Microfinance: where potential is collateral

Lynne Randolph Patterson started off as a teacher only to become the co-founder and director of the multi-national microfinancier and women’s development network, Pro Mujer (Pro Women). This inclusive organization, set up with Carmen Velasco, currently provides 220,000 women in five Latin American countries with business training, financial education, health care and loans.

Twenty years ago, Lynne accompanied her husband to Bolivia, where she began conducting empowerment workshops for young mothers. She soon realized that the most crucial means of improving the self-esteem of poverty-stricken women is the opportunity to build a sustainable livelihood for themselves and their families.

Giving women credit

Pro Mujer was set up to counter the inaccessibility of investment loans and business education for women in developing countries. The organisation reaches out to the poorest women in Argentina, Bolivia, Mexico, Nicaragua and Peru; where many of the banks don’t lend to women, let alone to women who are poor and uneducated.

Rethinking banking methodologies.

The Grameen Bank in rural Bangladesh, awarded a Nobel Peace Price in 2006, almost completely reconfigured conventional banking practices and served as the model on which Pro Mujer was based.

“Grameen methodology is not based on assessing the material possession of a person, it is based on the potential of a person. Grameen believes that all human beings, including the poorest, are endowed with endless potential.” – The Grameen Bank website

Where conventional banks work on the premise that ‘the more you have, the more you can get’, The Grameen Bank and Pro Mujer lend on the basis of potential and not collateral. It is interesting to note that, according to their website, 97% of Grameen’s borrowers are women.

Lynne and Carmen’s company establishes sustainable microfinance to poor, undereducated women; this could very well be the reason for its growing success. In a documentary for channel 4, Professor Niall Ferguson said that, due to Pro Mujer’s success: ‘lenders have come to realize that credit worthiness may, in fact, be a female trait’.

“It turns out that women are actually a better credit risk than men.” –  Professor Niall Ferguson

Contrary to the stereotype of the profligate female, recipients of Pro Mujer loans continue to demonstrate their financial reliability and aptitude for business. According to Pro Mujer’s website, only 1% of borrowers default.

Community values key to preventing over-indebtedness.

Because microfinance loans are usually unsecured by any kind of collateral, property or otherwise, the potential challenge is ensuring that they are repaid. This has not posed a problem to Pro Mujer, where the speculative risk is overwhelmed (at least in part) by the company’s adherence to community-ethics and the principals of mutual trust, accountability, participation and creativity.

Pro Mujer is fundamentally community-orientated. A loan comes with social responsibility: if women do not repay their loans, they cannot remain group-members. Where conventional banking methodologies cultivate debt, Pro Mujer and other microfinanciers work on the principal of accountability. This seems to have the effect of limiting debt and encouraging saving.

The popularization of Microfinance.

Thanks to the success of Pro Mujer and The Grameen Bank, microfinancing is now seen as a viable investment. Wal-Mart, for example, has recently set up a bank in Mexico aimed at those who are excluded from mainstream financial services. In an interview with BBC correspondent, Katie Hunt, Lynne said: “Lending to the poor has proven very profitable”.

Pro Mujer’s integrated system of financial and human development services works as a means of enriching the community as whole as well as a precaution against over-indebtedness. While Lynne concedes it is certainly no panacea, it is feasible that a consequence of the recession might be an insurgence of microfinanciers like Pro Mujer, that eschew over-indebtedness rather than cultivate it.

Professor Niall Ferguson’s Channel 4 special on Pro Mujer:

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