Market Scene : Latin Entrepreneurs Answer Call to Accion : Street vendors, brick makers and clothing creators all benefit from Massachusetts-based loan program for poor.

The same cocoa-colored earth gouged from a Bogota hillside is used to make every brick of every ramshackle building there. The Chircales neighborhood looks about as diverse as a parking lot.

But Juan Suarez sees it differently. From the way he talks about his brick house, you’d think it was a glittering palazzo rising from the clay rubble. “It’s the fine one over there, the only one with three stories,” Suarez, a brick maker for 21 years, proudly tells a confused visitor. “No, further to the left. That one.”

Suarez’s house doesn’t really have three stories--the top floor is an unfinished, open-air shell. But thanks to a private American development organization, the brick maker has been able to save enough money in his business to sink a few dollars a month into his house--which in itself is noteworthy in an impoverished neighborhood where the cost of almost any home improvement is too high for most.

Suarez is one of tens of thousands of residents throughout Colombia and 14 other Latin American countries who have received loans from the Massachusetts-based Accion International.

Started as a nonprofit, private aid and development organization for Latin America in the early 1960s, Accion eventually began focusing on the region’s so-called informal sector, comprising small, usually family-oriented businesses outside the ordinary economy. Accion has since grown into the largest non-government organization working with the sector in Latin America and the Caribbean.

In the 1970s, Accion workers in Brazil first coined the term microenterprises to describe activities from street vending to small-scale clothing manufacturing in homes. Such activities became increasingly important in Latin America during the 1980s as formal economies shrunk.

At first, governments took an antagonistic approach to them, focusing on ways to legalize the informal sector mainly in order to incorporate its small businesses into the tax base. But gradually, officials came to realize that the businesses should be encouraged as an important safety valve for socioeconomic frustration.

Accion was there to help. Taking the best aspects of informal-sector programs in 15 countries around the world, the organization’s experts in the early 1980s developed their own methods for helping micro-entrepreneurs.

Accion focuses on providing credit to those people who lack the collateral to obtain loans through banks. Instead of standard collateral such as a home or car, people come together in “solidarity groups” of three or four to guarantee one another’s loans. If one person falls behind on payments, others in the group will do everything they can to help. Failure to do so would mean they would either have to assume the loan of the person in default or lose any chance of future credits.

Proponents of group lending say that it’s the reason the default rate on Accion’s loans in Latin America is less than 2%.

“The group mechanism is an excellent substitute for traditional collateral,” says Carlos Castello, the organization’s director in Colombia.

Another myth, he says, is that such lending is not profitable. Accion loans are small, frequently less than $300, and their terms are very short, usually two or three months. But in most cases, interest rates on the credits are more than bank rates, to reflect higher lending costs and greater risk. The 52% yearly rate on Accion loans in Colombia, for example, compares with the 36% to 42% charged by banks.

“We want people to understand that this is not a handout,” Castello says.

Accion has provided more than $289 million in credit to more than 237,000 micro-entrepreneurs in Latin America and the Caribbean since it began making such loans in 1982. The organization raises money from U.S. contributors and puts the funds into U.S. banks, which issue letters of credit as guarantees for loans from Latin American banks. Those loans are funneled through local Accion affiliates.

Colombia’s program is by far the biggest in terms of money loaned and number of people helped. Through 22 affiliate foundations, Accion has loaned more than $61 million here to more than 74,000 micro-businesses. Colombia accounts for more than 50% of Accion’s affiliates, more than 36% of its active loan recipients and more than 21% of its current loan portfolio.

The reason for the success, analysts say, is that the Colombian government has managed the informal sector better than almost any other government in Latin America. Other governments, such as Guatemala’s, became directly involved in providing credit and training to micro-entrepreneurs, resulting in the bureaucratization and politicizing of such programs. Colombia, on the other hand, allowed private organizations to manage individual programs. The government has limited itself to coordinating the organizations’ activities and helping them obtain credit from sources such as the International Development Bank. “The fact that the government has avoided politicizing these programs is a great achievement,” said Miguel Fadul, a Colombian economist writing a dissertation on his country’s informal sector for Notre Dame University.

Such success has dramatically affected Suarez and others in poorer neighborhoods like Chircales.

Suarez is also learning to be a better businessman thanks to courses taught by one of Accion’s 70 paid assistants in Bogota. Repeat Accion clients can take out progressively larger loans, but only if they agree to take basic accounting, marketing and other business courses.

For all its growth, Accion has reached only a tiny percentage of those eking out an informal-sector living in one of the world’s poorest regions. It faces a constant battle to raise new resources from government institutions like the U.S. Agency for International Development and private groups. The list of Accion contributors includes David Rockefeller, Exxon and Time Warner.

The Colombian government has also aggressively sought additional resources through a national plan for microenterprise development. The office in charge of the plan is currently negotiating with the International Development Bank for a new $40-million credit to help the informal sector during the next three years .

Marta Luz Henao, who heads the office’s staff of seven, said that along with limited funds, organizational jealousy has slowed the expansion of informal-sector programs. Many Colombian foundations, concerned about their image and wanting to keep a high profile in poorer neighborhoods, often block what they view as competition by Accion and others, she said.

And even with optimal cooperation, economists caution, the private organizations can make only a small dent in Latin America’s social and economic problems.

“It’s foolish to think that all of these organizations working together can eradicate poverty,” Fadul says. “They are tiny parts of what must be wider social and economic policies directed by governments.”