Words by Stephanie Castellano.
The travelers on En Vía’s microfinance tours ask a lot of questions.
Don’t worry – we encourage that! The tours are meant to be an educational experience, showing travelers how En Vía is applying the concept of microfinance here in Oaxaca, and supporting local women in their endeavors to become successful entrepreneurs. Like many development strategies, microfinance has its challenges, but when managed correctly, it can be a powerful tool to reduce poverty.
At En Vía, we are often impressed and gratified by the smart, thoughtful questions our tour participants ask us. One of the most frequently asked questions is why we only lend to women. This is a very common characteristic of microfinance organizations around the world, and we wanted to share some research around this issue.
When microfinance was “invented” in the 1970s, it was intended as a gender-neutral approach to combat poverty. But very quickly, microfinance organizations began to target women. By 2008, according to one estimate, more than 80 percent of microloans went to women. So why is that? There is much discussion around this point, but we’ve boiled it down to three main reasons.
One, because women are more likely to invest extra income in their families’ health and wellbeing. Multiple studies show that when women control the household finances, they spend money on things that benefit their families, such as healthcare, education, and improvements to living conditions. This can have a powerful ripple effect: The Grameen Foundation has said that women help break the cycle of generational poverty by investing more in their families. Muhammad Yunus, who pioneered the concept of microfinance and founded Grameen Bank, cited this as a reason Grameen Bank lends almost exclusively to women.
Second, it makes better business sense. Not all microfinance organizations are nonprofits, and even those that are want to invest their loans wisely. Women have a higher loan repayment rate than men, and they represent a lower overall credit risk. Some researchers attribute this to the fact that women have lower mobility and higher risk averseness. Less mobility can mean that women are more likely to face peer pressure to repay their loans, and to refrain from fraud or other misuses of the money. Higher risk averseness, while it can limit business growth, may also lead to higher repayment rates.
Third, it elevates women’s social standing. Women represent the majority of the world’s poor, and they often lack basic tools that can lift them out of poverty – tools like education, the right to work, and access to credit. By giving them access to credit, microfinance is a means for women to earn an income and take control of their finances. As owners of small businesses, they become more visible in their communities and gain more decision-making power. As researcher Charlotte E. Lott wrote, “The microcredit movement differs from many development programs that are directed at female clients since it emphasizes women’s productive rather than reproductive roles in the economy.” Microfinance offers women the opportunity to move beyond the traditional child-bearer and caretaker role, into roles as problem-solvers, decision-makers, and leaders.
Like many other microfinance organizations, En Vía recognizes the immense opportunity women represent in the fight against poverty. By using smart strategies, reflecting on our results, and continually improving, we hope to be a major ally for the talented, hard-working women of Oaxaca. We encourage our supporters to keep asking questions, and we’ll do our best to answer them here, on the blog – or even better, on an En Vía tour! Thank you for reading.