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Microfinance as an Alternative Development Strategy
for Oaxaca’s Rural Poor
Veronica Carrillo
Arizona State University
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Mexico’s economic liberalization policies since the 1980s have had disparate effects
on development. These effects diverge at economic and regional lines, benefitting the
wealthy in northern states while excluding the poor in isolated southern states. As Mexico’s
GDP increases, so has its inequality, suggesting that this growth has not contributed to
poverty reduction. During my internship at Fuentes Libres, A.C., a non-profit microfinance
organization in Oaxaca, I witnessed the adverse effects of these economic policies on the
rural poor as well as the benefits of development programs that take culture, tradition,
human dignity, and environmental protection into account. As Oaxaca’s main sources of
income—tourism, agriculture, and remittances—are struggling, development agencies
should refocus on grassroots development strategies like microfinance.
Neoliberal Economic Policy in Mexico: 1982 to 1994
As a result of a debt crisis and pressure from the IMF and the World Bank in the
1980s, Mexico joined the global shift towards export-oriented development from the
nationalistic, import-substitution industrialization model of the previous decades. By
reducing tariffs, social spending, and trade regulations, it sought to integrate itself into the
global market. Free trade agreements like NAFTA and GATT were byproducts of this shift,
opening new channels for capital, goods, and people to flow across borders. Wages, as well
as health, safety, and environmental standards were kept low to attract foreign investors to
Mexico’s manufacturing sector, resulting in a surge in US factories located just south of the
border. These maquiladoras attracted migrant workers from all over the country.
Meanwhile, credit reduction, land consolidation practices, and competition with highly
subsidized US agriculture forced many small-scale farmers out of business and into the
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manufacturing sector. Lack of transparency and government control of media throughout
this process largely excluded Mexican citizens from these policy decisions (Hellman, 7).
This model hugely increased Mexico’s GDP— it is now the second largest economy
in Latin America and the 12th largest in the world (CIA World FactBook, 2011). However,
the benefits of the export-oriented model were not equally distributed. In spite of its
growth, Mexico ranks very high in income inequality in Latin America and is home to the
11th highest number of poor in the world (OECD, 2011). This new era of deregulation
benefitted the already wealthy while adding many foreign-owned, low wage job
opportunities concentrated in the northern states. Hanson (2005) finds that in these states
with “high exposure” to globalization trends, richer households’ income increased at a rate
three times higher that that of poor households; meanwhile, southern, “low exposure”
states actually saw a drop in income. This new economic structure contributed to the
poverty pattern seen in Figure 1: poverty rates are lowest in the north and increase
towards low exposure states like Oaxaca, one of the poorest in Mexico. In spite of
measurable growth in GDP and the limited benefits of maquiladora jobs, almost 50% of
Mexican citizens still live in poverty (Agencia EFE, 2009).
Impact on Oaxaca
The effects of these global processes are evident among the marginalized indigenous
communities in the state of Oaxaca. Highly publicized drug violence in the northern border
region has decreased tourism even to this peaceful southern state; many of my friends and
family were concerned that I was travelling to what they thought to be a dangerous area.
Given the neoliberal economic policies that damaged local business and agriculture
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combined with the decrease in tourism and household income, Oaxaca’s rural poor suffer
as many increasingly rely on emigrant remittances. Meanwhile, the global economic crisis
has caused remittances to plummet (Mexico sees record drop, 2010). This decline of
Oaxaca’s major income sources have contributed to its staggering poverty rates—over 75%
live in extreme poverty.
Alternative Development Strategies
The most recent wave of development stems from public/private partnerships,
NGOs, and grassroots development strategies like Fuentes Libres’ communal banks. The
pueblos I visited were home to many mothers and children left behind while the male
heads of household migrate to find work. The decline in job opportunities and remittances
requires these women to find ways to generate income from home. As single mothers are
usually considered unemployable, they and their children can often be seen begging for
change or selling cheap souvenirs and cigarettes in the streets of the city center. Fuentes
Libres targets this demographic for small loans to help start or improve a business out of
their own home. Loans are based on the village banking model developed by the Grameen
Bank, FINCA International, and Auxilio Mundial Internacional, providing group loans
without collateral to form support-group style rural banks. Women are able to start a
business, generate income, and continue to improve their standard of living.
Some argue that microfinance efforts are misdirected and the poor would be better
served by a focus on long term employment in manufacturing and industry (Karnani,
2007), reminiscent of the export-oriented industrialization strategies of the 80s and 90s.
While the surge in maquiladoras in the north have undoubtedly provided employment
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opportunities for many, the results are not all positive. Wages are intentionally kept
extremely low. Factory owners cut costs by reducing safety measures; combined with
limits on workers’ rights, the resulting injuries often go unresolved (Bacon, 2011). Workers
are subject to toxic waste that can be as hard on an individual as it is on their water
sources, farmland, and neighborhoods. Maquiladoras also have a long history of gender
discrimination, sexual harassment, and even violence towards working women (Tanner
Rosati, 2010). Given the explicit gender discrimination I have seen in job ads in the city,
these problems would likely replicate in Oaxaca.
Another difficulty with these top-down, industrial poverty mitigation strategies is
the disparity between fostering development while maintaining the integrity of Oaxaca’s
rich cultures. Oaxaca is home to the largest indigenous population in the country. As the
state experiences the social and economic impacts of globalization, many indigenous
traditions—including native languages and cultural norms— are fading from generation to
generation. I had a chance to visit the Isthmus Tehuantepec region, a Zapotec society
considered by archeologists to be the closest any has come to a matriarchy due to its
egalitarian division of labor and women’s central role in the family (Chiñas, 2002). Women
in this region are brought up to be assertive decision makers in their families and often
control household finances. The machismo culture that exists in much of the country is
looked down upon here. While these cultural differences were striking, it was apparent that
the more widespread mestizo culture was growing in influence.
The export-oriented industrial development strategies would likely be
unsustainable here. Many are already concerned about the fading of the culture in this
proud society— some of the traditional handcrafts produced and sold in Tehuantepec and
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the many pueblos throughout the state of Oaxaca have been passed down for over a
thousand years. A shift to an economy based on US manufacturing could contribute to the
decline of these traditions. And for the large population of unemployable women with
children, more inaccessible, dangerous, foreign-owned factory jobs are not the answer.
Rather than trying to reverse cultural norms, grassroots community development
organizations like Fuentes Libres work to provide culturally relevant solutions to economic
inequalities. Many women in the program use their loans to increase production and sales
of traditional food and handmade artesanías like the beautiful, colorful embroidery of
Tehuantepec. The program also is consistent with Zapotec values of women as incomegenerating members of the household, selling goods and controlling family finances.
Fuentes’ model gives women the power to elect leaders and determine the rules of the
group so that each group operates in ways consistent with members’ norms and beliefs.
Furthermore, not everyone needs to be an entrepreneur for this model to work.
Microenterprises employ other members of their community, fostering personal and
community development with a respect for human dignity that is sorely lacking in factory
jobs (Kraemer, 2001).
Fuentes Libres uses a more holistic, community-based approach to help rural
women who have been excluded from previous development models and harmed by
neoliberal economic policies. Loans are accompanied by finance and business management
training, as well as literacy classes for those who need it. The program is also affordable
and sustainable. After an initial donation, Fuentes has remained financially self-sufficient
due to the low cost of the village banking model. There is no need to build banks in rural
areas— meetings take place in the home of a group member and savings are deposited in a
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group account at a local bank. New banks are opened when the organization has gained
enough interest or received a donation.
Unlike industrial development strategies that increase dependence on foreign
income sources, Fuentes Libres fosters financial independence by phasing itself out the
loan process after two years. By the end of this period, the communal bank becomes
independent and can continue to loan to each other and other community members using
the savings they have generated. In this way, Fuentes Libres continues to have a positive
impact long after the program has ended. This grassroots approach is altogether a more
effective development strategy than the government’s top-down planning that only
considers the nation’s bottom line. History has shown that growth does not necessarily
correspond with poverty reduction; Mexico’s poor need a strategy that produces both.
Overall, my experience working with Fuentes Libres has taught me the importance
of community-based development strategies that embrace the culture of the target
population. When working in any development project, the most important principle is to
learn from the target community— educating ourselves of its experiences and needs while
understanding the macro-level political, social, and economic forces that act upon it. Often,
governments and organizations assess a population’s needs from its own limited
perspective, ignoring the group members as a valuable source of expertise and resulting in
ineffective policies and programs that benefit the wrong people. Allowing a community to
define and frame its own issues is the first step to understanding a problem and finding a
solution that group members can take ownership in. Understanding a community’s
inherent strengths, rather than guessing at its problems, is an important lesson for
development work in any part of the world.
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Figure 1
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References
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