CENTRE for POLICY ANALYSIS

CENTRE for POLICY ANALYSIS

“Social progress can be measured by the social position of the female sex” - Karl Marx

Gender


A FOOT ON DEVELOPMENT LADDER FOR WOMEN


Introduction

Microcredit refers to small loans given to impoverished borrowers (who typically lack collateral) and help them becoming self-employed, support entrepreneurship and poverty alleviation. The Grameen Bank originated in Bangladesh in 1983 laid the foundation of modern microcredit and since then a large number of Microfinance institutions and NGOs around the globe are offering financial services, mainly microcredit, to underprivileged and poor communities.

When the poor, men or women, had no access to formal credit to start a new business, to build a house, avail basic facilities of sanitation, health and education or to even survive during any calamity or disaster, the Microfinance institutions (MFI) came into market with an objective of making financial services available to the poor. As many as 74 million men and women were reported to hold microloans of around US$38 billion in 2009.

With 75% of the world's women are said to be poor. With high percentage of women being poor, many MFIs target majorly women clients. According to International Labour Organization Director-General Juan Somavia, "Microcredit plays a critical role in empowering women; helps deliver newfound respect, independence and participation for women in their communities and in their households."

On the one hand many people find 'microcredit as a powerful tool to empower women and promote gender equality, sustainable livelihood and better working conditions for women', on the other hand some criticise it for leading to increased workload on women and indebtedness.

This essay will try to explore the probable reasons of MFIs and NGOs targeting women as the primary borrowers, reason behind women turning to microcredit institutions, and analyse impacts taking into account various surveys and studies carried out, particularly in developing and under-developed nations.

Why women turn to microfinance institutions and NGOs giving microcredit?

A woman generally plays both the reproductive and productive roles in her life. She produces children and maintains the family playing the reproductive roles. In her productive roles, she is sometimes expected to earn and contribute to family income generally through household production or by working in informal (predominately) or formal sector. The phenomenon is more prevalent in low income families or among poor. These women choose either to work for others or start some business on their own. Whichever is the case, they need credit either for financing their business or for the daily needs.

Credit can be availed from commercial/governments banks also. Then what is the need of MFIs? There are two basic reasons behind it. First, there is lack of information with the banks on the borrowers' antecedents. As a result banks are skeptical about the borrowers; unsure whether the loan will be repayed even though the borrower might submit all relevant documents. Secondly, banks do not give loans to the poor as they have no collateral against which they can avail loans.

Since poor women have no access to credit from formal banking system, they turn to MFIs for credit.

Why women are chosen as the primary borrowers?

MFIs were set up to give credit and other financial services to poor, both men and women. Initially, they were not focused on lending only to women. Over the years it has been witnessed that most of the participants and borrowers taking part in microfinance activities are women. Women make up 75% of all microcredit recipients worldwide. (1) The number of women availing microcredit from several MFIs and NGOs is increasing every year. The Grameen Bank reports that 96% of its present borrowers are women. The Microcredit Summit Campaign reports that at the end of 2007 over 3,500 microfinance institutions made loans to 100 million of the world's poorest families and over 80% of the borrowers were women clients(2).

Researchers find three basic reasons why women take more advantage of microcredit than men. Firstly, women lack having control over assets. Generally men hold the assets in their name. Hence, the women cannot use the family properties as collateral for borrowing. Secondly, having fewer alternatives in borrowing, women are willing to agree to abide by the conditions of group borrowing such as attendance at meetings. Plus, they find benefits in the meetings.(3) Muhammad Yunus, the founder of Grameen Bank, says that we lend to women because they are more disciplined than men. Thirdly, women frequently work in the type of small-scale production that could benefit from the small loans available through microcredit. Women engage in small, home based enterprise because they are often excluded from employment in industries and, or they need to remain at home to manage the family (4).

The MFIs have also observed that women repayment rate is higher as compared to men. The statement can be proved by reviewing the accounts of various MFIs and NGOs. The Grameen Bank website states that the loan repayment rate is of over 95%. On the one hand, lower mobility and high risk averseness could be the most probable reasons behind such high repayment rates. Lower mobility of women leads to higher peer pressure and helps the lenders to monitor the women borrowers. On the other hand, high risk averseness deters fraud and misuse of funds. Due to the following reasons the women take more advantage and hence are the primary borrowers.

Impact of Microcredit on women

When women's development was lacking in the world, especially in South Asia, the MFIs and NGOs came up with a powerful tool like Microcredit. They have taken a big step providing financial services to the poor, especially the women. In a way these institutions have since then helped women to move out of their four- walled houses and work in factories or more specifically to become entrepreneurs.

Poor women make use of microcredit to set up a small business. It is observed that they purchase a sewing machine to make and sell garments or to purchase small animals to increase and sell agricultural output. They invest in various other businesses depending upon their potential and time they can devote. Microcredit is believed to increase the economic well being of its borrowers. It has removed the role of informal lenders to a large extent (where microcredit facilities are made available) who used to charge higher interest rate and used to adopt ways to keep the borrower trapped in the viscous cycle of debt for their own profit.

Apart from poverty alleviation, many argue that microcredit empowers women. Prof. Yunus saw women as the key agent of social change.(5) With women setting up or participating in productive activities, family income has gone up over time for poor families leading to consumption gains and poverty reduction. The women have become more independent and financially strong. The studies indicate that the impact of increase in women's income is different from increase in men's income and have a greater positive impact on family and its living standard. The reason is the difference in the pattern of expenditure. Increase in women's income lead to larger expenditure on both food and non-food items. In addition to this, more money is spent on better health practices, nutrition, sanitation and education of children in the household, especially on girl child. This is different from an increase in income of men as they tend to spend more on themselves. Jodi Jacobson explains that raising men's income is incorrectly assumed to benefit the whole family. She cites studies indicating that women having primary responsibility for family welfare and contribute all their earnings to the household while men spend more of their additional income on alcohol, tobacco or other consumer products. (6) Social activist and National Freedom award winner Bono said that "Give a man a fish, he'll eat for a day. Give a woman microcredit, she, her husband, her children and her extended family will eat for a lifetime."

The microcredit has also replaced the savings mechanism, which itself was missing among low income families. They barely have to fulfill their consumption needs. Poor people can rarely save due to their low incomes and hence are unable to make a larger purchase or at majority of times cannot afford basic facilities of education, health care and sanitation. But Microcredit has brought in the revolution. They borrow funds from MFIs and repay in very small investment with their current income of the household. In this manner, even poor people can invest in some businesses and can dream of availing very basic facilities of heath care, sanitation and education.

Many of these institutions not only cater to the financial needs of poor women but also encourage women to actively participate in decision making. These institutions are also helping in increasing the women participation in community. At BRAC (International development organisation based in Bangladesh), seven out of 20 directors are women, whereas the Grameen Bank employs its female borrowers as its governing body members. These institutions not only promote women to participate in their own organisation but other organisations as well. The increased women participation in politics in Bangladesh is an appropriate example.

Niaz Asadullah, Professor of Development Economics and Deputy Director of the Centre for Poverty and Development Studies at the University of Malaya and Zaki Wahhaj, Senior Lecturer in Economics at the University of Kent, believe that 'Beyond teaching women how to save and get access to credit, the NGO-driven microcredit programme created a sense of solidarity and improved outside mobility as borrowers, formed credit groups and met each other on a regular basis. This helped deliver other important social services such as family planning and maternal and child health care. Most importantly, these actions have facilitated significant changes in norms, attitudes and practices related to gender equality.'

Taking Bangladesh as an example, it has been observed that both participants and non-participants of microcredit have gained with the growth of the economy; the rates however have been found high for the participants. (7) As a whole, the microcredit has been seen as a tool to promote social, human and economic development and well being.

There is another side of the picture as well. Although many MFIs and related NGOs like Grameen Bank and BRAC, are doing well around the globe, studies have identified that access to microcredit has lead to no major improvement in household consumption in India, Morocco, Mongolia, Thailand and the Philippines. Although these studies do indicate that microcredit is an effective way for creation and expansion of business.

Critics of microcredit also argue that "exorbitant" interest rate is charged by these organisations and institutions. For instance, the Grameen Bank charges around 20% lending rate which is 7% more than commercial banks. These high interest rates go against the stated mission of poverty alleviation.

It has been observed by researchers that although these MFIs and NGOs have been successful in reaching out to poor women, and providing them with financial services, they have not been able to keep a check on whether women are using the

funds according to their own will or need. It has been found that loans are being issued in the name of the women but the decisions regarding the loan amount and usage of the funds are still being made by the husband or male members of the family, with women having little or no control over their loans. Though access to financial services has increased, the burden and workload on women and girls in the family have also augmented. Issues such as literacy, property rights and social attitude of women are few other hindrances that limit the idea of microcredit to empower women fully.

Another major concern of policy makers, various governments and economists is the changing motives and intentions of the MFIs. Microfinance schemes were meant to be the saviour of the world's poor, but in parts of India, lenders are enticing borrowers into poverty traps. (8) Many cases of suicide have been registered in India where people have killed themselves for not being able to make the repayments on time. Borrowers are often harassed and humiliated by recovery agents from the lender. Also, more than serving the poor, a lot of MFIs are inclining towards profit making.

On the basis of data on women borrowers of a large microfinance institution in Eastern India, greater access to microfinance is found associated with no or negative empowerment effects on the economic dimensions of empowerment i.e., enterprise management, credit related decisions, and expenditure related decisions; but an increase in empowerment in terms of child related decisions. (9) Another study in Ghana depicts how problem of no access to financial services has changed to too much access leading to indebtedness, showing the negative and opposite impact of microcredit than what it intended to bring in.

Conclusion

The impact of microcredit has been contentious. Although microcredit has proven to be an effective and remarkably successful tool in the ongoing struggle against poverty in many parts of the world, the ill effects of microcredit cannot be ignored. On the one hand it helps poor to become entrepreneurs and provide financial aid to start their own businesses, on the other hand it ignores the fact that every poor is not an entrepreneur and requires the basic training and skills to start a business.

The microcredit may be is the right tool to deal with poverty and the ills of the development process, and even contribute to achieving the 'Millennium Development Goals on gender equality and women's empowerment' but a lot more inclusion is required. Focus should be on full and equal participation of women in all spheres of life than purely economic empowerment, provision of basic training and skills for borrowers to establish their business, etc. There should also be certain rules set by MFIs and NGOs for overall development of poor women. For example, encouraging the registration of property in women's names to take a housing loan or the 16 decisions that borrowers of the Grameen Bank are encouraged to follow. These decisions include repairing houses, keeping children in clean environment, no to dowry, cooperating with each other and taking part in society activities and many more.

Prof Yunus shares the belief that access to credit is a human right. To allow people to enjoy their right to credit, MFIs and related NGOs will have to push back their personal intentions of profit making to back seat and look forward to providing financial facilities to poor women and enable the poorest of the poor to get their foot on the ladder of development.

Works Cited


1. Beatriz, A. (2005). The Economics of Microfinance. Cambridge: The MITPress.

2. DALEY-HARRIS, S. (2009). STATE OF THE MICROCREDIT SUMMITCAMPAIGN REPORT 2009. Microcredit Summit Campaign.

3. Lott, C. E. (Vol. 27:219). WHY WOMEN MATTER: THE STORY OFMICROCREDIT. JOURNAL OF LAW AND COMMERCE , 219-230.

4. Lott, C. E. (Vol. 27:219). WHY WOMEN MATTER: THE STORY OFMICROCREDIT. JOURNAL OF LAW AND COMMERCE , 219-230.

5. http://thediplomat.com/2014/12/saving-grameen-bank-sustaining-the-bangladesh-paradox/. (n.d.).

6. MUHAMMAD YUNUS, A. J. (2003). BANKER TO THE POOR: MICRO- LENDING AND THE BATTLEAGAINST WORLD POVERTY.

7. Khandker, S. R. (2013). Are Microcredit Participants in Bangladesh Trapped in Poverty and Debt? World bank, Agriculture and Rural Development Team, Development Research Group.

8. Kumar, S. (2011, October 30). Retrieved from The diplomat:http://thediplomat.com/2011/10/indias-looming-microcredit-crisis/

9. R. Nilakantan, S. D. (2013). THE IMPACT OF MICROFINANCE ON WOMENEMPOWERMENT:EVIDENCE FROM EASTERN INDIA. International Journal of Development and Confl ict , 27–40.