How micro-loans can bring about sustained social impact
Self Help Groups have assured women of their financial security.
Hindrance to the sustainable growth of low-income communities has often been linked to persistent poverty and the vulnerabilities brought about by it. It is believed that the lack of access to timely cash flows results in these communities being at risk of being excluded from formal healthcare and education systems. Microloans have now become a popular tool to tackle financial exclusion. While the focus has been on providing a small quantum of credit to low-income families to help set up or grow small-scale businesses, the impact of these loans goes well beyond the increase in the household income. Over the last few years, microcredit has become a viable alternative to conventional sources of finances to bring about financial inclusion in both, developing as well as developed economies.
The term ‘micro credit’ refers to providing small loans to unbanked communities that have been sidelined from accessing formal financial services. Sources of income in these communities are in short supply. Access to an affordable microloan, not only ensures the much-needed cash flows in the household but also supports an entrepreneurship mindset in these communities. While the financial and economic growth is a given impact of the loans, increased well-being and self-confidence in these individuals have very often been connected to these loans.
Here are some ways in which your investments are impacting our communities:
Poverty alleviation through skill development
Low-income communities are often stuck in a vicious cycle of debt, which in turn pulls them deeper into the clutches of poverty. The lack of cash flows means that these communities become more dependent on borrowing money to not only survive emergencies but also meet their day-to-day expenses. They often borrow from friends, family, and local money lenders at exorbitant rates of interest. While these communities do need access to affordable credit, the only way to bring about sustainability to their lives is to go one step further and help them earn a living. The creation of employment and generation of income go hand in hand. Microcredit in itself might only do so much to bring about this change. But when clubbed with skill development programs, like the ones that our partners conduct, along with financial literacy programs like Rang De Swabhimaan that educate and bring about a behaviour change in how low-income communities understand and manage their finances, helps bring about a more sustained and greater impact. Inducing credit to communities with little to no income sources can be detrimental and can augment poverty through indebtedness. However, if trained and taught to manage small businesses and manage cash flows, these communities have shown substantial growth in not just their income but also their standard of living.
Gender Equality and women empowerment:
The concept of microfinance grew with the establishment of the Self-Help Group (SHG) model in India. Right from its inception, women have been the target group for most of the microcredit programs. With women having very little to no say in financial matters for a very long time, providing them with small loans and supporting them on their entrepreneurial journey was the first step towards the financial empowerment of women. The focus, therefore, was not only on providing women with money but also provide them with employment opportunities. These employment opportunities have a much larger impact. They help women grow both, economically and socially. Evidence shows that the repayment rates among women are much higher than that of men, making them more creditworthy. At the same time, women are also considered to spend more time looking after and nurturing the family, thereby bringing about a multifold impact when it comes to the growth in health and education levels of the household. In the communities that our partners work with, we have also seen an increase in confidence, decision-making, and bargaining power among women in their households.
“When I started my animal husbandry business a few years back, my husband guided me on managing the business and running the cash flows. However, in the last few years, I have learned to manage and look after my business independently. This has increased my confidence in myself. My family looks up to me as I continue to grow and market my business by myself.“ – Laxmi Karpe, an entrepreneur from Solapur, Maharashtra.
While the immediate impact of a microloan availed for business growth can be an increase in the household income of the individual, this, in turn, has a multiplier effect. Increased income often leads to an increase in savings, better standard of living, education, and health levels of the household. Communities have access to improved education facilities, insurance, et cetera, and invest in the growth of the family. Microcredit has an immense impact on rebuilding livelihoods in disaster-stricken regions or communities with little or no access to cash flows of any kind.
“The loan helped me grow my business and increase my monthly income. This has also helped me save more. I want to invest this to provide my children with an education in an English medium school.” – Lakshmi Kathirvel , an entrepreneur, Sittilingi Valley, Tamil Nadu
At Rang De, we believe that your investment is not just a source of credit for the community, but it is also an enabler. The impact of which goes beyond growth in the business or income of the individual. Studying the impact of credit on a community is difficult since the impact that the loan can have is so diverse and unique. While some of these impacts, like an increase in savings, investment, and standard of living are seen within a few years of receiving the loan, the others are not so obvious. An additional year of education for a child, the ability to avail crop/cattle or even personal health insurance, and meeting emergency needs without having to depend on friends and family are just some of those narratives that slip between the gaps. By providing access to affordable credit to communities that have been historically sidelined from formal financial institutions, they not only have access to timely credit but also enable them to take the first step towards financial inclusion and independence.
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