Tiny loans, big impact

When women in poor, rural areas receive a small loan, big things can happen.

“There was one [Guatemalan] lady … [who] had become a success, and she said, ‘Now I know that my husband doesn’t need to beat me,’” offered Katy Warren, co-founder of the Women’s Microfinance Collaborative, a loosely knit group of Chico-area donors focused on microfinance.

The woman was a recipient of a microfinance loan that she received from Friendship Bridge—a Colorado-based microfinance institution (MFI) that focuses on empowering poor entrepreneurial women in Guatemala by giving loans of usually around $300-$350. Loans are used to grow small businesses—for instance, to buy a new loom for a weaving business, or buy seeds for a small farm.

“That’s a big deal to me,” said Warren of the Guatemalan woman’s newly found strength. “She had enough power to say, ‘No, you’re not going to hit me again’ to him.”

Michelle Rasmussen, the collaborative’s facilitator and chairwoman, agreed. “Allowing women to get into a business and be self-sustaining changes not only their economic situation, but their social situation [as well].”

Microfinance—as the name implies—is the supply of small loans and other financial services to the poor, who often are excluded from traditional banks’ services because of their rural locations (making banks inaccessible), or because of their low incomes, which disqualify them for traditional loans.

The local microfinance collaborative—which was formed in 2006 as an independent project by members of the Chico Women’s Club, and local chapters of Soroptomist International, the American Association of University Women, and the League of Women Voters—has donated about $33,000 to date, including $15,000 to Friendship Bridge. Their annual meeting on Sept. 15, which is free and open to the public, will feature a talk by Michael Allen, Friendship Bridge’s director of development.

“We provide microcredit loans and education to empower women to build their own foundation out of poverty,” in rural and poorer areas of Guatemala, Allen explained recently by phone from Friendship Bridge’s Colorado office. Allen will update the group, which meets only once a year, on Friendship Bridge’s work in the Guatemalan communities that have benefited from the collaborative’s donations.

The number of MFIs throughout the world has grown substantially in the past 10 years. Warren was inspired to start the Women’s Microfinance Collaborative after watching Small Fortunes, a 2005 PBS documentary about microfinance. The following year, when Muhammad Yunus—the “father” of microfinance—and his Bangladeshi microfinance venture, Grameen Bank, won the Nobel Peace Prize, the concept of microfinance took the world stage—and “we had champagne,” said Rasmussen.

Today, the more than 12,000 worldwide MFIs range from large, for-profit corporate banks to tiny nonprofit lenders.

“We liked Friendship Bridge’s structure because they not only do the microfinance, but they educate the ladies, and that’s a big deal, to give them their own power,” Warren said.

“There are a lot of other MFIs out there, private and nonprofit, particularly in Guatemala, but definitely the thing that sets [Friendship Bridge] apart is the education programs,” Allen said. Loan recipients receive education on a variety of topics including “reproductive health, the importance of education for children, health and nutrition … business skills, marketing skills, overindebtedness and managing finance,” he said.

“A lot of our clients have on average only about 2 1/2 years of formal education. … A lot of them speak [only] Kaqchikel, which is a Mayan language, and most of them can’t read or write.” Friendship Bridge’s loan officers travel to the loan recipients and teach the microfinance classes in their native tongues and collect loan payments. Most of the businesses that the loans support are in artisan trades like weaving and textiles.

With the growth in popularity of microfinance—the World Bank estimates that 160 million people have received microfinance loans to date—has come criticism. Many programs charge high interest rates, upward of 30 percent, to cover transactional costs, which may be higher than for traditional loans because the loans are small and the recipients are in remote areas. Friendship Bridge, however, has a 2.6 percent monthly flat interest rate, which is “one of the lowest in the industry within Guatemala,” said Allen.

In recent years, several crises of overindebtedness—the taking out of too many loans—have occurred with recipients of microfinance. A leading study on overindebtedness by the Consultative Group to Assist the Poor (CGAP) points to crises in Bosnia, Morocco, Nicaragua and Pakistan. Although some overindebtedness occurs due to circumstances like a devastating weather event, many instances occur because the MFIs did not adequately equip clients with education on how to repay, or recommended courses of loans that did not realistically match a client’s payback capabilities, according to the study. Friendship Bridge includes overindebtedness as part of its educational component.

Large-scale studies of the environmental impact of microfinance have not been completed. Anecdotal evidence points in both directions: A small loan may go toward the purchasing of pesticides that may contribute to local waterway pollution, or, conversely, to solar panels that reduce a community’s dependence on air-polluting diesel generators.

Some MFIs incorporate the “triple bottom line” of economic, social and environmental prosperity into their mission statements and loan agreements—Netherlands-based FMO Entrepreneurial Development Bank and GreenMicrofinance, in Pennsylvania, are two examples. Another CGAP study, however, found that just 10 percent of surveyed MFIs included environmental language as part of their loan criteria.

Friendship Bridge does not specifically address environmental concerns in its loan agreements. Allen noted, however, that Friendship Bridge’s clients “are definitely more in touch with their local environments. We have artisan weavers that rely on local plants that they collect in … their neighborhoods to create dyes for their yarn, which they in turn weave into … artisanal products.”