Where Village Banking Began
In 1984, while working with farmers in Bolivia, John Hatch conceived a small loan program for low-income farmers that put them in charge. The program allowed them to obtain loans without collateral—their main obstacle to accessing credit—at interest rates they could afford.

It brought groups of neighbors together, giving them the power to collectively disburse, invest and collect loan capital as they saw fit. His program became known as “Village Banking.” Four weeks after its launch, the program served some 14,000 families with loans worth $630,000, demonstrating a tremendous demand for working capital among the rural poor. Encouraged by the results, Hatch began training others in the Village Banking methodology, and new programs began to take root throughout Latin America.

Lending to Women, Building Communities: a Method Becomes a Mission
Hatch founded FINCA in 1985. But not until 1986 did Village Banking find its mission. That year, Hatch started a small program in El Salvador to provide credit to low-income women involved in commerce and petty trade, or “microenterprise.”

This focus was extremely successful in improving family welfare; the women’s businesses began to thrive after only one or two loans, their income grew, they posted exemplary repayment rates, and, above all, many reported that their children's diet improved. John Hatch was convinced that he had found an important tool to enable families to lift themselves out of poverty. There were additional benefits. Because the women came together to borrow capital, they began to support one another—and each other’s businesses. The Village Banks became engines of empowerment and focal points for grassroots community development.

Latin America and Africa: Fertile Ground for Village Banking Buoyed by the success of the program in El Salvador, FINCA grew, opening new Village Banking programs in Mexico, Honduras, Guatemala, and Haiti in 1989. In 1990, FINCA expanded its presence in El Salvador, covering the entire country with a network of Village Banks. In 1992, FINCA entered Africa, opening FINCA Uganda that year. Village Banking proved a perfect fit for East Africa.

Village Banks in Africa tend to be larger, including broader segments of communities. FINCA has been able to reach the very poorest entrepreneurs, offering some loans as low as $25.00. FINCA Uganda, and FINCA’s newer programs in Malawi, Tanzania, Zambia, and the Democratic Republic of Congo have been among its most successful and fastest growing. By the end of FINCA’s first decade in 1994, Village Banking programs in Latin America and Africa benefited some 50,000 low-income families.

New Economies, New Products
In 1995, FINCA entered its third region—Eurasia—opening a program in Kyrgyzstan. Despite widespread unemployment, lack of familiarity with the basic principles of entrepreneurship, and an economy in which credit was virtually unknown, FINCA worked to stimulate the economy at the grass roots.

The success of the Kyrgyzstan program spurred tremendous growth and became a model for others in the region: Georgia and Azerbaijan in 1998; Armenia and Russia in 1999; Kosovo, where FINCA was among the first economic development organizations to arrive after the cease-fire in June of 1999; and Afghanistan and Tajikistan in 2003. To meet clients’ needs in the more industrialized economies of Eurasia, FINCA adapted its services by providing for smaller Village Banking group sizes and developing individual loan products.

In Africa, FINCA was testing other financial products. Partnering with American International Group (AIG), FINCA Uganda began offering low-cost credit life insurance coupled with microloans. The insurance repays the loan in the event of the client’s death, decreasing the risk of default and helping to relieve financial stress on the grieving family. Today, over 250,000 of FINCA's clients in Africa and Latin America are protected with microinsurance and FINCA's partnership with AIG is now in its tenth year. 

Other innovations followed. FINCA began working with MTN, Uganda’s largest telecommunication company, and the Grameen Technology Center to bring mobile pay telephone service to Ugandan villages. In Guatemala, a partnership with VISA allowed Village Bankers to receive FINCA/Visa debit cards, providing them with safe and convenient access to their funds. In Malawi, FINCA partnered with the Bill & Melinda Gates Foundation and The Johns Hopkins University Bloomberg School of Public Health’s Center for Communication Programs to integrate HIV/AIDS prevention education with Village Banking.

Harnessing the Power of Commercial Capital for the Poor
As demand for FINCA’s services grew, its programs needed to access even greater amounts of capital to expand their lending to the poor. So in 1997, in response to continued growth in demand for microfinance services, FINCA established the Village Bank Capital Fund (now the FINCA Capital Fund) to enable FINCA programs to borrow commercial capital to fuel their growth and outreach. This was a revolutionary innovation; the Fund secured for poor clients what they had traditionally been denied: commercial capital. This strategy would make possible the harnessing of commercial capital in order to fuel a massive expansion of FINCA's programs into new markets and outreach to new clients.

Financial Institutions for the Working Poor
In 1997, FINCA Kyrgyzstan became the region’s first formal financial services institution for low-income entrepreneurs. In 2004, FINCA Ecuador and FINCA Uganda also became formal financial institutions who serve the working poor. Their transformation is enabling these programs to dramatically increase their outreach to the working poor.

“Microcredit” Becomes a Household Word The microfinance sector was changing and growing. In 1997, FINCA co-sponsored the first global Microcredit Summit, where 2,000 policymakers, practitioners, and donors agreed to provide 100 million of the world’s poorest families with credit for self-employment. Acknowledging microcredit’s potential as a tool to alleviate global poverty, The United Nations proclaimed 2005 the Year of Microcredit. In 2006, the Nobel Committee went a step further, awarding the Nobel Peace Prize to Muhammad Yunus and Grameen Bank, and thereby recognizing microcredit’s contribution to world peace.

At the end of FINCA’s second decade, its programs had become models for outreach and sound financial management. The FINCA network surpassed the $100 million mark in loans outstanding to the world’s working poor, and many programs had achieved “sustainability,” covering their operating costs with income from lending.

FINCA had attracted a broad and diverse group of supporters, including businesses, government, international, and multi-lateral agencies, and community and church groups, some of whom employed the Village Banking model to launch programs of their own.

FINCA had also developed a unique business model to facilitate even greater outreach to the poor. Affiliates are wholly-owned subsidiaries who use both donations and investments to build equity. This equity allows them to access commercial capital, which they in turn lend to poor clients. The FINCA network, and its individual subsidiaries, have been recognized for their fiscal management and outreach to the poor by such organizations as the Inter-American Development Bank, the Microfinance Network, Worth Magazine, the American Institute of Philanthropy, and CharityNavigator.com.

Rising to the Global Challenge
In February 2007, the FINCA network achieved another milestone, reaching half a million clients in 20 countries with financial services. But to help meet the UN Millennium Goal of cutting world poverty and hunger in half, FINCA is committed to an ambitious plan for growth. By 2010—our 25th anniversary—with your support, we willl:

• Open new Village Banking programs in countries where FINCA’s services are needed most.
• Build 100,000 Village Banks in the world’s most destitute neighborhoods.
• Reach one million of the world’s working poor with financial services they couldn’t otherwise obtain.

Over the past few years, FINCA has received the highest ratings from several independent evaluators, including Worth Magazine, the American Institute of Philanthropy, and Charity Navigator (which has awarded FINCA an extraordinary five consecutive "4-Star" ratings).

You can help us reach these goals and achieve meaningful social change. Learn more about the Village Banking Campaign.