Equity investment to improve lives in El Salvador

Ana Nieto smiles as she explains how the loans she received from Oikocredit partner organisation Enlace have helped to change her life.

Starting out on her own

Ana and her husband José run a sewing business in the small village of La Loma, in central El Salvador. Ana started her own business 12 years ago as her income at the local clothes factory was too low to pay the family bills.

At the start, she struggled to make any profit, working alone with one sewing machine. She decided to try to grow the business with her modest savings and the help of other ladies from the village.

Turning Point

Four years ago everything changed when one of the women told Ana about the work of Enlace. The microfinance institution provides financial services such as loans to disadvantaged micro and small entrepreneurs throughout El Salvador.

Enlace reaches disadvantaged people across El Salvador through solidarity groups, especially women who are the only providers for their families.

In 2014 Ana successfully applied for her first loan from Enlace. She was given US$ 300 which she used to buy material to sew clothes.

Enlace provided extra support to Ana in the form of a home-improvement loan. This follow-up loan of US$ 800 was used to extend her house and workshop.

Financial loans

Oikocredit’s first loan to its financial partner Enlace was made in 2006 in recognition of the shared social mission of the two organisations. Enlace does more than just provide financial services, it offers housing loans, but also seasonal and agricultural loans to smallholder farmers and micro businesses.

Enlace is also the leading microfinance organisation in El Salvador in terms of its group lending methodology. It lends to communal and solidarity groups, the majority of whom are women.

Equity investment

Convinced by Enlace’s social impact and future potential, Oikocredit chose to increase its commitment and actively participate in steering Enlace’s strategy. With this aim in mind, Oikocredit took the decision to take an equity stake in the organisation in 2009.

Juan Carlos Flores Elias, CEO of Enlace explains why his organisation was equally keen to strengthen the partnership between the two sides:

“What made us decide to work with Oikocredit was that we already had a funding relationship. Even as a funder, Oikocredit was already looking to see how it could help and strengthen Enlace.”

“Oikocredit had a social-institutional strengthening framework in place, aimed at micro entrepreneurs. It was able to promote tools within Enlace to measure good social performance practices…..a win-win situation.”

Oikocredit, an active shareholder with a seat on the Enlace board of directors

Oikocredit’s role as an active shareholder is not only to help define Enlace’s future strategy, it also provides risk assessments and social performance programmes such as the Client Outcomes Programme it launched with Enlace in 2017.

Oikocredit has a seat on the Enlace board so that Enlace benefits from Oikocredit’s extensive microfinance expertise. As an active shareholder, Oikocredit can provide Enlace with access to an international network of potential investors and business partners.

Enlace’s CEO, Juan Carlos Flores Elias provides more examples of the benefits of shareholder collaboration: “They supported us by strengthening certain types of training. After the relationship as a shareholder was established, they helped us to develop a tool called Social Indicators that measures the social impact of the credit on the client.”

Enlace has continued to grow and reach steadily more smallholder farmers and small & micro entrepreneurs. To continue supporting some of El Salvador’s poorest people, Oikocredit increased its own shareholding in Enlace in 2014.

In recognition of its social impact and its implementation of Client Protection Principles (a framework for client protection), Enlace was awarded Smart Certification by the Smart Campaign in July 2016. The widely recognised Smart Campaign sets minimum standards clients should expect to receive when doing business with a financial institution.

A true partner: now and in the future

The CEO Juan Carlos Flores Elias continues: “A director represents Oikocredit on our board of directors…..an expert in financial inclusion, risk and corporate governance. So, Oikocredit really has been a true partner that is not only interested in results for potential profit, but has gone further than that and actually invested in the company, in the organisation.”

Today, Enlace has the highest number of clients in El Salvador at 47,000 (2018), mainly women (80%) and has over 4,000 clients aged between 18 and 24. Enlace has the lowest loan average (USD$ 400) per client and according to a report by Poverty Probability Index, 38% of its clients live below the poverty line.

As for the future, the Enlace CEO is clear: “We want to improve many aspects of our work together with Oikocredit such as developing the electronic wallet for online payments. It is important to be at the forefront of these issues, and we hope that Oikocredit will continue to support us and strengthen us.”

Ana has her own brand now

Ana Nieto’s sewing business is just one example of the many small businesses which have been able to grow after receiving Enlace’s financial support.

As Ana says: “I like Enlace because they not only provide loans for my business, but also for home improvement, a service other microfinance institutions don’t provide, even if you have a business like mine which is doing well.”

And it shows…where first she worked in a small family home, she now has a larger house with a spacious workshop with four sewing and lock machines and room to put the large tables where she can design and cut the clothes.

Ana is proud to have her own brand now: “I wanted to start my own brand, partly because my clients asked me to. With this brand they know I made the clothes, so the quality is good. My daughter’s name is Caroline, but that’s too long for a label, so I called the brand Carol.”

The future is bright for Ana: “I want to grow further with Enlace’s help. I want to design new products, hire more employees and buy a cutting machine so I no longer need to cut the fabric by hand.”