Prema hails from a village near Kesavapuram in Tamil Nadu. When her husband died in 2011, it changed her life. He was the sole-breadwinner of the family and his death pushed the family to extreme poverty. Prema started working as a daily wage labourer but she worried about her children’s growth because of the lack of any steady income. But soon, she heard that some women from her village were going to take a micro-loan of Rs. 30,000 and she joined them. With the help of that loan, she now runs a successful saree business and has a steady livelihood. She is optimistic about her children’s future and is a proud entrepreneur.
There are several stories similar to that of Prema's. Many women today have become independent with the help of micro finance. Micro finance is a micro-level credit delivery system. Some basic principles distinguish micro finance from other modes of credit delivery (according to a publication by the Reserve Bank of India). These principles are small amounts of loans, peer monitoring instead of physical collateral, and focus on women borrowers. The microcredit system, in India, centres on tackling the problems related to the general credit system: targeting, screening of borrowers, and credit contract enforcement. The micro finance strategy followed in India is like that of the Grameen Bank, the organization based in Bangladesh, which is credited with the start of micro finance.
The Indian micro finance system boasts of two major features. First is the triple relationship between Self-Help Groups (SHGs), NGOs, and commercial banks. In India, NGOs first prepare the SHGs to reach a level of maturity in terms of thrift and credit operations, and then they may borrow from specialized commercial banks with the support of NGOs. The second feature is the focus on thrift more than credit. It encouraged SHGs to save and loan money among themselves first and at a later stage, approach the banks.
Although micro finance is not exclusive to women, there are certain reasons behind its prime focus on women. One of the principal reasons is that women as a group have always been one of the most unprivileged, discriminated, and oppressed groups in our society. Despite attempts by governments and other actors, the financial sector has excluded women from availing its services. Micro finance, which aims to bring credit to the poor, makes sense when they focus their attention on women since 70% of the world's poor are women, according to the International Labour Organisation. They also have a higher unemployment rate than men and make up the most informal sector.
However, lending to female borrowers is also profitable to the lenders and society. According to some studies, female borrowers have lower write-offs and portfolio risks as compared to men, making lending to women more risk-free. Lending to women also has a multiplier effect. Approximately 90% of income earned by women is spent on family needs, including the education of children. This has the potential to multiply the future income of the children by many folds. This also means that more investment is being done in the economy and involving more and more people (men and women both). in economic activities. By estimates, such a multiplier effect can double the global GDP.
Micro finance not only helps the entire society but of course, women as well. The presence of micro finance has led to higher levels of economic development and participation of women in the economy. According to research, women who took services of micro finance, believe that they were economically empowered and that it brought peace and happiness in the house. By analysing the purpose of taking loans, we can gauge their economic involvement. The same research revealed that about 44% of the total women use microcredit for starting a new business. It has also helped in reducing the poverty level of families as well. The research by Dr. Shuchi Loomba showed a positive response of women towards their poverty status where a vast majority of women (88%) reported that micro finance has reduced their poverty levels to a great extent. Poverty reduction and economic involvement surely raise a person’s status in a society like ours and hence is a tool for empowerment.
Not only social empowerment but micro finance raises the status of women in their families as well. The above research showed that 96% of the women felt their decisions were being more valued in the family than before. They were now more powerful and respected than before. Research on the relationship between microcredit borrowing by women and domestic violence has also been conducted. Through investigation and surveys, it was found that women with micro finance loans were less likely to be beaten. This was only possible because micro finance allowed these women to bring in more resources to the family, which led to fewer tensions in the household. Their increased contribution to their children’s education and family income allowed them to have a stronger position in the family. Their voices were more visible. Through a paired t-test by Dr. Loomba, it was found that there was a significant improvement in the income of women.
Although micro finance has had its fair share of criticism, it can’t be denied that it is a powerful tool for women's empowerment. Many organizations around the world continue to help women with their micro services, proving the potency of micro finance. The pioneer among them is the Grameen Bank of Bangladesh. Professor Yunus, the founder of Grameen Bank, envisions that if the poor can avail finance, then it may lead to a massive development wonder. As of 2021, Grameen Bank has almost 10 million members with 97% of its customer's women. KIVA is a similar institution that serves in about 80 countries all over the world. They collaborate with local organizations and provide credit services. They also believe in complete transparency and release their financial statements timely.
FINCA International, founded as early as 1984, also aims to provide small loans to people to transform the entire community sustainably. It also involved them in social enterprise and research work. Similarly, in India too, several institutions are working to improve the lives of women through microcredit. One of them is the IFC-backed Utkarsh, which is based in Uttar Pradesh. With funding from organizations like IFC, it aims to fulfil the credit requirements of many poor families, with the initial focus in Uttar Pradesh, Bihar, and Madhya Pradesh. With such a focus on micro finance, it is prime time we realize the importance of it and lobby the political actors for actions surrounding micro finance.
● Micro finance is a credit delivery system with a focus on small loans, social collateral, peer monitoring, and special attention to women. It is heralded as one of the best tools to empower women, financially and socially.
● Micro finance institutions focus on women more than they are one of the most financially excluded groups in India. They also are better in terms of repaying the loan and their empowerment has a multiplier effect on society.
● Academic research has proven that micro finance has led to more economic involvement of women, improvement in income, reduction in poverty, and better status of women in the household.
● All over the world, several institutions are involved in the process of micro finance.