From Peru: Micro Finance: What is it? Does it work? Who does it help? And, how does it help?

With little professional experience in, well, anything, and three-quarters of a bachelors degree, I was thrown into the field of microfinance, wide-eyed and excited.

There is still much to be proved about the long term effects of microfinance institutions (MFIs) in developing countries, however the positive potential is undeniable.  Evaluating the impact of such institutions was the purpose of our project this summer in Peru. 

We were sent to work with three MFIs; Prisma, Finca and Confianza. All offered a similar village banking style loan, but their internal structures and functions differed greatly. We worked in many rural communities in Peru to measure the change in food security since 2007. We administered both qualitative and quantitative interviews which enabled us to get to know the heartbeat of microfinance, the clients.  It was not until I was able to meet the people who receive such loans, and hear their stories, that I began to understand the importance and variation of microloans in Peru.

Village banking offers a loan tailored to rural communities, working primarily with women who invest in their small businesses. As members of these village banks, women receive educational sessions ranging from how to be a good borrower to pertinent nutritional information. This, paired with the mandatory savings system, allow women to sustain their resources over the course of an entire year and remove themselves and their families from a cycle of chronic hunger. The monetary capital a small loan provides allows a solid foundation from which to build upon, leading ultimately towards independent and self-sustaining futures. 

From urban cities of thousands to rural communities of no more than one hundred, MFIs strive to make their services available to almost everyone. In just a few years the amount of rural borrowers has grown exponentially. Microfinance in Peru is a fast growing enterprise brimming with potential. 

Our work this summer was both a valuable learning experience and hugely inspirational. After experiencing first-hand the impact that these small loans have on the families, I am left assured of the importance of this type of work. Even if left unproved statistically or concretely, the positive impacts of microfinance are undeniable. Poor families are given the opportunity for change: in a profession, of their lives, or even their children’s lives. The potential that accompanies this type of empowerment is, for lack of a better word, powerful.

Kelly Taylor, Undergraduate, International Relations