More Than Microfinance
Women Must Be Included in Big-Picture Economics
In economics, people frequently use terms such as "micro" or "macro." Nowadays, "micro" is generally associated with microcredit or microfinance, two terms that have become synonymous with the popular practice of giving small loans to people--most often women--to start small businesses and make money for themselves and their families. "Macro" sometimes hints at large sums of money, but it can also mean the high-level structural reform of institutions that have deep impacts on the economy, such as banks and governments. A look at microfinance's successes and shortcomings in helping women and their families get out of poverty shows that macro-level structural reforms--not just more microfinance--are needed to help overcome poverty.
A Panacea for Poverty?
Does microfinance actually alleviate poverty? On one hand, it gives people who are disenfranchised a chance to earn money and participate financially in society. It offers steady employment and helps individuals establish the verifiable credit histories necessary to secure savings accounts, credit and loans. Microfinance can succeed in generating income for whole families and communities, and sometimes helps local, indigenous industries bloom in places where there is little other economic development.
On the other hand, there are a number of challenges and negative repercussions to microcredit, some of them unforeseen. Because of extreme poverty, many borrowers take out loans for household expenses rather than for their businesses(1). In some cases, women even take out loans to pay for their daughters’ dowries; dowry prices can go up when it becomes known that women have access to microcredit(2).
Moreover, some microfinance institutions charge exorbitantly high interest rates, causing borrowers to become trapped in cycles of debt. When women don’t have enough income to make payments, they may borrow from within their social network, sell household goods, reduce food consumption and seek out additional work(3). These behaviors are unsustainable, and show that access to credit doesn’t guarantee an end to poverty.
Financial inclusion doesn’t necessarily translate into economic independence or empowerment, especially when the burden of poverty alleviation remains on poor women themselves and discriminatory cultural practices further disadvantage women.
So, what can be done?
Microfinance: Mixed Gains for Women and their Families
In its current form, microcredit started in the 1970s, with the Grameen Bank in Bangladesh. The Grameen Bank pioneered the practice of giving small loans to groups of people--mostly women--who had few assets but who were willing to guarantee each other’s loans. By working with groups and keeping loan amounts small, banks were able to minimize their risk and lend to a population that otherwise wouldn’t qualify for services. Women then used the loan money to start their own small businesses.
Since then, practices and definitions have evolved. What was earlier called "microcredit," which refers just to providing loans, is now referred to as "microfinance," which describes a range of financial services--including savings accounts and insurance policies--in addition to loans and other supportive services. Such additional services may include basic and financial literacy, skills-based education, nutrition education and health services. This is the type of model used by Pro Mujer (featured in the slide show) and by the Grameen Bank and its offshoots worldwide.
Such changes reflect recognition that people need education and support, not just money, to be able to start, sustain and grow businesses, as well as to make sound decisions for themselves and their families. These "combined" models have benefited women in numerous ways.
Microfinance: Why Women?
Research shows that women repay their loans in higher rates than men and that while men often spend loan money on themselves, women are more likely to use their loans to improve their businesses(4). Women also tend to spend their income on healthcare, education, their families and their children--all spending priorities that help alleviate poverty(5). As a result, women have become the top targets of microfinance institutions (MFIs).
However, this attention has proved a mixed blessing. Unscrupulous lenders may exploit women’s "dependability" by charging very high interest rates and encouraging them to take out larger loans than necessary to finance their businesses.
Moreover, because of their better access to credit, some women are expected to earn a living while still assuming traditional caretaking duties--and while still being excluded from major household decisions. Without accompanying changes in social beliefs and attitudes, access to economic opportunities doesn’t guarantee that women’s situations will improve.
Macro Solutions Are Needed, Too
Political science researcher Matthew Ruben points out that "the popularity of microfinance has the potential to distract from other vital antipoverty measures. It is easy for donors and governments to create and fund credit programs and ignore other, potentially more serious problems faced by the rural poor. Microfinance by itself does not solve the need for medical services, infrastructure, education and land reform"(6). These are needs that poor women and families cannot be expected to fulfill for themselves; rather, they need resources from governments, the private sector and civil society organizations.
In many countries, however, governments, banks and the private sector are either failing to step forward, highly corrupt or offering "solutions" that only serve to entrench poverty rather than dismantle it. For example, the privatization of social welfare programs in most countries means that MFIs are often expected to provide necessary services for the poor--services that were once the responsibility of governments. This is not problematic in and of itself, but there is little incentive for private groups to actually do so, and privatized services may place profit over access and affordability.
Even in cases where governments are ready to step in and, for example, build and maintain schools, roads, utility services, job training programs, health clinics and the like, their own financial vulnerability often compromises their ability to make significant, long-term investments. Poorer countries usually borrow money for structural improvements at very high interest rates and under very constraining conditions from other governments, as well as from international financial institutions like the World Bank and the International Monetary Fund.
This increases governments’ debt and ultimately handicaps their efforts, since many of the resources go to loan negotiation and repayments rather than building infrastructure or providing services. Moreover, due to rampant corruption within many governments, much of the money from these loans is pocketed well before it makes it into the hands of those who need it most.
The loans also come with multiple restrictions about who gets money and for what, most often leaving women out. Community-based activists, including women, are routinely excluded from high-level discussions between finance ministers and loan officers; plans for use of the money are frequently top-down, unrealistic and ineffective. Even efforts that begin with the best intentions can go sour, and resources are then lost.
Many experts also fear we are becoming overly reliant on microfinance as the primary vehicle for global poverty alleviation. Scholars like Heloise Weber at the University of Aberdeen, for example, have argued that the dominance of microfinance as a strategy could pave the way for banks to take over the roles of governments--and make huge profits in the process. This has major implications for future access to microfinance and the affordability of repayments.
Engaging Women in Defining Solutions
Such concerns point to the need for conversations between those who determine economic policy, those who provide money and those who the policies and money are intended to benefit. These dialogues need to include the positive and negative impacts--as well as limits--of microcredit, and they need to address reforms on a macro, structural level. Aid accountability, reform of international lending practices, legal and regulatory frameworks and widespread, deep, context-specific social investments in health, education, infrastructure and employment all need to be considered.
Turning exclusively to microfinance to alleviate poverty and mend economic crises is inadequate, ineffective and unjust because of the potential burden it places on the poor--including women. Women don’t create their own conditions of poverty and shouldn’t be responsible for changing their lives entirely on their own. Instead, microfinance must be paired with macro-level structural reform so women and poor families can reap the benefits of financial inclusion and enjoy the true empowerment that comes with freedom from poverty and access to basic rights.
1. Gina Neff, “Microcredit, Microresults,” The Left Business Observer, Vol. 74 (October 1996).
2. Jason Cons and Kasia Paprocki, “The Limits of Microcredit--A Bangladeshi Case," Food First Backgrounder, Institute for Food and Development Policy, Vol. 14(4) (Winter 2008).
3. John A. Brett, “‘We Sacrifice and Eat Less’: The Structural Complexities of Microfinance Participation.” Human Organization, Vol. 65 (2006): 8-19.
4. Diane Elson, Male Bias in the Development Process (Manchester, UK: Manchester University Press, 1995).
5. Matthew Ruben, “The Promise of Microfinance for Poverty Relief in the Developing World,” http://www.csa.com/discoveryguides/microfinance/review2.php?SID=6jpif59stklisce4hvi1pvnpi7#tar (August 5, 2009).
6. Ruben, Matthew. “The Promise of Microfinance for Poverty Relief in the Developing World,” http://www.csa.com/discoveryguides/microfinance/review2.php?SID=6jpif59stklisce4hvi1pvnpi7#tar (August 5, 2009)