As I prepare to head back to the U.S. this week, armed with new knowledge and new questions about microfinance, poverty and how to survive the often-terrifying Asunción bus system, I’ve been reflecting on what I’ve learned during my 10 weeks here.

There were days when I felt high on the potential of microfinance, eagerly absorbing the stories of clients who could serve as poster children for the industry. She tripled her income! The kids are going to college! Health insurance for the whole family! These stories were quite common, and the overwhelming hope evident in such narratives was contagious.

Here I am posing with Isabel, another FP intern (right) and Obaldo Arellano, a model client.

But there were other days when I wondered whether microfinance was a futile enterprise, plagued by problems that nullified the benefits for too many clients, at least in the group lending model. I witnessed many comité meetings where responsible members were forced to repay loans for irresponsible members, thus eliminating any profits the former group had earned during the cycle. I heard horror stories of tesoreras, or treasurers, disappearing forever with the group’s savings or loan repayment contributions. Oftentimes, as I documented in a previous post, a few late members of a comité would delay meetings for hours, thus sapping productivity from the rest of the group as they waited idly.

At the end of the day, microfinance encompasses both realities. But as disheartening as some incidents were, it was usually a matter of one or two individuals tarnishing the experience for the other 15+ group members who were committed to the process. The vast majority of comité women and individual loan recipients were grateful for the new opportunities that microfinance had afforded them and behaved in such a way that would maximize those opportunities.

The degree to which clients capitalized on the loans varied. For some, like Sirleide Bomfin Martins, the first microloan was a springboard that catapulted her business into an incredible growth mode and ultimately connected her to big-name Chinese suppliers who are revolutionizing her small sewing machine shop. For Sirleide and many other microfinance clients with growing businesses, the microloans provided a second and equally valuable asset in addition to the loan itself: a credit history. It is common for a successful microentrepreneur to later access credit at traditional banks, securing larger loans for an expanding enterprise or even a home mortgage, using their newly minted credit history and their Fundación Paraguaya loan officer as a reference.

For others – and the majority are included in this category – the microloans simply help fund a small empanada or clothing business that will never expand past the woman’s home or employ a second person. While this type of businesses may not always increase personal income by a significant amount, the flexibility to pursue an economic activity from the comfort of the home – where the domestic responsibilities lie – is a more important benefit for many women who may otherwise need to choose between income and family duties.

While a quantifiable measure of microfinance’s impact remains elusive, my experiences from the field have given me a perspective that is cautiously optimistic about the future of the industry. Microfinance is not, and should not be considered, a sexy, one-size-fits-all approach to poverty reduction. That has become clear in recent years, but it’s worth repeating, lest the quest for scale lead MFIs to take on clients for whom microfinance will do more harm than good.

The road out of poverty isn't easy, but it's possible.

But for many clients, microfinance holds promise for a brighter future. For some, it does indeed lead to a road out of poverty. For others, a modest increase in income –while not enough to drastically improve current living conditions – allows for investment in a child’s education, thus breaking the cycle of poverty in the next generation. For others still, microfinance does not increase income but makes living conditions more comfortable, whether through a more flexible work schedule, a smoothing of otherwise erratic income or the ability to invest in expensive goods or services such as a refrigerator or a necessary surgery.

It is imperative that practitioners recognize both the potential and the limitations of microfinance.  Programs like Fundación Paraguaya’s Junior Achievement and Escuelas Agrícolas complement microfinance activities well by investing in young students, with the goal that they avoid adult poverty in the first place. Taken together, such programs of prevention, education and access to finance have made a noticeable difference in the lives of thousands of Paraguayans. While microfinance is not the silver bullet that some had hoped for, it can be one powerful instrument in the toolkit used to fight poverty.

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