Written By: Tom Murphy; Posted: 03/ 8/2012 3:09 pm
The term ‘microfinance’ elicits the image of groups of women who take loans, share the liability with the group members and use the money to expand a small business. This idea grew out of Nobel laureate Mohammad Yunus’s Grameen Bank which has operated in Bangladesh for four decades and reached a wider audience thanks to organizations like Kiva that allow any person to provide a microfinance loan to a woman anywhere in the world. Today, a shopper at Whole Foods can round up to the nearest dollar at the register to support the company’s microfinance institution of choice.
Microfinance is just about everywhere these days.
The truth is that microfinance is a complicated term that covers many ways people access financial services around the world. Payday loans in the United States are a form of microfinance — as is rainfall insurance for farmers in Ghana. It would be similar to calling every financial service that I can access in the United States ‘finance.’ It does not come close to adequately capturing the services I use.
In India, the most common avenue of accessing financial services by the poor is through self-help groups (SHGs). On the face they look similar to Yunus’s group lending scheme, but there are important differences that allow for a shift from building business to supporting social goods like health and education.
SHGs are formed by women with the help of an NGO. For a period of time, the women only save money. They deposit a small sum of 50 rupees ($1) each month. After six months, the women are eligible to take small loans. These loans can either come from the group savings account or through the bank. The group helps determine if the loan is appropriate for each member and serve as a check for the bank. Because the liability of the loan is shared among the group, it is in their interest to ensure that each member is capable of paying back a loan on time.
NGOs run Bank Linkage Programs to serve as an organizing mechanism and a bridge between the women and the banks. Having never been to a bank themselves, this bridge allows access, and provides an easy way of becoming familiar with banking. Additionally, the mission of the NGO is to ensure financial access for families so they can weather the peaks and valleys of poverty. The livelihoods of clients are at the forefront of NGOs like IVDP.
This small change in structure impacts how outcomes are then measured. For IVDP, success is measured by the health of children and their ability to go to succeed at school. To achieve this mission, IVDP partners with corporations like Unilever.
Unilever’s PureIt water filter is a significant innovation in terms of bringing safe water to homes in India. The device filters water to meet the US EPA standards for clean drinking water. It is simple to use and the most cost effective filter available.
IVDP partners with Unilever to provide women the ability to purchase a PureIt using an interest-free loan. She can pay for the 2000-rupee filter over time and has the ability to access future loans, still without interest, to pay for a new filter when it needs to be replaced. When I asked Mr. Francis why he would forgo the interest earned on the product he scoffed at the thought of collecting interest, “We do not take interest on anything that improves children’s health.”
I visited one SHG in Krishnagiri that is associated with IVDP. Of the 15 members in the group, 10 said they already owned a PureIt and two indicated that they are interested in purchasing one in the near future. The group leader bought the first PureIt about a year ago. A worker in a garment factory, she said that she used to do nothing to treat her water. When a family member fell ill, she would boil the water for them until they got better.
She understood that boiling water had a connection with illness, but did not do it as a precautionary measure. Since owning the PureIt, she says her children have been less sick and in school more often. In my time visiting both urban and rural users of PureIt, this change was observed by every mother. Their children were sick fewer days since drinking water from the PureIt and had improved attendance at school.
In another home, the PureIt was decorated with stickers. I remarked that it looked like the children liked the filter. She nodded saying, “The children maintain the PureIt and insist it is always clean”. She explained that her three sons and one daughter learned about clean water while at school and demanded that they have access to clean water. The mother, having learned about PureIt from her SHG and hearing the praise from the group leader, spoke with her husband and decided they would take out a loan to buy the filter.
Now, her children take a bottle of clean water with them to school each day. She did not know that germs were in her water and that they were making her family sick. She too was happy with the PureIt because it provided her good tasting water and her children were less sick. Only by seeing the product demonstration and learning about clean water from her children did she understand the importance of water safety.
Mr. Francis offers additional products to his clients including nutrition packets by Heinz and solar lamps from d.light. Such partnerships help to achieve his goal of improved health and education opportunities for the children of Krishnagiri. The group leader of the SHG uses one of the solar lamps. She charges it in her courtyard and said it is helpful during frequent blackouts so she can get around the house and her children can do their studies.
Recent studies and a book by David Roodman make it clear that microfinance has not been the transformative poverty solution as proponents claim. Giving families the ability to access financial services is important itself and support from NGOs to provide loans, like the interest free loan offered by IVDP to buy a PureIt, can bring about access to more products and services for the poor.