The Power of Microfinance

As one of the lucky few allowed the opportunity to watch microfinance in action in Togo and Ukraine, I am increasingly convinced that microfinance is primarily a mechanism for social empowerment. Joseph Akogo, the director of Kiva’s field partner Microfund Togo, recently told me a story about a couple that benefited from microfinance. The wife was a client of MF Togo who received a loan for her business in the market. The husband was unemployed and frequently beat his wife when she returned home from work and took control of her income. Their children were being neglected as a result of their mother’s stress, their father’s violence, and the subsequent misuse of family funds.

Joseph realized the gravity of the situation and spoke to the client’s husband. He was a mechanic, unemployed, and embarassed by his inability to provide for his family and rely solely on his wife’s income. [Not an excuse of course for beating his wife, but this is the reality many rural Togolese families face.] Microfund stepped in with an experimental idea – a loan to open a garage on the condition that the husband agree to respect his wife and allow equal decision-making in the household.

Today, with both parents working and earning family income, this family is now a Microfund success story and proof that microfinance can breed social change. The couple make decisions together, they share responsibility for the family’s income, the children are better fed and better schooled. He does not beat his wife anymore. While the immediate outcome of this loan was that the man could start his own business, perhaps the more important outcome was the social progress that occurred as a result. This is the power of microfinance.

Akouélé Agbo is another example of the social power of microfinance. She took a loan that helped grow her farm’s arable land. Her profits doubled and she began to be able to save a little money each month. She also sent her three oldest children to school in the nearest town. Her story illustrates the economic attractiveness of microfinance as an economic development tool – it encourages self-sustained growth – it’s not aid in the traditional sense and doesn’t encourage dependency the way that aid tends to do. It’s also relatively easy to quantify its success: she took a loan, paid it back, doubled her profits, took another loan, planted different crops to diversify her profits, and with the third loan was even able to employ some help on her farm. One can look at her balance sheet and instantly recognize a numerical success story.

But what drove Madame Agbo to take the loan was not her economic training or financial forecasting, of which she’s had neither. Her bottom line was feeding her four children. But once that was easily achievable, her next bottom line was educating them. That may appear to be a small step in her financial balance sheet and her family budget, but it’s a giant leap in her children’s future – and potentially in the development of her nation and community. And it was microfinance that gave her the power to stop thinking about merely feeding her kids and allow her the freedom to consider educating them.

A few weeks ago, Kiva Fellow Kevin Chaissan asked what it would take and how long for Africa to “catch up.” What will allow a developing country to develop? Is microfinance a part of it? Development requires planning and patience. This is true at the micro and macro level. To be successful, or to simply “catch up” takes time – maybe 250 years, maybe more. Any effort to make rapid change in the developing world inevitably fails. Yet constant worry about putting the next meal on the table or escaping your husband’s next beating do not allow for either planning or patience – those are immediate and urgent concerns. Microfinance makes those concerns less urgent. It allows planned and patient development to take place.

And the outcome of planned and patient development is the social empowerment that occurs as a result of economic development like microfinance. When I asked Joseph Akogo, Director of Microfund Togo, what the future of development in Togo is, he didn’t tell me lower interest rates or bigger loans or even enterprise development training. He said, “Family Unity”: family unity allows both the husband and wife making decisoins equally; income is shared equally; children’s future and well-being are put first; family unity breeds stronger communities and thus a stronger nation. It’s what led him to introduce the new couples-loan product introduced at the beginning of this story.

His colleague Climat turned to me and exclaimed, ”Women are the future of development in Togo!” Women, he said, will ensure first that the children are fed and educated; that decisions about income put first the health and well-being of their family and community. “Microfinance empowers women to have that equality in the family,” Climat said. It’s true – I can’t tell you how many Togolese women I have met who tell me that their ability to contribute to the family’s income was her ticket to equal treatment by her husband and respect in her community. “Now my husband and I make decisions together,” Adjovi Neglo told me. “Now, I am respected in my community. People take notice of me [because of my loan and my success as a farmer],” Kossiwa Barakou said to me.

Whether the future is women or family unity, the message to me was clear: responsible and effective development rests on the shoulders of ensuring that the grassroots are socially empowered. And one tool by which this can be achieved is microfinance.

There is a distinction between what empowers – people and ideas, not credit – and what allows access to that empowerment. Microlending provides that access; it is a bridge between economic necessity and social empowerment. And Kiva, in turn, is to me all about social empowerment. Kiva lenders don’t ask to see their borrower’s balance sheet as proof that their loan made an impact; they want a story, or a photo, or a video. They want the picture of the borrower’s life. They’re on one side of the bridge, and they want to better understand the other side. Kiva lets them do that.