"One slowly loses everything": Development and debt in San Antonio Aguas Calientes. (December 2016) - Chester, Winston C.
Highlights: Microcredit's impact must be understood within its economic and cultural context. Borrowers often face culturally inappropriate practices and high interest rates. Many borrowers find themselves trapped in a cycle of debt. Abstract: The use of microcredit as a poverty alleviation and economic development strategy has expanded dramatically since it began in the 1970s. This article assesses the economic impact of that strategy for borrowers in the town of San Antonio Aguas Calientes, located in Guatemala's western highlands. Many other studies have assessed the impact of microcredit, with differing findings. These studies analyze microcredit independently of the broader economic and cultural conditions in which it is disbursed. This study takes those conditions into consideration as factors that affect the outcomes of microcredit. Doing so helps not only to ascertain if microcredit is working or not, but also to better understand why (or why not) it is working. The data are based on in-depth semi-structured interviews with borrowers. Our findings show that microcredit is not alleviating poverty for many borrowers in this area due to culturally inappropriate lending practices and high interest rates. In fact, borrowers find themselves trapped in a cycle of debt, borrowing from multiple sources simultaneously to try to pay off their obligations. These findings can be used to guide further policy decisions and regulations regarding the microfinance industry and development in general.