The Potential of Microfinance

We see the statistics all over the news and social media: 85% of girls leave school early in Uganda , 250 million adolescent girls live in poverty worldwide and 60 million girls across the globe are married before they turn 18 . The world is not a friendly place for girls and women, that much is clear. But how do we tackle such overwhelming problems? Sweeping campaign initiatives that promise to research the effects of poverty on women and girls in developing countries? Starting a foundation that will give money to developing countries to build schools and roadways and wells? It’s been done time and time again, and yet we still see the statistics.

Girls and women are the keystones to sustainable development in some of our world’s most poverty-and-disease-stricken nations on which many have all but given up. In Bangladesh, adolescent marriage accounts for $69 billion in lost potential earnings. The amount of $69 billion in Bangladesh, where the GDP per capita is only $2,100 (ranking 194th in the world), could have an immense impact, but clearly our current methods are ineffective. Large-scale reforms are not getting to the root of the problem quickly enough and too many of these are not focused enough on women and girls. The solution? Start small.

The term “microfinance” has been in vogue since the 1970s and can be broken down into three main services: microcredit, microsavings, and microinsurance. Microfinance targets individuals as a means of alleviating poverty and providing financial empowerment. Organizations like Kiva.org provide small loans (microcredit) to individuals for purposes such as purchasing a bicycle to transport goods for a small, local business, or even tuition fees for a school term.

Kiva workers thoroughly assess those applying for loans and determine their eligibility based on business plans and financial stability, and if approved, post their story on the Kiva.org website. Members of Kiva each contribute $25 until the loan total is reached and over 98% of loans are repaid on time. In this way, the needs of the individual are met at a grassroots level and the individual is able to become financially independent and empowered. In countries with low employment rates, such as Mauritania where nearly 31% of the population is unemployed, entrepreneurship can be powerful.

Microsavings programs provide simple savings accounts to individuals in developing countries and have proven to be quite effective. In lower-income situations, such as in the Philippines, commitment devices such as those that encourage regular deposits and those that restrict the times and situations under which money can be withdrawn led to an 80% average savings increase. The effects lasted for 12 months after the study took place. A similar study in Kenya revealed that 4-6 months after opening a microsavings account, women had 38-56% higher daily investment in their businesses. The issue, however, is that many nations still require husbands to sign off on bank accounts for women, so in order to achieve these successes, further reforms are still necessary.

So, how does this solve the enormous issues facing girls and women today, then? According to an analysis commissioned by the Population Council and Nike, an educated girl will invest 10-20 times more income back into her family and her community than a man will. She is more likely to marry and have children when she is older and past puberty, and because she is educated, she is likely to have a higher income and a better chance of keeping herself and her family out of poverty. Often, an adolescent, married girl lives in poverty because she is uneducated, and is often forced to sell her body to support her family. This leads to an increased rate of HIV/AIDS in areas where it most often occurs.

Eighty percent of the poorest microfinance clients are women, working to sustain their families and become financially empowered. They can take out loans to grow entrepreneurial ventures and then save these earnings in a savings account available to them. One example comes from the organization Opportunity International, which provides both financial resources and business training to clients in over 20 nations around the world. OI assisted a woman in Rwanda named Solange who could not afford to keep up her tailoring business and the education fees for her three children. OI provided her with a small loan and business training to purchase machinery and materials, and her business quickly expanded. Now, Solange can afford to keep not only her children, but her younger sister and her niece in school, as well as take care of her parents and in-laws. She also teaches classes in retail development to members of her community (many of whom are women) and has taught over 70 individuals, some of whom now work for her or have started businesses of their own. These women now have the tools to invest in their families, giving their children the opportunity to go to school and stay out of poverty.

Helping one individual through microfinance ventures may seem like one tiny step in an enormous journey towards sustainable development, but, as has been proven, it has the ability to create a ripple effect, especially for women and girls who are the key to progress in communities and regions worldwide.

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