Dollarization in Ecuador, where 1 = 1

Isabel Balderrama | KF-17 | Ecuador

Even though I’ve only been living in Ecuador for two weeks, I can safely say that I have already learned the three most important things about this country:

1. Ecuadorians love their karaoke.

2. Salty food is a must.

3. “Delfin hasta el fin” is king (look it up… trust me!)

Ok, so those probably aren’t the most important things… let’s just call them fun facts.

One of Ecuador’s adorable “facts.”

Here, however, is one very important thing about Ecuador that many of you may not be aware of: Its economy is dollarized.

I, at least, wasn’t aware of this significant detail before I got chosen by Kiva to be FODEMI’s new Kiva Fellow and moved to Ibarra, Ecuador as part of the KF 17 Fellows class at the beginning of this month.

Dollarization means that Ecuador’s official currency is the dollar, the U.S. dollar. This, in short and for our purposes, means: No exchange rates, no risk of currency devaluation loss when borrowers pay Kiva’s lenders back, and most importantly, no math required to figure out how many dollars Ecuadorian Kiva borrowers need to make their small business happen. What you see is what you give.

No need to find a money exchange kiosk before purchasing Kiva borrower Lucia’s delicious produce.

“Why is Ecuador on the dollar?” was the first question I asked myself and several other people I met upon arriving to FODEMI two weeks ago. My inquiry did not go unanswered for long. Soon, I possessed the new knowledge that, back in 2000 and following roughly three years of a deteriorating economy, a major banking crisis, and drop in global oil prices (which continues to be one of Ecuador’s major exports), then-president Jamil Mahuad made the decision to adopt the U.S. dollar as Ecuador’s national currency to prevent hyperinflation and to stabilize its economy.

Over ten years later, Ecuador has yet to abandon the greenback. And, although current president Rafael Correa has criticized the move to adopt the dollar, signs so far point to the positive effect that the monetary change has had on Ecuador’s economy. It has lowered the inflation rate to single numbers and brought about 5.3% economic growth in 2011.

But, what did the dollarization of Ecuador’s economy mean for microfinance? According to the Center for Financial Inclusion at Accion International, the adoption of the dollar by Ecuador has been very good for microfinance in the country, which has a large sector of its population employed in the microenterprise sector.

How large?

Microfinance analyst Mixmarket’s report states that there were 729,295 active borrowers in 2010. On Kiva alone, there are currently about 29 Ecuadorian loans waiting to be funded!

In contrast to the quiet streets…

And parks in Ibarra…

… the weekend marketplace just a few blocks over is full of hustle and bustle.

Easy as dollarization makes it on a foreigner such as myself to adapt to life in Ecuador (in the times of the old currency, a cup of coffee would’ve cost me about 37,500 Ecuatorian Sucres… phew!), it seems to make it even easier on Kiva lenders. There are almost 10,000 Ecuadorian loans on Kiva that have either been fully funded, are being paid back, or have already fully paid back to lenders.

Easy math, no exchange rate, and all the karaoke one can sing… looks like I’ve come to the right place!

Now go look for a borrower! What they need is what you give. Easy math.

Isabel Balderrama is a Fellow working with FODEMI in Ibarra, Ecuador. You can join Kiva’s Friends of FODEMI lending team, or browse Ecuador’s loans on Kiva.org.