In many poor, rural parts of the world, there are few banks. Women often do not have accounts or ways to borrow money other than from the informal money lender. Money lenders charge interest rates of 50% to 150% or more making poor families even poorer.
Affordable credit is important, but it is just one tool in the toolbox.
Microfinance is an exciting tool for helping people get loans they can afford. Women are able to start small businesses or use funds for family emergencies. Most IDEX-supported projects include an element of microfinance. There are many models of microfinance:
Self-Help Groups or Savings and Credit Groups
These groups are popular in India and Nepal. Groups of 10 to 20 women save money together. They provide loans to each other from their group savings. IDEX partners then link women to banks to open joint accounts. The women can get loans that would impossible individually. The benefits are numerous:
- Women build wealth and forge a habit of savings.
- Women are linked into formal banking systems.
- Women learn to sign their name along with basic math and bookkeeping skills.
- No capital is required from donors.
- Neighboring communities can emulate the process.
- Women are empowered. From the leadership training, support, and newfound confidence, women’s groups frequently start other projects that benefit their families or communities.
Formal cooperatives with several hundred shareholders and legal charter are formed in Nepal, by bringing together several Savings and Credit Groups. IDEX partners provide leadership training and support until they are fully self-sustaining.
Revolving Loan Funds
In Mexico and Guatemala revolving loan funds are common. Whole communities can take a loan together for a group project.
Alternative Model Can Empower Borrowers
IDEX values these alternative models because they empower the borrowers and savers in more ways than just economic.
Affordable credit is important, but it is just one tool in the toolbox. Income greases the wheels of change while community mobilization is of lasting value for solving a host of challenges.
Read more about IDEX’s work on microcredit on our blog.