Supporting women in rural India
In early 2023, together with our investment team, I had the opportunity to visit and conduct due diligence on Light Microfinance, a microfinance institution (MFI) based in Ahmedabad, Gujarat in India. MFIs are financial service providers that extend small loans to borrowers who are otherwise excluded from traditional banking services. The agenda was set: on the first day of our visit we met with the company's senior management, and on the second day we visited one of the MFI branches in the Kheda district of Gujarat, about an hour's drive from Ahmedabad.
Tanya Philips Impact Officer
Credit communities and social securities in microfinance
From the MFI branch, the team took us to one of the Joint Liability Groups (JLGs) that had recently taken a loan from the MFI. A JLG is a group of 4 to 10 members, often women and usually from the same village, who join together to obtain a loan. By applying as a group, the physical collateral that would otherwise have been required is replaced by "social securities". The members of this social securities system are responsible for each other's repayments, thus promoting the timely repayment of loans. In this way, MFIs help underserved communities access credit, even in the absence of physical collateral, by lending to JLGs.
JLG-members from the village Hathnouli
This JLG consisted of 8 borrowers, all of whom live in the village of Hathnouli in the Kheda district of Gujarat. The main occupation of the villagers is agriculture and related activities. Women also often engage in informal activities such as dairy farming, tailoring and catering. The literacy rate of women in this district is 75%, thus almost 10 percentage points lower than that of men in the same district. Unfortunately, this is not atypical for rural India. Even as this gap continues to close, there are still several socio-cultural barriers that prevent women in rural India from attaining the same level of education as their male counterparts. This often leads to fewer employment opportunities, financial dependence on male relatives and less financial autonomy within the household. Microfinance has immense potential to close some of these gaps.
A Joint Liability Group (JLG) is a group of 4 to 10 members, often women and usually from the same village, who join together to obtain a loan.
First-time borrowers and access to formal financial services
The JLG members we met were all first-time borrowers of the MFI. We learned from management that about 15-20% of the MFI's total client base currently consists of first-time borrowers who have never had access to formal financial services. Management noted that these borrowers usually have access to conventional and cheaper loans from banks after the 4th or 5th loan cycle (each loan cycle usually lasts 24 to 27 months). The impact of this MFI is undoubtedly significant as it introduces first-time borrowers to formal financial services. Their operating model removes several access barriers that a rural, uneducated female borrower has to overcome when accessing formal credit solutions: most notably the lack of a credit history and the absence of physical collateral. Microfinance helps them make the transition to "bankability".
15-20% of the total MFI client base are first-time borrowers who have never had access to formal financial services
Insights into microfinance in Kheda, Gujarat
When we arrived, we were greeted by 8 cheerful women who welcomed us warmly into their home. Our conversations were almost trilingual: Gujarati and Hindi with some commonly understood English words in between. These women and the local loan brokers gave us valuable insights into the reality of microfinance in Kheda, Gujarat.
Economical empowerment through microfinance
The women used the money from the loan to buy a buffalo. Given the high distribution density of the AMUL milk cooperative in the state, they are able to sell around 7-8 liters of buffalo milk daily to the nearby AMUL dairy store, generating an additional source of income of INR 12,000 per month, which is equivalent to USD 145. The monthly loan repayment amount is INR 3,300, resulting in an additional monthly household income of INR 5,200. Although the average household income is not known, it is estimated that the loan has provided an additional income of at least 20% of the total monthly household income and even more when the loan is fully repaid.
Total loan
= cost of a buffalo
Additional income (per Month) (7-8 liters of milk sold per day for INR 45-50 / liter)
Costs (per month)
(including food for the buffalo & medical expenses)
Profit (per month)
(income - costs)
Interest rate (per month)
Monthly net profit made possible by the loan
Mobile technologies increase the efficiency of microfinance projects
Mobile-based tools are used at various stages of the investment process. When placing an order, for example, local employees check customer information against credit bureau data using an in-house cloud-based mobile application on their smartphones. If potential risks emerge, the loan is rejected immediately, but can be reassessed more easily at a later date based on the digitally captured data.
Similarly, during the due diligence phase, credit managers conduct home visits to potential borrowers and enter their observations and customer responses directly into the mobile application. Previously, this data was captured in paper form. The use of mobile technology has increased the speed and quality of typical credit checks on potential borrowers. In addition, documents can be uploaded directly through the application, providing systematic documentation for each loan disbursed.
Impact of microfinance on financial management capacity and resilience
In the case of the JLG members we met, the additional income from the sale of buffalo milk was deposited directly from the dairy facility into their bank accounts. They now had direct access to these funds, although some of the women had no experience of withdrawing money from an ATM. Nevertheless, it was clear that the extra income they earned gave them a sense of pride as it meant they could contribute to their household income. For some, it also meant a greater level of involvement in money matters and decision making in the household. These first-hand insights align with the findings of the recent 60Debicels Microfinance Index, report, which found that clients accessing microfinance loans for business purposes are making greater progress in financial management and resilience.
Commitment to microfinance and the empowerment of women in rural areas
responsAbility will continue to expand its investments in microfinance in emerging markets. We have been involved in this area since our foundation in 2003 and have seen the importance of microfinance in supporting people who do not have access to financial services. Access to financial services means giving people the opportunity to improve their livelihoods, increase their financial resilience and, above all, empower women living in rural areas.
