworthiness / collateral value ................. ...............90................
Capitalization of the prestamista~~tttt~~~~tttt~ ................. ...............91................
Cost of capital ................. ...............9.. 1......... ....
Summary .............. ...............92....
Conclusion ................ ...............92.................
5 MICROENTERPRISE CREDIT USERS............... ...............95.
Inaccessibility to Formal Sources of Credit ................. ...............95...............
(Un)Awareness ................ ...............95.................
Personal Preferences............... ..............9
Loan Caps ................. ...............99.................
Requisites .............. ...............100....
Utility of Prestamistas............... ............10
Scale .............. ...............103....
Rapidity .............. ... ......... ... ..........0
Analysis of Microenterprises' Rationale ................. ...............107...............
Prestamista~s' Utility............... ...............109
S cal e ................. ................ 109... .. .. ....
Rapidity .............. ...............109....
Concluding Remarks ................. ...............110......... ......
6 CONCLUSIONS AND RECOMMENDATIONS ................ ...............................112
Thesis Research Conclusions ................. ...............112...............
Six Reasons ................. ...............112......... ......
Hypothesis Supported............... ...............11
Additional Research Aim Realized ................. ......... ...............114 ....
Possible Prest amista~ttt~~~ttt~~~tt Parallels ................. ............ ... .... ........ .........11
Hypothetical Continuum for Dominican Prestamista~s .........._.._.. ......._._. ........._116
Research Recommendations .................. ............. ...............116......
Microenterprise Development Policy Recommendations ................. .........................117
Integrate Prest amistasttt~~~ttt~~~tt ................. ...............118......... ......
Legalize Prest amistasttt~~~ttt~~~tt ................. ...............119................
Create Quick-lending Programs .............. ...............120....
Personal Insight .............. ...............120....
A ADOPEM' S LEAFLET........................ ........122
B ADOPEM' S LOAN APPLICATION. ........._ ...._. ......___. ..........12
C PYME BHD' S LEAFLETS................ ............... 124
D PYME BHD' S LOAN APPLICATION ....._ .....___ .........__ ...........2
E DOMINICAN DEVELOPMENT FOUNDATION'S LOAN APPLICATION ..................129
F DOMINICAN DEVELOPMENT FOUNDATION' S COLLATERAL AGREEMENT.....135
G PRESTAM~ISTA PAULA' S CLIENT RECEIPT ........._ ....... .......__..........3
H PRESTAM~ISTA YANQUI'S CARD ................. ...............138........... ...
I PRESTAMIISTA Y ANQUI' S LEGAL FORM S ................. ......... ............ .........1
J MICROENTREPRENEUR LEO' S INFORMAL CONTRACT .............. ..................... 141
K PRESTAM~ISTA PELO' S BU SINE SS FORM S .........___....... __ ......__.........14
L PRESTAM~ISTA PABLO' S CARDS ........._._._. ....___ ...............144..
M PRESTAMIISTA PABLO' S BUSINESS CHECK .....__.....___ ..............._.........4
N MICROENTREPRENEUR SAMON' S INFORMAL RECEIPT ................. ................ ..146
O MICROENTERPRISES' CREDIT SOURCE(S) ................. ...............147...............
P SAID Q&A WITH DR. GONZALEZ-VEGA WITH COMMENTARY BY DR.
GERALD MUJRRAY ............. ...... ._ ...............148....
LIST OF REFERENCES ............ ..... ..__ ...............151..
BIOGRAPHICAL SKETCH .........____... ... ___ ............ ..153..
LIST OF TABLES
4-1 Informal interest rate determinants ................. ...............88........... ...
4-2 Interest rate ranges in percentages per month... ........... ...............92......
4-3 Contrasts of lending practices. ............. ...............94.....
O-1 Tabulation of microenterprises' credit sources) ................. ................ ......... .147
LIST OF FIGURES
A-1 ADOPEM' s leaflet ................. .......................... ......... ...............122
B-1 ADOPEM' S questionnaire. ............. ...............123....
C-1 PyME BHD's leaflets. ............ ...... ._ ...............124.
D-1 PyME BHD's loan application, page 1. .......................... ........125
D-2 PyME BHD's loan application, page 2. ............. ...............126....
D-3 PyME BHD's loan application, page 3 ....._ .....___ ........__ ..............127
D-4 PyME BHD's loan application, page 4. ............. ...............128....
E-1 Dominican Development Foundation's loan application, page 1............... ..................129
E-2 Dominican Development Foundation's loan application, page 2............... ..................130
E-3 Dominican Development Foundation's loan application, page 3............... ..................131
E-4 Dominican Development Foundation's loan application, page 4............... ..................132
E-5 Dominican Development Foundation's loan application, page 5.................. ...............133
E-6 Dominican Development Foundation's loan application, page 6............... ..................134
F-1 Dominican Development Foundation' s collateral agreement, page 1.................. ...........135
F-2 Dominican Development Foundation' s collateral agreement, page 2. ..........................136
G-1 Prest amista~ttt~~~ttt~~~tt Paula's receipt to client. .............. ...............137....
H-1 Prestamista Yanqui's business card .............. ...............138....
I-1 Prest amista~ttt~~~ttt~~~tt Yanqui's bill of sale form. ................ ...............139.............
I-2 Prestamista Yanqui's title transfer forms ................. ...............140.............
J-1 Leo' s contract with unknown prestamista~~~tttt~~~~ttt ....._.__._ ......._._. ......._.........14
K-1 Prestamista~ttt~~~ttt~~~tt Pelo' s blank contract. ..........__ ....__......__ ......_ ............142
K-2 Prestamista~ttt~~~ttt~~~tt Pelo' s blank receipt book. ........._.._. ...._... ....._.. ....._.._........142
K-3 Example of Prestttamistatt~~~tt~~~tt Pelo's current contract with unknown client. .......................143
L-1 Prest amista~ttt~~~ttt~~~tt Pablo' s business card ................. ...............144..............
M-1 Prestamista~ttt~~~ttt~~~tt Pablo' s blank checkbook ................. ...............145....._... ..
N-1 Samo~n' s receipt from unknown prestamista~~ttt~~~~ttt~~~........._.._.. ....._.. ........__. ......14
Abstract of Thesis Presented to the Graduate School
of the University of Florida in Partial Fulfillment of the
Requirements for the Degree of Master of Arts of Latin American Studies
THE HEAD OF THE MOUSE: DOMINICAN MICROENTERPRISES' FORMAL AND
INFORMAL CREDIT DECISIONS
Derek Brandon Lewis
Chair: Gerald Murray
Major: Latin American Studies
Why do Dominican microenterprises use informal credit in the form of prestttttttttttttttamitas
(moneylenders) when lower interest rate, formal credit is available? To answer this question I
conducted interviews with primarily 3 formal microfinancial institutions, 5 prestamis~~ttt~~~tttas,~~tt and 18
microenterprises in Los Alcarrizos, the Dominican Republic.
My research indicates there are at least six reasons microenterprises prefer prestamistast~~~tt~~~tt
over formal creditors. From the least supported to the strongest supported reason, they are (1)
unawareness of formal credit options; (2) preferences for the flexibility and informality of
prestamis~~ttt~~~tttas;~~tt (3) loan caps that prevent them from receiving more credit from formal sources;
(4) lack of requisites for formal loans; (5) the small amounts prestamis~~ttt~~~tttast~~t are willing to lend; and
(6) the rapidity of the prestamis~~ttt~~~tttast~~t in disbursing the loan. The first four reasons are the obstacles
microenterprises face in obtaining formal credit; when they cannot access it, their next viable
option is the prestamis~~ttt~~~tttas.~~tt The last two reasons are the prestamis~~ttt~~~tttas'~~tt advantages they offer
microenterprises over formal sources of credit; these two reasons are also the primary reasons
microenterprises use prestamis~~~ttt~~~ttttattt credit.
In other words, microenterprises primarily use prestamis~~~ttt~~~tttast~~ because of the utility
prestamis~~ttt~~~tttast~~t provide over formal sources of credit. Additionally, the data presented on
prestamis~~~ttt~~~tttast~~ in this thesis compose one of the first formal studies conducted of these unique
microenterprises, dispel some of the stigma surrounding them, and explain the rationale behind
their comparatively high interest rates.
Thesis Question and Hypothesis
This thesis examines why microenterprises use more expensive informal credit in the form
of prestttttttttttttttamitas instead of cheaper formal credit. On the basis of readings and conversations
with knowledgeable professionals, I assumed from the outset that microentrepreneurs are aware
of formal credit sources and aware of the higher interest rates charged by private moneylenders.
The assumption was that microentrepreneurs are aware of the higher cost of informal credit as
well as the availability of lower cost options. The overall premise was that microentrepreneurs
are economically rational and choose the informal credit source because of some perceived
greater economic benefit not necessarily visible to outsiders. The purpose of this thesis is to
explore those other factors.
Overview of Microenterprise Development
Broadly defined, a microenterprise is a small business in terms of people (often the
proprietor is the sole worker), capitalization (perhaps less than US$500), scale (serving small
markets or with relatively low levels of production), and economic stability (in the Dominican
Republic the maj ority close after less than three years of operation) (FondoMicro 1992, 1998,
2000, 2003; Davalos 2006). In spite of these modest indicators, microenterprises are an
important part of every economy, especially in Latin America. FondoMicro's national surveys in
the Dominican Republic indicate microenterprises account for nearly 20% of gross domestic
product and employ nearly one fourth of the economically active population (2003).
Because of these data and other similar information, public and private institutions
throughout the world have begun concerted efforts to support microenterprises. The importance
SUsually translated as "loan shark" or, to a lesser extent, simply "moneylender."
of microenterprise development programs have risen in prominence and achievement, evidenced
by the 2006 Nobel Peace Prize awarded to Muhammad Yunus and his creation, the Grameen
Bank, for the role played in poverty alleviation and economic development by encouraging
The Dominican Republic was an ideal research site because of a number of advantages.
One important consideration was the presence of the research NGO FondoMicro. Beginning in
1992, the NGO conducted extensive research on microenterprises and credit sources, including
annual quantitative surveys on micro- and small businesses. Additionally, Dominican culture
fosters entrepreneurship, as will be explored later.
The research site was narrowed to Los Alcarrizos, an urban area just outside of Santo
Domingo. The socioeconomic status of the residents of the area appeared to be relatively
homogenous, which diminished the differences that might be found among microentrepreneurs
of different economic resources. The area' s proximity to the Santo Domingo was an advantage in
that I had quick access for my interviews with microfinancial institutions.
A combination of the snowball sampling method and the semi-structured interview
approach was an appropriate methodology for this exploratory study. Interviewing
microentrepreneurs about their personal finances was difficult, especially with extralegal
prestamis~~~ttt~~~tttas.~~t Additionally, this approach allowed the data from initial responses to be
incorporated into successive interviews, broadening the range of topics and answers I could pose
to succeeding respondents.
The snowball sampling method provided a sense of solidarity in the initial stage of each
interview, which made the respondents more comfortable and more responsive. A semi-
structured interview allowed a freer flow of conversation and lent itself to the exploratory nature
of the questions. A typical interview would comprise a series of introductory topics and, in-
between broached topics, I would encourage respondents to take the conversation wherever they
Additional Research Aim
Another research aim was to begin to fill the void of academic knowledge regarding
prestamis~~~ttt~~~tttas.~~t While the informal moneylenders supplied over one fourth of all credit received by
Dominican microenterprises, they have rarely been the topic of research in the Dominican
Republic, or elsewhere (FondoMicro 2003). In addition to the data collected from prestamis~~~ttt~~~tttast~~
regarding the thesis question, the interviews with them also attempted to gather information
about their own activities, backgrounds, and rationale in determining interest rates charged to
In the passing references that exist in the literature, these moneylenders are often vilified
because of their "usurious" interest rates and predatory practices, as referenced in the beginning
of Chapter 4. This additional research aim seeks to shed light on this perception to determine
whether or not their notorious reputation is warranted.
In the course of data collection I interviewed three categories of people interviewed: those
who provided formal sources of credit, those who provided informal credit sources, and
microenterprise-credit users. The thesis is divided into an introductory/orientation section, three
middle chapters recounting the interviews and data collected from each category of people, and a
conclusive chapter which includes recommendations and suggestions for future research.
The thesis question restated is: why do microenterprises use prestamis~~~~ttt~~~~tttta when cheaper
formal credit is available? The guiding premise is that microentrepreneurs are economically
rational and use prestamistast~~~tt~~~tt~~ because they derive some greater economic benefit. In the next
chapter, I will discuss the theoretical frameworks and perspectives that I used to give meaning to
the information that surfaced in my interviews.
THEORY AND CONTEXT OF MICROENTERPRISES
Microentrepreneurs are considered an important component of economies and are a focus
of many economic development policies and programs. This chapter is a brief orientation to the
microenterprise field and the specific context of Dominican microentrepreneurs. It begins with
the broader scope of why microenterprises warrant academic study and theoretical perspectives
in this field. The latter part narrows the discussion to the Dominican Republic and to the reality
of being a microentrepreneur there.
Microenterprises in Theory
Over many years of research the academic realm of microenterprise development has
experienced an evolution of terms, ideologies, and perspectives formed. Even now there are
debates about the basic meaning of the term "microenterprise" and the types of undertakings to
which the concept can be applied. I will give a brief sketch of the history of this evolution to
clarify the meaning of the terms and concepts used in this thesis.
After World War II, developing countries around the world experienced high population
growth rates as birth rates rose and mortality declined, causing the economically active
population to grow (Davis 1969) In Latin America this boom coincided with economic policies
encouraging rapid industrialization which had a strong urban bias (Bulmer-Thomas 2003). The
sum of this was a high rural-urban migration throughout Latin America with a massive labor
surplus. Whereas in 1955 over half of all Latin Americans lived in the rural countryside, within
20 years nearly two thirds were urban dwellers, and many of those without employment (ECLA
1981). The outward manifestation of this was the growth of shantytowns and self-employment.
The economic activities within these shantytowns were termed "the informal economy" and
bridged an important gap: PREALC estimates from 1960 to 1989 show the urban informal
economy consistently comprised only one third of the economically active population (Portes
and Schauffler 1993).
Perspectives on the Phenomenon
The marginal classes
The earliest analyses of this phenomenon emphasized the distinction between formal and
informal economies. Those in the informal economy were seen as the marginal classes, excluded
from participating in the modern sector (Nun, Marin, and Murmis 1967). Whereas the formal
economy was characterized by economically rational choices and an efficient market-system, its
popular counterpart was seen simply as a survival mechanism of the exploited classes (PREALC
1981). Thus, the informal sector was also viewed as having little or no capital, a heavy reliance
on (unpaid) familial labor, and operating at the edge or outside of the law. Operating from this
paradigm, there was a call to create employment in order to provide opportunities for these
workers to participate in the formal economy (Bulmer-Thomas 2003).
The extralegal sector
Hernando de Soto is generally identified with the other theoretical perspective influenced
by classical economics. In this perspective the informal sector is not composed of marginal
subsistence workers but rather dynamic, small-scale entrepreneurs who are just as rational as the
actors of the formal sector. In this other view, the difference between the two is attributed to
excessive government regulation which effectively prohibits informal entrepreneurs from legally
competing with other established businesses (De Soto 1989). The informal economy is the
popular response to these regulations; although deprived of legal status and subj ect in some cases
to punitive sanctions, these entrepreneurs continue to exist alongside of the participants in the
formal economy, and are often functionally related to it. Recommendations in this framework
include a dismantling of regulations to allow free-market forces to work (De Soto 2000).
Portes and Shauffler's theory
In recognition of the internal contradictions between the theoretical perspectives associated
with these two camps and of the frequent lack of empirical data, Portes and Schauffler (1993)
propose a more moderate approach that takes into account the complexities surrounding the
informal economy. In line with other perspectives on the informal economy throughout the
world, the Latin American informal sector is defined as unregulated income activities where
similar activities of their peers are regulated by the state. However, instead of being composed
exclusively of either marginal workers or small-scale entrepreneurs, this perspective recognizes
the complexity of activities in this sector, from domestic workers to small factories, and the
sometimes sharp distinctions between this heterogeneous mixture (Berneria 1989). Another
dichotomy with which this perspective disagrees is the isolation of the two sectors; in many
instances the formal and informal economies are closely integrated and interdependent.
Microenterprises in Economic Development
Perhaps what galvanized the international development community into seriously
considering the economic activities of the informal economy were two key events: De Soto' s
publication of 7he Other Path and the international acclaim awarded Muhammad Yunus's
Grameen Bank in Bangladesh. Both of these men underscored the untapped economic potential
of the world' s poor bottled up not by their own ignorance or lack of rationality but because of the
lack of basic necessities: small amounts of capital, basic legal frameworks, and fair market
access. Thus, the microenterprise development field began with the ideal of encouraging small-
scale entrepreneurial endeavors.
Evolution of Microenterprise Development
In the beginning of the microenterprise development field many resources were devoted to
training microentrepreneurs in basic business skills (i.e. accounting, marketing, management) as
well as vocational skills (i.e. handicrafts, farming, sewing). Eventually though, it became clear
that the number one issue microentrepreneurs faced was lack of credit. The Association for the
Development of Microenterprises (ADEMI) was one of the first organizations to offer no-frills
credit, which meant no training in business skills or any other form of aid strictly small loans at
market rates. Since its success, as well as the success of similar programs, many microenterprise
development organizations and policies now focus on providing microentrepreneurs access to
credit. Thus, in practice, the field of microenterprise development has evolved into the field of
The Informal Economy versus Microenterprise Development
Although the field of microenterprise is generally discussed within the framework of the
informal economy, it also spills outside of those boundaries; not all microenterprises are illegal
or extralegal. Not all microenterprises fall outside of the formal economy and not all in the
informal economy are microentrepreneurs. In spite of the plethora of research about
microenterprises, it is still difficult to find a convincing, shared definition of"micro-
entrepreneur." A self-employed plumber with his apprentice who unclogs a sink is a micro-
entrepreneur, but is a cleaning lady who comes twice a week with her daughter to mop the
floors? A woman in the countryside who paints wooden signs for local farmers to advertise their
produce has a microenterprise, but a young woman in the city who owns a graphic design firm
faces a very different set of circumstances.
Theoretical Framework Modification for Thesis
A self-employed person faces some of the same obstacles and challenges as a neighbor
who runs a formal business. Their legal status is different, but not their basic challenges. A
pragmatic solution, at least for this thesis, is to extend Portes and Schauffler' s framework to
include under the term microenterprise legally constituted businesses that operate at the same
scale as their informal counterparts. Specifically, the research on microenterprises presented here
is restricted to businesses that employ ten or fewer people, regardless of whether they fall into
the formal or informal sector
The Head of the Mouse: Microenterprises in the Dominican Republic
Dominicans have a saying: I'd rather be the head of a mouse than the tail of a lion.2 In
other words, it is better to be the head of your own small venture than just an employee of a large
business. Among others, Murray (1974, 1996) has documented the entrepreneurial proclivity of
Caribbean natives and especially Dominicans. This culture of fostering small businesses coupled
with a relatively advanced microenterprise development sector made the Dominican Republic a
conducive site for researching microenterprises.
Economic Significance of Microenterprises
One important microenterprise development resource in the Dominican Republic is the
research NGO FondoMicro which began publishing quantitative national surveys in 1992. The
surveys from 1992 until 2000 illustrate the importance of microenterprises to the Dominican
economy: they consistently produce around 20% of gross domestic product and consistently
employ a fourth or more of the economically active population. In 2000, more than half of all
microenterprises were headed solely by women, and another 10% were headed j ointly by a
SPrefiero ser la cabeza del raton que la cola del leon.
couple; male-owned microenterprises were the minority. These surveys also reveal that the
microenterprise was the primary source of income for the owners) (FondoMicro 2003).
Microenterprises are not only an important component of the Dominican economy but they are
vitally important to the microentrepreneurs themselves.
Microenterprises in Los Alcarrizos
As stated, Latin America shifted from being primarily a region of rural dwellers to a
predominantly urban one, and the Dominican Republic was no exception to the urban trend that
took place in the last 20 years in the rest of Latin America. Of its now roughly 9 million
inhabitants, 30% live in Santo Domingo alone; altogether, nearly half of the population resides in
just four maj or urban areas (Economist Intelligence Unit 2006). Concerning microenterprises, in
1999 there were 353,325 microenterprises throughout the country, with a third in the Santo
Domingo region (FondoMicro 1999).
These demographics are very helpful in understanding the overall context of
microenterprises in the greater Santo Domingo area. But what does Los Alcarrizos look like? I
have no idea how many people inhabit it, but they number in the thousands. The town (for lack
of a better word) begins at the Duarte, the Dominican "interstate" connecting its two principal
cities Santo Domingo and Santiago. Its densely packed buildings and inadequate streets make
you feel as though you were in a poorer neighborhood of the capital itself. But instead of finding
the end of the neighborhood, it stretches in all directions. I do not know how far from the Duarte
the town extends, but it is many miles. To travel by a good taxi from where I lived to a church in
the middle of what would "downtown" Los Alcarrizos was almost twenty minutes in light traffic
The town is more or less organized in blocks, but there are no straight streets. Along the
principal avenues (those paved and almost large enough for three cars abreast) are the two- and
three-story commercial buildings: funeral homes, banks, tallereS30f all kinds, private academies,
microenterprises with the owner's home above them, apartment complexes, auto parts stores -
the list is endless. On the side streets nearer the main roads are the less-capitalized colmados4,
smaller private academies, beauty salons, and the upper-end residences. Further away are the
unpaved roads, the washed-out gullies along which live the maj ority of Los Alcarrizos.
I spent many evenings with my friend Sara at her aunt' s house on one of these roads. The
family (usually about eight or nine of us) sat on their 5x10, barred porch watching neighbors
stroll by, listening to the grandkids playing in the street, endure the group of old men sitting in
the middle of road underneath the shade tree carrying on, and enjoying the relative quiet. Nights
were another world altogether. My friends did not want their "gringo" walking alone after dark
and, if I stayed too late, they would walk me to the main road so I could walk along it the two
more blocks home. The colmados usually had a few people drinking and dancing during the
week, but on the weekends it seemed all of Los Alcarrizos was out in the street enjoying the cool
night and dancing it away.
This is where I spent most of my time and where I conducted most of my research. All five
of my prestamis~~~ttt~~~ttttattt interviews were in Los Alcarrizos, alongside their microenterprise clients. The
headquarters for the microfinancial institutions were, of course, in Santo Domingo proper, but
they were well-represented in Los Alcarrizos with branch offices. Nearly everyone knew
microcredit providers ADEMI, ADOPEM, PyME BHD, PROMiPYME in BanReservas, FDD,
and/or ASPIRE by their prominent branch office on the principal avenues) of the town. This
thesis begins with the interviews of four of these formal credit sources in Chapter 3.
3 Workshops" in a general sense.
SA small Dominican grocery store.
SSome cobnados (and perhaps most) also serve alcohol and have tables to encourage patrons to pass time there.
FORMAL CREDIT PROVIDERS
To understand why microenterprises would use prestamis~~~ttt~~~tttast~~ I needed to know about the
alternative: formal credit. This chapter summarizes the interviews conducted with institutions
FondoMicro felt were representative of the formal microfinance realm in the Dominican
Republic. In all of my interviews I followed the semi-structured style, as reflected by the range
of topics covered in this chapter. With each institution ADOPEM, PyME BHD, FDD, and
PROMiPYME the conversation led in different directions, the interviews emphasized different
points, and I asked better questions as my own knowledge increased. The primary purpose of this
chapter is to identify the formal options available to microenterprises, to underscore the relative
ease in obtaining formal credit, and to provide the contrast to the prestamis~~~ttt~~~tttast~~ presented in the
I present the three primary interviews individually and in chronological order as well as a
short interview with the state agency, PROMiPYME. The chapter closes with an analysis of the
microfinancial institutions and possible answers to the question of why microenterprises would
use informal credit instead of them.
Banking on the Poor: ADOPEM
Sra. Marina Ortiz of FondoMicro gave me a list of credit providers working in the
microenterprise development field. One that immediately intrigued me was La Asociacion
Dominicana para el Desarrollo de la M~ujer (the Dominican Association for Women' s
Development), a.k.a. ADOPEM. Just two years priors the NGO (as The Woman's Bank, El
Banco de la 2ujer) had succeeded in converting itself into a private bank and had enjoyed
continued success. With such an interesting story it was the first formal credit source I went to.
I had not done my homework and was unaware ADOPEM was accustomed to researchers
and their endless questions, so I was surprised by the bank' s willingness to accommodate me. In
a very short period of time I had an interview scheduled within the next few days at their main
branch near the heart of the capital. The landmark I use to remember their location is the bright
red pickup truck hanging on the side of the tall Santo Domingo Motors building.
ADOPEM' s primary offices were housed in a plain but pleasing single-story building
painted a unique shade of marble-swirl aqua blue with 'ADOPEM' in gold letters. All together,
its appearance was so unobtrusive that my driver and I passed it once or twice before calling to
get the secretaries' oft-used landmark the large-bay automotive shop directly across the street.
Secretaries/receptioni sts hold a very unique place in any organization and I was
constantly reminded of the plaque I once saw on one' s desk: do you want to talk to 'the man in
charge' or 'the woman who knows what' s going on?'. Upon walking into the building the
receptionists immediately spotted this out-of-place gringo and sailed to my rescue. After a phone
call or two I was told I would not have to wait long.
In the meantime I was trying to take in all the details of my first opportunity to see what
an microfinancial institution actually looked like. I am not sure what I was expecting, but I found
out this one looks like a bank. To the left of the landing area was a teller' s desk and a waiting
area that would have been at home in nearly any bank. The noise was constant but muted as the
crowd, virtually all women, transacted their business. To the right were a number of desks with
well-dressed women at their terminals or helping two women through a loan process. In fact, I
remember realizing that I was nearly the only male in that large office space that day (hence, 'the
Shortly I was ushered into the boardroom and offered coffee and water while waiting for
my contact. Sra. Carvaj al was very cordial and patient as I tried to explain exactly what I was
doing there. However, the combination of my less-than-perfect Spanish and nervousness at my
first formal interview with a bank hindered my communication. After a while, she smiled and
excused herself to get me some information I might find helpful. She returned with financial data
which was very helpful, but more importantly with the vice-president of the bank, Lic. Mercedes
Canalda, who spoke English very well. Operating in my native tongue helped me feel more at
ease and we quickly lapsed into a comfortable conversation around ADOPEM.
Around 1981 or so the NGO The Woman's Bank was formed to provide credit to
microenterprises. However, under Dominican law it was severely restricted with respect to
financial matters. Wanting to expand their financial services to better serve those who used them,
the NGO began considering transforming itself into a private, for-profit institution. After
sweeping financial reforms in the late 1990s, it was very difficult to even begin a bank. With the
difficulties presented by the law, it was more feasible to buy an established bank and operate
under its charter. The NGO found a suitable institution and bought it, renaming it ADOPEM. She
told me that at the close of just two years they should finalize their 26th branch office with about
110 credit officers throughout the country. However, the NGO still exists as a separate entity
working with microenterprises but is phasing out its financial operations and is passing its clients
on It continues to offer technical training and means of establishing client credit to help them
graduate to the next phase of actually receiving credit. At the time of our interview, 15,000
Dominicans remained on the NGO's books as loan recipients; the maj ority had been passed on to
the bank. The bank' s total number of current customers had surpassed 40,000 customers.
ADOPEM's Loan Process
Lic. Canalda, though vice-president of the bank and very busy, gave me quite a bit of her
time to talk to me at length about how a client solicits and receives a loan (to the point we kept
the boardroom tied up for a few minutes past a scheduled meeting with representatives from the
Central Bank, coincidentally her former employer). Besides giving me her time, she also gave
me the time of one of their credit officers in the Los Alcarrizos branch office by having him lead
me to any of their clients I chose to interview. Although the client could refuse the interview, all
were kind enough to talk to me at length.
As she explained, and as I later witnessed, the target population for microenterprise
financial institutions is not accustomed to dealing with formal banks, loan applications, etc. The
institutions have to solicit customers; they cannot wait for their clients to come by themselves..
For example, when I was at the Los Alcarrizos branch office, there hung a large, hand-drawn
map of the town divided into "beats" for individual loan officers. Fortunately, it was not a long
walk to the beat of the credit officer who led me to talk to some of 'his' clients. He took me to the
colmado-fanta;sia of Sra. Esperanza. The primary room of her home did double duty as her
storefront with a curtained off bedroom at one end. The other room of the house was a kitchen.
Besides being poor and bereft of a car, she was also somewhat incapacitated and unable to walk
without aid. If she would have had to solicit a conventional loan she would have had twice the
hardship of traveling to and from the bank to complete the necessary processes.
Thus, I experienced what the initial phase of the loan process resembles: canvassing the
neighborhood, finding the microenterprises (not all of which are as obvious as an advertised
colmado-fanta;sia), and explaining what ADOPEM does and offers. It seems, though, the
maj ority of ADOPEM' s clients learn of its services from referrals by previous customers and not
from the credit officers going door-to-door.
The officer may simply leave a leaflet highlighting their services or may be lucky enough
to find someone who would like to immediately apply for a loan. In this case the ADOPEM
officer quickly pulls up a chair, whips out a short questionnaire and proceeds to conduct a
succinct interview gathering some personal information, some financial estimates, and a quick
reference or two.2 For those who are interested but would like more time to consider, the officer
leaves the application form to be filled out at the applicant's leisure to be picked up at a later
As Lic. Canalda told me, the bank does not really want material collateral the capacity of
the microentrepreneur to repay should be the loan's collateral. A skilled interviewer can discover
the internal workings of a microenterprise with a few key questions and create a proxy balance
sheet by which to judge the potential client' s standing. After collecting a few supporting
documents, ex. cellular payment receipts, rent contract, etc. to verify some of the information,
the loan officer is back on the street again.
When the credit officer has a completed application in hand, it is in their best interest to
enter it electronically in the branch system as quickly as possible. Lic. Canalda' s goal for
ADOPEM from the client' s submission of the application to disbursement of money is two days.
If the period is longer than seven days from the date on the application until disbursement, the
officer is penalized by receiving less of a bonus than usual. To expedite the process, an approval
committee in each individual branch meets every morning via the Internet to approve or rej ect
the loan applications recently entered into the system; this reduces paper shuffling and the risk of
physically misplacing an application. As soon a client is approved, a bank representative calls the
SSee Appendix A for an example of ADOPEM's leaflets.
2 See Appendix B for an example of ADOPEM's questionnaire.
microentrepreneurs to notify the applicant of their approval and ask how the microentrepreneur
would like the money disbursed: cash, check, ADOPEM debit card, or direct deposit into an
ADOPEM checking or savings account deposit. The only time an ADOPEM customer may have
to come to the bank branch itself is to receive their loan.3
This is a typical transaction for a typical loan amount, which is about 10- to 12,000
Dominican pesos.4 For larger amounts, there are a few other precautions. ADOPEM runs a credit
check on all those who request a loan above RD$20,000. At RD$50,000 there is additional bank
documentation, but without involving the potential client. For loans beginning at 5 million pesos
there is some additional work required of the customer, ex. they have to open an account with
ADOPEM, provide additional documentation, etc.
Within a week a credit officer returns to the client' s microenterprise to ensure the
transaction went smoothly as well as to verify that the loan was invested in the business. If
everything goes well, the client will repay the loan in a timely manner and then be eligible for
another loan at a greater amount (if they were satisfied customers, of course, like Sra.
ADOPEM' S Interest Rates
ADOPEM has a very simple formula for determining what interest rate to offer their
clients. The first determinate is the cost of funds for ADOPEM, i.e. how much the bank pays for
external sources of funds from other banks, government programs, etc. Then there are the bank' s
operating costs: salaries, expansion costs, regulatory compliance, etc. The last factor is the
"spread" or the profit of ADOPEM which necessarily includes inflation. Thus, the example
3 I assume ADOPEM does not allow its credit officers to disburse the loans for security reasons.
4 The exchange at that time was approximately 33 to 1; therefore, 10- to 12,000 pesos would be about US$300 to
given by Lic. Canalda may resemble the following: PROMiPYME lends ADOPEM funds at
10%; operating costs may be estimated at 16%; required return and inflation may combine to
equal 8%; thus, the rate at which the bank may loan in this instance in time would be 34% per
year or 2.83% per month. She said the average rate ADOPEM charges was about 3% per month,
but may vary between 2.8% and 3.5% monthly.
For-Profit All the Way: PyME BHD
Interviewing ADOPEM had been a pleasure, and I was now anxious to speak with an
representative from PyME to contrast the two practices and cultures. Although ADOPEM is
officially a private bank, its basis is as a non-profit, non-governmental organization. PyME BHD
began as a private bank and is part of the larger family of BHD Holdings. It would be interesting
to compare the two.
For some reason, I had decided to take a risk and be my own chauffer, using my friend's
Mazda 626. I wound up in the industrial western part of Santo Domingo, trying to follow
directions that had somehow become lost in (my) translation. At a different BHD branch (not
PyME) I was directed to the exact opposite end of the industrial area; at least I was on the right
PyME BHD's primary branch is housed in a rather imposing office building for its
neighborhood. After parking in the garage beneath the building and heading into a couple of
wrong offices and meandering around on vacant floors, I was directed to the side annex; of
course, it was accessible only by leaving the main building and entering through the entrance that
had "PyME" prominently displayed above it. I was immediately struck by the feeling of being in
an information technology office, as opposed to the "bank look" of ADOPEM' s reception area.
Instead of a teller' s window and a lobby, there was a small waiting area and a receptionist
immediately upon entering, with cubicles and glass-walled offices abutting the area.
By this point of my research stint I was becoming familiar with the feeling of being the
"odd man out" and had even become amused by the questioning looks of secretaries and others
who wondered what I was doing there but were too polite to ask. I smiled and waited to be
shown to the general manager of PyME BHD who had granted me time for an interview because
of my introduction by FondoMicro.
I did not wait for very long when Sr. Andres Santos came bursting through the front
doors. The receptionist quickly pointed me out and I was met with a warm smile. He ushered me
through the back door to yet another room that further reinforced the feeling of an IT operation: a
room the size of what would be a small factory floor with filing cabinets, yet more cubicles, and
a glassed-in mezzanine to which he directed me, chatting amiably about the Dominican Republic
and my stay so far as we climbed the stairs. Having overcome my inhibitions in my linguistic
shortcomings, we conversed in Spanish; it was fortunate I was more confident in my abilities,
because he had expected to hold the meeting in Spanish and was counting on me being
competent in the language.
"The intention of PyME BHD is to offer traditional financial services to untraditional
customers... [We are] serving a market niche usually served by prestamis~~~ttt~~~tttas,~~t family, and friends
at unusually favorable prices," he told me as a way of introducing the bank. He also looks at the
microenterprise development sector as a social service by helping to generate employment and
alleviating poverty. "We want to call attention and investment to the micro[enterprise]
segment, to strengthen microenterprise infrastructure," he said, not sounding unlike my other
interviews with FondoMicro or ADOPEM.
However, PyME' s perspective had yet another facet: "PyME is an intermediary a
gateway for the ten other companies [of BHD Holdings] with which it operates... As the
[microenterprise] grows, BHD can answer all needs: expanding internationally, insurance needs,
offshore banking. We are trying to create loyalty and ensure they utilize our entire range of
Financial services... [We are] developing a relationship with the client as the client grows, we
will serve their future needs." Although the daily operations of PyME may not differ
significantly from other microenterprise Einancial institutions, as described below, the orientation
of PyME within the BHD family may represent an important, if subtle, difference in the
approach and practice of historically private banks versus the perspective of non-profit and
PyME's Loan Process
The initial step in the loan process, as described by the president, is to increase awareness
of the services PyME offers. The bank' s marketing strategy is to advertise by radio, to pass out
glossy leaflets throughout the city, and most importantly to have credit officers visiting
prospective clients door-to-door. Each officer is assigned an area of responsibility who regularly
walk their route, finding new businesses, following leads given by other clients, and revisiting
other microenterprises to encourage them to solicit a loan with PyME.
If a business owner is interested in receiving a loan, the officer quickly conducts an
impromptu interview. I use the word 'impromptu' because the interview consists of not only the
application form which the officer fills out according to the information given by the
microentrepreneur, but includes implicit information as well: the officer observes the business,
SSee Appendix C for an example of PyME's leaflets.
analyzes the rationale of the microenterprise owner, and generally gets a feel for the business. 6
Therefore, although each application may contain the same questions, the total package the
officer finally submits to the loan reviewer includes additional information that s/he gathered
A solitary credit manager reviews the documentation to decide upon the appropriate
action. If the risk of default for lending to a particular microenterprise appears high, the reviewer
may require cosigners as collateral. As soon as the loan is approved, notification is sent to the
BHD branch where it was originally submitted; in many cases, this branch will be where the
PyME credit officer is, but it may be the microentrepreneur filled out the questionnaire privately
and submitted it to another BHD office. The branch calls the microenterprise owner to come to
the office to sign the necessary documents and receive the loan money. There are two methods
by which PyME disburses the loan: by debit card, which functions like a card linked to regular
account, able to be used at an ATM or perhaps a retail outlet that accepts cards; or by depositing
the funds into a savings account with BHD. In all cases, the goal of PyME is to have the money
in the hands of the solicitor within five days of the original interview.
PyME's Interest Rates
"The number one problem [for microenterprises] is access to financial services as they
grow," Sr. Santos explained to me. As presented previously, PyME's position is integrated into
the larger perspective of BHD Holdings. While BHD as a whole represents large enterprises,
PyME does not have large business accounts. This general lack of experience and other
indicators of success on part of their clients is a factor in determining interest rates for each of
their microenterprise clients.
6 See Appendix D for an example of PyME's application fonn.
Besides experience, there is the structure of the business, that is to say organizational
structure, to add to the equation. He did not indicate the amount of the loan was a determinate,
though he did point out the average loan is about RD$50,000, which PyME grants anywhere
from thirty-two to thirty-six months to repay; however, as he pointed out, "Regardless of the loan
time, microentrepreneurs want to quickly pay off obligations and usually do so before the
required time." After all other factors have been taken into account, the interest rate for an
approved business somewhere between 2.5% to 4.0% per month "less than the prestamis~~~ttt~~~tttas,"t~
he pointed out.
Since he brought up the subj ect of informal lenders up, I posed my thesis question to the
banker: why do some microenterprises continue to use prestamis~~~ttt~~~tttast~~ when institutions like PyME
are available? He replied, "They may be ignorant of the financial institutions, or may not have
time to contact the credit officers of said institutions.. .Prestamis~~~ttt~~~tttast~~ are an option, but many
[microenterprises] don't consider the costs, thinking only about the short term."
He seemed surprised when I asked if prestttttttttttttttamitas are microenterprises. He paused for a
moment, pursed his lips, and seriously considered the question. Yes, he finally responded, yes,
they are. However, PyME would not consider lending to them because they are competitors to
the services PyME offers.
As of this point I had yet to interview a client of financial institution; I asked Sr. Santos
for some typical businesses to whom PyME traditionally lent. He did provide some key
illustrations, but moreover put the credit officers covering Los Alcarrizos at my disposal. The
clients to whom they led me comprise an important piece of my research presented here. One of
the more interesting paths opened to me was to discover a PyME client who was also a
prestamis~~~ttt~~~tttta.~~ I wonder how Sr. Santos feels about unwittingly supplying the competition with
Microfinance Pioneer: The Dominican Development Foundation
The Dominican Development Foundation (FDD) is primarily housed in a beautiful
colonial building in the heart of old Santo Domingo. The Spanish architecture of low archways,
broad stairways, and spacious, cool interiors was enchanting. It was easy for me to imagine a
colonial magistrate sitting in the FDD director' s office, mulling over colonial decrees or the
French threat on the western end of the island. These surroundings were, of course, in stark
contrast to the ultra-modern office environments of ADOPEM and PyME, and rather
underscored the different histories of the organizations. Whereas the two private banks were
relatively newcomers to the field, FDD has a long history in the Dominican Republic and was
among the pioneers of microfinance many years ago. I felt history surround me as I chatted with
the director of FDD, Sra. Wiscovitch
Dominican Development Foundation's Environment
The FDD, in conjunction with ACCION Intemnational and the United States Agency for
International Development, offered the first microcredit program in the Dominican Republic.
That proj ect inspired the microfinance pioneer ADEMI which achieved international fame as a
template for microfinance providers. Although ADEMI is a privately held company, many of the
first credit providers were NGOs; as the microfinance sector evolved in the Dominican Republic,
many private, for-profit institutions began serving this market niche as well.
Sra. Wiscovitch was very positive about the competition, believing it helps the clients get
better rates: "One of [PyME BHD's] VPs is a director in our board and this past Thursday we
had a meeting...I told him, 'You know, you're getting pretty tough,' and he said, 'Yeah, [our
rates are] going down.' I said, 'We're lowering our rates we're not going to lose our clients to
PylVE." Even though she related this with a smile, I knew she was quite serious about
She confessed a mistake made when she first j oined FDD. With the FDD's public-service
orientation, she felt the mission of the FDD was to help the microenterprises grow to the point
they could graduate to a private bank; when a client reached a certain point, FDD handed them
over to another bank. "I realized I couldn't grow the portfolio like that!" she told me. To counter
this and to have a better mixture of risk exposure, FDD tries to retain its clients and now offers
successively larger loans after successful repayment instead of referring them elsewhere.
Increasingly, microentrepreneurs are looking elsewhere already. According to her, when a
microenterprise is small and does not have many financial options, you borrow from wherever
you can. Later, when the business has expanded and is larger, you have more options and so
begin to compare financial institutions. Perhaps reflecting on increased competition, she
exclaimed, "It wouldn't surprise me if the prestamis~~~ttt~~~ttttattt is looking into the credit bureau -
wouldn't surprise me at all." (I later found out that some do.)
In this discussion of comparing interest rates, she made the distinction of microenterprises
versus small- and medium-sized businesses: microenterprises' needs are more urgent and so they
are less conscious of the costs involved. FDD has to be very careful to not extend loans to those
who would be unable to take them back since this would result in the going through the
complicated and undesired collection process. In comparison she remarked, "Prestamis~~~ttt~~~tttas~~ have
other 'persuasive' methods of recuperating their money," she said, laughing. "We don't do that -
they'll do anything to get back their money."
Dominican Development Foundation's Loan Process
I surmise FDD's loan process involves more steps than its competitors because of this
aversion to loan defaults. As with the other formal credit providers I interviewed, the process
begins with contacting potential clients. Although FDD's credit officers go door-to-door and
pass out fliers everywhere, the maj ority of their new clients come by referrals from previous
ones. Step one is to fi11 out the application and return it to the local branch onfce. FDD checks
the applicant' s credit bureau report and, if they have a good record, schedules an appointment at
the applicant' s house or business. There, the credit analyst fills out another form in a question-
and-answer session to create a working balance sheet of the individual's finances, including
personal and business expenses, all sources of income, as well as verifying the credit bureau's
report.' The preferred collateral for FDD loans is a cosigner. Thus, FDD must schedule a visit
with the cosigner to verify they will be able to carry the loan should the client be unable to pay.
After this comparatively involved process, the credit officer returns to the local branch to
submit the gather information. There is a rather simple preliminary detail: if the anticipated
monthly payment will be more than 28% of the person' s available funds (money left after
deducting all expenses) FDD immediately rej ects the application. Otherwise, the documents are
sent to the proper authority: for loan amounts less than 30,000 pesos, this is the local branch; up
to 75,000 pesos, it is regional supervisor or other upper management; more than 75,000 pesos, it
is Sra. Wiscovitch.
Once the loan is approved, the central processing department prints the check, promissory
notes, and any other legal documents to send back to the originating branch. The process comes
full circle when the applicant, as well as the cosigner(s) (if applicable), come to the local branch
to sign the forms.
SSee Appendix E for an example of FDD's application form.
SHowever, they will accept material collateral as well: see Appendix F for an example of their collateral form.
After switching to a different processing system, FDD can no longer track the time for
each application to complete this cycle, although Sra. Wiscovitch estimated it was five days -
"too long." She told me FDD was about to begin using a new system of PalmPilots which would
eliminate the need for the central processing department, the current two-onfce system, and
would shorten the turnaround time to two or three days at most.
FDD's Interest Rates
FDD's interest rates are very straightforward. For loans of 5,000 pesos (FDD's minimum)
to 20,000 the rate is 3.8% per month; from 20,000 pesos to 50,000 the rate is 3.5% per month;
for loans greater than 50,000 pesos the rate is 3% per month. In relating this, Sra. Wiscovitch
told me she had to switch between two different cultures: coming from the private banking sector
to the microfinance sector, she had to adjust to speaking in terms of monthly interest rates
instead of yearly interest rates. I knew the feeling of translating between two different worlds
State Sponsorship: PROMiPYME
My last interview with a formal credit provider was with the state agency el Programna
para la~s Micros y Pequela~s Empresa~s (Program for Micro- and Small Businesses), a.k.a.
PROMiPYME, housed in a small but gleaming onfce complex on Avenida 27 de Febrero. The
reception area, which I enjoyed for quite some time, was the same stark white as the exterior but
pleasant at the same time. By this time in my research stint I was used to receptionists being
somewhat perplexed by my presence, but too polite to ask what exactly I was doing there. I was
too young to be some institutional representative or foreign dignitary, and my Spanish was too
bad to let me pass for an expatriate living in the Dominican Republic. I let her curiosity continue
as I tried to Eigure out what the stream of Asians were doing passing through the double doors
into the interior of the building. Unlike the receptionist, I did sate my curiosity and found the
government of Taiwan is involved with the Dominican Republic in microenterprise development
programs as well.
After climbing upstairs and passing a number of posters exhibiting the microenterprises
PROMiPYME had helped (there was an optometrist, a blacksmith artist, and, of course, a
colmado, to name a few), I found my interviewees Sefioritas Garitza and Farhilda sharing an
office with two other women. Although they were involved in a specific aspect of
PROMiPYME' s operations, they generously volunteered as much information as possible
regarding the other aspects of the state agency' s activities.
PROMiPYME's Loan Processes
The modus operandi of the state microfinancier is similar to the other formal sources I had
interviewed: the process begins with filling out paperwork and an interview at the
microenterprise site; the loan officer inputs the data electronically to be approved by the
necessary authorities; and, once approved, the microentrepreneur comes by the branch onfce to
sign the legal documents.
The details are interesting, though. The microfinance provider's loan offices are housed in
the state bank' s branches (Banco de Reservas or BanReservas, for short) throughout the country.
I had witnessed this traveling to the Samana Peninsula: if the town had nothing else, they
probably had a local office for BanReservas. Instead of actively soliciting clients, PROMiPYME
waits for Dominicans to come to local office to fill out the loan papers. Another difference is the
amount of time it takes to receive a loan. My interviewees estimated the average wait time to
receive the loan funds was about a month, if all the paperwork was in order. When the loan does
come through, it is deposited in a BanReservas account whereby the microenterprise can
withdraw it from any BanReservas branch or ATM in the country.
PROMiPYME has an advantage over other credit providers in word-of-mouth advertising:
its capital is subsidized by the government and thereby offers ultra-low interest rates: 1.25% per
month for commerce- and service-oriented microenterprises and 1.04% per month for
manufacturing microenterprises. One percent interest a month is certainly talked about among
microentrepreneurs. Alas, some things are too good to be true: the institution does not loan less
than RD$50,000 at a time which, as I relate in Chapter 5, is far more than most microenterprises
can afford. In order to still reach those who cannot take out a loan this large, PROMiPYME
finances other microfinance organizations, like ADOPEM, who in turn lend smaller amounts of
Los Usureros Usurers
One gem I received in this interview was an explanation of why microenterprises would
use los usureros (an usurer or loan shark) over formal credit sources, without my even bringing
up the topic. In explaining the purpose of PROMiPYME, one of them (I think it was Garitza)
told me one of the purposes of the institution was to provide credit to microenterprises who only
have the option of la usura. Together, Garitza and Farhilda explained el usurero: "[Garitza] For
example, if you're a microentrepreneur, and there' s a person who lives near your microenterprise
who lends for 20% or 15%, or 40% monthly it' s a higher cost." "[Farhilda] la usura: informal
loans by people who undistinguishablee]: they are easy, but they're very expensive easy, but
expensive." "[Garitza] Oh, there' s a lot of them!i" They proceeded to give me a few humorous
examples of the smiling sharks.
I posed the question of why microenterprises would use los usureros instead of formal
sources. Again, I received a tag-team explanation:
[Garitza] It' s not because they prefer them; it' s really because of the need, like an
emergency it has to very important, you understand. For example, if you realize, 'Oh,
today is Tuesday!,' and the truck is coming with the merchandise you need for your
business to continue, but you don't have the cash, and this truck isn't going to give you
credit then, you need the cash and someone can provide it, but you have to pay a higher
price. The cost will be very high. But if you don't do it, you don't have the merchandise to
offer your customers either. [Farhilda] They're fast...
They also indicated that, though la usura may require a type of collateral, the person may just
sign the documents, not realizing what they are agreeing to.
Although someone higher in the chain-of-command nixed my access to any of
PROMiPYME's clients to interview, my conversation with Garitza and Farhilda provided a lot
of needed information for understanding how the state agency fits in the arena of microfinance.
After thanking the two women for their time, I walked back down the institution-white corridor
and smiled at the receptionist on my way out. I could almost hear her picking up the phone to
Summary of Formal Credit Provider Interviews
The primary importance of the information presented here is in providing a contrast for
the informal credit providers in the following chapter. Since their methods and rationale will be
considered side by side in the analysis of that chapter, it is only necessary to highlight a few
points in this summary.
The representatives of the formal institutions offered three reasons microenterprises
would use prestamis~~~ttt~~~tttast~~ instead of formal sources of credit. One is that their informal
counterparts are fast and can make loans to the client almost immediately. The second reason is
that banks may have higher requirements than the microenterprise is able to meet. The third
reason put forth by FDD, PyME, and PROMiPYME is the microentrepreneurs are unaware of
the higher costs of the prestamistat~~~tt~~~tt~~ or only consider their short-term financial position, not
realizing the economic disadvantage in the long-run.
After surveying of the formal realm of microfinance, this thesis now proceeds to in-depth
interviews with its informal counterpart: the prestamis~~~ttt~~~ttta.t~~ The analysis of Chapter four highlights
the similarities and differences between the formal creditors presented here and the five informal
credit providers I was able to interview.
INFORMAL CREDIT PROVIDERS
This chapter on microentrepreneurs' informal credit sources; in addition to data directly
related to my thesis research, I include details and responses that serve to paint a picture of these
informal moneylenders. The chapter begins with a review of references to prestamis~~~ttt~~~tttast~~ in the
literature (underscoring the paucity of information about them), and then proceeds to the five
individual interviews. As I used the same semi-structured interviewing technique as I did with all
other interviewees, our conversations ranged from their routine lending practices to their
families, or from their own financing to their personal history. An analysis of these prestamis~~~ttt~~~tttast~~
is at the end of the chapter and summarizes the rationale of the informal moneylenders as well as
contrasting this rationale to formal credit sources. Because interest rates are at the core of this
thesis, as well as at the heart of the prestamis~~~~ttt~~~~tttas vilification, a special section on how they set
interest rates is provided in some of the interview accounts and in the analysis section.
Introduction to Prestamistas in Research and the Literature
This section is a brief highlight of what is known and written about prestamis~~~ttt~~~tttast~~ in
academic research and literature, in the Dominican Republic and elsewhere. Unfortunately, the
observations are not based on in-depth studies of informal moneylenders but rather on indirect
research associated with microenterprises, as well as anecdotal evidence, personal impressions,
and evidence from secondary data sources.
For example, in a report on women's participation in ADEMI in 1984, Reichmann noted:
"The most common form of credit utilized by lower income Dominican women is the
prestamis~~~ttt~~~tttta.t~~ ..this credit is generally used for survival purposes...Of course, the tradeoff for the
microentrepreneur is the prestamis~~~ttt~~~tttta't~~ s usurious interest rate" (Reichmann 1984a, 14-15). She
writes these loans are for 10-20% a month for one to six weeks, but it is unclear of how or where
she obtained these figures. Later, she notes that 14% of female ADEMI clients who participated
in a questionnaire had borrowed from a local moneylender at 20% to repay the ADEMI loan.
Reichmann' s inclusion of this information was to illustrate the hardship Dominican women must
endure when a microenterprise scheme goes awry.
Itzigsohn makes two passing references to Dominican prestamis~~~ttt~~~tttast~~ in his book Developing
Poverty (2000). In his section on microenterprise development policies, he notes that when
microentrepreneurs lack access to formal credit mechanisms they must rely on informal sources
"in the form of the neighborhood loan shark or of rotating saving or purchasing arrangements"
(156). The second note is in recounting the difficulty in repaying formal loans on time: "Thus,
many people often prefer informal mechanisms of finance, such as loan sharks, that allow for
more flexibility in payment although at the price of putting the microentrepreneur in deep
To provide an idea of their prevalence in Latin American communities: FondoMicro' s
surveys indicate that prestamistattt~~ttt~~~tt credit is well-entrenched in the microenterprise sector. Between
the years of 1993 and 2000, informal moneylenders surpassed NGOs as the principal sources of
credit for Dominican microenterprises five out of eight years, supplying 27.8% of all credit
received (FondoMicro 2003, Table I.7). A survey of self-employed workers in La Paz found that
moneylenders provided 13.5% of their credit needs (Escobar 1989).
In Women 's Ventures (1989), Lycette and White provide a sketch of sources of informal
credit, including moneylenders. They cite the above data from Reichmann in the Dominican
Republic as well as noting the prevalence among women in Mexico (Chinas 1973), Nicaragua
(Bruce 1980), and Peru (Reichmann 1984b) to use moneylenders or pawnbrokers. They list some
general advantages of informal finance sources ex. low transaction costs, rapidity of
disbursement. They later focus specifically on moneylenders and pawnbrokers, noting that
unfortunatelyel, they often charge very high interest rates either because the costs of providing
small-scale, flexible Einancing are high or because they are in the position of being able to extract
monopoly profits" (Lycette and White 3 1). However, they give no indication of which
explanation is more supported by empirical data. Summarizing the Einancing of the informal
sector, the authors wrote: "Additionally, borrowing through informal systems often means doing
business with a lender who maintains a virtual monopoly on credit resources. In this case,
borrowers may be exploited and caught in a vicious cycle of indebtedness... however...in
[certain] instances, the advantages of immediate disbursement of funds by the moneylender and
the low transactions costs of the loan obviously outweigh the disadvantage of high interest rates"
(Lycette and White 32).
Perhaps one of the most poignant illustrations in the literature is found in Peruvian Street
Lives which devotes much of a chapter to the relationships between microenterprises and
prestamis~~ttt~~~tttas.~~tt Entitled "Sharks: Loan and Credit Arrangements," the chapter explains how
market women need credit in order to survive in their economic activities, and what filling that
need entails. When they cannot repay their wholesalers or unexpected expenses come up, theyhy
turn to a second form of brutal indebtedness, [the~) p'rintaintia] (Seligman 2004, 1 11). The
chapter goes on to link some "loan sharks" with narco-traffickers and money laundering. The
section on prestamis~~~ttt~~~tttast~~ ends with a personal account of the author lending money to her research
assistants and drawing a parallel between that situation and market women's plight: "I felt awful,
as if this economic transaction was violating our friendship and...our professional relationship as
well. I was incredibly relieved when [they] paid me back... The experience made me realize what
a violent and nasty atmosphere this system of indebtedness has created in the markets..." (114).
Thus, the terms oft-associated with prestamis~~~ttt~~~tttast~~ are: usurious, vicious, cycles of
indebtedness, loan sharks, brutal, monopoly, exploited, drug-money laundering at best, some of
the other references not mentioned are sometimes neutral. Further, it seems the perspective is
that moneylenders are a means of last resort, to be used only when all other means fail. However,
except for the surveys mentioned, the data is indirect and anecdotal. Given the void of
information, many questions beg to be asked: Are all moneylenders so evil? Are these cases
isolated? Who are these people? Do all get their funding from such illegal sources as narco-
To remedy this paucity of data, I present here five in-depth interviews with prestamistastt~~ttt~~~tt
operating in Los Alcarrizos. In addition to the overall thesis question, my aim was to discover the
person behind the stereotype, how they interacted with their clients, and why their interest rates
were so high compared to formal financiers' rates.
(Mostly) By The Book: Prestamista Patricial
An Altered Impression
Sara and Juan are married and are also co-owners of Colmado del Sur2 in Los Alcarrizos.
As they were the very first microentrepreneurs I befriended, I turned to them when I wanted to
interview a presttttttttttttttttamita. As I stated above, whenever I told people I planned on interviewing a
prestamis~~~ttt~~~tttta,~~ the initial reaction was surprise and sometimes an admonition to be cautious. Being
somewhat cautious myself, I asked Sara if she could help me find a good prestamis~~~ttt~~~tttta,~~ one who
would not mind talking with me at length and who had a good reputation. I admit my surprise
when she told me she had a very nice ami~ga (as opposed to an amnigo) who would probably talk
SAll names in this thesis are fictitious, aside from the representatives of formal institutions, to allow the individuals
to remain anonymous.
2 A colmado is a small grocery store that sells small units of items, such as one cigarette or an individual disposable
with me. Somehow I had received the impression (or formed it on my own) that all these
prestamis~~~ttt~~~tttast~~ were hulking men.
Sara set a time for us to meet at the colmado. I knew this would be more difficult since my
digital recorder would pick up all the street noise from the busy intersection in front, but Sara
was not comfortable asking the prestamis~~~ttt~~~ttttattt to do it at the prestamis~~~ttt~~~tttta's~t house, and my host
mother was scared to death of them from past experience. I Einally maneuvered Sara into letting
me sit off to the side of the counter, just in the entryway to Sara and Juan' s one-room home
where a thin wall would block at least some of the sound.
My first sight of Patricia dispelled the image I had of prestamistas.~~tt~~~tt~~tt She was an attractive
black woman, perhaps in her thirties, somewhat quiet and shy. In the beginning of our interview
she was cautious, not elaborating on many of the details. Perhaps because she could see that I
was genuinely interested in her work and how her business functioned, or perhaps because she
felt sorry for me and my poor Spanish, she opened up about a third of the way into our interview
and seemed more at ease.
The Business of Being a Prestamista
Over a cup of Cafd Santo Domingo, I asked her to take me step by step through the process
of how a microenterprise gets a loan, from the time they realize they need money until the time it
is in their hands. Since she does not have an office, they contact her on her cell phone. If she
does not know the person who is asking for a loan, the first order of business is to get a good
recommendation from someone else who will ouch for the person's integrity. Patricia does not
necessarily have to know the person recommending the prospective client; she just needs
someone else's word that the person is creditworthy.
Then comes the negotiating: the would-be borrower tells her how much they need and for
what period of time. The length varies according to the situation, but the usual amount for
Patricia is RD$20,000, though she would loan any amount below that. Then the two agree to
what the collateral will be. She would prefer a cosigner, but if not, the collateral has to be worth
substantially more than the loan. There is little negotiation after that. Patricia tells the person
how much they have to pay determined by an inarticulated formula I analyze below. The interest
rate is about 2% a day up to a month. After a month, the interest rate is a flat 7% per month.
It takes Patricia about two or three days to get the loan to the person, partly because of how
she conducts her business dealings. First she has to fill out a contract, then take it to her lawyer
to be notarized. Her banking accounts are with BanReservas; there, she orders a cashier's check
made out to the potential borrower, drawn against her checking account. She brings these two
formal documents to the client, whether at their microenterprise or residence. Patricia and the
client sign the legal agreement which stipulates the original loan amount, the rate of repayment,
and the guarantee. With this done Patricia hands them the cashier's check and the deal is done.
This is how Patricia describes a typical transaction to me, but her dealings with Sara and
Juan were different. There are probably two reinforcing reasons behind this. For one, Sara and
Juan are both good friends with Patricia. Second, they are regular, i.e. frequent and loyal,
customers. For Colmado del Sur, Patricia does not need legal, notarized documents nor explicit
guarantees because her past experiences and current friendship take the place of those
agreements. For a friend like Juan, Patricia also charges a better rate between 1 to 2% a day,
which is sometimes half her normal rate.
I wondered if the destination of the loan money would be a factor in the decisions of
loaning or not and, if so, the rate charged. Patricia said she usually did not know the reason for
the loan; if it was a microenterprise, it was more than likely related to the microenterprise itself,
like buying merchandise. However, the reoccurring theme, whether it was a microenterprise or
an individual, was that the loan was needed to "resolve a problem."
Repayments and/or collections
At this point in the explanation, the client would now have the money in their hands to
resolve whatever problem there may be. The next step is collection. Patricia comes by
periodically to collect the loan repayments according to how the customer wanted to pay. She
told me she had a microenterprise that was paying her monthly, but the arrangement could be
weekly or even daily. Patricia gives the client a receipt with each payment.3
At this point my itching question is what she did when someone did not pay her back.
She laughed: "Ah, yes this is the problem." If the client did not pay her on the due date, she
would wait five or six days. If there was still no repayment forthcoming, she would go to her
lawyer who would send a notarized letter explaining the legal ramifications of defaulting on the
loan. If after another week the situation was unchanged, Patricia and the lawyer would go
together to the client and Patricia would claim the collateral agreed upon. Of course, if there
were a cosigner, the focus shifts to collecting from the guarantor instead.
Questions of aggression
In all of this, any mention of aggression or even violence was conspicuously absent.
'Conspicuously' because that was often one of the first things people mentioned to me in talking
about presttamistas.~~tt~~tt~~ Trying to be polite, I asked general questions about incidences where other
prestamis~~~ttt~~~tttast~~ used aggression or violence with their clients. Both Patricia and Sara looked at me
strangely, frowning and pursing their lips, finally shaking their heads at my series of questions.
Finally Patricia said if aprestamista~ttt~~~ttt~~~ had come to collect money at someone's house and they
3 See Appendix G for an example of this receipt.
would not answer the door, the prestamis~~~ttt~~~ttttattt might beat on the door and shout because the client
was trying to evade payment, but besides this, she did not know any examples of this type of
Why were Sara and Patricia baffled by my questions associating moneylenders and
violence, considering virtually everyone else I spoke had heard of these stories (though perhaps
distantly, i.e. a friend of a friend had such-and-such happen to him)? Whether the stories are true
or elaborated upon, the two women should have at least heard of such. There are perhaps two
factors contributing to this. For one, Sara and Juan are from the rural countryside originally and,
though living in Los Alcarrizos for a number of years, they may not have come across accounts
of urban prestamis~~~ttt~~~ttttas.~t As for Patricia, her husband and brother-in-law are prestamis~~~ttt~~~ttttas~~ as well,
so the social networks she is a part of may not vilify prestamis~~~ttt~~~ttttas~~ or may dismiss the accounts so
that they do not circulate to Patricia.
Family Life and Business
Having been introduced to Patricia by Sara with the three of us passing a pleasant hour or
so discussing informal moneylending over Cafd Santo Domingo, I was now on friendly terms
such that Sara took me with her to visit Patricia in her home around the block from Colmado del
Sur. Her family's house was quite nice, perhaps middle class for Los Alcarrizos. I think what
impressed me the most was having two lights in the living/dining room, instead of the habitual
one-light-source-per-room in the rest of the neighborhood homes where I went. I met Patricia' s
cute little girl, but was never able to see her infant because he was sleeping the entire time.
Occasionally with Patricia's younger sister, we passed more than one cup of coffee chatting
about the neighborhood and the differences between English and Spanish. I never met her
husband because we always visited during working hours when he was at his office.
When Patricia first told me her husband was also a prestttttttttttttttamita,~ I immediately assumed he
had helped her launch her own moneylending business, but her start came about more by
accident than anything else. About 5 years prior, Patricia had made small loan to a friend and
made 20% profit on it more than she made in a month of working. This tipped her off to the
possibilities of the prestamis~~~ttt~~~ttttattt business. Whether her husband coached her thereafter or whether
she developed the business by herself I was never able to deduce, although Patricia did tell me
their practices were similar. Her husband was rude and surly, according to both Patricia and
Sara, and Sara privately told me that he would not talk unless I bought him liquor first. Not
really wanting to interview a drunk, nude (as Sara describes someone in only Bermuda shorts)
moneylender, I courteously waved my Christian sobriety flag and declined.
Patricia is apparently a very busy woman, being the primary caretaker of the home and
children, as well as having two part-time businesses. I am not sure how much of her time is used
for her prestamista~ttt~~~ttt~~~ business, but she then had about 20 clients with a mixture of payment periods
and about RD$250,000 in total capital. Besides moneylending, she formerly sold plate lunches
(in a comedor a small kitchen or diner) and was also an itinerant clothing vendor. In contrast,
her husband's moneylending business is his primary focus, replete with a formal office. As their
activities are separate, so is their money: Patricia has her profits and losses, and her husband has
his. I did not ask how the household expenditures were divvied up, though I am sure it would
have made for a lively discussion.
From Groceries in Brooklyn to Pawnshops on the Island: Prestamista Yanqui
First and Second Impressions
In contrast to chatting with Patricia over Cafe Santo Domingo while baking in the heat, my
interview with Yanqui was in his private (and, mercifully, air-conditioned) office. He rented the
top floor of a small, two-story commercial building on the main avenue of Los Alcarrizos. On
first impression, the entire office resembled a small bank branch and not at all what I was
expecting. Since "Quick Solutions" was prominently painted in bright letters around the
building, it was hard to miss. The stairs were on the outside of the building, as is the usual
arrangement in the Dominican Republic for separated office spaces, and the door at the top
opened directly into the waiting room. I remember about three people sitting in the chairs,
waiting for the client at the teller window to Einish his business with the well-dressed woman
behind the plastic panel. Although the waiting room (actually, more akin to a bank lobby) was
small, the muted carpet, Haitian paintings, and good lighting all blended together to create a
I had come by earlier in the day with a local pastor to be introduced and Eind a good time
for an interview. As I returned on the back of a motorcycle-taxi, Yanqui was standing at the top
of the stairs and recognized me immediately; when I reached the top of the stairs he was waiting
just inside the entrance and ushered me into his onfce, a smaller mirror of the waiting
room/lobby. I judged him to be in his early fifties with salt-and-pepper hair. Like his onfce
workers, he was dressed nicely, though perhaps a bit less formally; the other male in the office
wore a button-up shirt and slacks, compared to Yanqui's well-starched khakis and polo shirt.
He was very business-like, neither rude nor warm, but courteous. As an American, I was
more used to this type of interview than some of the others I had had. In the early part of our
conversation, I learned he was a grocer in Brooklyn for 20 years (perhaps his subtle American
mannerisms made me more at-ease than I was in my other prestamista~ttt~~~ttt~~ interviews?). Though he
never referred to the extralegality of his present business, he did not want me to record our
conversation nor to show his letterhead of the papers I took away. Nevertheless, he was quite
frank (and patient) as I scribbled our discussion.
A Pawnbroker's Business
A typical deal
His business operates in a similar fashion to a pawnshop in the United States. Yanqui has a
formal office and does not go door-to-door soliciting business; his clientele come to him. I
assume he relies on word-of-mouth, small-scale advertising, and the fact his office is
strategically located. When a person comes to his office for a loan, they come with something
worth much more than the loan they are asking for. Yanqui and the client agree to the terms of
the loan, then fill in the blanks of a rather lengthy contract stipulating all the legal details,
including the right to sell said guarantee in the case of default. The two parties sign and Yanqui
has a lawyer who then notarizes all the documents.
An exceptional deal
An interesting variation is if the guarantee is a house or a car. Then the guarantee the client
brings is the title of the asset. In addition to the regular contract, Yanqui pulls out another sheet
which is a bill of sale, which goes through the same signature and notary procedure.' The client
effectively sells his asset to the company Yanqui, Inc. If all goes well with repayment, Yanqui
will simply destroy the document and declare the loan paid in full. If other circumstances arise,
Yanqui has all the legal documentation to proceed immediately to selling the asset and recouping
his loaned capital from the transaction.
However, cars and houses are not involved in the typical transaction. Yanqui showed me
paperwork where a man wanted a loan for 1,500 pesos. The client had brought a guarantee (I did
not catch what it was) and an accompanying receipt showing he had bought it for 5,000 pesos.
4 See Appendix H for an example of his business card.
SSee Appendix I for an example of the title transfer and bill of sale Yanqui uses.
Besides this, there was the loan/repayment paperwork and agreement giving Yanqui the right to
sell the obj ect in the case of default. Although it does not sound like much, the entire manila
folder containing the customer' s file was roughly a quarter-inch thick. I remember thinking I did
not have to sign that much paperwork when my wife and I opened our Bank of America
accounts. However, it seems to work well for him: when I asked about cases of customers
defaulting, he said the point is moot. In the case of default, the client forfeits their right to the
guarantee and he (Yanqui) has all the legal rights to sell the guarantee immediately; he does not
need to bother with the delinquent client.
The informal credit market
Like I mentioned, I was very intrigued by the contrast between this air-conditioned
interview and the other open-air interviews I had had. We started talking about his business in
general and Yanqui was quick to tell me it was all legal he was registered with the RNC (the
Dominican tax agency), was faithfully current on his taxes, and the business was formally
licensed. Additionally, all transactions were above-board, i.e. legally documented and
"voluntary," a peculiar word he dropped a few times in his explanations. As savvy as he seemed
to be, I am sure it could not have escaped him that his business operates outside of the formal,
legal realm. When he told me it was "all legal" I surmise the complete, if unspoken, statement
was "the business is as legal as I can make it."
Business in general "isn't bad" he told me: "Here [in Los Alcarrizos] people have money
problems and a lot of kids; there' s a lot of need. A business like mine does well in an area like
this... These type of people are poor, poor."
An Answer to a Thesis
Like I did in all other interviews, I asked my thesis question: why, in general, do
microenterprises use prestamis~~~ttt~~~tttast~~ when there are banks that charge lower interest rates? He
gave two reasons. The first explained how he has problems when he tries to use a Dominican
bank. He said there are more requisites with banks and sometimes people do not have the needed
requirements, but other times the problem is in the system itself. He said in the United States (he
is a legal resident) he can go to any bank and get a US$100,000 loan with no problem he has
excellent credit and a business as well. When he goes to bank in the Dominican Republic it is as
if he did not even have a job they are very difficult to deal with.
The second reason he gave concerned the rationale of banks. They can loan cheaper
(implied: than him) because they are loaning a greater amount of money. For example, he said
ADEMI will not loan 5,000 pesos; it is too little of an amount, especially when they deal in
transactions of 50,000 or even a million. Instead, people come to him and he will loan 3,000,
though he has to charge more.
A History of Emigration
He did not stumble into the prestamista~ttt~~~ttt~~~ business by accident. About 5 years prior he had
sold his grocery store in Brooklyn and returned to his homeland after 20 years in the United
States. He immediately set up shop in Los Alcarrizos with a million pesos in capital (about
US$25,000 at that time, he told me). I asked him why he did not stay in the same line of work
upon returning to the country, like with a colmado or super market.
"I don't like colmados," he told me. "It' s much more work here. People here [in the
Dominican Republic] don't have an education and aren't accustomed to helping themselves. In
the United States, people come into to the store and get their own stuff. Here, people expect you
to wait on them."6 From the number of super markets (supermercados) throughout the country, I
suspect he was slightly off in this regard. Nevertheless, that was his rationale.
6 Since of course I do not have the original recording, this quote is as accurate a rendition (and translation) as my
memory and notes allow me.
Yanqui was most proud of the fact that he had three daughters in New York who were all
university educated and married, two of whom had children of their own. Though he and his
wife moved back to Santo Domingo proper, they make a week-long trip back to New York (I
assume the city) about every three months to visit their family. It was evident his grandchildren
were a bright point in his life, as his otherwise stoic expression lit up and his eyes even sparkled
when he talked about them.
Banker By Day, Dancer By Night: Prestamista Chaso
In interviewing Leo, a client of FDD, I found out that he was not only a good customer of
the NGO but he was a regular customer of an informal moneylender as well.' I asked him if I
could interview his lender and by the next day I was sitting in his shop again, waiting on Chaso,
Los Alcarrizos prestamis~~~tttt~~~tttta.~ When he arrived I immediately realized I was not dealing with the
same kind of prestamistattt~~~ttt~~~tt I had been interviewing. Instead of being relatively middle-aged with
an air of adulthood, Chaso was much closer to my own age, probably in his mid- to late twenties,
dressed in a younger man' s clothes, with a jersey shirt and hoodie.
He immediately started talking in English and asked me a couple of questions. When I
hesitated (for one, I always hesitate in answering questions, and for two, my mind was switching
gears from Spanish to English), he asked, in each respective language, if I spoke French or
Italian. It seems he had a smattering of languages from living in Europe for the better half of year
in the recent past. We spoke in English for a few minutes, but for our interview he felt more
comfortable in Spanish. (I know too well the feeling of trying to think in one language and speak
in the other.) He was quite the talker and we had a long discussion about his life and business.
SSee Appendix J for an example of Leo's contract with a prestamista (not Chaso, the moneylender of this interview
who eschews all forms of documentation).
Extralegal Services for Legitimate Businesses
Chaso was very aware of the extralegality of his "street loans" and one of the first points
he made was that he was not going to tell me either his first or last name, going only by his
nickname (although he did let his first name slip a few times in his illustrations). He told me he
was proud of his business endeavor which earns him a nice sum but at a higher risk. This higher
risk prompts him to transact all his dealings verbally so there is not even a paper trail to lead the
authorities back to him.
Finding a client
Chaso lives in Los Alcarrizos and regularly rides his motorbike through his 'beat' where
his clients live or work. When someone wants a loan, they can either call him on his cell or
simply flag him down as he comes through the neighborhood. For instance, when I had first
returned to Leo's store, he had forgotten to set up the appointment with Chaso. He called him on
his cell and within 15 minutes I was talking to the prestamis~~~ttt~~~tttta.~~
A selective lender
This moneylender is very selective in his clients and tries to loan only to people who have
a business or at least a good, stable job. He said at least six or seven out of every ten clients of
his have a microenterprise, like a store or a small workshop (un taller). Non-microenterprise
clients have an excellent j ob in the neighborhood so he can keep tabs on them. To convey a sense
of how exclusive his loans are: he told me if his friend or brother comes asking for a loan, the
reply is, "Sorry you don't have a business."
Furthermore, Chaso is so choosy about his clients that he never loans to strangers. If the
stranger is a friend of a client, Chaso will make a loan to his regular customer who in turn can
loan the money to the stranger. When it comes time for payment, Chaso collects from his regular
customer and never deals with the stranger.
To illustrate the point, the moneylender gave me this example. He has a regular client who
owns a small factory. Sometimes one of the microentrepreneur' s workers needs a small
emergency loan, ex. an ill child, Chaso loans the money to the business owner to loan to the
worker. Whether or not the worker repays the loan is immaterial; Chaso's loan is to the owner
who will stand good for it.
Dealing with a customer
At some point, though, he does take on new customers. The first time he ever loans to this
person he goes through a little ritual to explain everything and lay the groundwork for their
relationship: "I'll say, 'I'm poor, just like you, and I'm loaning this to you, making a sacrifice in
my life,' etc., etc., 'I'll come by every Saturday. If you don't pay, I'm going to have to collect
the hard way."
However, if they are a regular client, like Leo, there is no need to talk about anything. Leo
could call Chaso and have 5,000 pesos in 2 or 3 minutes; there is no need to discuss the
arrangement because Leo already knows what his rate is and how Chaso collects, etc. Nothing is
in writing with either new clients or established ones.
This moneylender reiterated time and again that he prefers his clients to be
microenterprises because he can see they have something of value. For a customer like Leo, he
knows his "money is here." For non-microentrepreneurs, besides having a good j ob, they must
have some collateral worth much more than the loan. Then example Chaso gave was a pair of
tennis shoes, perhaps worth 2,000 pesos, that he can easily collect and carry away if the client
should default on their 300 pesos loan.
Chaso's average loan is around 2- to 4,000 pesos, with a maximum of about 15,000.
However, for an "excellent" customer like Leo, Chaso would plunk down 50,000 pesos at his
prime rate. I say 'plunk' down because, like everything else he does, there is no paper trail even
in payment so all deals are in cash.
Collecting the rent
He comes by every Saturday to collect payments from his clients. He noted that some
prestamis~~~ttt~~~ttttas~~ collect daily, but he does not have the time to do so. For instance, the day we were
interviewing he had to be in the old colonial area of Santo Domingo (about a twenty to thirty
minute car ride in light traffic) for a television recording. He would rather collect daily, though,
because he could control the situation better and keep abreast of likely developments.
Mind Games for Non-payments
Chaso and I spoke at length about what he has to do in the case of a client default. Even
with his selectivity in choosing clients, he estimated that of every ten people you (in the general
sense) loan to, three or four are not going to pay very well. Chaso's attitude is, "You're a man
just like me and you can't keep my money." He explained that to get his capital back in the
absence of documentation and legal recourse, "prestamis~~~ttt~~~ttttas~ have to apply psychological
pressure." To be in this line of work, according to him, one has to be sharp, without fear, and has
to have an iron will because otherwise one cannot apply the "pressure" necessary to exact one's
Sometimes his clients simply do not want to pay and in this case he follows a fairly
straightforward routine. He begins smoothly reminding them of their obligation and
commitment, etc. The next step is to raise his voice and perhaps even be somewhat verbally
abusive. If the loan is small, perhaps five hundred or a thousand pesos, he will let it drop trying
to collect in this manner leads nowhere. However, when the loan is sufficiently large, like 5- or
10,000 pesos, the intensity escalates. Chaso will try to shame them into paying by smearing their
name throughout the community and thereby embarrassing them. If this still does not prompt
them, he said, "If I have to get physical if it' s a large amount then I have to do it...If they see
I want to Eight, and they don't want to, they see it' s better to pay me, and then we reach an
agreement." For all of this rhetoric, he has never had to be physically violent with a client; the
threat of violence seems to be the breaking point, at least for Chaso' s clients.
One agreement they might reach is that Chaso stops the interest accumulation on the
delinquent debt. Although he does not earn any profit like this, the important thing for him is
simply that they pay. Fortunately, he has always at least recovered his original capital, except for
once. A friend of his mother' s needed a loan and his mother was the cosigner. Even though the
person "cheated" him, he did not pursue the debt because it would have made his mother feel
Contradictions in explanations
He said earlier that two or three out of every ten clients are not going to pay well. In
returning to the topic, Chaso was a little more specific and said the breakdown of his clients'
payments are like this: two or three are not going to pay at all; on two or three he has to stop
interest accumulation; and Hyve pay well.
In trying to make the most our time since he had an appointment in the city, I did not
analyze everything while we were talking and did not realize some of his statements seemed
contradictory. For example, he said he has always recovered his capital, but yet told me two to
three out of every ten of his clients are not going to pay at all. The only way I can make sense of
our conversation is this: he would much rather receive money than whatever collateral was
negotiated, and will take the steps he deems necessary to get it. If that absolutely fails, he then
takes the collateral so that he at least recovers his capital.
The Birth of a Prestamista
About 7 years prior to our interview, Chaso worked as a dancer at a resort hotel in the
capital making minimum wage (+RD$3,200 per month) plus a little bonus, the net result being
an income of about 5,000 pesos. One day a friend said, "Chaso, loan me a 100 pesos." As a joke
he replied, "All right, but you've got to pay me back in 5 days." Shortly thereafter another friend
asked him to do the same thing again for him. It was all history after that.
Throughout our interview he dropped comments defending his role as a presttttttttttttttttamita; he
felt that because he managed his money well, and it was rightfully his, that he had the right to
loan it out and see an increase. This was juxtaposed with examples of others who, although they
may be richer than him, could not manage their finances well and had to pay him interest
because he did manage his finances well and had money leftover to loan.
For example, while still at the resort hotel, the chef was one of his clients, even though the
chef made RD$23,000 per month (versus Chaso's 5,000). The reason poor(er) Chaso was the
lender, according to him, was because the chef did not know how to manage his money among
all his costs: he had a car, children, two women, and he was building a house at the time, etc. A
current example is the same local factory owner mentioned above. He may obtain a loan from
the bank but then later realize he needs a larger loan. Since the deal with the bank is already
done, he has to call Chaso for the money. Even though the man is richer than Chaso, his capital
is not liquid and he has to utilize Chaso's services.
Evolution of a moneylender
Some of this moneylender' s practices have changed over time as well. For whatever
reasons, he used to require a client's collateral in hand before he would loan to them, like
holding a pair of tennis shoes and returning them upon full payment of the loan, like Yanqui.
How he chooses his clients has also changed as well. Whereas before he said he may loan to two
out of every Hyve who ask him, that ratio has changed as his requirements have increased. The
amount he loans out has changed as well. Whereas before he would loan out larger amounts -
say, 30,000 pesos experience has taught him to make smaller loans. Nowadays his average loan
is between 2- and 4,000 pesos for newer clients, and up to 10- or 15,000 for regular customers.
For an excellent customer like Leo, he would loan anything he asked, up to even fifty thousand
He enjoyed recounting his j ourney from his humble beginnings to his current status.
"When I started, I was making minimum wage. But when you want something, you can attain it.
What little I earned, [I saved], and I loaned out."
The Family Life of the Dancing Daddy
"If you want a good life, you have to have patience," Chaso told me a number of times. In
all of his various activities, he definitely had a dream he was working towards. Although he was
not specific, it was centered on his wife and four children. He had at least a lifestyle in mind and
was willing to make a number of sacrifices to attain it.
One of those sacrifices was managing his Einances well and living frugally, which was the
opposite approach, it seems, of his wealthier clients. For instance, although he could have
afforded a car, he prefers to save his money and ride his motorbike instead. Besides just the
initial cost of the car there is maintenance as well. Instead, he keeps his capital loaned out in the
street and visits his clients more easily on his motorbike. He explained this frugality also allows
him to put his children in a private school.
Chaso is engaged in a number of income-generating activities. He enj oys his
moneylending affairs during the day, but at night he turns to his other business: a dance school. I
went the evening after our interview to a class and did not recognize him. From looking like a
guy picked out of a gang in the Bronx, he was transformed into an elegant young man about to
enj oy nightlife in the city. He and his student-partner were excellent dancers. It is a profitable
venture, though not the vehicle he believes will bring him the financial success he desires.
However, he told me, "I love dance that' s my life." In other words, the school's function is for
personal reasons as well as monetary ones.
Besides his two businesses, Chaso is also an actor. The afternoon of our interview he was
scheduled to be at a television studio for recording. I talked to a few other people around Los
Alcarrizos and they agreed he was very good. Unfortunately, his role is not regular and the work
is only sporadic. To further support himself, he was also contracted one of the many cruise lines
in Santo Domingo (I am not sure in what capacity). The contract had recently expired and he did
not renew his contract because he wanted to devote more time to his children (ex. helping them
with homework, coming to their classroom) and to his street loan business.
Chaso's attitude is upbeat. "In time, I will have my car and everything. Right now I have
RD$200,000 on a certificate of deposit in the bank, and I have another $200,000 I can use for my
lending business...If you want a good life, you have to wait."
Towards the end of our interview I noticed the inscription on his hat was in English and
referred to a Biblical scripture. I asked him if he was an Evangelical Christian. He looked
surprised for a moment, so I explained what his hoodie said. He replied, "I am a Christian, this is
the religion I observe, but I don't go to service. The prestamis~~~ttt~~~ttttattt is outside of the grace of
God... [shrugs]...I loan at a high price. But there are things I have in my heart, inside, like to not
rob or steal..."
Vendor and Lender: Prestamista Pelo
I was surprised in my interview with colmado owner Sefior Sabado when, in the presence
of two PyME BHD credit officers, he volunteered that he currently had a working relationship
with a prestttttttttttttttamita.~ Since he was still in the application phase and was not yet a client, I am
unsure of whether this information helped or hindered his standing with the officers (or if it
affected it at all). Nevertheless, he told me about the last loan he had received from his friend,
how much it had been, and how he had used it. I asked if I could speak with his friend since I
was trying to learn about microentrepreneurs' sources of credit. Senior Sabado told me to come
back Saturday to his other colmado in the marketplace, when his friend was sure to be in the
marketplace, and he would see if he would like to talk to me.
Thankfully, this particular marketplace was not huge and when I came a few days later I
found the microenterprise owner easily. He flashed a smile and told me to wait at his stand while
he went to ask his prestamis~~~ttt~~~tttatttt friend if he would like to speak with me. I wandered around his
booth taking stock of the staples of Dominican life (if a colmado is any indicator): plantains,
Santo Domingo coffee, rice, powdered milk, garlic cloves, Tide, and a litany of other everyday
items. Shortly he returned, beaming. It seemed I was in luck.
Not having vast experience with prestamis~~ttt~~~tttas,~~tt I was still unsure of what to expect, but it
was inaccurate, whatever it was. Pelo was not only a moneylender but he ran a vegetable stand in
the marketplace as well, consisting of two long rows of wooden bins filled with plantains, celery,
and a number of other vegetables this non-vegetarian could not identify. Senior Sabado quickly
introduced us and then left us to return to his business.
I quickly received the impression Pelo had agreed to speak with me for his friend's sake
without quite knowing what he was getting into. I, on the other hand, had assumed the
microentrepreneur would have at least told him I was a researcher investigating microenterprises,
that I had been introduced to him by BHD and was therefore somewhat trustworthy, or
something along these lines. After a false start or two I realized he had no background
information on me, so I explained to him who I was and what I was doing (and, implicitly, why
he should trust me enough to open up to me). After he figured out that I was not from the FBI (as
one of Sandra' s customers had accused me of) our conversation started flowing a bit more
smoothly. Unfortunately for me, the more comfortable he felt the stronger his Dominican accent
became; because my Spanish was not the best to begin with, I was lost for stretches at a time,
saved only by my trusty digital recorder.
To lend or not to lend
Since he works in the marketplace, everyone knows when and where to find him when
they need a "street loan." As there was another young woman working for him he can devote
time to lending without sacrificing his other business (if his is a typical microenterprise, she
would most likely be an unpaid relation). A true multitasking entrepreneur, he can run both
enterprises at once.
Of those who come to him for loans, about half are microenterprise owners themselves and
the other half are wage workers or marketplace workers. In any case, he knows them personally.
"You can't do business with a stranger," he told me. I was curious about doing business with the
those he knew extremely well, so I asked about lending to family members. "No, I don't lend to
family. You don't lend to family because this is a business like I told you earlier, this is a
business and you have to apply psychology. And, with family members, you can't do anything.
If they need something, it' s better to give it to them because family is where problems
start...then they will say that I'm bad..." I assumed his 'psychology' practice was similar to
If he does not want to lend to a particular person "sometimes they're bad" Pelo is at
least courteous enough to lie politely: "For some people, you have to make it difficult. [I'll say,]
'Today, I don't have any money,' and you keep putting them off, but with hope."
After gauging whether or not he would even consider a loan to the person (a non-relative,
of course), they negotiate the terms. They probably already know what their realistic credit limit
is with Pelo. For other business owners Pelo will lend about 5,000 pesos. For wage earners or
marketplace workers, such as those who ferry people around on their motor conchos (small
motorcycle) he may lend 2- or 3,000. Of course, for a trustworthy friend that amount increases.
In my interview with Sefior Sabado, he told me Pelo would loan him anything he asked, even up
to 30,000 pesos.
Usually the client does not put up material collateral to guarantee the loan. Sometimes the
client may use their motor concho or television as collateral, but this is rarely the case.
Regardless, though, everyone signs a contract. Pelo had his worker get both the pink and yellow
pads from the vegetable stall's only piece of furniture, a rickety wooden side table with a single
drawer. The yellow pad was a stack of pre-printed, generic contract with blanks for the names
of the parties of the contract, contact information, amount of the loan, and signatures. The pink
pad he showed me was a stack of pre-printed loan payment receipts that he gives to every client
SSee Appendix K for examples of Pelo's blank contracts and receipts, as well as a current contract.
for every loan installment. Bar none, everyone signs a contract with Pelo. He then counts out the
cash agreed upon (perhaps out of the vegetable stand' s till) and the deal is done.
Repayments (via freewill)
An important aspect in a loan from Pelo is that he collects money daily from his clients.
Many employees are paid on the 15th and 30th of the month; if they want a loan from Pelo they
are out of luck: "I don't do business with them because they're not going to have the money. I do
business with those who make money daily because it' s easier for them to pay. They can pay
weekly or daily like if they have a colmado you know where to get it and you're making
Whether he makes his rounds or his customers come to him, he interacts with all of them
nearly everyday. When he receives a payment, he fills out a pink slip so both he and his customer
have record of the transaction.
When he has having trouble collecting from a client Pelo told me:
I try to find out if they're sick or something, to see if they can work and if they can pay.
For example, one client had a motorcycle accident and broke his leg and couldn't work for
two months. But I didn't worry about it because he told me, 'If I have to add something to
it, I'll pay,' and he paid me. When they're like this, I hold on to them.
When I loan quickly, without collateral, you have to use psychological pressure. It' s like a
psychological game: 'If you don't pay me, I'll use the contract!' But, even so, there are
some who refuse to pay. Others say, 'I'll pay, just wait...' etc...
Some clients pay beforehand and some later. Maybe seven [out of every ten] pay on time
and some a few days later. I haven't lost money yet; sometimes there are problems because
people are bad, but they always pay.
Repayments (via "psychological pressure")
Having interviewed a couple of other prestamistast~~tt~~~tt~ by this time, I was ever more curious
about the stigma surrounding the Dominican "loan shark" as the term is usually translated. At an
appropriate point in the interview I asked Pelo about the stories I had heard of the street lenders
threatening and assaulting their clients who did not pay back their loans. He replied:
In those situations, if you come at them like that, they're going to turn around and
transgress against you. If I go at him like that, he might come at me and even kill me. If
they don't have the money I have to take it easy on them because they can get irritated.
To collect is psychological: the client has to feel good, be satisfied, to pay. But there are
others who have problems and they don't mind starting trouble you charge them double
[the interest]. For these people, it' s one thing if they don't have it, it' s another if they have
it and they're spending it on the street. Then you have to pisss yourself off to try to scare
them. There're some clients who don't pay you unless you put your foot down.
Since he brought up the subj ect of enforcing contracts, I asked if he ever used lawyers like
some of the other prestamistast~~tt~~~tt~~ I had talked to. "I always use contracts when I'm lending. Right
now, I don't have a lawyer, but I plan on organizing my business... You need to have a lawyer to
legalize your business so you can have the force to collect bad debt. Once you start making loans
of 100, 50, or 20 [thousand] and up you need to have something to guarantee your money.
Without a lawyer, how do you verify that a person owes you anything?"
When I introduced the subj ect of my thesis and started talking about banks, Pelo
immediately launched into an in-depth description of his current loan with PyME of RD$50,000,
more than half of which was loaned out again through his prestamis~~~ttt~~~ttttattt business. I freely admit I
could never have a career playing poker; I felt my face reflect my reaction. I had wondered if
these moneylenders ever received formal loans in order to lend informally, but since all the
formal microenterprise financial institutions to which I had spoken were staunch in their position
against prestttamistas~~tt~~tt I had assumed such never occurred. It soon came out that PyME had made
the loan based on his vegetable business. I asked if the bank knew he was using the loans to lend
informally; either my Spanish was not clear enough (which is very likely) or he wanted to evade
the question (since, perhaps, my face belied its significance). I left the mystery unanswered.
Questions of competition
To guide our conversation back into comfortable waters, I posed my thesis question to
him: why would other microentrepreneurs use his services as a presttttttttttttttttamita when they could go
to PyME BHD, like he did, and receive a much cheaper loan? His reply was twofold. For one,
there are many more conditions or requirements at a bank: you have to put up collateral, to have
good clients, and generally have a good business. Since Pelo lends small amounts- perhaps 5- or
6,000 pesos he does not require a guarantee for the loan. The other reason is that he lends very
quickly, whereas "a bank is not going to lend that fast... [they're] not going to throw money in
That explains his formal competition. What about informal competition, i.e. Other
prestamis~~~ttt~~~ttttas?~t Although I did not voice the question behind the question, what I really wanted to
know was if the comparatively high interest rates of these moneylenders was due, in part,
perhaps to a monopoly they had over their clients. In other words maybe the average
microenterprise can only borrow from one prestamis~~~ttt~~~ttttattt who can set their rates as high as they
would like. Pelo's answer quickly set that theory aside.
"There is always competition between presttttamistas.tt~~tt~ For example, if I loan at 20 [percent a
month] and someone else comes along and offers at 15, then there's competition. If I have more
money I can lend out at ten then, I'm winning against the competition. Then, if he lowers it to
ten too, and I want to have more clients, I'll drop it to eight... The competition is just like a bank
- some have higher interest rates than others."
Having interviewed a few other prestamistas,~~tt~~~tt~~ I had learned the interest rate formula is
quite complex, and not entirely quantifiable. Setting aside the above conversation, Pelo told me
how he determines the interest rate for a particular client: (1) it depends on the capital he, Pelo,
has available; (2) who the client is; and (3) the amount of the loan. "Good clients" can get loans
at ten percent, depending on the amount of the loan and the length of the loan. Another factor
that would help a client secure Pelo's lowest rate would be valuable collateral, perhaps the title
of their house or car. To illustrate these points he sketched a simple transaction: for a loan of
10,000 pesos over 2 months, he is going to recoup an extra 2,000 pesos in interest thirty-three
pesos a day over 60 days.
Pelo's History: "Country Come to Town"
Pelo peppered our conversation with his personal account comparing his beginning as a
prestamis~~~tttt~~~ttttatt to his position now. About two years prior his vegetable business was less profitable,
so he used what profits he did have to begin loaning to others. He started with three clients and
about 10,000 in capital. Since then, his business has grown to thirty clients and about 60,000
pesos. Part of the increase in available capital was reinvestments from the lending business and
part was from another (or more than one) infusion of cash from the vegetable stand.
"I like being a presttttttttttttttttamita. It' s a good business...I have a good relationship with my
clients...however, I like the vegetable business more, it's more profitable. For example, if I lend
out ten thousand [pesos] for a month, I would make more invested in vegetables in one month."
Pelo emigrated from the countryside to Los Alcarrizos for about Hyve years earlier; most of
his time since has been spent in the vegetable business. Between his two businesses, he supports
his partner (perhaps she was the woman at the vegetable till; wherever she was, he emphatically
pointed out she was not his wife) and her children from a previous union. Since most of our time
had been spent discussing the Einer details of his moneylending, I wanted to ask him more about
his background, especially since his place of business provided so few clues. However, a man
with two businesses is probably a busy one, so I thanked him profusely for his time and
wandered back to Eind Sefior Sabado.
Accountant, Entrepreneur, and Financier: Prestamista Pablo
From all the sources I had quiered, the infamous Dominican "loan shark" should be lurking
virtually on every street corner; to use an American colloquial expression, they should be 'a dime
a dozen.' I found this to be a myth, at least in Los Alcarrizos. They were difficult to aind and,
when I found a lead, they were reluctant to open up to a perfect stranger, especially an American
gringo who may be from the FBI (as I heard on more than one occasion). Nearing the end of my
stay in the Dominican Republic I began to become desperate, asking anyone if they knew any
moneylenders I could interview. Luck would have it that the trustworthy cabbie I regularly used
to ferry me around Santo Domingo knew two quite well; I was able to interview one.
An Introduction to Pablo
By this, my last, interview I had come to expect virtually anything; I would not have been
surprised if my cabbie Mazara would have taken me to a cabaret show for an interview
backstage. Fortunately, we drove to a well-kept commercial building and parked in front of one
of the non-descript office spaces, beside an attractive Jeep which I later learned was Pablo' s.
Pablo was seated at one of the two desks in the one large room that comprised the well-lit
office. A secretary-receptioni st sat at the other desk to one side of the room. On the peripheries
were various filing cabinets, shelves holding files and books, and other assorted office furniture,
on the whole conveying the impression of a well-organized business. Even though I had
interviewed another moneylender with an even larger staff and the trappings of a more formal
enterprise, something was amiss that I could not put my finger on.
Our conversation was somewhat advanced before the missing piece of the puzzle fell into
place: this was not Pablo's office. Rather, it was the office space of a mortgage company for
whom Pablo was contracted as the accountant. It was somewhat disorienting for me because
many of the activities for the two businesses are simliar and I had trouble disassociating the
image before me with his lending business. Even his two business cards one for his accounting
services and the other for this lending services were the exact same format, with only the name
of the respective business changed.9
Pablo operates his informal credit service from an office in his house back in Los
Alcarrizos; it had taken Mazara and me about 20 minutes to drive from there to the mortgage
office. There in Los Alcarrizos, initiating contact follows the usual (informal) lines: word-of-
mouth, a friend needing a loan, or a reputable person vouching for a stranger. I could see Pablo
with a prospective customer, his stoic expression never wavering (he did not even smile for a
later picture), speaking very rapid Dominican Spanish (my Dominican friend listening to the
recording later even had trouble trying to help me catch all of the conversation), explaining what
would be required for a loan from him.
Getting a loan
To get a loan, it' s simple: I need your cedulato, an application, a background check, and
signed papers agreeing to the rate and the amount. Sometimes I'll give it even if you have
bad credit because you're a friend. However, if the loan is only for 1-, 2-, 3 -, or even 4,000
you just have to sign [your post-dated personal] check. If it' s a mortgage or for a car, you
have to sign a bill of sale and the title over to me. For a car, you have to demonstrate proof
9 See Appendix L for both of his business cards.
'O In the U.S., this would function similarly to a social security number.
of insurance if they wreck, [the papers state that] the insurance money goes to the
prestamis~~~tttt~~~tttta,~ not the owner.
He showed me the loan contract (suspiciously similar to all the other presttamistattt~~~ttt~~ contracts
I had seen), as well as the bill of sale papers required for house or car loans. When such high-
value items are involved, he uses a lawyer to notarize the papers, immediately pays the lawyer
their fee in the presence of the customer, and then includes that additional charge in the loan. I
assumed he paid the lawyer in front of the customer to show them what the extra fees were for. 1
Sometimes, though, there is no collateral for the loan, only the word of the person. In such cases,
if Pablo has complete confidence in them, he will loan though he added it would be a small
loan and the exact amount would depend on who the person was.
The amount requested by his customers varies according to their need, of course, but
currently he does not lend less than 5,000 pesos at a time. His explanation was, "for a thousand
pesos you don't earn anything: the cost of the paper the interest is so minimal." The maximum
amount he will lend depends on his own capital available (although I would hazard from the rest
of our conversation that an unlimited maximum would only be granted to a select few
individuals). If he does not have money available he refers them to someone else.
He usually does not know what the clients use the loans for. "Maybe you want to buy a
freezer or go drink it all on the corner, or something. It' s your problem just so long as I'm paid
when I'm due."
Collections and defaults
Pablo is very flexible when it comes to 'when he' s due.' Depending on the customer's
preference, it can be daily, every fifteen days, monthly however the client wants to pay. Of
'' See Appendix M for an example of Pablo's checks used for paying the la yers and the clients.
course, like with all the other moneylender interviews, I had to know what happened when they
did not pay. He told me:
I tell the attorney who files with the Land Office, pay the taxes due on the property, and
then proceed to take possession of the collateral. Thank God I've never had to do this.
Sometimes people lose their houses to me, but they come and talk with me and I say, 'For
X amount you can have your house back,' and they don't have a problem with this.
Because someone helped me with this. The first time I was going to do this they told me,
'Never take away someone's house.' And I asked, 'Why?' They told me, 'Because it's a
very bad thing to take away someone's house that they have worked so hard for. Maybe
you lose your house, not because you want to, but because you don't have any way to pay.'
So I facilitate a way for you to keep it.
According to Pablo, however, this practice of his was not what one considers "advancing."
In a "real business" you are going to sell the collateral (in this scenario, a house) and reinvest the
profit in the business. In this manner, says Pablo, there are many banks and financiers who begin
with 1 million pesos and within 2 years have 30 million.
At the time of our interview, he said he had ten to fifteen clients currently late. If the
person is late 30 days, on the 45th day he sends a notarized letter from the lawyer. Without this
type of pressure, one's business will not advance, he explained. However, many of his late
clients used to be punctual, so Pablo felt he could do nothing to cover the losses of those late
payments; since they are "good clients" he did not want to lose them.
What about his microenterprise clients? Pablo told me he had three at that time: two
colmados and one wood seller. He has to give them cheaper interest rates because they are
investing in their microenterprises: "If you're borrowing from me to invest, I have to give you a
good interest rate; they can't pay me all that they earn on the money, the business." Besides this
stated obligatory preferential treatment, the moneylender also has the added security of material
assets able to seized in the event of loan default. He said, "For the colmado...they sign the
papers giving us the right to everything of the colmado. If two or three months pass without
payment, the lawyer goes to the house with this signed paper and has the right to everything in
"So why do microenterprises use prestamis~~~ttt~~~tttast~~ when they could go to a bank and get
cheaper rates?" I asked Pablo. His reply was it depends on why they need the money: if they
need it now then they cannot wait 2 weeks for the loan to be approved. Even if you are a client
with previously established credit there would still be at least a 72 hour wait. This is in contrast
to Pablo who loans within a day or a day and a half. Pablo gave me the following illustration of a
microentrepreneur' s rationale: "They come and say, 'How much is he going to charge? So
much? Ifl can make 15 [% profit] on it, and give him 10 [%], the 5 [% profit] is mine."
Unlike my other interviews where the moneylender left it up to me to deduce how they
arrived at a particular interest rate, Pablo was very systematic about the informal formula,
perhaps due to his training as an accountant. One determinate is the situation: for mortgages
(and, I surmise, for other situations with highly valuable collateral), the general range is 7% to
8% a month; for personal loans, the range rises from 10% to 15% a month, the upper end being
reserved for those without any kind of collateral. The interest rate is also dependent upon the
amount: for only a 5,000 peso loan, Pablo charges 15%; for 30,000 pesos, the rate is cheaper,
though he did not specify how much cheaper. Lastly, but most likely the initial consideration,
there is the consideration of the person: "some get 10% and some get 15%," though they may be
receiving the same amount of money. In this manner, he explained, you protect your better
customers so they do not go to someone else for their financing needs.
The atypical scenarios he offered were interesting. For the case where a person may have
no collateral whatsoever, but yet whom Pablo feels he can trust, the person is charged even more
than 15% a month because of the risk of default. On the other end of the scale where there is
sufficient collateral, microenterprises are charged 6 or 7% per month.
Hypothetical interest rates. Pressing the informal lender further into a discussion about
determining interest rates, he provided an intriguing explanation: if he received a loan from the
state's microenterprise development program, PROMiPYME, at 2%, he could not loan it at 2%;
he would lose money because of the cost involved in arranging the agreement. If he were to
secure a source of funds at 2%, he would need to lend the money at least at 3.5% a month in
order to continue the business.
Continuing this line of conversation, Pablo revealed another aspect in formulating his
interest rates: what does the client need it for at that moment? According to him, sometimes
people need a very quick loan. For example, if a relative of theirs has to go to the hospital or you
need medicine immediately, prestan~tisttt~~~~tttast~~t in general "take advantage" of that situation. He said
regardless of what the interest rate is, even as much as 60% a month, there are people who will
agree to it in order to get the loan. However, in these situations it is a "mission" to get your
money back; they may pay the first two installments, but after that it is nearly impossible to
recoup the investment.
The Life of Pablo
Part of the reason Pablo was so open to our conversation was that Mazara was his
childhood friend and they had continued as such since both still lived in Los Alcarrizos. As I
mentioned, he operated both businesses his accounting services and his lending services from
his home in an office sectioned off from the rest of the house. He had been living with a woman
for four years; coincidentally, that was about the same amount of time he had been a
prestan~ttisttt~~~~ttta.~~t Before that, as an accountant, he had witnessed the company he worked for lending
to many people. One day he thought, Why not borrow from me? He liked the idea of being a
moneylender, so he began to distance himself from the j ob he had at that point with the idea of
eventually quitting. He seemed to be quite satisfied with his current arrangement, running two
microenterprises from his home; he spoke with unabashed pride about the new Jeep parked
outside, a testament to his success.
Even though I write about his two microenterprises, he considered them to be two facets of
the same company (and hence, the nearly identical business cards) or, in his words, "same
company, just different services." The singular company was registered with the government and
he faithfully paid his taxes, registry fees, and generally complied with all other laws to ensure his
company was fully legal (barring the overarching extralegality of presttttttttttttttamitas).
He had a number of loans through his company, primarily from two sources: Banco
Popular, through which he had his automobile loan at 18.95% annually; and Banco Capital,
through which he had a personal loan at 24% annually. He used some of this loan money as
working capital for facets of his business.
Concerning capitalization, Pablo told me he did not have much capital as a prestttttttttttttttamista to
lend out; beginning with seventy thousand pesos almost four years ago, he had 'only' advanced
to an amount of working capital of RD$700,000, spread out over about forty clients. Perhaps he
was comparing himself to his example of other financiers with millions of pesos in available
Synthesis and Analysis of Prestamista Data
Although each prestamis~~~ttt~~~tttatttt was different, their business activities usually fell under these
common categories: establishing credit-worthiness, setting terms and conditions of the loan,
formalizing the agreement, collecting loan repayments, and determining interest rates. This
section is an attempt to map the path microenterprises traverse in soliciting an informal loan, to
demonstrate the rationale moneylenders employ during this process, and to contrast informal and
formal creditors' methods.
These informal moneylenders are as savvy and economically rational as their formal
counterparts. According to data collected, the differences chiefly lie in the scale, resources, and
legal frameworks that constrain the prestamis~~~~ttt~~~~tttas
Whether the lender is a large institution or a lone proprietor, the first order of business is to
determine the credit-worthiness and risk associated with each potential client. Although a
Dominican credit bureau exists, it is too expensive for some informal lenders to use. In place of
other formal indicators such as a mortgage payment history or cell phone bills, they use that age-
old system of word-of-mouth and social capital. Patricia told me for a new client this could be as
simple as another person even a stranger vouching for the person's reliability.
Chaso, on the other hand, rarely takes on new clients. Instead taking on additional risk in
loaning to unproven people, Chaso loans to a mutual friend who is an established client. Whether
the new client pays well or not is unimportant because Chaso's old customer is responsible for
the debt. In essence, it is the cosigner arrangement but with the cosigner holding primary
responsibility from the very beginning. The important consideration here is that creditworthiness
is still the first step in the loan process, though in this case it is the creditworthiness of the mutual
Yanqui skips several steps in the usual process of moneylending because the client gives
him the collateral at the beginning of the process. There is no need to establish the
creditworthiness of the client; by holding the asset in his hands, literally or legally, all other
credit considerations are superfluous. Barring a counterfeit car title or the like, the risk of losing
his capital is virtually nil on all of his loans.
The formal counterpart to this step is similar. Formal creditors begin the process by
collecting information to determine an individual's credit-worthiness. They ask personal and
financial questions, ask for records proving a good credit history, and ask for personal and
professional references. If the potential client passes the initial test, they proceed to the next step.
Setting Terms and Conditions
If a presttttttttttttttttamita decides to lend, they have to decide how much money they are willing to
risk. Patricia, Yanqui, and Chaso explicitly told me their maximum loan amount is RD$20,000.
Loaning only 20,000 pesos to an individual at a time minimizes their risk exposure, i.e. it
minimizes the amount of money they lose if someone defaults on their loan. Patricia's and
Chaso' s capitalization is so small that a loan of RD$20,000 represents about ten percent of their
total portfolio; they really cannot afford to lose much. Only Pablo set a minimum loan amount
like the formal institutions. The other four moneylenders would loan to client whatever
incremental amount needed.
ADOPEM and FDD pointedly told me there were credit ceilings dependent on the client's
financial position. They were willing to lend greater amounts to a person with greater financial
resources. For formal and informal lenders, a credit ceiling is a mechanism to limit their risk
exposure. For all the formal creditors, and for the informal lenders that spoke about the topic,
when a client repays a loan and establishes a solid credit history with them, the lender is willing
to extend even more credit for subsequent loans.
The negotiating between Yanqui and a client is fairly straightforward: the maximum
amount of the loan is set by the value of the guarantee. In the example he gave me, the collateral
was worth 5,000 pesos and thereby determined the loan amount of 1,500 pesos. Here, the client
was loaned roughly a third of the guarantee' s resale value, assuming the obj ect could be resold
for its original price. In reality, that price is most likely going to be less, after taking in
consideration for its depreciation in value and perhaps selling it at a discount to get rid of it
quickly. The associated costs will also take away from Yanqui's net profit, considering the time
involved in finding a one-time buyer for a very specific item, negotiating with the potential
buyer, formalizing the transaction with legal documents, etc. Additionally, Yanqui needs to
recoup his initial capital, as well as realizing some profit for the opportunity lost of investing his
Patricia and Chaso explained a similar business practice too. Just as a conventional
financial institution will not loan more than the market value for a piece of real estate in case it
has to sell the asset to recover the loan monies, moneylenders have to be able to recoup their
entire investment in case of default, plus the costs involved in this process. In the end, they will
hopefully recover their own initial investment and perhaps even a profit to compensate for the
lost opportunity of loaning money to someone more reliable. Of course, if there is a cosigner
there is no other collateral; the cosigner' s agreement (and ability) to pay stands in the place of
any need for a material guarantee. In general, the cosigner will be someone in as good as, or an
even better, financial position to pay the loan than the actual borrower.
Chaso's interviews illustrates the above two points rather well. As mentioned, instead of
taking on new clients, he lends to an established client of his own and the their ongoing
relationship stands for the needed collateral. In this way, he circumvents many of the problems
listed above. He told me when he does lend to new clients, they must be microenterprises
because they have something of value he can see and collect if they do not pay when he comes.
The risk associated with loaning to a microentrepreneur is lessened because the collateral
is easily identifiable and transportable, ex. valuable merchandise like a nice pair of tennis shoes.
In the case of default, he is more likely to recoup the cost of the loan from a microenterprise
owner through the business' material assets than he would otherwise, thereby lowers his own
The mirror-image of this in the formal realm is the requirement of some form of collateral.
Appendix F is an example of the form FDD's clients must sign which gives FDD possession of
the client' s real assets in case of default. For formal and informal lenders, the best collateral is a
cosigner. No lender wants to wind up with a freezer or a 1978 Datsun pickup; they would rather
have another option for recouping their capital in cash.
Formalizing Agreement and Disbursements
The final step in a typical lending situation is closing the deal by formalizing the
negotiated agreement and transacting the money. For Patricia, Yanqui, and Pablo, this takes the
form of a ready-made contract stipulating the terms and conditions, which is later notarized by a
lawyer. Pelo, too, uses ready-made contracts, but without notarizing them.
Since Chaso is adverse to any kind of paper trail, his method of solidifying the agreement
is a veiled threat ("psychological pressure") of the consequences of defaulting on their loan. It is
much more personal and menacing than signing a contract, but the logic and effect is the same: at
the time of the transaction, the client is informed of the consequences of defaulting on a loan.
With Chaso, the information is given by mouth instead of by paper, with the added menace to
substitute for the lack of other options in the event of pursuing the delinquent loan. 12
12 As noted previously, he has never resorted to physical violence; simply the escalating threat usually brings the
client to a negotiating point.
As Pelo said over and over, being a presttttttttttttttttamita is a psychological game. Everyone has to
sign a contract, regardless of the fact they are not legally enforceable. Since he does not even use
a lawyer, the contracts are another method Pelo uses as a safeguard against default on the loan. A
document spelling out the agreement with a person's signature does indeed carry weight, and
Pelo uses its significance to enforce the extra-legal agreement.
The very end of the transaction is, of course, the exchange of funds. Here, Patricia takes an
additional legal precaution in that she only disburses loan money via cashier' s check; the
borrower cashing the check is an implicit legal agreement as well as legal proof of the
transaction. Yanqui as well dispensed through checks, though they were company checks instead
of cashier' s checks. This adds another layer of legality and formality to the exchange; they have
proof the transaction occurred.
Chaso, on the other hand, deals strictly in cash because of his fear of any incriminating
evidence. He carries a certain amount of money with him and can loan almost immediately, at
least for smaller loans to established clients. He said when Leo needs a loan he has it in two or
three minutes (if Chaso is in neighborhood). Chaso takes on extra risk like this because people
know he is a presttttttttttttttttamita, that he deals in cash, and that he is going to have a certain amount of
cash on him which makes him a target for robbery. Pelo, too, dealt primarily in cash.
In this regard, Patricia, Yanqui, and Pablo are more like their formal counterparts than their
fellow presttamistast~~ttt~~tt Chaso and Pelo. Like FDD or the other microfinancial institutions, these
three moneylenders want legal recourse in case of nonpayment. Otherwise, they would have to
resort to "psychological pressure" like Chaso and Pelo, which is more complicated, risky, and in
which they are less likely to be able to seize the collateral. However, both Chaso and Pelo would
rather utilize the (quasi) legal system, but they must operate outside of it because (1) in Chaso's
case, he is very fearful of the legal repercussions for himself of being a presttttttttttttttttamita, and (2) in
both cases, the cost of using a notary public or lawyer is high.
Collections and Defaults
One of the advantages of the prestamis~~~ttt~~~ttttattt for the microenterprise is flexibility in
repayments; Pelo was the only moneylender who told me he required his clients to repay him
according to a certain schedule (daily). It seems all the others allow their customers to choose
how they wish to repay the loan. Pelo prefers daily loan payments because it is much easier to
collect 33 pesos a day (about US$1), than 185 pesos every Friday. 13 Besides being paid daily,
this arrangement allows Pelo to keep abreast of his clients' situations; if a customer is unable to
pay, Pelo can prepare better for the situation if he is aware of it immediately instead of finding
out at the month's end when the entire payment is due.
In the case of client default, every financial lender has a certain modus operandi for dealing
with the bad debt. For Patricia and Pablo (who use notarized documents and lawyers), the
process follows the method already described in Patricia's interview: an initial letter reminding
them the payment is past due, then another letter threatening seizure of collateral, and finally
coming to repossess the collateral in person. Yanqui, of course, is already in possession of the
collateral and simply sells it.
In Chaso' s case, there is no legal framework to fall upon since he tries to stay outside of it.
His only option is to rely on his own methods of trying to enforce the verbal contract. Instead of
a polite letter that the debt is overdue, he comes himself to "smoothly" remind the customer of
their obligations. In place of a following letter threatening to proceed with debt collection, Chaso
13 Since RD$33 per day over seven days does not equal 185 pesos, I assume Pelo was simply making up numbers
for the sake of illustration.
comes in person to deliver the threat. The intensity escalates until debt collection is imminent.
Since he cannot legally take the agreed upon collateral, he turns to the threat of violence.
Although Pelo is like Chaso in this regard, for hardship cases he emphasized his
willingness to alter the arrangements so that the person is able to meet their obligation. As he
said, he wants "to hold on to them." He would rather keep a long-term client who is willing to
pay than sour the relationship to regain his invested capital quickly. However, when the situation
starts deteriorating and the client refuses any form of repayment, Pelo has to become a master
psychologist and somehow coerce his client to pay the agreed upon amount without becoming so
threatening that the other party becomes violent as well. He has to gauge their breaking point so
that he comes close enough to the line to scare them into honoring the contract without actually
provoking them into a similar state. Since after two years and thirty clients he has never lost a
peso, he must be well on his way to becoming a disciple of Freud.
For all the informal moneylenders, seizing their clients' collateral is not the desired
outcome. They are in business to provide a financial service and to be rewarded for providing
that service. It is in the prestamis~~~ttt~~~tttta't~~ s best interest to keep good relations with their customers
and build an ongoing relationship profitable for both parties. The example of Patricia and friends
Juan and Sara illustrates this point well. The moneylenders' aim is to see their capital returned
with some interest. Although the eventual outcome of pursuing a delinquent debt may be the
seizure of property, it is a last resort.
Likewise, formal lenders want their customers to pay their current loan in full, then solicit
another, even larger loan. The formal terminology for this is 'graduating' a microenterprise. As
the microenterprise expands and becomes more successful, the relationship between it and its
creditors) improves as well. However, if the microentrepreneur is unable to pay, eventually the
formal provider must seize the collateral. As Sra. Canalda told me, ADOPEM probably will not
recoup its total investment from seizing the collateral, but it must take action so as not to
encourage a culture of loan default.
Determining Interest Rates
Somewhere in the transaction is the core of this thesis: the interest rate. True to their
informality, no prestamis~~~tttt~~~ttttatt had an explicit formula to determine a particular interest rate for a
client. Instead, it seems each has a general equation in their mind with a number of variables
effecting the final rate for a certain situation. As no one interview revealed every factor, I have
pieced together what the informal equation looks like from the interviews of all the prestamis~~~ttt~~~ttttas~~
as well as their clients, presented in Table 4-1. As each determinant increases, the ultimate
interest rate charged decreases; the exception is the cost of capital (when applicable).
Table 4-1. Informal interest rate determinants.
Effect on interest rate as
Length of loan
Capitalization of prestamista
+ Cost of capital
Yanqui explained how the loan size influences the interest rate with an example: "Two
percent of 5,000 is not 2% of 2,000 pesos; it' s more expensive for me to loan out 2,000 pesos
than for me to loan out 5,000 because I earn less on 2,000." There are two factors that come into
play here. For one, the more he can loan out, the more he is earning; he would rather charge a
lower rate and earn interest than to have his capital lying idle. The second factor is that despite
the loan size, there are a number of variable costs associated with each transaction: notary and/or
lawyer fees, the cost of the many documents, and most importantly Yanqui's time which could
have been spent negotiating a larger loan with another client. This is not to mention the fixed
costs of employee salaries, rent, utilities, etc. It is literally more expensive to loan 2,000 pesos
Formal lenders, too, charge less for successively large loans. The example Sra. Wiscovitch
of FDD gave me was the three different interest rates they charge for different loan amounts:
3.8% (monthly) for 5- to 20,000 pesos; 3.6% for 20- to 50,000; and 3% for over 50,000.
Microenterprises receive discounts for buying in bulk from both informal and formal sources.
Length of loan
Patricia' s interview illustrated the effect of this determinant: although she would earn a
40% return on her money by loaning to someone for 20 days, she charges only 7% per month.
There is an incentive for clients to borrow her capital for longer periods of time, although this
means Patricia will earn less interest over a longer period of time than if she had rapid loan
turnover, like making a new loan every week. An important consideration is that Patricia is not
guaranteed she will be able to quickly loan out her money again; having long-term borrowers
ensures her money is continually producing interest, as opposed to her capital simply earning a
minimal interest rate in her checking account in between the times someone needs a loan.
This aspect of interest rate determination is where there is a great divide in the
formal/informal realms. The institutions usually set the loan to be paid over a much longer period
of time, perhaps a year or even a year and a half. Prestamis~~~ttt~~~tttas,~~t on the other hand, deal in shorter
cycles of weeks or even days. Sometimes those cycles extend to months, but my interviews did
not indicate this was normal. Since there is such a fundamental difference in this concern, it is
difficult to compare the institutional rationale to the moneylenders'.
Creditworthiness / collateral value
The next step in this informal formula is to factor the collateral a client has established
with the moneylender. As I have shown, collateral can take either tangible or intangible form;
that is, it can be material assets or trust between a moneylender and client. Chaso's rate for new
clients is 10% per week. Regular clients those who have a year or so with him receive
Chaso' s prime rate of 5% a week. In other words, half of his normal rate is associated with the
risk of a new client; the rate is halved by simply establishing trust. Even if the loan is only for
1,000 pesos, he charges only 5% (instead of increasing the rate, as Table 4-1 would suggest)
because he knows that the relationship is an enduring one. As he said, "they're always going to
be with me." Since he does not make large loans to newer clients, the ultra-prime rate of 15%
interest per month for large loans must be only available to microenterprise clients like Leo,
again underscoring the effect of creditworthiness/collateral value in determining the interest rate.
Pablo' s clients have the option of putting up collateral or not. For a personal loan without
some kind security backing it he charges about 15% a month; all else equal, that rate drops by a
third to 10% by guaranteeing the loan with something of value.
As aforementioned, formal microfinanciers are altogether less concerned about collateral
value than prestamis~~~ttt~~~tttas.~~t The more important consideration for them is the credit-worthiness of
the individual. As for the informal lenders, the microenterprise's credit history is a type of
collateral. As Sr. Santos of PylVE explained to me, microenterprises with more experience and a
better overall credit-worthiness receive a lower interest rate than other PylVE clients in similar
contexts. This illustrates yet another aspect in which formal and informal lenders find common
Capitalization of the prestamista
Chaso and Pelo also told me that the amount of money they had available to loan affected
the interest rate they charged. In this case, the interest rate rationale has nothing to do with the
client and instead reflects the financial situation of the moneylender. As their pool of capital
shrinks, a RD$5,000 loan becomes a proportionately larger share of their total resources. Even
though the loan amount would not change in this scenario, the prestamista'tt~~~ttt~~~tts risk increases
because they are lending a greater percentage of their overall capital.
My interviews with institutional representatives did not indicate this was an important
consideration or even one at all. I assume that is because they are much better capitalized than
the individual prestamis~~~ttt~~~tttta.~~
Cost of capital
The best example of this factor' s effect is in my interview with Pablo where he gave the
hypothecial situation of receiving funds from PROMiPYME at two percent per month. If he
were able to do so, he estimated he could charge 3.5% per month to his clients (in the range of
formal creditors) and still run a profitable enterprise.
ADOPEM, too, gave an example of how the cost of capital effects the interest rate they
ultimately charge to the consumer. Recounting that part of the interview in Chapter 3, Sra.
Canalda told me the amount ADOPEM had to pay for financing was the basis for formulating an
As Patricia said, "there's too much competition between prestamistas~~~tt~~tt~~ there's too many
of them." Pelo gave the example of a price war between him and a hypothetical prestamis~~~ttt~~~ttttattt in
which he was continually forced to lower his rates to retain a customer. None of the
moneylenders indicated they had a monopoly hold over their clients are that they were immune
to the affects of competition. This sounded strikingly like Sra. Wiscovitch of FDD recounting the
friendly exchange in Chapter 3 between her and the representative of PyME.
Table 4-2 summarizes interest rate minima and maxima of informal lenders, with
ADOPEM provided for contrast.
Table 4-2. Interest rate ranges in percentages per month.
Lender Minimum Maximum
ADOPEM 2.8 3.5
Patricia 7 50*
Yanqui 3 7
Chaso 15 40
Pelo 10 20
Pablo 6 -15
As Table 4-2 illustrates, in some instances the prestamis~~~ttt~~~ttttas'~t interest rates are much higher
than a formal credit provider' s rates like ADOPEM. However, in an ideal context, a Dominican
could receive a loan from Yanqui for 3% a month a half percent below ADOPEM's most
In this chapter I have provided a rough sketch of what microenterprises have to do to
receive a loan from a prestttttttttttttttttamita In is not as simple as walking up to a person standing on the
corner and asking for some quick cash. On the contrary, depending on the moneylender, it can be
quite an involved process with a small load of paperwork.
These five prestamis~~~ttt~~~ttttas~~ provided three explanations of why microenterprises would use
them instead of formal creditors: prestamis~~~ttt~~~ttttas~~ loan more quickly, they loan smaller amounts than
formal sources will, and they do not require as many requisites. They did not indicate their
clientele were irrational or unaware of the higher costs of informal credit.
I have also provided information regarding the personal lives of presttttttttttttttttamitas their roles in
the community as well as the informal economy, their relationships with their clients, and the
rationale they use in their business practices. Their interest rates, though certainly high as
compared to formal rates, are not arbitrary or exorbitant. These moneylenders gauge the risk
associated with operating outside of legal frameworks, the creditworthiness of their customers,
their likelihood of recouping their capital outlay, and other considerations, and then assign an
appropriate reward for those risks.
Chaso was closest to the legendary prestamista; however, even he came up short because
he had never been physically violent with a defaulting client. None of these moneylenders'
interviews support the vilification they have received in the literature. Table 4-3 contrasts some
the practices of the informal moneylenders and ADOPEM' s. As it demonstrates, there is an
inverse correlation between the degree of formality and the use of "psychological pressure."
Thus, I conclude that the less moneylenders are able to rely on legal recourse to make clients
honor their agreements, the more they must rely on their own methods for enforcing those
I end my analysis of informal credit sources and interest rates with a Einal question: if
formal institutions operated at the same scale prestamistas do, how high of an interest rate would
they have to charge to remain profitable?
Until this point of the thesis, I have presented only one side of the microfinancing coin:
supply. The next chapter deals with the demand side for microfinance: the microenterprises
Table 4-3. Contrasts of lending practices.
Business practice / Lender ADOPEM Patricia Yanqui Chaso Pelo Pablo
Non-cash disbursements ?
MICROENTERPRISE CREDIT USERS
The two previous chapters presented two of the options microenterprises have for filling
their credit needs and those lenders' ideas of why a microenterprise would choose one source
over the other. This chapter is composed of 18 non-prestamistattt~~ttt~~~tt microenterprise interviews and
allows them to answer that question for themselves. Whereas the previous chapters were
organized by individual interviews, this chapter is organized by the six answers I found in my
interviews. They can grouped under two broad headings inaccessibility to formal sources and
prestamis~~~ttt~~~tttas'~~t utility and I present them from the least supported reasons to the strongest
supported reasons. When I use the words "strongest supported" it does not mean the answers I
heard most often. Rather, it refers to the answers I heard which were supported most by the data I
collected from the microenterprises themselves.
Inaccessibility to Formal Sources of Credit
Of the six general reasons microenterprises choose presttamistast~~ttt~~tt over formal creditors, four
can grouped under this heading. The unifying theme is that microentrepreneurs are unable to
utilize formal credit because of some obstacle. In lieu of this, they must use prestamis~~~ttt~~~tttas.~~t
Virtually all of the microentrepreneurs I interviewed were very informed about the
competing sources of credit they could choose. Even specific names were very familiar to them,
ex. ADEMI, ADOPEM, PyME BHD, etc. However, I encountered one microenterprise who
knew virtually nothing about microcredit named Felicia. Since three members of my Dominican
host family worked part time for Felicia and I usually ate lunch there, I had ample opportunity to
experience the everyday operations of this microenterprise firsthand.
About 15 years prior, Felicia was about to be thrown out of her house because she and her
husband could not pay the rent. My host mother encouraged her to do something for herself and
taught her how to make a type of juice and biscuit that she could sell on the street. A decade and
a half later, Felicia' s business has evolved into cooking plate lunches for fifty to sixty free trade
zone workers during the week. As her business expanded so did her lifestyle: she bought land,
built a house and an ample-sized kitchen to accommodate her business, and educated her son at a
trade school. She now employs four to seven people part-time, including her husband.
In spite of her success as a microenterprise, she had only peripheral knowledge about
microcredit programs. She has never pursued the idea because she has credit with her supplier
and a savings account, she manages her finances well, and does not need a large amount of
capital. The only maj or purchases on the horizon are the occasional stove or freezer, should the
ones she has fail. Because of her financial stability and her business operates, Felicia does not
feel that she needs a loan, and she certainly does not want one. To get a loan she believes she
would have to use her house as collateral and, as she said, "if you lose the house, you lose
everything my house is all I have." Felicia remains unaware of the possibilities of microcredit
because of her risk aversion and the lack of necessity otherwise.
Although Felicia did not use prestamis~~~ttt~~~tttast~~ either, other people I interviewed, especially
clients of formal credit sources, offered hypothetical examples of microentrepreneurs like Felicia
who were unaware of the opportunities afforded by microfinancial institutions and so instead
used prestamistas.~ttt~~tt~~tt A case in point is the paradox presented to me by Celia, a secretary of a type
of Einancing company as well as a microentrepreneur herself. She told me why some customers
use their company over formal ones. Among those reasons was this:
Sometimes the person forms in their mind an incomplete thought, 'How will the bank -?
They're not going to loan to me,' and puts this negative attitude in their head 'how can
they loan to me?'...sometimes the person does not know that in a bank it is easier, and that
the rates are excellently [sic] much better than a jinanciero. But you know, everyone does
not have the same level of knowledge, because that' s the way it is. If all of us were sooooo
[sic] intelligent, we [lenders] wouldn't sell anything (laughing).
Afterwards, when we started talking about possibilities in expanding her microenterprise,
she expressed interest in PROMiPYME. Someone had been in the office before talking about the
incredibly low rates the state offered microentreprises. I asked her if she knew any other lenders,
like ADEMI, ADOPEM, etc. Ironically, she replied no; the casual conversation of the passerby
was absolutely the only thing she knew about microfinancing. After she and her husband are
finished with a loan he has, they plan on investigating PROMiPYME further.
Thus, unawareness of the possibility of formal credit is one reason microenterprises may
use prestamistast~~~tt~~~tt~~ instead of available (and cheaper) formal credit. However, I did not actually
interview someone who used prestamis~~~ttt~~~tttast~~ because they did not know of microcredit programs;
Felicia, though unaware, did not use loans at all. Hence, this is the least supported reason
articulated to me, although one of the most frequently heard.
Conceivably, personal and/or operational differences in microenterprises are a factor in
decisions of choosing one credit source over another and I did in fact encounter a few
illustrations of this. SamC~n is a clothing retailer with a comparatively large store and offers
everything from lingerie to children' s clothes and haute couture j eans. In spite of being the
SShe is the secretary of a financiero. This type of informal creditor is similar to the pawnshop-model of Yanqui,
with a few twists. I did not include this interview in chapter 3 because I was not able to speak with the proprietor
himself and because the business loans to few, if any, microenterprises.
proprietor of such a successful shop in Los Alcarrizos, she is very soft-spoken and was
somewhat timid in our interview. I was fortunate the ADOPEM officer accompanying me took
an active role in the interview and gently prodded Samo~n for more explanation when her answers
were succinct (or when my Spanish failed miserably). She is currently in her third loan
arrangement with ADOPEM, this time for RD$30,000, and is quite satisfied with her bank.
In spite of her timidity and my inexperience in interviewing at that point, SamC~n gave me a
wealth of information. She prefers paying her debt to ADOPEM monthly versus paying her
prestamis~~~ttt~~~ttttattt weekly because she feels it is more convenient.2 I asked her to explain why she
prefers a bank over her moneylender. "(Laughing) Because the prestamis~~ttt~~~tttast~~t are more difficult,
they're harder you have to work more to resolve [your debt] to them; you only have to pay the
bank monthly..." She would rather have one, albeit larger, payment per month than many
On the other hand, there is NTu~iu's rationale. When I talked with this beauty salon owner
most of the neighborhood heard us. Besides the salon opening right onto a busy street in Los
Alcarrizos, NTu~iu herself was very boisterous. She was very warm and answered all of my
questions, and I could not miss any of them in that echoing salon. NTu~iu had successfully
solicited a RD$50,000 loan from the state program PROMiPYME and was paying it back at a
coveted rate about 1.2% per month over three years. However, she also had a loan from a local
prestamis~~~ttt~~~ttttattt (a "daily loan" she termed it) of 5,000 pesos at about 13% per month.
She prefers her daily payment arrangement with her prestamista~ttt~~~ttt~~~ over her monthly
payments to BanReservas because she pays a little at a time instead of having one large payment
per month. "(Lecturing me) Daily loans are better. If I don't work today and tomorrow, because
2 See Appendix N for an example of SamC~n's prestamista contract.
there' s no work, and then I work the third day I never go 20 days with paying if I get 2 or 3
days behind, I can pay all of it together." She also told me she likes to be finished with her loans
quickly. She can pay off her loan with the prestamis~~~ttt~~~tttatttt within a few weeks versus having a loan
with ADOPEM for a year.
Therefore, personal preferences are also a factor in why microenterprises would use
prestamis~~ttt~~~tttast~~t over sources of formal credit. The two microenterprise examples I have presented
here illustrate two of those preferences. One is that different microenterprises need or prefer
different payment plans; Sam6n preferred monthly payments whereas NTu~iu preferred almost
daily payments. The second preference is that NTu~iu wanted to be rid of her credit obligations
quickly and liked the option of being able to pay off her prestamista~ttt~~~ttt~~~ rather quickly, versus
having the payments hanging over her head for months on end.
Although Sam6n is on her third loan with ADOPEM, in times of crisis she has to look
elsewhere for help because she cannot renew her credit with the bank. Until she pays off the
current in its entirety she is ineligible for further loans from them. If she needed another rather
large infusion of funds, she told me she would have to look to other banks, such as ADEMI or
Another client to whom the ADOPEM loan officer escorted me was Colmado Europa, or
rather, just one of them. In only three years of business, the owner has established four colmados.
If I remember correctly, our interview took place at Colmado Europa II. There are two things I
distinctly remember, though. One was worrying that the rain would obscure his voice on my
digital recorder. The other was an older man sitting in a rickety chair just outside the doorway to
the green colmado, laughing and parodying our conversation, shouting out "loans," "a thousand
pesos dollars! Hee-hee!," etc.
In spite of the cackling echo and the rain, we had a long discussion captured perfectly by
my trusty Olympus WS-100. Like I prompted my other interviewees, I asked this
microentrepreneur what he does when he needs money. "First, I have to Einish this debt, if
they're going to sell me another if they're going to renew it. For example, if someone tells me,
'I am going to sell that comer to you for half a million pesos...' Well, I need half a million
pesos. But I already know where to get it." In other words, even though he can take out a loan of
half a million pesos, he has to wait until he is finished with his current loan before he could
solicit that loan.
Peppered throughout my interviews were references to the microentrepreneurs' future
plans concerning Einancing. For those clients of microfinancial institutions, they were usually
well pleased with their respective lenders) and wanted to Einance through them again (this was
true even for those I interviewed without a loan officer by my side). However, many told me this
was not an option until the current loan was finished.
This underscores the topic heading: there are obstacles barring access (or further access, in
many cases) to formal sources of credit. In this instance, because microenterprises already have
loans with microfinancial institutions, they are unable to receive more funds. With this avenue
closed, they turn to other credit sources, including prestamis~~~ttt~~~tttas.~~t
One problem I had to overcome in my fieldwork was the language barrier and this was
more than simply the English-Spanish divide. I had to relearn vocabulary to describe the research
I was pursuing. After I explained to Sara that a small business (un pequeifo negocio) was more
than just colmados and beauty salons, and could be a small factory or workshop (un taller), she
immediately thought of her friend Jose. One Sunday shortly thereafter we walked from her
colmado two blocks in the rain (why was it always raining when I need to interview people?) to