I keep coming back to the discussion on social collateral as it is the core model we follow in our microfinance business. The concept of the social collateral model consists of social capital (trust and network), group pressure and training and is used as a supporting mechanism to encourage loan repayments and support the borrowers in creating human capital and economic capital.

Implementation of the microfinance model by Dr Muhammad Yunus in Grameen Bank, its pioneer, opened up avenues for those who were struggling for survival owing to lack of financial capital or collateral but had the zeal and acumen to make a business successful. The way microfinance enabled small entrepreneurs to build on their dreams and enhanced their social and economic growth as well as their lives may not be comparable with other economic models so far. But what normally gets left out is the contribution of the social collateral model in other aspects.

Microfinance has constantly helped transform a job-seeker to a job-creator, thus impacting far more lives at the bottom of the economic pyramid. The structure of the social collateral model ensures that, jointly, a group of entrepreneurs ensures each other’s success trying to extend support wherever required. The social ties embed social capital and facilitate the collective actions of group members, allowing them to coordinate their repayment decisions and cooperate for their mutual benefit. This unique concept of collaboration at a micro-level is extremely encouraging to witness. The sisterhood extends much beyond business and helps in binding our social structure.

It would not be unfair to say that the success of the microfinance industry and its stakeholders banks heavily on the social collateral model. It has also created large numbers of jobs — for loan officers and risk assessors. These loan officers and risk assessors have the last-mile access to a large segment of the rural populace, especially the women, who never featured in our economic spectrum.

This relationship and reach of the officers of microfinance companies in rural India have been used on several occasions to power awareness programmes in financial literacy or even to distribute aid during calamities.

As we see, the direct and indirect impact of the social collateral model in microfinance has been much beyond keeping bad loans low. It has been playing a key role in nation-building as well.