Orgape borrowers pay a 3 percent interest, which is insufficient to reimburse all of the program's operating expenses. To make up the difference, municipalities make in-kind donations of office space and pay the salaries of two credit agents (the program deploys approximately one credit agent per 150 borrowers).

The municipalities do so willingly to reap the benefits of creating and maintaining a healthy small business community – it is a cost-effective component of their economic development plan. Orgape now operates in eight towns that have populations of 10,000 to 50,000. Twenty towns are on a waiting list for the program, and if all goes well, Orgape will spread to ten more municipalities over the next two years.

Orgape operated at a deficit of 16,000 reais (US$6,837) in 2001 after making 790 loans, but Neto predicts it will become profitable in 2002. A former high school math teacher, he balances number-crunching with an amiable, folksy manner. While driving his dune buggy through Icapuí to a beachscape lined with multi-colored rock formations, he points out dozens of real-life examples of the beneficiaries of his program. These include a seaside guesthouse, converted from a humble beer shack, and a new home recently purchased by a family of seaweed harvesters.

The Long Road to Sustainability

The government's National Bank for Social and Economic Development (BNDES) provides most of Orgape's loan funding. For every dollar that Orgape earns or saves, BNDES lends it two at a rate of 0.85 percent per month.

Given this reliance on low-interest government financing, is Orgape sustainable? Neto argues, "a commercial bank charges high interest on its loans and doesn't provide training, so lots of borrowers go bankrupt. That bank stays in business, yes, but would you call their operations 'sustainable' in human terms?"

In contrast, Orgape creates sustainable businesses – beauty salons, cafés, clothing boutiques and butcher shops – that generate a profit after receiving an average of three loans, paid back in six to nine months each, according to Neto. Fifty-four percent of Orgape clients make a profit.

Orgape at a Glance (Note: monetary figures given with an April 2002 exchange rate of US$1 = 2.34 Brazilian Real) Families who have taken out Orgape loans since 1996: 1,335 Portion of Orgape clients now earning at least 42% more than before their loan: 3/4 Percentage of Orgape clients turning a profit: 54% Average number of loans before reaching the profit stage: 3 Average repayment period: 9 months Number of loans made in 2001: 790 Orgape's 2001 operational costs: R$ 320,569 [US$136,995] Amount of operational costs paid for by loan interest: R$ 57,294 [US$24,484] Amount in the Credit Fund 2002: R$ 996,699 [US$425,939] Amount in the Credit Fund 2003 (predicted): R$ 1,700,000 [US$726,495]

When an Orgape borrower defaults on a loan – as 2.4 percent of clients have done thus far – they are given extensions on their repayment schedule, the option to refinance, and small business counseling. Subsequently, most make their payments on the dot, thanks, in part, to the additional services they have received from Orgape, and in part because they know they will never gain get a loan this easily from another source.

The path to building a sustainable organization is a long one, but Orgape has mapped out a route. To boost the size of its credit fund, it plans to increase the number of loans and this, in turn, will generate more interest income. Simultaneously, it plans to cut its loan default rate by providing more training – which will further boost the credit fund.

Microcredit Makes a Macro-impact

Getting microcredit loans from Orgape has steered some clients from fishing into safer economic harbors. One former lobsterman switched to sheep farming, while another has opened a barber shop. But Orgape never dictates how a loan should be spent, recognizing that fishing is the traditional livelihood of nearly 75 percent of the people on Brazil's northeastern coast.

When Chico de Bastias asked the national bank Banco do Brasil to finance a motor for his boat, the loan officer rolled her eyes and said, "I don't even want to hear the word 'fish.'" So Chico went to Neto instead.

Chico de Bastias points to his boat anchored near Icapuí

Today, Bastias is just months away from paying-off a three-year loan for 7,000 reais (US$2,900) that financed his motor. It permits him to stay out on the high seas for twelve days instead of eight.

Even though fish sells for much less than lobster (3 reais [US$1.25] per kilo versus 70 [US$29]), Bastias says he would rather be fishing than not working at all. Two of his sons, age 18 and 21, crew for him.

"I'm thankful for that motor," Bastias said. "Orgape helped me out when nobody else would."

Orgape loans capital to entrepreneurs: most are already running a small business and some are about to launch a new business. Recognizing that 85 percent of new enterprises close their doors within the first year, Orgape does everything possible to prevent failure.

Character is Our Collateral

From the moment an applicant first approaches an Orgape credit agent, the difference between a formal bank and Orgape's more "flexible and local" microcredit approach is clear.

"Flexible" means Orgape does not require extensive guarantees. Neto insists that almost anyone with courage and a little business training can make sustainable profits a reality.

As Neto puts it, "Character is our collateral." Applicants provide three personal references and an Orgape credit agent conducts a thorough background check.

"Local" means asking: does this applicant have a strong community reputation? If she has no official credit record, has she paid back past personal loans?

Orgape's credit agents were born and raised in town. They check references to confirm what they already know: that Caxias, for example, has been saving up for years to expand his barbecue stand and now that a truck stop is opening up across the road, it's the right time for Orgape to give him a loan.

Caxias has doubled the size of his restaurant along the highway that links the states of Ceará and Rio Grande de Norte, and he plans to offer discounts to long-haul truckers

Applicants must describe their current business conditions, and how they plan to invest their loan. Before authorizing a loan, a local credit agent makes a site visit.

When the loan is approved, it's not a huge amount: loans average 1,000 reais (US$415). The money can be used to buy either equipment or raw material. The interest rate is 2.2 percent monthly, compared to 5 or 6 percent for bank loans and 10 or 11 percent for a credit card.

Small is Beautiful

Loans can be made to three types of borrowers: individuals, partnerships, and solidarity groups. Partnerships are co-owners. Solidarity groups are people who run separate enterprises but vouch for each other, in the manner of the Grameen Bank in Bangladesh, a worldwide model of microcredit best practices.

Neto learned about the Grameen Bank when he conceived the idea of making municipal loans to small business owners. "I thought of it myself," he laughs, "and then I found out people were already doing it, and doing it well."

"I'm a big fan of Grameen," Neto continues, "but here in Brazil, we don't focus our lending on women. Neither do we share Bangladesh's advantage of religious and cultural homogeneity. And, our local credit agents, not our borrowers, keep an eye on the loans."

Orgape' small loan size, and its location, distinguish it from other Brazilian microcredit organizations. "Hardly anyone else lends such tiny amounts," Neto said. "But even 100 reais (US $42) can make a big difference to someone with absolutely no capital."

Orgape operates in the small towns where businesses are incubated, rather than in a distant capital city. Unlike other programs that operate like anonymous banks, its credit agents are local people. These credit agents earn a base salary, plus bonuses, depending on their clients' payback rates.

The ideal credit agent is a hometown high school graduate with some computer training "and a bunch of patience," Neto said. They must understand that borrowers are motivated by emotional and social success in addition to financial gain, he added.

Tracking the information collected by credit agents is a big challenge for Orgape. It is done, Neto sighs, "on little slips of paper. Of our eight locations, only the head office even has email."

Neto's dreams of networking Orgape's offices together using loan management database software. Its credit agents would then type records into Palm Pilots that synchronize with the central system.

"We need instruments to register impact," Neto said. "Our home visits and our paper questionnaires tell us that people are earning more than they used to, but we are eager to know the details."

Learning Just-in-Time Borrowing

In red and blue football jersey, Waldemar Marques Carneiro is a broad-shouldered, athletic shopkeeper whose long reach can connect a chocolate bar to a customer in nanoseconds.

His agility has served him well because his store Encontro de Amigos ("Meeting of Friends") has doubled in size, thanks in part to loans and training from Orgape. He began selling ice cream and sweets from one room of his house; since then he has built a spacious shop, painted in sherbet colors, with tables and chairs for 20 customers – perfect for the midday rush from the school down the street.

One of the obstacles faced by small producers face is that a large sum of money can disappear quickly if it's not destined for specific expenses. "I've learned how to manage money," Carneiro said. "Even when I have a new project in mind – we've just repainted – I don't take out the loan until I'm on the brink of spending it."

Orgape's training creates an appreciation for practical economics. Between loan approval and when they receive a check, borrowers undergo one week of training – four hours per day for five days.

This training increases Orgape's likelihood of getting paid back in full. More important, it increases the chance for business success, advancing Neto's dream of rejuvenating the entire regional economy.

During this week of training, Neto uses practices adapted from microcredit programs in varios locations, including Porto Alegre, Brazil, and Germany. The training is adapted to adults with little formal schooling who require participation more than reading and writing. This tailor-made approach generates immediate and relevant results.

For one exercise, small groups are asked to use popsicle sticks to construct a bridge that is strong enough to support a model car. If they manage to construct any sort of bridge together (testing cooperation), Neto asks them, "How much material did you use, and how much did you waste? Who was the engineer, the manager, and the accountant? How many minutes did you spend on planning versus construction?"

For the "mini-market," exercise, Neto and his training staff pile a table with pieces of string, paper cups, glass jars, and thin wooden dowels. Participants "buy" these materials from Neto and then must create a product they can sell.

Some participants take thread and beads to make a bracelet. Some whittle a stick like a pencil to use as a skewer for meat shish-ka-bobs. Some decorate a jar to make a candle holder.

Recently, three students whittled skewers and announced three different prices. Neto commented, "Only one of you bargained with me when you bought your sticks, saying because he was buying ten, I should give him a discount. Who's going to have the highest profit margin?"

Here is another challenge for small producers: how to price appropriately? To do so, they must track what they spend on raw materials and how much time they use on manufacturing. Orgape's training prepares small businesses owners to tackle these management challenges while taking changing market conditions into accout.

Bridging Supply-Demand Gaps

Credit agents do more than evaluate applicants and track borrowers. They also serve as counselors who take small producers through a process of subsistence, consolidation, expansion, and profit making.

The credit agents have been through a management training themselves, so they can share from their own experience – gently pointing out new paths for business owners and nudging them toward more appropriate ways to use existing resources. "If our suggestion fails, borrowers might blame the agents," Neto notes. "But if it works, the business owner takes credit for his success, pays back his loan, and possibly hires more people."

José Carlos provides an example of how Orgape helps microenterprises to expand and bridge supply-demand gaps. He sold popsicles on the street and barely covered his daily expenses. But he liked working outside, being able to call out to passersby. He bought a home freezer with an Orgape loan that allowed him to quadruple his stock of frozen desserts.

What he did next step illustrates why many Orgape participants say, "It's not the loan, it's the learning." When a credit agent asked Carlos if neighborhood people ate chicken, he answered, "Sure, it's almost as popular as fish or beef."

She noted out that nobody knew the route as well as he did, and that perhaps chicken would bring in a better return than popsicles. Carlos filled his new freezer with this higher-priced item and thus boosted his profits while doing the work he enjoys.

Neto plans to establish partnerships to help close the demand-supply gap as Orgape expands its outreach to small-town microenterprise managers. Rural residents travel hours to Fortaleza, the state capital, to buy the raw materials and equipment they need and to sell their products. Unfortunately, because of transport costs and "big city" standards, prices for products in Forteleza are much higher."

One farmer was able to begin processing his rice locally before shipping it by using his Orgape loan to buy a rice-hulling machine. By adding value locally, he was able to command a higher price. He earns a second income from the rice-hulling machine by renting it to neighboring farmers.

Neto applauds this solution and sees widespread applications. For example, a button-maker in Pedra Branca can sell locally to a shirt-maker in Aracati, who can sell to a shop in nearby Canoa Quebrada, all without setting foot in the big city.

Credit agents have already begun building these kinds of linkages among Orgape borrowers by word-of-mouth, and plan to integrate it into their general training program. The profits earned by these small producers are sustainable because they meet local needs, provide goods and services at prices that the market will bear, and then get re-invested into the microenterprises so they can develop diversified offerings.

The Next Generation

The sand is slick with an inch of seawater and Marcos, a next-generation entrepreneur at age 11, can see himself in the reflection, selling green coconut juice. He offers a customer a clean straw from a plastic bottle.

"Business is fine," he says, "except when it rains."

In Marcos, Neto sees the next generation of entrepreneurs as well as the region's future. "Since we've organized politically at a local level, almost all of our kids are in school, and they stay there until they graduate," he said. "It's a tremendous advancement."

But at the same time there's a risk of harvesting an "over-educated" crop of workers for which there will be insufficient demand, Neto said. A small town can't provide appropriate employment for 20 new doctors or engineers every year.

But no matter what their income or line of work, people still need rice, chicken, shirts and buttons. So, when kids are asked, "What do you want to be?" Neto wants more to answer: "An entrepreneur."

Being your own boss is a creative challenge that is suitable for people with a wide variety of education levels, Neto said. When young people carry on their family trade, or run small businesses, their products and services will stay in the local community and benefit local residents. If these entrepreneurs manage their money well, they can enjoy their jobs and earn more than the average government worker.

To stimulate entrepreneurship through education, Neto plans to offer teacher training that integrates small business techniques with mainstream curriculum subjects. Math and budgeting naturally go hand-in-hand, he notes. Students in language classes will not only write letters, but compose business proposals and newspaper ads.

As a next step, Neto envisions creating a separate school course called "Entrepreneurship" for 16- and 17-year-olds. A student like Marcos might run a cost-benefit analysis on itinerant sales versus a permanent kiosk. Such subjects could make schoolwork more relevant and interesting to students, and they could profitably apply the lessons to their everyday lives.

Thanks to local organizing, almost all children in Icapuí graduate from high school. Neto believes that entrepreneur is a viable career choice for people of many education levels.

For one hour per day, students would develop business initiatives and run them on the school grounds. They would invite businesspeople to give advice and provide internship experiences. Graduates of this entrepreneurship training would open lucrative spaces in the local economy for residents at all skill levels.

Building a Local Culture of Entrepreneurship

One of the obstacles faced by people in the sertão, the immense, arid backlands of Brazil's northeast region, is an historic historic dependence on government handouts. Rather than create irrigation systems and dig wells to heal the parched-out land, politicians exploit the drought by buying votes with food parcels.

Years of corruption have dried-up voters' willpower. Building a local culture of entrepreneurship is increasing citizens' financial and, therefore, political independence.

At the same time, Orgape is reducing residents' tendency to invite in multinational corporations' operations that have been facilitated with strings-attached government handouts. While conducting a survey of residents' economic development ideas for city hall, and before he founded Orgape, Neto repeatedly heard the cry, "Bring in a multinational factory to put people to work!"

Orgape loans can be used to purchase new equipment, as in the case of Edenilson Felix Rebouças' auto maintenance shop

But the distance from Icapuí to the nearest large airport in Fortaleza has discouraged such developments. In any case, the value of such projects is questionable because the factory-owners often convince local governments to grant them state and local tax exemptions, arguing that this is a necessary and justifiable trade-off for providing jobs.

Even worse, the resulting employment consists of inferior, menial jobs that provide little employee training. To his dismay, Neto discovered factories hire and fire on regular cycles to avoid providing government-mandated benefits to long-term workers, such as medical benefits and retirement plans.

Economic Development from the Bottom-Up

Despite the natural tendencies of political leaders to dismantle the programs of their predecessors in order to create their own legacies, Orgape has survived through the administrations of five different mayors in Icapuí and nearly as many in its seven other municipalities.

Community leader Francisco Bezerra Neto, twice vice-mayor of Icapuí, has seen a shift in the local political culture. "In the past, only the haves benefited from development programs, never the have-nots," he said. "Nowadays, ideas filter up instead of trickling down."

Orgape has survived in part because it is improving people's lives, Neto said. Four years ago, a broom-maker offered only her horse as collateral. Today, she employs nine people, Neto said "These small businesses are already generating employment for other people."

Necessity, it is said, is the mother of invention. She has provoked her Brazilian children to do more with less, with Orgape's help.