This is not your typical microlending blog post. Carol Ann Michel, first year MBA at Notre Dame, is writing to women and for women in today’s post. She shares the top five reasons why micro lending can have a positive impact and expresses her belief that women specifically should be invested in promoting the role of other women as leaders in their societies.
As a woman in American society today, it can be easy to forget that many generations of woman before me have worked hard and sacrificed to ensure my right to choose a given career as well as the ability to graduate from a prestigious MBA program. I am proud of these women and honored to represent them. Despite this, there continue to be many obstacles for women both in finance and in the world. As a woman, as a MBA student, but most importantly as a member of the financial industry, I am attracted to the idea of micro loans.
Micro loans are very small loans of capital provided to impoverished borrowers who lack collateral and/or a credit history. It is designed to support entrepreneurship, lower poverty rates, and has typically been used to empower women in developing contexts. Admittedly, there has been some debate on whether micro lending is successful in its goal to stimulate developing economies and completely eliminate poverty (a lofty goal by any standard). Based on the research and real world examples of women moving from domestic, passive roles to financially supportive or even leadership positions in developing countries, most people would agree that micro lending is making a positive impact. Below are the top five reasons:
It is a loan, not charity. Micro lending works because it is a business transaction. The lenders recognize that the women who are receiving these loans must have pride in themselves and their work to be successful, and this includes the ability to eventually repay the loan. It is an investment, not a handout.
It takes a small amount of US money to make a big difference. A typical loan is around $25 dollars. Not surprisingly this translates into much more when exchanged for the local currency in a developing nation. Need an example? While the sacrifice of not buying a last round at the bar might hurt temporarily, the potential return of turning that money into a micro loan seems worth it.
There is a high success rate. Over 585,000 people have loaned more than $100 million to 249,000 entrepreneurs in 49 countries. Kiva is known as one of the leaders when it comes to micro lending. On average, loans made though Kiva.org have a 98% repayment rate.
What is borrowed is repayed. Cultural pressure ensures that the loans get repaid. Many traditional societies maintain strict social codes to repay what is borrowed. If an individual fails to repay on time, the borrower’s family name and reputation may be compromised. In addition, many micro lenders employ collection agents who make weekly visits to borrowers for collection purposes.
Female entrepreneurship is encouraged. Small micro loans made to women allow them to run their businesses, hire other local women and support their families. In many of these countries, these successes allow women to have a voice in society for the first time. A loan is not just buying a sewing machine; in many cases it is also changing the perspective of women culturally. In addition, it serves as an example to other females and the younger generation on the role successful women can play.
It is my hope that micro lending is a risk people would be willing to take – both from a financial and humanitarian stand point. I also believe that women especially should be attracted to trying to help other women succeed. The microfinance industry can have a very big impact in third world countries and the role of woman in our world.