NEBAJ, Guatemala — The winding roads into the valley of Nebaj are lined with advertisements for cheap loans. Banks and cooperatives and microfinance operations make their pitches: “Credit in three days.” “Funding for your small business.” “We’ve lowered our interest rates!”
U.S. officials have long touted the power of finance to lift people out of poverty — and backed loans to farmers and small-business owners across the developing world. But here in the Guatemala Highlands, the epicenter of the country’s migrant exodus, those loans often fund a different activity, the region’s most profitable: smuggling migrants north to the United States.
Over the past nine months, the number of Guatemalans who have reached the U.S. border has swelled to more than 250,000. They include many of the country’s poorest people — subsistence farmers who have somehow managed to scrape together up to $12,000 to fund the journey north.
What enables those payments is a vast system of credit that includes financial institutions set up and supported by the United States and the World Bank, part of the global boom in microfinance over the past two decades. The U.S. government and the World Bank have each extended tens of millions of dollars in funding and loan guarantees, money that helped create what is now Guatemala’s biggest microfinance organization, Fundación Génesis Empresarial, and backed one of its largest banks, Banrural.
But in Nebaj and communities like it around the country, those financial institutions now serve Guatemalans eager to migrate.
Access to credit has helped make this Central American nation the largest single source of migrants to the United States over the past year. About 2 percent of the population has been apprehended at the U.S. border since 2018.
It has also had devastating consequences for those who fail in their journeys — those who are deported before they earn enough to pay back their loans. They become ensnared by debt, losing savings, businesses and homes, which makes them more likely to try to migrate again.
“We do our best to keep our loans from funding migration or paying smugglers,” said Jorge Guzmán, the manager of the Banrural bank in Nebaj. “But there’s only so much we can do to monitor.”
U.S. officials say they stopped supporting direct-lending microfinance programs in Guatemala more than 10 years ago. The World Bank funded Génesis Empresarial as recently as last year.
Increasing access to finance among the world’s poorest people has been a crucial tool for development, U.S. and World Bank officials say. Vetting borrowers, they say, has always been the responsibility of the banks and microfinance outfits they have supported.
Surrendering a deed to pay a smuggler
After years of failing to find a job in Nebaj that paid more than subsistence wages, José Ceto decided this year that it was his turn to migrate. He sent a Facebook message to a friend asking for help contacting a local smuggler. Within hours, that smuggler quoted him a price: 50,000 quetzales, or $6,500.
Then Ceto did what aspiring migrants here have done for years. He went to the local branch of Banrural.
He told a loan officer that he needed the money to improve his family farm. He presented his family’s land deed as collateral.
Within a week, he was holding a plastic bag full of cash. He drove with it to the smuggler’s home.
“I have a university degree in tourism,” Ceto said in an interview. “But what use is that if I can’t find a job?”
For years, Banrural received backing and loan guarantees from the U.S. Agency for International Development (USAID). It partnered with the U.N. World Food Program to offer credit to farmers. It was prized by the Guatemalan government: Former Guatemalan president Álvaro Colom once called it “our administration’s financial arm.”
But for Ceto, Banrural was simply the easiest way to finance his journey. He left Nebaj in March.
A succession of smugglers, claiming to provide protection from criminal organizations, escorted him through Mexico to the U.S. border. He swam across the Rio Grande.
Then he was apprehended by the U.S. Border Patrol south of Houston and deported within days.
Banrural had given Ceto six months to repay his loan, at a monthly interest rate of 1.5 percent, before it would seize his property. So he did what many in Nebaj do: He took out another loan. He borrowed 50,000 quetzales, or $6,500, from another major Guatemalan bank, Bantrab, to pay off the first loan.
But he grew increasingly aware that the only way to repay his debt would be to migrate once again to the United States.
“I’m planning to try again,” he said.
He keeps the smuggler’s number in his phone.
Analysts say the ability to borrow to fund migration has opened a gateway to middle-class life for some Guatemalans. For others, it has led to spiraling debts and repeated attempts to cross the border.
“This is an investment model that does work for some people,” said David Stoll, an anthropologist at Middlebury College in Vermont who has written a book on the link between microfinance and migration in Nebaj. “But when it doesn’t work, there’s no safety net.
“That often means they double down.”
Migrant debts are driving displacement
Francisco Raymundo’s first loan came from Fundación Génesis Empresarial, an organization created with support from USAID. Over 30 years, it grew to become Guatemala’s largest nonprofit microfinance institution.
Raymundo’s 2015 loan was for 75,000 quetzales, he said, or roughly $10,000. He bought a plot of land, where his family built a home. The plan was to pay the money back, bit by bit, through his construction work.
Others in Nebaj have gone to Génesis for similar loans, claiming they would be spent on construction projects or businesses, but instead using the money to pay a smuggler. Raymundo’s path was more complicated.
Throughout the 1980s and 1990s, development organizations devoted growing resources to what advocates called “access to credit” or “financial inclusion.” In 2006, the Bangladeshi economist Muhammad Yunus, one of the forefathers of microfinance, won the Nobel Peace Prize for his “efforts to create economic and social development from below.”
That idea seemed a perfect fit in Guatemala, where rural, indigenous people such as Raymundo have been systematically excluded from the economy and its nascent credit markets.
Some of the world’s largest financial institutions recognized the need and contacted Génesis to help. The International Finance Corporation, an arm of the World Bank, lent the foundation $10 million last year to “broaden access to finance for micro and small businesses.”
“In the case of Génesis, the [organization’s] credit policy explicitly prohibits staff from financing illegal migration,” said an IFC spokesman, who did not provide his name in accordance with the institution’s policy.
“Access to finance is a fundamental building block in economic development,” the spokesman told The Washington Post. “An expanding body of evidence demonstrates that the poor benefit enormously from savings, insurance and basic payment services.”
It isn’t only financial institutions that are funding migration. Migrants also borrow from family and friends who serve as informal lenders, a shadow microfinance network that has ballooned in recent years — and can be just as unforgiving of delinquent loans.
In Nebaj, microfinance became a crowded, fiercely competitive market. Some cooperatives put out slick television advertisements with actors. More billboards with catchy slogans appeared: “We believe in you!” and “Multiply your investment!” But in most cases, they were for-profit endeavors, which could seize the property of debtors who defaulted.
In parts of South Asia and Africa — and in Nebaj in 2008 — a surge in delinquent microloans provoked crises for some of the world’s poorest people. But here the sector has ballooned once again, in part because of the surge in migration.
Guatemalans can multiply their purchasing power almost seven times by working in the United States and sending their wages home, researchers from Harvard University, the World Bank and the Center for Global Development reported this year.
“Nothing else that most of these households could invest in can compete with those astonishing returns to investment,” said Michael Clemens, a senior fellow at the Center for Global Development and one of the study’s authors. “So it absolutely makes sense that when some families are able to access capital through microlending, they invest it in migration.”
A spokesman for USAID said the agency has “not had any direct-lending microfinance programs in Guatemala for more than 10 years.”
“USAID helped to establish Fundación Génesis Empresarial and Banrural more than 20 years ago,” said the spokesman, who did not provide his name per the organization’s rules. “These are now significant, independent lending institutions in Guatemala contributing to private-sector growth in the country.”
Marcela Escobari, who headed USAID’s Bureau for Latin America and the Caribbean under the Obama administration, said some microfinance organizations became increasingly driven by profit, relying less on USAID support and more on capital markets.
“It exploded too much and without the care to understand the development implications,” she said. “There’s a lot of money to be made on poor people, but there need to be checks and balances.”
Paying back one loan with another
Raymundo’s Génesis loan had an interest rate of 5 percent per month, consistent with the rates advertised on the foundation’s website. But his construction work dwindled. Many days, he earned only $5.
The family owed Génesis the principal, plus rapidly accruing interest, but they lived in a place virtually devoid of economic opportunity. The loan became an impossible burden.
So Raymundo borrowed 48,000 quetzales, or about $6,300, from a cousin, who set a monthly interest rate of 10 percent, and took the money to a smuggler a few blocks away.
Guatemalans use the word “prestamistas” to describe the informal moneylenders who are still less discerning than banks or cooperatives. Some are friends or relatives or religious leaders. Their high interest rates have become an accepted part of the shadow financial industry, a premium accepted by the country’s riskiest borrowers.
Raymundo arrived at the border in South Texas with his son, Wilson, now 8, in September 2017. They were separated by U.S. Border Patrol agents. Wilson was sent to a foster home in Michigan; Raymundo was deported alone.
When Raymundo returned to Nebaj, not only were his relatives scrambling to locate and retrieve Wilson from the United States, but they were also trying to figure out how to pay back the $6,300 they had used to pay the smuggler and the $10,000 they still owed Génesis.
Raymundo’s wife, Sabina Ceto — no relation to José — took out more small loans and fell deeper into debt. They borrowed 15,000 quetzales, or about $2,000, from Banrural and 10,000 quetzales, or $1,300, from Compartamos, a Mexican bank.
Compartamos — Spanish for “let’s share” — also received a flurry of USAID grants. It later stirred controversy for imposing interest rates of roughly 100 percent per year.
Yunus once criticized the bank for “raking in money off poor people desperate for cash.”
Just as Nebaj’s system of credit and loans finances migration, it is also used to temporarily cushion the financial shock of being deported. Those loans only worsened Raymundo’s situation.
The family used well-known loopholes to secure the loans. Sabina Ceto lied to her loan officer; she said she needed the money for a family business. She enlisted six female relatives to apply for their own loans, each for about $150. Many of Guatemala’s lenders prefer to lend to women, in part because they are considered more likely to return the money. International aid agencies have also provided funding aimed at encouraging female entrepreneurs.
Wilson was finally sent back to Nebaj from Michigan in early 2018. By the time he returned, the family had to sell their home to start paying back their mountain of debt. For a brief time, they were homeless.
Across Guatemala, loan defaults are driving a widening displacement crisis. At least 354 people were deported from the United States to Nebaj during the first four months of 2019. Many returned with spiraling debts.
One former loan officer at Fundación Génesis Empresarial estimated that 30 percent of the outfit’s loans go to migrants.
“It’s pretty obvious how the money is being used,” said the officer, who spoke on the condition of anonymity to talk freely. “We just went along with it, and most could usually pay back the loans.”
A spokeswoman for Génesis denied that the organization lent money to migrants. Adela de Rizzo wrote in an email that the bank works “to disincentivize migration, working with Guatemalans who want to stay here.”
Guzmán, the local Banrural manager, said that the bank does what it can to vet loan applicants but that the system isn’t foolproof.
“We know some people are lying to us about how they’ll use the money,” he said.
Génesis, Banrural, Compartamos and other financial institutions with offices in Nebaj declined to comment on individual cases, citing privacy concerns.
‘The easiest way out is to migrate again’
Some activists in Guatemala have become outspoken critics of the lending practices.
“These banks give the appearance of trying to help the poor. But in the end, they profit from the desperation of migrants,” said Juan José Hurtado Paz y Paz, director of Pop No’j, a national association of indigenous peoples. “The more people who default on their loans, the more people who lose their homes and land.”
Some families who have lost loved ones to migration have been saddled with insurmountable debts.
Sixteen-year-old Juan de León Gutiérrez died in May of a suspected brain tumor while in Border Patrol custody in Texas. Days after his body was repatriated, his father said, the family’s lender called to remind him that the money they had borrowed was still due.
“I’m sorry about Juan,” the lender said, according to Tanerjo de León Gutiérrez, Juan’s father. “But there’s no way out of the deal.”
In Nebaj, the Raymundo family now rents a small house with no running water for $100 per month. Even after losing their home, they still have more to pay back — they’re on the hook for about a dozen loans from three financial institutions.
Most of the time, they try to cut costs by limiting themselves to two meals a day.
“The easiest way out of this is to migrate again,” said Raymundo. “But I’ve already been deported, so what we’re thinking now is that maybe my wife would go with our daughter.”
Sabina Ceto leafed through her folder of loan paperwork. She arrived at the pile of documents from Compartamos. The bank had a special program for women in Nebaj, and it gave Ceto a pink folder with little fishes on it to keep track of her loans.
“To control your loans and savings,” it says in typed white letters on the top of the folder.
And inside, in bold: “With consistency and discipline, you can achieve your goals!”