The good news just got better, even as the bad news got considerably worse. Read on to learn about the economic situation in Nicaragua, about its impact on SOSTENICA (pages 1 and 6), and about our programmatic progress despite economic setbacks (pages 2-5). The U.S. housing boom, which peaked in the middle of 2006, and burst by 2008, triggered an epidemic of foreclosures and global economic contraction. Yet SOSTENICA, CEPRODEL and Nicaragua all seemed to have dodged the global economic downturn bullet. Looking at Page Six, you will see that at the end of 2008, CEPRODEL’s portfolio at risk had increased only slightly, from 3.51% in 2007 to 4.16% -- an increase of less than 1%! Since only a very small portion of a portfolio at risk turns into an actual loan loss, loan repayment and recovery rates continued to hover within the very healthy 97-98% range. Then, in the first six months of 2009, arrearages began to escalate. At the end of June the portfolio at risk greater than 30 days had risen to 7.35%. Two months later, at the end of August, it was over 12.5%. This represents a significant deterioration of portfolio quality. What has happened to cause this delayed economic downturn in Nicaragua? A number of factors are involved.

   The strong global economy in 2006 and 2007 created an increased demand for consumer goods -- including beef -- in Nicaragua. Many of our rural clients perceived that livestock afforded them an opportunity to improve their family economy while controlling for the risks that normally affect agriculture (drought, hurricanes, volcanic eruptions). Since cows can survive extreme meteorological events better than corn or beans, cattle looked like a safe bet, given a strong demand and high prices. So, many borrowers requested credit to purchase calves to fatten with pasture and grain before reselling them on the robust Central American market. Suddenly, early in 2009, the demand for beef in Nicaragua fell, and with it, the price. Whereas 18 months ago, a cow on the hoof sold for 26 Córdobas a kilo, today the price may be as low as 19. As farmers’ loans came due, they felt reluctant to sell their livestock at such depressed prices, since it would wipe out most, if not all, of their anticipated earnings. If only they could hold onto their steers for a few more months, perhaps the price would recover, and with it, their earnings. Unfortunately, as the recession lingered and spread, the demand for beef did not bounce back, nor did the formerly robust prices.

   As soon as a borrower misses a regularly scheduled payment, his or her loan is marked as “at risk”. After 30 days, it goes into the category of loans considered seriously in arrears. While these farmers still had value to back up their loan liabilities, were they to liquidate their assets, they might actually lose money after paying off their loan. (Please refer to the table below) With the number of loans with arrears rising, CEPRODEL has had to triple its Loan Loss Reserve from $323,598 at the end of 2007 to $975,448 at the end of August 2009. Those funds are subtracted from CEPRODEL’s net worth. CEPRODEL’s net assets have fallen from $2.46 million US in 2007 to $2.09 million in 2009. While most U.S. non-profits would be happy to have over $2 million in net assets, the need to set aside hundreds of thousands of dollars to cover possible loan losses is a definite sign of the times.

   Adding to the woes of NGO’s operating in the north and east of Nicaragua is the “No Pay Movement”. On August 12, some Nicaraguan debtors set up road blocks to demand a moratorium on loan repayment to help ease their financial crisis. While CEPRODEL does not operate in any of the towns affected, the “No Pay Movement” created insecurity throughout the Nicaraguan micro-finance industry. The road blocks came down after four days. Nevertheless, a feeling of uncertainty lingered. CEPRODEL has continued making new loans but has reduced its active borrower total from 14,594 at the end of 2007, to 12,227 by the end of August, 2009 -- a reduction of 16%. Recent loans have gone primarily to known, returning borrowers, while first time loan applicants will have to await more stable and prosperous times. Alan Wright, President

The contents of our 2009 spring Update have been distributed throughout our website: Please click on the links.

Training the Trainers: SUSTAINABILITY

CEPRODEL's Visit to the US: RECENT NEWS

Rachel - A Sampler from Rachel Lindsay's Blog: Rachel's Blog

Financial Summary: PRODUCERS and LEGAL & FINANCIAL INFO

2008 Inter-American Forum on Micro-Enterprise: RECENT NEWS

SOSTENICA's Investors & Donors: INVESTORS & DONORS

     Many unlucky Americans who owned stock in Global Crossings or the Enron Corporation back in 2001 are poorer today by the amount of those holdings. Others holding shares of Lehman Brothers, Federal National Mortgage Company (FannieMae), Federal Home Loan Mortgage Corporation (Freddie Mac), or AIG, the world’s largest insurance company, at the start of September 2008, today have portfolios worth significantly less. Many Wall Street analysts and fund managers considered these stocks to be prudent investments. Meanwhile, a socially responsible investment alternative to these bankrupt or financially crippled corporations would have been to invest in the modest producers and citizens of Nicaragua. Anyone who has invested in SOSTENICA prior to the volatile times on Wall Street has seen the value of their SOSTENICA investments preserved, has earned interest on their investment (although some choose to accept a reduced interest rate or even no interest at all), and most importantly, has made it possible for small farm families and small business people in Nicaragua to obtain credit to expand and improve their income earning potential.

     Most middle-class Americans are accustomed to having ready access to credit, whether to buy a home, a new car, or simply to use their credit card to purchase house paint at their local Home Depot. The recent economic calamities on Wall Street have made credit more difficult to obtain, as funds have become scarce and banks more conservative. Welcome to the reality faced by the average Nicaraguan producer or prospective home owner twelve months of the year, decade after decade. Imagine for a moment that you and your family want to buy a new home. The asking price for the home could be five or six times your annual household income. In normal times, you could go to your local bank and apply for a 25-year mortgage. Once approved, you could bid on the home of your dreams. Imagine if you were to own a small business, and wanted to serve your customers better by acquiring a new technology, some piece of equipment to make you and your employees more efficient. Prior to this credit crisis, you would go to your local bank and apply for a small business line of credit and, once approved, you would be on your way to more sales. With increased profits you would pay off your loan, increase your workers’ salaries, and still have a healthier bottom line. Now imagine that there were NO credit available to you. Could you buy that house of your dreams with your savings? Could your business afford that new technology? For many Americans today, that credit scarcity has become their reality. This is only one aspect of the difficult economic world in which Nicaraguans find themselves every day — no credit for home ownership, no credit for small businesses and no credit for small farm families.

     This difficult economic reality is in part what motivated the founding of SOSTENICA. Since 2001, thousands of rural Nicaraguans living on small farms, urban Nicaraguans operating small businesses, and Nicaraguan home owners (24,138 to be exact as of July, 2008) have benefited from the socially responsible attitudes of SOSTENICA’s investors. 72% of those loans (17,402) went to women. In early September, 3,131 Nicaraguans had current lines of credit or active loans out for their farms, businesses and homes worth more than three million dollars, thanks to socially responsible investors through SOSTENICA. 100% of our investor portfolio resides in Nicaragua, responding to the credit needs of our borrowers. With just under $2 million literally in the fields and on the streets of Nicaragua, our loan offices find themselves with an additional requests for credit totaling over $3 million, loan requests which we are unable to satisfy for lack of additional investment.

     Perhaps, with our elected officials restructuring investment banks, insurance and mortgage companies, this would be an ideal time for each of us to reevaluate our investments, to ask ourselves if our holdings are secure. More importantly, we might ask ourselves whether our current investments accurately reflect our values and beliefs. Ask yourself if SOSTENICAmight not be just the right investment to balance a portfolio in need of compassion and loving kindness. —Alan Wright, Ph.D. SOSTENICA President

     SOSTENICA and CEPRODEL take pride in our partnership. Since our earliest experiments with micro-credit in Nicaragua back in 1993, CEPRODEL and SOSTENICA have been dedicated partners, serving low income families in need of credit and technical assistance. The generous family of people collaborating on this valuable project from its inception has included like minded participants, both individuals and institutions, including churches, orders of Catholic nuns, forprofit as well as not-for-profit organizations. Recently SOSTENICA has expanded this family to include programmatic alliances, helping us to advance our mission. The following brief essays introduce to SOSTENICA’s readers six of our most valuable ongoing partnerships.

     No listing of SOSTENICA’s strategic alliances would be complete without honoring a group of “ordinary men seeking to lead extraordinary lives.” They are the Men’s Team of Connecticut. Over the past few years these men have made SOSTENICA one of their principal social projects. They have raised money, sought investors, sponsored public events, and even produced a documentary about the work of SOSTENICA. We salute these extraordinary men and thank them for their efforts to achieve greater social justice in Nicaragua.

     One long term partnership in the effort to bring sustainability to Nicaragua has been between SOSTENICA and the Norwalk/Nagarote Sister City Project (www.sistercityproject.org). Norwalk/Nagarote seeks to promote sustainable community development between the people of Nagarote, Nicaragua and the Greater Norwalk Area of Connecticut. The Sister City Project focuses on youth in Nagarote with scholarships for 69 youngsters from first grade through university, support of a preschool, and an after school Youth Project designed to deal with the growing problem of gangs, drugs and violence. Currently, there are 150 teens actively involved in the program. The program has three major components: after school classes; Community Education workshops; and community service including urban reforestation. Instead of joining gangs, experimenting with drugs and getting into trouble, the teens are planting trees, winning soccer games, learning photography and setting an example for others in the community. They have grown more than 10,000 trees from seed and distributed them to residents in the community who agree to care for them. Not only is Norwalk/Nagarote an investor with SOSTENICA, it hopes to join with SOSTENICA and CEPRODEL in Nagarote to provide teens with training in managing a small business. Because of a poor economy and high unemployment, the informal sector is the best source of jobs, but it takes “know how” to start a business successfully. SOSTENICA is currently negotiating with CEPRODEL and the Norwalk/Nagarote Sister City Project to have Nagarote youth grow trees to distribute to farmer/borrowers. They have already distributed 1,000 trees grown in the Youth Project nursery.

     Rammed Earth Works’ founders, David Easton and Cynthia Wright, first collaborated with projects in Nicaragua in 1992, assisting the residents of the Guadalupe barrio of León to construct the Los Carlitos pre-school out of rammed earth (www.rammedearthworks.com). More recently Rammed Earth Works has collaborated with the construction of Las Bellotas, an environmental education center, this time in rammed earth and bamboo at Las Cañadas in Mexico. David and Cynthia have become strategic partners, consulting with SOSTENICA about how to construct low cost housing using locally available green building materials.

     Some years ago UNAN/León (the oldest campus of the Autonomous National University of Nicaragua) created a fiveyear engineering degree program in Tropical Agro-Ecology (www.unanleon.edu.ni). This is the only program of its type in the country. University students are trained as agronomists without having to rely on conventional “green revolution” technologies, which have been chemical dependent. Rather than using chemical fertilizers, pesticides and herbicides, students learn to grow crops and livestock organically using integrated pest management and permaculture principles. Dr. Tito Antón, one of the founders of the Agro-Ecology masters program at UNAN, has agreed to cooperate with SOSTENICA in offering technical assistance to farmer borrowers.

     Hal Taussig and Elizabeth Killough of the Untours Foundation (www.untoursfoundation.org) have created a Charitable Remainder Trust to support working families of Nicaragua through SOSTENICA. Supporters of Untours are being asked to make a tax deductible donation to Untours. Those funds will be invested with SOSTENICA, and loaned to families in Nicaragua, with any interest earned on the investment being paid to the original donor for the remainder of their lives. Nine years ago the late Paul Newman awarded Taussig and Untours with his prestigious “Most Generous Company in America” award. Now that generosity is being directed towards Nicaragua.

     Las Cañadas, an ecological farming cooperative in Huatusco, Mexico founded by Ricardo Romero (www.bosquedeniebla.com.mx), offers training in sustainable agriculture and organic livestock production. Las Cañadas and SOSTENICA have teamed up to train CEPRODEL field staff, who, in turn, serves SOSTENICA borrowers. This November, representatives from UNAN/León, SOSTENICA and CEPRODEL will attend a week-long training in Agroecology and Biointensive agriculture at Las Cañadas.

     Friends of the Mexican Cloudforest, founded by Paula Kline, is affiliated with Las Cañadas, and has planted more than 20,000 native hardwood trees in the past two years in an attempt to restore over 200 acres of local cloud forest habitat. In addition, Friends is designing and planting 2.4 acres as an experimental edible forest, to provide perennial fruit and vegetable crops year round. A workshop in Food Forest Gardening, led by author Eric Toensmeier is being scheduled for February, 2009. Lessons learned will become part of the SOSTENICA mission and message. (http://www.friendsofthecloudforest.org)

     As a leader and spokesperson in the Nicaraguan beekeepers association, she believes that honey represents a viable outlet for the national economy, due to its potential both in terms of demand from the European market, and because the production of honey contributes to the health of the natural environment.

     With the help of SOSTENICA/CEPRODEL, she has increased her productive capacity. She currently has 82 hives, processes her own honey and does her own marketing. She bottles both in glass and in plastic, under her trademark The Sigh of the Honeybees (“Miel de abejas el suspiro”). She proudly produces a product that guarantees both quality and hygiene. She is licensed and registered nationally.

     To date, Doña Aida has received two loans from SOSTENICA totaling $5,000. Her most recent loan was used to purchase equipment to process her honey. Her net worth has grown by 25% in the last twelve months, from $9,786 to $12,250, permitting her to realize many of her aspirations and life goals.

As of September 2008 SosteNica has a portfolio at work of $1,907,250. The source of these funds:

$   713,550 by 83 individual investors
$1,193,700 by 20 institutional investors

Carlos Casares, CEPRODEL’S Director of Credit, estimates that it would take an additional $3,000,000 to meet the needs of small business persons and farm families in the areas served by