Photo: Gerhard Pettersson/Shutterstock

8 Macro Effects of Microfinancing

India Student Work Activism
by Lucy Jul 30, 2014

During the three months I spent in northern India working for a grassroots nonprofit as project manager for microfinance, I was given a chance to participate in the creation of small business opportunities for young women. While our goals were humble and our resources limited, witnessing the results of these projects taught me that microfinance is a valuable tool for enacting change on a ‘macro’ level.

1. Education

The most direct example of the extended effects of microfinance is the accompanying education. For a loan to be utilized efficiently, often either formal or informal education has to be provided as well. When our organization began homestay projects, for example, the women involved were given group lessons on hospitality, financial literacy, and the importance of clear and consistent record-keeping.

2. Empowerment

A more subtle and far-reaching consequence of microfinance is the empowerment it brings. We worked primarily with women in their early 20s; giving them responsibility over a project and a chance to make some money on their own proved to be a very validating experience.

One afternoon at the start of “tourist season” in our village, I was helping a few women manage the Re-Store (where they sold their handicrafts), and for the first time that year we were starting to sell their products. When the day began, the women seemed shy and even disinterested, but by the end of their shifts they had become confident and excited. All of the sudden there was outside interest in something they had made, and appreciation of a skill that perhaps they hadn’t even viewed as special before.

3. Community building

Through our work, even when we were collaborating primarily with one person, we tried to utilize skills and resources from within the entire community. When we decided to try selling homemade paneer, we started by paying one woman in the community to teach two younger girls to make the paneer. They in turn bought the milk from another woman who had a cow, and the finished product could be sold to the homestay families so they could cook for their guests.

By allowing the community as a whole to meet individual needs, the benefits of our businesses were extended beyond one family, and a sense of teamwork was promoted. Instead of inspiring competition between neighbours, all can prosper together.

4. Cross-cultural communication

Before we could do anything else, our job was to form relationships with the families in our village. The influence that our presence had in respect to English-comprehension levels, especially among the children, was striking. After our organization had been working with one group in the village for two years, we began introducing similar projects to another large community just a few minutes’ walk away. While they were educated in the same schools and of similar ages, children from the first group were highly conversational, while those from the latter knew only a few words at best.

By frequently interacting on a personal level, we learned not only some of each other’s languages but, through this enhanced ability to communicate, more about each other’s cultures.

5. Innovation

Because microfinance was only one part of our organization’s efforts, we aimed to introduce new ideas and ways of thinking through the creation of small businesses. For example, our ambition to build an oven for one family so they could sell bread would not only provide money, but also introduce a healthier cooking alternative to the smoky indoor fires that are used year-round.

Similarly, our Re-Store was started with the goal of finding ways to turn waste products into items to sell. With our chicken coops, we presented the idea of using chicken manure to start vertical gardens for growing medicinal herbs. Through this model, we linked microfinance with environmental conservation, waste management, and health programs.

6. Family stability and security

By creating business opportunities where they did not previously exist, families are less likely to be disrupted due to relocation in search of work, while at the same time more members of the family are able to contribute.

For instance, one of the older women we encountered came to our organization to request funding for a chicken coop. She had been a goat herder for most of her life and explained that as she grew older, she was in need of less labour-intensive work. Another woman we knew used to walk an hour to a nearby school every day to teach, but given recent health problems was unable to continue doing so. For both of these women, we were able to accommodate their limitations by creating local opportunities that met their needs.

7. Economic sustainability

Microfinance can also be a useful tool for building a stronger local economy that’s less vulnerable to outside forces. Whenever we started a chicken coop, an additional benefit was that the family involved could eventually begin breeding and then selling the chicks to others in the village who wanted to start their own coops. Our ultimate goal was to make sure as many needs as possible could be met from within the community itself, in the hopes that this self-sufficiency would lead to greater economic stability.

8. Environmental sustainability

Not only is microfinance economically sustainable, it’s often an environmentally sustainable business method as well, and through it more ecological lifestyles can be promoted. The idea for starting a paneer-making business initially arose out of a desire to find a way to produce less waste. Being able to produce food without having to deal with accompanying packaging is a crucial step in preventing litter and water contamination in a country that lacks an effective waste-management system.

The homestays already represent a more ecological alternative to the big hotels in the area and, moving forward, interns are interested in installing alternative energy systems for water heating and cooking in these homes to make the homestays as “ecofriendly” as possible.

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