Here at Oikocredit US we talk a lot about microfinance, but what is it and how does it help low-income communities?
Oikocredit started as a global movement to empower low-income people to improve their livelihoods primarily through access to microfinance. If you are new to Oikocredit maybe you haven’t heard of this innovative vehicle for change. In this article we discuss the basics of microfinance and offer new insights to our stakeholders.
What is Microfinance?
Microfinance is providing basic financial services such as loans, saving accounts and insurance for low-income but economically active people. Usually we are talking about
small loans, or microcredit. Microfinance serves people who don’t otherwise have access
to traditional banking.
The modern form of Microfinance is attributed to economist and Noble Peace Prize winner Muhammad Yunus in Bangladesh during the 1980s.
“I just looked at conventional banks. I learned how they do it and I just do the opposite. They go to the rich people, so I decided to go to the poor people. They go to men, so I decided to go to women. They go to the city center to do business. I wanted to go to the village.” - Muhammad Yunus
Who Does it help?
1.7 million adults are unbanked - or do not have access to financial services like credit.
56% of adults who are unbanked are women. And in countries with the highest unbanked population, women are an even higher percent.
Microfinance can provide access to economic activities, education, and improved living conditions. 80% of microfinance borrowers are women.
The Oikocredit movement is dedicated to tackling some of the world's most difficult issues, like income inequality. Oikocredit’s microfinance partners focus on lending to groups who are the most vulnerable. 86% of their borrowers are women. Women can access the capital and resources they need to start a business and support their families. This means Oikocredit’s mission to empower women and support financial inclusion is directly linked to the success of microfinance.
Microfinance in Action
Grace Njoroge is an entrepreneur, wife, and mother living in a town northeast of Nairobi called Thika. Like many other Kenyan women, she was struggling to sustain and grow her business while caring for her family. As her hardware business continued to struggle, she decided to move into something more familiar: textiles. However, she was lacking the necessary capital and expertise to not only establish her new business, but ensure that it thrived. In 1996 Grace joined the Kenya Women Microfinance Bank (formerly known as Kenya Women Finance Trust or KWFT), one of Oikocredit's partners.
Besides financing, Oikocredit supports its partners in improving social performance and capacity building. Partners like KWFT, in turn, offer training and advice to their clients.
“What I liked most when I joined KWFT was their training. They trained us a lot about business, how to handle money, and the risks we should try to avoid when it comes to matters like borrowing.” - Grace Njoroge
As soon as she joined, Grace formed a small savings group where she and a few other women were given a group loan. After her group completed a KWFT training, paid back
their loan and demonstrated they had responsible financial management processes in
place, the women received individual loans to help them grow their businesses and
support their families.
To learn more about Grace’s story, read the full article here.
Have you ever contributed to or invested in a microloan? If so, what was your experience like and how did you feel about its impact? Please let us know.