As a young immigrant growing up in rural India, I knew many poor women who depended on microcredit loans to fulfill their dreams of starting their own local enterprises. When I was 14, I was close to one such hard-working woman named Anne. Anne was a mother of two and had an abusive husband. However, she had risen above her unfortunate circumstances. Along with being the domestic help in my house, she had started her own driving school and managed a poultry farm. When I asked her about her stable finances and considerable savings, she enthused about her self-help group.
In Southeast Asia and Africa, a self-help group is a group of five to ten women who pool their meager savings every week to use as collateral to get loans from local banks. Together, the members of a group start many small enterprises that range from soap-making, tailoring units, production of baby food and poultry farming. Members met weekly to discuss their finances, their personal lives and their roles in the businesses they start.
I was fascinated by this, and after reading “Banker to the Poor” by Muhammed Yunus, I shadowed two such groups. In the beginning, women who joined these groups were often financially illiterate, had never opened bank accounts and were emotionally and physically exhausted from working as maids in multiple houses and taking care of large families and drunkard husbands. However, after ten years of active participation in microfinance groups, these women became financially independent from their families, were proud owners of their businesses and had ambitious educational plans for their children.
More than the financial literacy and independence these women get, I was interested in the immense potential for social capital in microfinance institutions. The Poverty Action Lab defines social capital as “the relationships, institutions and norms that shape social interaction, facilitate coordination and cooperation and lead to economic growth.” I believe that microfinance groups in rural areas are the perfect grassroots level generators of social capital in the developing world.
Self-help groups provide wonderful opportunities and incentives for poor women to meet weekly on a regular basis. Often, these women become role models for their peers and provide emotional support in countries that don’t place any value on the mental health of the underprivileged. Through their local businesses, they gain power in their communities and find a comfortable source of emergency funds as well. In short, microfinance institutions do a lot for the poor, from providing financial literacy to increasing social capital.
I think it is important to start a conversation about microfinance in developed countries like the United States, especially because of the unexpected fallout in developing countries due to the coronavirus pandemic. Microfinance institutions depend on high rates of repayment and the huge lack of economic activity across the world has the capacity to make many of these institutions insolvent. Social distancing also endangers small business and micro-enterprises that many poor people have spent years of their lives building.
While the whole world focuses their attention on the potentially higher mortality rates in poorer countries, we’ve lost sight of the disastrous effects the pandemic will have on the finances of the poor. The virus has the potential to destroy the huge progress made by developing countries on providing inclusive finance, and lifting people out of poverty. I think it is important for funders, donors, investors and socially conscientious people in the U.S to think about the global, concerted effort it will take to ride out this crisis, and to help restore the gains made by poor economies in the past 45 years.
Personally, I feel very privileged to be secure enough to survive this pandemic in the U.S., without any major financial losses. But my thoughts stay with rural women in India who are riddled with financial uncertainty and who risk losing the economic progress they’ve made over years of hard work. After this virus dies down, I hope that the world will also focus on rebuilding the lives of these hundreds of millions of poor women globally. They’re counting on us.
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Nidhi J. Nair is a contributor for The Daily Campus. She can be reached via email at firstname.lastname@example.org.