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Credit

Why Provide Loans?

Credit for microentrepreneurs can take many forms. It can be a group loan in which a small group of women take loans and act as guarantors for each other and no physical collateral required. This method emerged in the 1970s and became the hallmark of providing financial services for women.  While this lending methodology provides an entry point for the unbanked into the formal financial sector, it does not serve microenterprises well as they grow. These loans are, by their nature, limited by the group’s collective capacity to repay. Thus they are often smaller in size and not conducive to keeping pace with growing businesses. Because these groups are primarily composed of women, women have been unable to grow their businesses due to this inability to access capital.

As microfinance evolved however, financial institutions began offering individual loans based a monthly cash flow analysis of client’s income.  These individual loans are tailored to fit the client’s business needs, are generally larger in size and also have more flexible loan conditions.  Unfortunately, women face particular barriers that make it difficult to access this line of credit, such as collateral requirements, the need for a guarantor, and the inability to prove business ownership because her name is not on any household records or she lacks access to property titles. These barriers can be particularly challenging for women in more conservative communities and need to be overcome to ensure women are accessing individual loans.

Our Approach

Women’s World Banking began developing loans tailored to women-led microenterprises in the 1990s with financial institutions in Latin America. Most recently, the organization worked with institutions in Paraguay, Peru and Colombia to design individual loans specifically for low-income women in rural areas whose businesses were not previously recognized by formal financial institutions both because they were small and because the women themselves saw the business as supplementary to the primary farm income and were not seeking financing. However, analysis showed that the women’s businesses were not only a significant part of household income… they sometimes even exceeded the farm income. Nevertheless, their contributions were undervalued because the money came in small, daily increments instead of the more visible lump sum that the men’s farm income typically came. Based on our customer research, we were able to modify loans to ensure that they were appropriate for financing women’s rural businesses—the right amount, with repayment dates that match income and without onerous collateral or co-signatory requirements. As a result, more than 43,000 new loans have been issued to women—half of whom were new clients for the banks. Together these women are using this $45 million of new capital to grow their businesses and contribute to the well-being of their families.

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