- The Washington Times - Tuesday, September 3, 2002

CARACAS, Venezuela Donato DelVecchio's burned fabric store has become a favorite hangout for children salvaging string to make kites.

One of hundreds of looting victims in Caracas during the April coup that briefly ousted President Hugo Chavez, Mr. DelVecchio watches the youngsters, his eyes brimming with tears. His insurer has told him it won't pay to rebuild his tiny shop.

So Mr. DelVecchio and other victims of the coup violence are putting their hopes on government "microcredit" programs that have helped thousands of poor Venezuelans start businesses, from juice stands to artisan shops.

But mismanagement has plagued the initiative hailed by Mr. Chavez as a cornerstone of what he calls his "revolution" to empower Venezuela's poor. Private groups and international aid agencies that support microcredit programs around the globe to combat poverty are taking notice.

"Microcredit is really trendy. But it can easily fall to the temptations of populism," said Juan Uslar, president of BanGente, Venezuela's only privately run microcredit bank. "We are supposed to be banks. Although we have a social goal, we can't approve everyone."

Microcredit plans have drawn praise in recent years for helping the poor around the globe. (Representative Internet sites outlining the philosophy and programs include Consultative Group to Help the Poorest, https://www.cgap.org; the World Bank site on microcredit, https://wbln0018.worldbank.org/html/FinancialSectorWeb.nsf, and the International Labor Organization on enterprise development, https://oracle02.ilo.org/dyn/empent.)

The projects typically lend small amounts so people can start tiny businesses, such as a Mexican woman who sells gelatin at a school or a Bangladeshi who has bought a cell phone to provide the only telephone service in her village.

But analysts say lax screening standards and supervision have turned many of the microcredit loans in Venezuela into gifts. People's Bank, one of the state microcredit banks created by Mr. Chavez in 1999, has failed to recover 21 percent of its loans a rate nearly three times that of Venezuela's commercial banks and far worse than the recovery rate of many microcredit programs in other countries.

In all, People's Bank has given 10,500 microcredit loans worth a total of $12 million.

The bank's president, Humberto Ortega, says the bank didn't have criteria for screening applicants until December. Mr. Ortega took over in July when his predecessor, Roberto Rodriguez, quit amid accusations he approved loans without consulting the bank's board, as required by law.

People's Bank now requires applicants to have owned a business for at least six months and to provide proof of spending. Mr. Ortega also created a department to monitor loan repayment.

The idea of microcredit loans which can be less than $100 in the world's poorest countries started in 1976 with the Grameen Bank in Bangladesh. Microcredit banks now are open in more than 40 developing countries.

Worldwide, 30 million families 19 million of which were living in extreme poverty have benefited from microcredit programs, according to a U.N. conference on microcredit last year.

In Latin America, microcredit loans are lifelines for millions. In Bolivia, analysts believe, nearly every small-business owner who qualifies for a microcredit loan has received one, said Mr. Uslar at BanGente.

In Mexico, however, the former ruling Institutional Revolutionary Party's loan programs were often handouts used by local political bosses to buy votes. The practice severely damaged public confidence in microcredit programs and banks in general.

Venezuela didn't have government microcredit programs before Mr. Chavez was elected in 1998 after a campaign in which he promised to redistribute the country's vast oil wealth to the 80 percent of Venezuelans living in poverty.

Several banks, including People's Bank and Women's Bank, were created. Women's Bank director Nora Castaneda claims a repayment rate surpassing 98 percent. That figure draws skepticism from some microcredit analysts, given Venezuela's recession and skyrocketing interest rates.

The government removed the state microcredit banks from supervision by the bank regulation agency in January, and that has made reports on delinquency rates relatively useless, said Mercedes Briceno, an economist at Conapri, Venezuela's foreign-investment board.

Commercial bankers also criticize the government for requiring them to dedicate up to 3 percent of their loans to microcredit lending. They say they can't afford the high-risk loans in a slumping economy.

Government officials insist that microcredit is necessary when 50 percent of jobs are in the informal economy and unemployment has hit 15 percent.

"A woman who doesn't know how to read and write may have the street smarts to survive," said Mrs. Castaneda, head of the Women's Bank. "She can make empanadas so her son can become a doctor."

Maria Teresa Graterol, a resident in the capital's Santa Teresa shantytown, praises the program. She says the Chavez government has lent $1,500 to people in the slum to start grocery stores.

But Rosa Elian isn't so happy. She visited Women's Bank because she expected to be laid off from her accountant job and wanted a loan to start a sweet-bread stand. She was told the bank would lend only in neighborhoods it deemed poor enough.

"The situation is worse here every day," Mrs. Elian said. "They are telling me you have to live in one of the neighborhoods the bank's representatives visit."

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