Does Microfinance Empower Poor Women?

That microfinance helps in extending affordable credit and in mobilizing savings is a well documented fact. Fostering the savings habit and the ability to access credit in a convenient manner and at affordable rates can help in transforming the lives of many beneficiaries particularly women. In the Indian context, mainly for the poor and illiterate women, this ability to access products and services by avoiding social, cultural barriers offers them with a framework within which they can collaborate to find creative solutions for individual and social issues.

Whether microfinance truly empowers the beneficiary women is a question that has sparked many debates. Although the concept of ‘empowerment’ has been used since the 1960’s and despite the term’s popularity, there is no international consensus on how to define it.

‘Empowerment is like obscenity, you don’t know how to define it but you know when you see it’[1]. The United Nations definition states that women’s empowerment has five components namely:  women’s sense of self-worth; their right to have and to determine choices; their right to have access to opportunities and resources; their right to have the power to control their own lives, both within and outside the home; and their ability to influence the direction of social change to create a more just social and economic order, nationally and internationally.

The 2006 Nobel Committee awarded Dr Muhammad Yunus[2] with the Peace Prize an acknowledgement of the fact that ‘bottom-up’ initiatives were pragmatic options to the traditional ‘top-down’ approach followed by most governments and development organizations. Dr Yunus founded the Grameen Bank an institution that has achieved international fame for offering small loans to poor women sans any collateral. He also helped start the Village Phone program, an initiative that enabled Bangladeshi women to become entrepreneurs by renting calling time on mobile phones to illiterate villagers who could not afford their own telecom devices.

However there have been some criticisms about the empowerment aspect. Notable among these is Aminur Rahman’s ‘Women and Microcredit in Rural Bangladesh (1999) which is one the most well-known anthropological critiques of the empowerment idea as propogated by the Grameen Model. Other writers like Aradhana Parmar’s essay[3]expressed concern about the Grameen Bank’s micro lending practices which she wrote reduced women to ‘welfare objects’ rather than assisting them in discovering their own capacity to create conditions in which they could act as agents who make ‘principled choices’

Some questions that come to mind in this context are:

  • Does micro credit contribute to empowerment? While small loans can help women who otherwise have no other options-get easy access to funds at affordable rates, the fact is that these funds need to be deployed in income generating activities for the ‘multiplier effect’ to kick in such that eventually these women are able to emerge out of this cycle of dependency and become contributors rather than borrowers. Using it for consumption purposes rather than for productive uses can make them dependant and continue the vicious circle.

  • Is the loan size (amount) adequate to make any tangible difference so as to alleviate the beneficiary’s existing situation? The table given below shows the comparison of the average loan size per self-help group (SHG)[4] member versus MFI member. It can be seen that the average loan size is higher when taken from a private MFI as compared to the banking system .Also whether the amount of the loan (Rs 5000 and Rs 6000) respectively is adequate after taking into account current inflationary trends and to foster any entrepreneurial effort is a point to ponder upon.
Type Avg loan/customer2008-2009 Avg loan/customer2009-2010 Avg loan/customer2010-2011 Increase in 2010-11
SHG Member (Rs) 4120 4570 4900 330
MFI customer (Rs) 5190 6060 6610 550
(Source: Microfinance India State of the Sector Report 2011-Author N Srinivasan)
  • How do we ensure that the women borrowers are the direct beneficiaries of the credit availed? The fact that a women contributes regularly into an SHG could be because she is merely a mediator – a link that can help get inexpensive loans and pass them on to their families. Hence in the ultimate analysis the women member may land up being ‘used’ both by the microfinance provider (who is interested in earning interest) and the family which in the Indian context is still patriarchal ( who are interested in the loans)

  •  Can homogeneity in group formation lead to exclusion? Because microfinance groups focus on the idea of getting together a homogenous group this could lead to exclusion of other poor women who don’t fit into this definition of ‘homogeneity’. For eg: at a village level in India this could be exclusion based upon caste, occupation or due to public knowledge of the possible inability to repay regularly because of being ‘less well off’. Moreover it has been found that the dynamism of the group leader in case of SHG’s is instrumental in binding the group and in problem solving. Many groups fall apart once the leadership is lost. In such cases one would expect a leader to emerge from the remaining members (if indeed they feel empowered)but that generally does not happen

  • Where are the other support mechanisms that need to work in tandem? Very often in course of my field work, I have found that women are unable to take up a business activity since there is no system of market linkage which they can access to sell their goods. What use is credit only if it cannot be deployed and circulated in a manner that it bolsters wealth creation and confidence?

  • What about groups that are dissolved after the subsidy/benefit is availed? In many states like Andhra Pradesh and Maharashtra SHG groups comprising women belonging to the BPL (Below Poverty Line) category are entitled to a subsidy once a stipulated tenure is completed. It is therefore quite common for the group members to split the group and divide the funds once this subsidy is availed. If these women had derived a positive advantage then wouldn’t they continue?

  • Are these big words like ‘empowerment’, ‘social capital’ western concepts not relevant in the Indian context? Perhaps-In the west basic education, information on the rights/ responsibilities and the knowledge of the government machinery entrusted in executing these duties is available in the public domain. In India, the dynamics are very different: opaque policies,unfit politicians, poverty, illiteracy, divisions based on caste, creed and religion make the majority an ideal poaching ground for politicians,bureaucrats, and even the ‘new-age’ MFI’s (micro finance institutions). A lot of the schemes are announced with an agenda in mind and very often lack a proper design or even an objective. How can such half baked insincere endeavors result in anything?

  • Are these women victims of a deliberate higher game plan? A lot of the funds that support microfinance activities come from donors, development agencies, government and international bodies. The projection of the ‘glory’ aspect of the benefits of microfinance particularly terms such as empowerment go down well with the essentially western donor population. The theme of doing good coupled with good repayment rates is a concept that seems to appeal to the mighty givers. Then there are international events like the subprime crisis in the West which helped Indian microfinance institutions (MFIs)[5] attracted private equity investment totaling INR 3.86 billion (USD 84 million) between January and June of 2010 – an increase of approximately 15 percent over the first half of 2009. The increase was attributed to the high profitability of the majority of Indian MFIs, (high interest rates of approx 30-60 percent per year) and high repayment rates (exceeding 95 percent in most cases).In fact even foreign pension funds such as ABP[6], a Netherlands-based pension fund, invested $30 million in Global Microfinance Equity Fund (GMEF), a microfinance private equity fund managed by Grassroots Capital. In 2009, another Dutch pension fund had invested $60 million in the GMEF[7]. Needless to state that private equity funds are not built around the principles of philanthropy and tend to invest in ‘businesses’ that are ‘viable’.

A lot more can be written about this multifaceted concept which though nebulous if  sincerely implemented through objective focused development programs can help lesser privileged women discover their true potential  and the power within.

[1] Source: Strandberg N ‘Conceptualising Empowerment as a Transformative Strategy for Poverty Eradication and Implications for measuring progress’. Feb 2002 New Delhi India.

[2] Dr Yunus is the first economist to get the Peace Prize.

[3]Selinger E ‘Does Microcredit ‘Empower’? Reflections on the Grameen Bank Debate. Jan 2008 Hum Stud 31:27-41.

[4] SHG Groups: Concept & Operation: The SHG’s are informal and homogenous groups of maximum 20 members. They are formed either by NGO/Development agencies, banks or can be self initiated. After formation, the members elect their leaders and finalize certain basic requirements such as the amount of monthly saving, meeting date and time, rate of interest, rules and requirements for borrowing, fines and penalties if applicable etc. These items are generally documented and form the mission / objective statement for the group. Bank accounts are opened in the name of the SHG and its members after completing the necessary documentation process. Once formed, the members start collecting a fixed amount of saving every month from each member. The discipline and punctuality regarding the payment of the monthly savings is key to ensuring that the SHG group is able to build a kitty that can be used for intra group lending at the rate of interest decided by the group. The interest earned becomes an income for the group as do the fines, late fees etc. This helps the members get familiar with financial intermediation, book-keeping and prioritization of needs. Once the group has reached a level of ‘stability’ [4]it is able to access bank credit ( also referred to as linkage) provided the bank is satisfied about the genuineness of the demand for credit, repayment capacity ,credit handling ability and the record keeping ability of the group

[5] Source: Micro Capital Brief –July 23 2010

[7] Grassroots Capital closed the fund at $117.5 million, and as per a company statement. , declared, that it planned to invest in around 50 microfinance institutions in different parts of the world such as India, Latin America and Africa from its total corpus.

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