FINCA-Costa Rica: Lessons in Financing Rural Microenterprises

Abstract

This paper describes the experience of FINCA-Costa Rica and derives lessons from it about providing financial services to low-income rural producers. The evolution of FINCA illustrates a progression from a paternalistic toward a modern vision of microfinance. The paper first discusses the difficulties of providing financial services to poor rural households and firms. It emphasizes information, incentive, and enforcement issues and unsuccessful attempts to overcome these problems through government intervention. It also analysis the costs of financial transactions in rural environments. FINCA has confronted these challenges with much success, through local organizations known as bancomunales. Flexibility and the search of self-sufficiency have been key features of the program.