Expert Commentary

Role of microfinance in promoting women’s social capital

2009 study from Wesleyan University in the American Sociological Review on how small loan programs help women in India to gain skills and power.

Since the founding of the Grameen Bank in Bangladesh in 1983, microfinance has become a prevalent poverty-reduction tool in developing countries around the world. The most well-known microfinance product, microcredit, involves extending loans to low-income individuals who lack access to credit through formal financial institutions. Microcredit is overwhelmingly focused on women borrowers, and usually uses a group-lending approach in which groups of women are held responsible for each other’s repayments. Research on the effectiveness of microfinance — aspects of which have come under fire in both Bangladesh and India in recent years — has primarily focused on the economic impact it has on individual borrowers, as well as households.

A 2009 study from Wesleyan University published in the American Sociological Review, “From Credit to Collective Action: The Role of Microfinance in Promoting Women’s Social Capital and Normative Influence,” aims to go beyond the economic impacts of microfinance and determine if “structuring socially isolated women into peer-groups for an explicitly economic purpose … has any effect on the women’s collective social behavior.” The researcher interviewed 400 women from 59 different microfinance groups in rural West Bengal, India, and defined “collective action” as when portions of groups, entire groups, or coalitions of groups join together to pursue an action proposed by any of the above.

The study’s findings include:

  • One-third of the microfinance groups studied had engaged in some form of collective action. None of the 400 women had participated in collective action before they became involved with their microfinance group.
  • The increase in women’s participation in collective action was deemed to be a result of the “social capital” and “normative influence” women gained from their participation in the microfinance groups.
  • Microfinance groups were found to increase women’s social capital and influence through several mechanisms: 1) the increased trust and affinity among the women due to the frequent interactions required by group lending; 2) the increased ability to organize because of both women’s individual lending groups and the larger community of women’s microfinance organizations; and 3) the increased agency women experienced as a result of their participation in the groups.

The author concludes that participation in groups designed to increase women’s economic empowerment can lead to social empowerment and that microfinance programs potentially offer benefits “that go beyond economic survival and promote the advancement of women.”

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