Microfinance is a revolutionary lending system that gives micro credit to those who lack the collateral or social standing to obtain traditional loans. These micro loans are designed to alleviate poverty by giving entrepreneurs the necessary amount to start up small businesses. In India, these programs are referred to as Self Help Groups (SHG) and are credited with empowering women, increasing gender equity, and providing income-generating opportunities to impoverished communities.
In India, women are often not allowed out of their homes with out their husband’s permission, thus making them completely dependent and incapable of improving their economic situations. Families, who need money for medicine, food, or to start a small business, often must resort to borrowing money from neighborhood gangsters with outrageously high interest. Many times the exploitation is so extreme that families are forced to give a child to bonded labor to pay off the debt. Now, this vicious cycle is changing due to the presence of women only SHG’s, and although it was challenging to convince the husbands to allow their wives participation, after seeing the financial success of members, they more than willing.
This how it works.
SHG’s are started by non-governmental organizations (NGO’s). A woman joins a SHG and attends a weekly meeting, bringing her savings to contribute to the group fund. This starts out small, maybe only 50 cents per week per woman, but as the fund grows they can open a group bank account. The women can then submit an official request for a loan to start a small business at 2% interest from the groups account. Repayment enforcement is simply good old fashion peer pressure, and it works. As no one wants to have a village of angry women upset with them, loan repayment rates range on average from 96-99%.
When I was in India, I had the privilege of attending a SHG meeting in a small village 2 hours outside Bangalore. The meeting began with a beautiful song about solidarity and strength to set the mood and then the financial secretary collected the weekly savings. After, they discussed current projects, new loan requests, and future goals. An English speaking NGO staff member was kind to translate the meeting for me as it went along.
The women told me that they had saved enough money to pay for all their girls to have education so the gender inequity would increase in their village, a fact they were deservingly very proud of. This village had 8 members, who bonded with two other villages to make a total of 36 women at what they called, a cluster level SHG. Then these clusters all around the state of Karnataka formed a federation SHG totaling 700 women. Since the federation started 8 years prior, these 700 women saved more than $250,000 U.SD and provided hundreds of small business and medical emergency loans.
They also shared a story of how they were able to bring electricity to their village. They said 4 years prior, they did not have electricity, which forced them to drink the river water, making them very sick. One woman in the SHG went to the office for weeks trying to get the electric company to come out and build lines so they could get water from the wells and use fans. After weeks of no results, the whole SHG cluster of 36 women went to the electric company and locked the manager in his office with only a glass of river water to drink. In that same hour, the manager made the necessary arrangements for their requests. They now have electricity and are taken more seriously in their village. Women empowerment at its finest!
It was so exciting to see first hand how microfinance is working to alleviate poverty but even more profound, was increased confidence of the SHG women. You could see the women glowing with pride and best of all, real hope for the future.