By Mivsam Yekutiel, Research and Partnerships @ WeTrust

An Oxfam research report, “Women’s collective action: Unlocking the potential of agricultural markets” looks into women’s participations in lending circles in Ethiopia, Mali, and Tanzania.

The results suggest that membership in a lending circle is beneficial to women’s part in decision making over the use of income from agriculture, as well as the control of income for major household expenditures and women’s freedom of movement.

International nonprofit organizations have recognized the hidden potential in engaging women in lending circles, and they employ many financial and governance training sessions to help women run lending circles efficiently.

CARE, for example, helped establish more than 203,000 women-lead lending circles groups in 27 African countries, serving nearly 5 million members.

Henry Swira, a program director at CARE and the Melinda and Bill Gates Foundation project who is facilitating the Village and Saving Loans Program in Malawi says that “a few studies have shown that lending circles women are more able to negotiate with their husbands with regards to decision making around health, education, crop-growing, and procuring assets as a household, compared to before joining a lending circle.”

It is true that most lending circles and nonprofit-led initiatives to facilitate such groups in Africa are extremely beneficial to women of lower socioeconomic status. However, evidence shows that in many parts of the world lending circles are popular among women (and men) in the middle and upper classes, where they still serve as an important empowering mechanism.

In research done in Indonesia aimed at explaining the participation in arsians (lending circles), it was found that 71% of the participating individuals were women. Some of the explanations offered for this obvious majority is that women have less collateral and hence are less able to borrow from banks. It could also be that women rely on the lending circle as a social network more than men. As was already said by Geertz in 1962 “… the primary attraction of the arisan is not the money you receive, but the creation of rukun (communal harmony) which occurs, the example of gotong rojong (mutual assistance) which is demonstrated”. By joining the lending circle, one builds upon his or her social networks, interacting with one’s peers and building one’s contacts, thus increasing social capital. Moreover, building social capital can also explain participation in more than one lending circle (as many do) as each lending circle varies in terms of the value of social capital generated.

This social explanation is further supported by the fact the the majority of lending circle participants in Indonesia are not credit-constrained, and could, if desired, apply for a loan via other financial vehicles. The low interest rate, the social empowerment, the trust between people, and the ability to create a safe haven drives them to take advantage of lending circles over financial institutions.