Solidarity economy: a new development model
Luis Ángel Saavedra 7/14/2016
Solidarity, cooperation, mutual assistance, reciprocity, and fairness are some of the principles of solidarity economy cooperatives.
In March 1999, former Ecuadorian President Jamil Mahuad (1998-2000) decreed a bank holiday for 24 hours, which extended to five days, during which no transactions could be made. The holiday was followed by a legal provision to close the accounts for one year; something that was called the “freezing of deposits” and affected those accounts with more than 2 million sucres, approximately US$400 at that time.
Immediately afterwards, on Jan. 9, 2000, the dollarization of the Ecuadorian economy was decreed by fixing the dollar at an exchange of 25,000 sucres; the frozen US$400 became US$80. This is how the biggest heist on Ecuadorians who had their funds in the financial system took place, with depositors watching four-fifths of their assets fizzle away.
People stopped believing in the financial system; many elderly lost their retirement pensions and chose suicide. This triggered an exodus to Europe and the United States in search of better opportunities: the country went bankrupt.
Could a new credit union emerge in this adverse scenario?
Fondvida: a different economy
The Federación de Barrios Populares del Noroccidente de Quito (Federation of Northwestern Neighborhoods of Quito), made up mainly of informal settlements or those that were undergoing a regularization process, was formed in the 80s.
“The neighborhoods (or barrios) got organized to prevent evictions, and then to demand the provision of basic services,” says Xavier Alvarado, who led this organization at one point. With the help of Oxfam, the British humanitarian organization, in late 1999, the Federation began providing small loans for housing improvements, and thus the idea was born of starting a credit union or cooperative.
Mauro Quingalombo, one of the founders of Fondvida, remembers that the main discussion was precisely the economic scenario of the country. “We thought that creating a cooperative was very risky because people had stopped believing in the financial system, and we only had $40,000 to give life to this idea or risk losing it all,” Quingalombo says.
Despite their concerns, they took the risk. On Nov. 14, 2000, Fondvida, Fondo para el Desarrollo y la Vida (Fund for Development and Life), was born. “We were sure that people would welcome the idea if they realized that it was their cooperative and not a bank; so the first good action taken by the cooperative was to be directed by the very people in the northwest neighborhoods,” Quingalombo, who was its first president, says.
Indeed, each of the workers hired by Fondvida was selected from the northwestern neighborhoods, including its manager, Sandra Naula, who imposed the vision of community development to a financial institution.
“People knew all those who were there to serve them; they would say ‘hey, that’s the neighbor’s daughter, or that’s the son of the compadre,’ So it was the closeness of the people what provided the needed confidence,” Quingalombo says. This confidence has led Fondvida to maintain annual transactions exceeding $5 million from three offices located in marginal urban neighborhoods.
“Besides to just providing savings and loans, we had to think that a cooperative as Fondvida should get involved with the neighborhood organization and understand the problems that the neighborhoods experienced, the day-to-day problems of its inhabitants, in order to contribute to the neighborhoods. Solidarity economy was still not much talked about, but we were already thinking that a neighborhood cooperative had to be supportive with what happens there, and that’s not just a question of money,” Javier Alvarado says.
Fondvida got involved in the dynamics of the neighborhood; it financed holiday camps, soccer schools, the cobbling of streets, the creation of market stands; it took risks by lending to young people to start their first businesses; it designed a variety of tools so that those who were in business for the first time, were able to develop financial assessment systems to enable them to grow and to project for the future.
“The idea is to grant the first loans and get the people ready to access the formal financial system,” Quingalombo says.
The threats to the solidarity economy system
Like Fondvida, many other savings and credit cooperatives grew relying on the trust and closeness to the people; cooperatives that were later transformed into banks, such as Codesarrollo, a cooperative linked to agricultural production development. Cooperatives grew to the point of sponsoring soccer teams in the national championship, such as Mushuc Runa (new man) that was created in 1997 by indigenous and peasants of Pilahuín, in the province of Tungurahua, and whose transactions now exceed $40 million annually.
But not everything has been good, there have also been cooperatives that have gone bankrupt or have cheated their associates. The Organic Law of Popular and Solidarity Economy was passed in Ecuador in 2011 to address this problem; it regulates the actions of solidarity economy cooperatives, but in the end the cure was worse than the disease.
“The existing law in Ecuador does not consider the reality of the small cooperatives, such as is the requirement that their boards of directors and monitoring areas are made up of professionals in economics, management or law. Where can we get a business administrator in a neighborhood like ours?,” Mauro Quingalombo asks.
The new requirements have caused small cooperatives to merge in order to meet the new regulations. “We are being forced to lose our closeness to the people, something that is our main asset, because in the elections of directors we have to say ‘you don’t qualify, and you don’t either; or you...,’ and that generates distrust,” Quingalombo says.
“Cooperatives of solidarity economy are meant to be of sectors, of neighborhoods; they cannot go outside the neighborhood and turn into city institutions; in the same manner, those that are in a sector cannot jump to another sector and serve a different purpose, because this causes confusion and the identity is lost, and it is seen as something that is not from here,” said Alvarado, who has strongly questioned the law passed by the government of President Rafael Correa.
“We must see what to provide support for, so as not to be the beginning of the exploitation of our own,” Alvarado also states, because the case may be that to talk about entrepreneurships is to talk about how to maintain the capital model, because generally the idea is that people develop their businesses and venture in the dynamics of capital. This criticism is positioning itself in sectors of the left, especially when it becomes clear that the microloans, granted without any training or follow-up, only represent the best forms of financial gain for banks; many microloans have indeed bankrupted entrepreneurs.
Fondvida has understood that the entrepreneurship that should be supported is the one that can help with the progress of the neighborhood, more than just individual betterment. “Fondvida is community, if it ceases to be so, it will be just another financial entity,” Quingalombo declares. —Latinamerica Press. Compartir