Now that everyone’s seated, why don’t we get started? For the past few weeks, we’ve been learning about, uh, different aspects of international development. Today I want to touch upon the financial side of development by talking about microfinance. I’ll explain what exactly microfinance is, and then discuss how it affects gender equality.
In the simplest of terms, microfinance is the supply of basic financial services to the poor who don’t have access to formal banking. These services can include loans, savings accounts, microcredit, insurance, and pretty much anything else that a bank would typically offer. Because the recipients of the services are extremely poor, we’re talking about very, very small sums of money. A loan could be as small as $25 dollars, for example. Thus, we refer to the initiative as “microfinance” to distinguish it from the regular banking sector.
Clients of microfinance can be either individual entrepreneurs or groups. The vast majority of microfinance applicants are individuals who want to either start their own businesses or expand their existing ventures. Maybe it’s a goat farmer who needs to buy more goats, or a single mother who wishes to buy a sewing machine to start an at-home tailoring business. But there are also small groups of people who come together with an idea and apply for microfinance services, usually microcredit, as a collective. The business ideas of these groups tend to be more elaborate.
It’s important to remember that there are informal methods of saving, lending, and investing already taking place in these poor communities, but that they are neither safe nor effective options. Let’s say that you have invested all of your earnings into a goat. What do you do if there’s a family emergency and you need a portion of the money from that goat back to pay for a medical expense? You can’t just cut a leg off the goat and sell it, now can you? Or consider the most traditional method of savings, which is storing cash under a mattress. If the house burns down, the money goes with it. Microfinance gives people better options for handling their money.
But how does microfinance affect gender equality? Well, first of all, microfinance institutions are not only inclusive of both men and women when it comes to their clients, but they actually target women. They do this for a few reasons. One is that women, as the child bearers, are more likely than men to ensure that the money they generate is being used to care for their family. This has been proven by numerous studies. Secondly, women are often not used for income generation in poorer households, and having them participate economically increases the wealth of the entire community.
Interestingly, and not surprisingly, having access to microfinance services often improves women’s status within their communities. As we know, money is a form of power. So giving women the means to start businesses that generate wealth also affords them the opportunity to becoming empowered members of society. They tend to have more of a role in decision-making, both within their households and within the greater community. What’s more, women who are successful with their microfinance ventures have greater participation in the public and political spheres, sometimes even going on to take leadership roles in informal or formal governance structures.
Thus, economic empowerment through microfinance has an enormous impact on gender equality, which is a central goal of international development. Perhaps we should look at a few cases of successful microfinance projects in order to illustrate how...
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