In 1990, women in El Alto, Bolivia, asked teachers Lynne Patterson and Carmen Velasco for money to support their families and make progress in their education. They needed funding to become financially independent and grow their businesses. Patterson and Velasco decided to travel to Bangladesh to learn something new themselves: microfinance, or the idea that providing loans to poor microentrepreneurs will enable them to pull themselves out of poverty, from pioneer Muhammad Yunus. It was the start of the nonprofit social enterprise I lead today, Pro Mujer.
Thirty years later, women in Bolivia and across Latin America are still at the margins of the financial system. They are self-employed, work multiple informal jobs to make ends meet, and have no access to credit. According to CAF Latin America Development Bank, only 49 percent of women in the region have a bank account. Even when Latin-American women own half of the region’s small businesses, 70 percent of them have no access to financing at all.
It is hard to build financial systems for the world’s poor. The Consultative Group to Assist the Poor (CGAP), a global partnership of more than 30 leading development organizations that works to advance the lives of poor people, especially women, says that microfinance is a powerful instrument against poverty. This year, research organization 60 Decibels surveyed nearly 18,000 microfinance borrowers across 72 organizations worldwide and published the first index to track the impact of microfinance in people’s access, household, financial management and resilience, along with their business.
The new index is an important benchmark and provides a series of compelling insights about how microfinance is helping people escape poverty today. The first insight is that over half of people surveyed said they got their first loan ever from their microfinance institution, with women and lower income respondents more likely to be first-time borrowers. Even when venture capital investment in fintech companies broke all records in 2021, around the world 1.7 billion people are still excluded from the financial system, and for them microfinance remains a way in.
Another insight supports the positive impact of microfinance in expanding access to credit without fostering excessive debt, with seven in ten borrowers reporting that paying their loans is “not a problem.” Microfinance borrowers also say they are more resilient to economic shocks, with only one in three people surveyed in the index reporting they could not pay for an emergency expense as compared to one in two globally. Crucially, the survey confirms the core premise of microfinance, that investing in growing their own business will help people improve their overall quality of life.
The survey also shows the most important improvement opportunity is to increase microfinance’s household impact. There is a fundamental difference between providing loans and a more holistic approach that brings together credit with financial education, entrepreneurial training, and health services. This insight is consistent with our experience on the field at Pro Mujer. Starting from Patterson and Velasco’s vision, who saw providing loans as complementary to the education and health services they were already focused on, Pro Mujer pioneered a holistic approach to empowering women in Latin America.
For example, in Nicaragua, where all Pro Mujer’s clients have access to entrepreneurship training and health services and 96 percent of our clients benefit from the support of their communal banks, 93 percent of Pro Mujer’s borrowers surveyed said that microfinance has helped improve their quality of life, and 91 percent said their business income has in fact increased.
The case of Maria Antonia Centeno, a single mother of eight children in Nicaragua, helps understand why. Centeno first borrowed $86 to buy hair styling tools in 2012 using community lending, a best practice where a group of a dozen borrowers with no guarantees or access to credit back each other up when one of them cannot make a loan payment. A neighbor invited Centeno to join their group, and she worked hard to pay back her trust, growing her business in the process.
At the time Centeno lived with her family in a single room house with dirt floors, so the first thing she did with her new earnings was to wall off some rooms, and install ceilings, floor tiles and aluminum windows. Then she made sure to send her children to school, so that they could become professionals instead of informal workers like her. Ten years later, three of Centeno’s children are accountants, one is an ophthalmologist, two studied business management, one works in sales and one studies medicine.
By participating in Pro Mujer’s training programs, Centeno learned how to better manage and grow her business. She got additional loans, one of them over $1,200, and eventually opened her own salon. The loan she is repaying today is ten times larger than her first one, but she remains mindful of where she started, and has taken the place of the neighbor who trusted her at the head of their communal bank. Along the way, preventative health services like pap smears, vital sign checks and blood sugar analysis were key in her journey to break the cycle of poverty.
There you have it, microfinance with a clear household impact. Here I could tell you that Centeno’s case is emblematic of the work we do at Pro Mujer, but more than that, she is a fine example of what Latin American women can accomplish when given a fair shot. Next time you hear about the region, remember how hard women like Centeno work to earn your trust, how proud they are of their accomplishments no matter how small, and how fiercely they fight to give their children a better future. Just like Pro Mujer, you would also give them credit.
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Image credit: Pro Mujer