If, after having heard Bruce Tippett’s account of his work with Accion in its early days, you were to ask us who invented microfinance, we would most certainly say he did. Today, 40 years after that momentous endeavor, he explains the genesis of a movement that has left an indelible mark on the course of economic development and touched the lives of hundreds of millions of people.
When and how did you come to Accion?
Another Accion fellow, Bill Cloherty, and I worked for People to People International in the mid-sixties. Accion came to us and asked if we could do some recruiting for them. We did, and we ended up recruiting ourselves! I joined Accion in 1965 and went to Venezuela, which was the only place where Accion worked at that time.
How did you end up in Brazil?
I spent a year and a half in Venezuela working half-time in the office fundraising and half-time in a local Caracas barrio in community development. I was then drafted by the head of Accion, Joe Blatchford, to go to Brazil to start a local community-development program. I went there in November of 1966 and was part of a four-man team that helped set up Ação Comunitária do Brasil Guanabara in Rio de Janeiro. After being there for about four to five months, Joe asked me to go to set up another organization, this time in São Paulo. I spent a couple of years between Rio and São Paulo, and those are both successful community-development operations, similar to Venezuela. They’re still active today, more than 45 years later.
How did the idea of microcredit come about?
We got some initial experience with community credit in Rio. I was involved with negotiating loans from CitiBank and a local subsidiary of Chase Bank to finance community projects, such as putting water in or arranging for electricity in the slums. We found out that the banks never expected to get paid back! They were expecting these [loans] to end up as donations. But in a very short period of time these loans were paid back… Everyone put in their small amount in order to get electricity or water or whatever the project was. The result of that, plus the knowledge of all the microbusinesses that were going on in the poor areas, gave us the idea that we should try out some way of creating credit for the smallest businesses in the slums and favelas.
How did you formalize the process?
While working in Rio and São Paulo, Accion decided that, rather than go and set up new organizations as it had done in Peru, Brazil, Colombia and so on during the sixties, it was going to start providing advisory services to existing organizations under contract in order to spread the community-development methodology it had created. We set up a separate organization in Brazil called AITEC [Accion International Técnico] to provide services to organizations outside of the Ação Comunitárias in Rio and São Paulo, which were increasingly independent of Accion. At that point AITEC secured a contract with OPIC, an American government development finance institution. We were hired to carry out their new experimental credit guarantee program in Brazil. It was supposed to be done in the northeast, which was considered to be very backward and in need of help. We made arrangements for some local organizations and some other rural institutions to carry out the small loan program, where OPIC would provide a guarantee for their loans. Unfortunately, we spent a year and a half trying to get the Central Bank of Brazil to approve the OPIC program. Those were the days when no one said “no” in Brazil. They’d say, “Gee, we think so, but come back in a month or two.” In fact, they didn’t want the American government involved in a program with their poor. So OPIC’s program was never approved. But we met a lot of people in the Central Bank and the banking world in the process, and from there we decided to launch program on our own — again in the urban area of the northeast — to provide credit to what are today known as ‘microenterprises.’
Why Recife?
Recife was sort of the capital of the poor region of Brazil. They’d tried lots of programs there, government-supported programs, many of which had failed. In the old days, we espoused the idea that we would go in and help set up a local community-development organization such as in Rio and São Paulo and we would train local staff, help them set up their fundraising and then they’d be off on their own. We did that very successfully, usually within a couple of years. But when we started to do something else, there was a good deal of jealousy on the part of those local organizations. So when it came time for us to think about experimenting with microlending, neither Ação Comunitária in Rio nor in São Paulo was willing to take the risk to try it out under their umbrella. Most people thought we were completely nuts to try to loan money to poor souls in favelas. So we decided to go to Recife, which was high-profile in the international-development community.
What was your role?
I was executive director of AITEC Brazil when we decided we were going to provide consultancy and assistance to other organizations. We ran AITEC in the same way that we ran Accion. We had a local board composed of business leaders, some of whom also served on the boards of the Ação Comunitárias. We also looked for support from foundations and others, and had two sources of income: one was contract income, such as from OPIC, and we also had donations through AITEC from other foundations and the local private sector.
Is that the funding that you used for the first loans in Recife?
No, it wasn’t used for loans. In Recife we set up a nonprofit organization called UNO. UNO received funding from local business sources, and we also worked hard to get financing internationally to cover most of the operating costs, but not used as loan funds. We were able to get key backing from a couple of foundations. And we had some experience with creating guarantee funds, through OPIC. What AITEC did was set up a fund, on paper, anyway, which guaranteed 80 percent of the loans to be made. We got five local banks to commit to two things: They committed to provide funds of their own for a portfolio of loans to microenterprises, and they agreed to put up some money for the guarantee fund. So, in part, they were guaranteeing their own loans. The guarantee fund formally guaranteed all loans of UNO’s portfolio. So we convinced local bankers to put up their own credit in order to make the program operational. We never used international funds to provide credit. It was all done with local resources.
So it was essentially through the creation of a local guarantee fund that you were able to start microlending?
It was only one of the factors that were key to create this program. We were very fortunate that one of my close friends in Recife, Bill Yates, was the head of Oxfam Brazil. I convinced Bill to put up a grant — I think it was $10,000 — to initiate the guarantee fund. Interestingly enough, the guarantee fund never paid out a penny, because we had no losses. The guarantee fund eventually faded away, but the concept of the fund was an important factor in the beginning. The president of a bank could say to his board, “We have our guarantee for this special microlending program, so we won’t end up losing our share.”
Who were the first clients? What were they like?
We did a survey in about five low-income communities in and around Recife. We met all of the local organizations and all of the microenterprises in those communities. You know, we were very good at training community-development workers, so we trained the initial group of field workers to research and implement the program, and we convinced Maurício Camurça, who had been the operational head of a small farmer credit program in Brazil, to come to Recife. He became the first executive director of the UNO program. He stayed with UNO until it eventually closed down, in about 1990. By the way, UNO was followed by a fully self-sufficient microcredit program originally assisted by Accion.
Did you provide any training to those first microenterprises, or strictly money?
There was a lot of advisory assistance provided at the outset. Early on, we kept in fairly close contact with the businesses. We made sure they were paying. We gave them financial guidance through our field people and training on the financial side, in marketing, and in other aspects of business life.
Were they individual loans or group loans?
All of them were individual. There was no group lending in Brazil in the early days. It was those [businesses] you’d expect to find: the butcher, the baker, the candlestick maker.
How long were you involved?
Maurício became the executive director of UNO, and I was involved for the first three or four years. But I was also involved in a lot of other projects, so I was in and out of Recife. I spent half of my time there. I was involved in all their policies, but not the day-to-day operations.
What happened next?
We decided to set up a second UNO in Salvador, Bahia, the other major city in the northeast. I actually moved to Bahia and was there between 1975 and 1977. UNO Bahia did essentially the same thing: conducted initial surveys of poor communities; hired local personnel, mostly out of the university; trained them; etc. In 1978 I returned to Rio. Both organizations were up and running. I stayed with Accion and I was the executive director until 1980, and then I decided to retire. At that point I had been there 15 years. I was the old man, you know. I was 39 or 40 years old. So I decided to finish up with Accion and remained as a consultant. It was only in about 1980 that Accion as an organization formally decided that they were going to concentrate on microcredit.
That must have been a great feeling…
Great, obviously. And when I left Accion I set up a small consulting company called Trade and Development International. TDI did some work for Accion, but I stayed also mostly in the microenterprise field. TDI did consulting work in 30 countries. We were trying to work out a model and convince Accion, among others, that there was a way to make the whole system self-sufficient in Brazil. There was an enormous amount of internal argument about whether we should charge interest at all. Camurça, for instance, I think, went to his deathbed thinking that the government should pay the costs of providing credit to microentrepreneurs.
How much interest was being charged at the time?
Brazil had inflation that was anywhere from 50 to 100 percent a year, so Brazil, in a sense, was a very bad place to try to cast a model for microlending. It was an entirely distorted situation. Basically, the interest they were charging was a favorable rate to the clients. They [clients] were not paying a market interest. And, in general, people thought it was just terrible to talk about charging market interest rates. I mean, the change in mentality from the early days to today! We worked for a decade trying to develop a way in which a program like this could become self-sufficient. Part of that was overcoming the resistance to the idea of charging real rates based on cost, whether that was 10 percent a year, or whatever.
What was your opinion?
Initially, we were thinking about making credit available, how to get it out. We didn’t start out thinking, “This should become self-sufficient.” It was only after the first few years when one could see down the road. Because it was so successful in terms of repayment and in terms of impact, we began to believe that it would be possible to do this on a larger and larger scale. And as we understood that it was possible, we realized that either the government would have to take it over — it had become very expensive in terms of manpower — or we would have to develop a model where fees could cover the costs.
Did you see clients and their families strengthened as a result?
We saw it in a number of ways. Many of these businesses were able to increase the number of employees. The owners would increase their income, and that would have an impact on their family, on education, health and so on. And we looked at all of those factors from very early on. There was an obvious impact. This was the first time any of these people had any outside credit whatsoever, and it had a dramatic effect. The problem was that once we reached 100 people, we wanted to reach 500. It didn’t grow that quickly because it was very manpower-intensive in terms of making contacts and selecting borrowers. We couldn’t have selected anybody if we hadn’t had the community-development experience we had. We made contacts throughout the community and then we’d know who was reliable and who wasn’t. So we selected very carefully.
This must have been very rewarding. What about it was most rewarding to you personally and professionally?
I was always a conceptual person. I was thinking five, ten, twenty years down the road. I’m from a small business family, and so I think I grew up to have a natural affinity with microenterprise. When we were doing community development, Accion was helping communities in ways that weren’t self-sufficient, and so I always dreamed about coming up with systems that would be self-sufficient, so that they could grow and reach scale. It was enormously satisfying for me over those years to see steps, constant steps, in that direction. Today there are [microfinance] programs all over the world — and a reasonably high percentage of them are paying for themselves.
So it’s true, then, that you are the father of microfinance?
Well, that’s academic, at best. I mean, we certainly started this before Muhammad Yunus did. We started working on this in 1971, 1972. And we were definitely full-time at it in ’72. So we started before he did, and then Accion and those of us who stayed with it made a good deal of progress. But I would say that we were always the visiting gringos — the outsiders. We weren’t Bangladeshis in Bangladesh. He was able to do a terrific job of promoting the work they did, and then expanding the work. And, you know — more power to him. But Accion was there first, in terms of microlending.
This interview first appeared in Accion’s donor magazine, Ventures. At the time of this interview, in July of 2013, Bruce Tippett was 72 and battling cancer.
