Responsible Finance Forum

Nicaragua: Factors Influencing Poverty Outreach Among Microfinance Institutions


The microfinance sector in Nicaragua is undergoing a process of consolidation and recovery after being faced with an array of challenges between 2008 and 2011.

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Nicaragua is the poorest country in Central America and the second poorest in the Western Hemisphere (The World Factbook, 2014). The economy grew 4.6% in 2013, despite a 33% decline in coffee export revenues due to a coffee rust fungus. 17% of GDP originates in agriculture, 26% in industry and 58% in services, whereas 31% of the labor force works in agriculture, 18% in the industrial sector, and 50% in services.

The microfinance sector in Nicaragua is undergoing a process of consolidation and recovery after being faced with an array of challenges between 2008 and 2011. The global financial crisis coupled with the “Movimiento No Pago” (a movement for non-payment of loans), and heightened by political interference, has left the industry ‘both illiquid and unpopular’ (The Center for the Study of Financial Innovation, 2014). The industry served 324,000 clients before the crisis and dropped to 225,000 in 2011. Total portfolio dropped from US$420 million in 2008 to US$ 170 million in 2011. CGAP estimates that in 2014 80,000 microfinance clients worked in the agricultural sector and nationwide there were 268,000 customers.

The adoption of “Promotion Act and Regulation of Microfinance” in 2011 and the creation of the National Commission for Microfinance (CONAMI), which became operational in 2012, have given the sector a much needed boost. The new law seeks to improve the transparency of interest rates. Microfinance institutions can set their rates but regulation prohibits additional charges to borrowers and the imposition of a maximum fee for late payment charges (‘Nicaragua | Portal de Microfinanzas – CGAP’ 2015).

While the industry expects the new regulatory framework to boost financial inclusion in the country, many challenges persist. The Global Microscope 2014, prepared by The Economist Intelligence Unit (EIU), ranked Nicaragua 18th of the 55 included countries with regards to the regulatory environment for financial inclusion (Economist Intelligence Unit 2014). According to the World Bank global database of financial inclusion (Global Findex), only 14% of adults (aged 15 and over) had access to financial services in 2011, one of the lowest percentages in the region (World Bank, Global Financial Inclusion Database-Global Findex, 2014).

This report includes one MFI participating from Nicaragua—referred to henceforth as MFI “N.” This section is relatively brief because no additional information on the clients other than the basic PPI results was provided. This precludes urban/rural discussions and regression analysis of loans.


  • The operations of MFI N are strongly influenced by the legacy of the “No Pay” movement which shook the industry in 2008. Although they have always been focused on the financially excluded rather than the poor, in their interview the MFI stated that the movement prompted a shift in strategy away from the agricultural sector where most of the vulnerable population were, towards more wealthy cattle farmers in search of operational sustainability.
  • The average client has a 15% likelihood of living below the national poverty line, which compares to the national average of 30%. However, the regional variation tells a story of a highly diversified portfolio, in line with the commercial strategy of the MFI.
  • The four regions with the highest concentrations reflect two separate mechanisms. On the one hand, Jinotega and Matagalpa have some of the highest poverty incidences and the MFI chose to focus its efforts on these two regions in terms of complementary services such as technical assistance. On the other hand the two regions, Chinandega and Masaya, are the two regions with the strongest competition, and in their interview the MFI asserted that this banking saturation led them to offer services to poorer clients.
  • The four areas with lowest concentration are the embodiment of their strategy to diversify their portfolio. They have their largest point of operation, eight branches, in the richest area, Managua, which has a 16% poverty incidence. They are offering different products in these areas which cater to the needs of richer individuals.Download Full Report