AID cooperative agreement no. 519-0318-A-00-0352-00 with the Foundation for International Community Assistance (FINCA) for the design and implementation of the microenterprise development project

PVO, to establish a Microenterprise Support Center (MSC) as a mechanism for providing Salvadoran microentrepreneurs with increased access to credit and other business services. For the purposes of the project, a microenterprise is defined as an enterprise or group with 1-10 employees and assets less than $150,000 colones (equivalent in 1990 to about $21,000). The project will finance the start-up and operating costs of MSC, TA and training for its staff, and items such as office equipment. FINCA will work with the new entity to channel working capital and investment credit to microenterprises, and to promote the democratization of credit (by making resources available to microentrepreneurs with limited access to formal financial markets). It is anticipated that FINCA will reach microentrepreneurs via Salvadoran PVO"s or other intermediaries, who will be responsible for credit analysis. MSC will work with local banks to effect disbursements and obtain repayments. Both individuals and groups, in both rural and urban areas, will be eligible for credit, but loans for agricultural activities will not be provided. Working capital loans will range from $50 to $300 and be repaid in four month cycles. Investment loans will range from $500 to $3,000 and will be repaid on a tri-annual basis. Interest rates will not be lower than the minimum rates of the Central Bank. Borrowers of working capital will be required to save a minimum of 20% of the amount lent per cycle, and borrowers of investment credit will be required to save the equivalent of 10% of the amount borrowed. To ensure institutionalization of the program, repayments will be used for future lending. All borrowers and intermediaries will receive training in credit management; intermediaries will also be trained in credit philosophy and methodology. Generally, however, MSC will not provide TA in production or marketing, although Credit Officers will help microentrepreneurs access assistance from other sources. In certain cases, however, MSC may provide TA, specialized training, or marketing services directly on a cost- recovery basis.