MICROCAPITAL STORY: Participatory Sustainable Waste Management Project Extends Microfinance to Informal Recyclers in Brazil

In Brazil, ‘catadores’ (Portuguese for ‘collectors’) generally live on the edge of the city in squatter settlements, or in ‘favelas’ (‘inner-city slums’). Others are homeless and use their cart for shelter. Each day, catadores search for recyclable materials (p7) and separate them into categories: paper, cardboard, plastics, glass, metal, etc. Often accompanied by their children, catadores work in conditions that are unsafe and unsanitary. They are stigmatized (p18) as scavengers, and are often harassed. Yet according to Jutta Gutberlet, a professor at the University of Victoria (Uvic), catadores provide an important environmental service (p18) to the community. In Brazil, as in other countries where waste management is a problem, the informal recycling industry recovers valuable resources and re-inserts them into the production cycle; it prevents otherwise environmentally detrimental materials from being discarded; and it helps to clean up the streets, providing a healthier living environment. In 2005, with funding from the Canadian International Development Agency (CIDA), Dr. Gutberlet initiated a partnership between Uvic and the University of São Paulo to establish the Participatory Sustainable Waste Management (PSWM) project in metropolitan São Paulo. The purpose (p8) of the project is to increase the income generating abilities of the catadores, and harness the environmental services they provide, by enhancing their structural capacity to collectively commercialize their materials. Microfinance (p2), as a source of working capital and emergency funds, is a fundamental component of this effort.

When selling their collected material, catadores face a dilemma. In order to sell to a recycling depot, called centrais (p10), they must collect a large quantity. Payment from the recycling depot is often delayed as the transaction is processed. Because catadores live hand to mouth, such an inconsistent money flow is not manageable, and they instead sell their material on a daily basis to middlemen, called atravessadores. Altravessadores accept smaller quantities and pay immediately, but offer lower rates (p11). To overcome this obstacle many of the catadores join cooperatives (p7-8) which sell material as a collective unit to recycling depots (p10).

The PSWM project involves 30 such cooperatives made up of approximately 500 catadores. Collective commercialization (p10) allows the cooperatives to bypass the atravessadores and sell directly to the recycling depot for a higher income. Such an endeavor requires a high degree of organization, networking, financial administration and trust between the catadores. In order to sell to the depot, the coops must have the capacity to transport their larger volumes of material; they must ensure constant quality; they must be able to issue invoices to create transparency; and they must be efficient to minimize bureaucratic delays.

One of the main hurdles to collective commercialization is a lack of working capital (p16). Even as a cooperative unit, the catadores often lack the financial resources to afford proper transportation (p17) for their material and to break their ties with the atravessadores. Most cannot access loans from commercial banks because they do not fulfill the requirements – many do not have any form of collateral, some do not have a fixed address, and some have poor credit records.

To address this hurdle, the PSWM project initiated a microcredit fund (p14) in 2006 through donations, from which small loans are extended to the catadores. A management committee of eight women oversees the microcredit fund, each representing a different cooperative. The committee is elected by a general assembly, made up of members who sign a fund contract and contribute one Real (Brazilian currency) per month (USD 0.45). In order to receive a loan, a member must already have material to contribute towards collective commercialization in stock. Loans can be used to invest in tools to expand businesses, or to cover living expenses while weathering delays in payment. Once payment is received from the recycling depot, the loans are repaid.

According to Dr. Gutberlet (p16), the participatory process involved in running the project and in managing the resources, enables greater transparency and accountability. Catadores learn to voice their concerns within a democratic system. In attending regular meetings, the social cohesion of the participants is reinforced and they work together to overcome stigmatization.

Thus far, the reported earnings of catadores who sell to the centrais are on average 55 percent higher (p13) than those who sell to the atravessadores. Yet the project has not been without problems (p15). Many continue to sell their material to the atravessadores for a reduced rate when they are in need of instant payment. There is still a two to three week delay in payment (p15) when selling to the centrais. Finally, the microcredit fund is not yet large enough to fill the demand for loans. Dr. Gutberlet expressed that one of the most difficult challenges to implementing the microcredit fund has been the negotiating process to convince the general public about the importance of the fund. The PSWM project is looking to enlarge the fund through donations and other fund raising strategies (p17). Recently the Rotary Club from Victoria and Sidney, Canada, visited the microcredit project to explore options for extending funds.

There is very little financial information publicly available regarding the size and sustainability of the fund. If sustainable, the Participatory Sustainable Waste Management project may be scalable. Throughout the developing world, major cities are suffering from the same symptoms of rapid urbanization – environmental pollution and large socially and economically marginalized populations. As stated by Dr. Gutberlet, in many of these cities, informal recycling (p1) has become the main activity of the impoverished. From the experience of the PSWM project, it appears there may be an opportunity for micro-bankers.

Ryan Hogarth, Assistant Researcher

Additional Resources:

Canadian International Development Agency (CIDA): Home

“Micro-Credit and Recycling Co-ops: Grassroots Initiatives to Alleviate Poverty“, by Jutta Gutberlet, presented at the International CIRIEC (Centre International de Recherches et d’Information sur l’Economie Publique, Sociale et Coopérative) Conference on the Social Economy: October, 2007.

Participatory Sustainable Waste Management (PSWM): Home

PSWM: “Microcredit Fund Brochure”

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