Thursday, April 24, 2008

Microfinance and Women

While poverty has swept the world with its innumerable causes, women have felt a majority of the effects. Seven out of ten of the poorest people in the world are women (Feinstein). The gender gap that exists in third world countries or least developed countries (LDCs) has significantly affected the entire economy and development of these countries. With the introduction of microcredit, a program innovated first in Bangladesh, families and particularly women have been able to break some of the barriers to producing income and cash flow. Though a relatively new idea, the programs have been so successful that they have expanded to approximately 70 countries and 100 million families, including those in the first world (Murali and Padmanaban). The idea of microcredit must be expanded and differentiated in order to appropriately address the needs of the people of each country. The potential for microcredit to empower women and help them achieve economic success of their own is great, with the assistance of governments and possible changes in the institutional structures within the countries.

Countries that experience less economic opportunity than others have several contributing factors. On the supply side of development, there may be impediments to free trade and international exchange—such as tariffs, quotas, voluntary export restraints, barriers to intellectual property rights, and export subsidies in other countries.There may also be causes such as natural disasters, war, and economic sanctions against a particular country that make it difficult or practically impossible to develop economically. The functional infrastructure of the country will also significantly affect the country’s ability to develop. The natural business cycles of the world economy and of the business within the country will affect the country’s economic health. If the country has a natural resource abundancy and is specializing in the production of natural resources or agricultural goods for production, they may also be affected by changes in the natural weather patterns and trends.

However, families are equally affected by demand side factors of development, such as the lack of skills, training, education, and literacy- all of which expand an individual’s human capital and therefore income potential. The lack of purchasing power based on the inability to create a steady stream of income will impede the individual to participate in the marketplace. Similarly, individuals and families need capital and assets, which comes from the ability to save and borrow money (Feinstein).

The causes for women’s impoverishment are directly related to these general causes of poverty. Generally, if employment is available, the jobs will go to the men first and foremost (Murali and Padmanaban). Societal discrimination will determine the roles that men and women play- and will affect the ways in which they obtain income as well. Through different cultural standards, women may be expected to not play a part in the income-making process. In many developing countries, society demands that women are responsible for nonmarket work inside of the household and are subordinate to men. Regional differences may also contribute to whether women have income-making opportunities or not. For example, a woman in a more urban area will find it easier to break the societal norms and find employment than a rural town where women continue to live by the laws of their community and are less in touch with the rest of the world. Women have a difficult time breaking into the work force in developing and developed countries because of their lack of role models and established networks in the employment fields (Kay). A woman would be reluctant to train for and pursue an occupation in which men are the dominant force behind, as men would likewise be reluctant to train a woman for their particular field and increase competition against them while going against societal norms.

Perhaps also, the work that is available is more geared to a certain gender. If there is only difficult, manual labor available, there will be less demand for women because men are seen to be comparatively better at physical labor than women. The availability of banking institutions for women will greatly decrease their economic power and their ability to make income. People in first world countries depend on financial institutions to save and borrow money- whether for inside the household or for starting and maintaining a business. When these tools are taken away from a particular group of people, they will feel the economic consequences.

Consider Bangladesh-- amidst a horrible famine in 1976. Muhammad Yunus, an economics professor at Chittagong University, was observing people trying to survive throughout this time and noticed a woman with three children making bamboo stools for a living. He loaned her a small amount of money in an experiment to see what might happen. To his surprise, she paid it back in full along with several other people he loaned money to in the same fashion. The people he loaned money to were able to invest in their business and make considerably higher profits, as well as having the ability to pay back the loan. Yunus began to work with local banks and then started the Grameen Bank. The bank would eventually grow to South America, Africa, Asia, and the United States. Repayment of loans from the Grameen Bank is at 98.4%, much higher than commercial banks, and loans are given without collateral most times. The Grameen Bank is geared towards offering loans to women: 97% of the 7.31 million borrowers are women (Yunus).

The Grameen Bank and the microcredit movement have been designed specifically for women and their potential for developing the third world, as well as impoverished areas of developed countries. Indeed, the idea of development without the use of an entire half of the population is absurd and irrational. However, these programs work extremely well with women because of the way that the groups function and are designed. A case study of Rotating Savings and Credit Associations (ROSCAs)—essentially microcredit programs—in the town of Karatina in Central Kenya displays a number of different reasons why women would be preferable to men for microcredit programs (Johnson).

Women tend to repay loans more reliably because of the social shame of no repayment of the loan. Loans are given through a group of women that are collectively responsible for the repayment of all of their loans. If one of the group members fails to pay back a loan, the other women are responsible for splitting the cost of the loans or being cut off from the loan institution (Johnson). One woman in the Karatina study explained that it was “… Embarrassing to go to a gitati [microcredit group] without money… You are going to spoil your name and people will be fearing you—seeing you as someone who doesn’t pay”. This creates substantial pressure for women to repay their loans, fearing the disappointment of the entire group. Women tend to work better in social networks together than men, and tend to take out smaller quantities and lower amounts of loans than men, making them more desirable to creditors. Many women also prefer single-sex ROSCAs as they are able to work more efficiently with women and they are able to save their money without informing their husbands (Chester and Kuhn).

Microcredit programs tend to be less effective for men because men behave in a different manner in groups. Many of the groups attempted with men have failed. On a number of occasions, physical violence has broken out between members of the group. The men felt subordinated by the rules of the loans and the strictness of attending meetings. In addition, they acted in a more competitive way, keeping problems to themselves and maintaining a level of mistrust between one another. As one man in Kenya explained, “Men are proud and do not trust each other. Every man is clever. You know someone is going to mess you up” (Johnson).

Apart from these reasons, women are a better investment because their social returns have such a higher potential. Women do not have access to loans that men might have, so it is more reasonable to invest in women.

With the ability to obtain capital and invest, women and entire countries have noticed the effects of lending money to women. Most of the effects are evident in LDCs but developed countries have also used microfinance programs and seen success from their programs. There have been some negative effects that have been noted and analyzed by journalists and economists that must also be addressed.

The most obvious result of these small loans is the ability for women to make their own income. Previously, men were the sole bread winners in many of the economies where microcredit is used. For example, women in Jdeideh, Jordan from an impoverished mountainside village grossed $500,000 in 1994 weaving rugs and selling them. This provided a livable wage for as many as 1,600 workers who were involved in the project (Glain). With this improved income, many women were able to purchase more and more of a decisive voice in the purchases of the family. The bargaining power of women is greatly increased when they are creating their own income—that is, they have more of a say in the way that money is spent within the household. Men who were working more than one job were sometimes able to quit one of their jobs. As men were the sole breadwinners, there was now less to support their families when another income-producer was contributing to the family income. Women are also found to spend their money more on their children (Goetz and Gupta) and will therefore change the structure of what is supplied and demanded in these countries. Women enrolled their children in school between 47% and 61% more with a 10% increase in borrowing (Khandker). Children therefore will have a greater chance for education and will continue to develop the economy with their increased human capital due to this education. Women also tend to encourage their daughters more in education than men will, perhaps causing a decreased gender gap within education and therefore earnings (Kabeen). The total income of the family is undeniably improved, and the consumption equilibrium of the family would shift, demonstrating a greater overall satisfaction (Goetz and Gupta). The community would experience a greater income as well, with so many of its families participating in the loan programs which would increase their income.

The community and the family would theoretically have more income to invest in sanitation, nutrition, health insurance, savings, and education. The community would advance its culture by the specialization of particular trades of the micro-businesses. Take, for example, the Bani Hamida’s Women’s Weaving Project, which utilized ancient rug-making techniques and developed these skills within the community. The weaving of these rugs had been on its last years, but was revived by the employment of this program (Glain).

The societal standing of women has found itself to change when women are perceived to have greater value based on their success. Women felt included in the community, as before the credit, women felt outside of the “orbit of community life” and “excluded from its social events and from everyday forms of hospitality” (Simanowitz and Walker). One woman, when asked if her situation has gotten worse or better since she took out a microloan, replied, “Have things improved for us? Listen, when you have no money, there is nobody, but when you ave money, you suddenly have so many friends and acquaintances. Money is all. All that time, when we had no food, nothing to neat, no one wanted to give us anything” (Kabeen).

This perceived increase in value also helped women within their families. Family members and husbands felt a greater affection towards women that were successful in these programs, and there was less financial tension between the husband and wife. Women feel more self-worth and empowerment through having the opportunity to create a business or be part of something that was creating income. Women feel good about being able to help out their families and being able to be self-sufficient in case anything happened with their family or husband. Many women chose to open their own savings accounts and life insurance plans for this reason. Although divorce is still socially unacceptable in many developing countries, women have the opportunity with their own income to create a “divorce within the marriage”, that is, to separate all of the finances within the marriage so that each person is independent of on another (Johnson). Though studies on domestic abuse conflict, many find that violence is decreased with the introduction of the woman’s income. Perhaps this is because of the alleviation of the pressure on men to be the only breadwinners, or because of the increased value that the woman is given with her own income.

Sometimes the microcredit programs fall short, however of what they intend to accomplish. For example, microcredit works on a demand-side argument that hopes that working with individuals will help the economy of the country as a whole. However, very often this is not the case. Microcredit cannot change the societal institutions that support gender discrimination. In order for women to be liberated within the market, larger institutional changes need to take place. Though credit is important for development, many argue that it will not solve poverty or will empower women alone (Feiner). Even the loans may not empower women as much as they seem to. Many loans are co-signed by a male, usually a husband, or are controlled secretly or overtly by the husband. Therefore, loans are not truly empowering women, but are only placing more control in the hands of the men of the country.

In addition, because the Grameen Bank and similar microcredit banks earn profit, they may be said to have interests that do not coincide with the impoverished—many argue that the interest rates that these banks charge are usurping the poor. Although a counterargument points out that because the Grameen Bank borrows from other sources, the interest rate adds up and the final amount that is being borrowed covers this cost as well as the cost of administering a large number of small loans. The banks can, however, use microcredit to their own advantage and there is the opportunity for maximizing their own utility rather than the utility of the poor. Sometimes the power of microcredit can be misused, as well.

In Beirut, Lebanon, an intelligent economist and world-branded terrorist Hussein al-Shami uses microcredit programs to develop the funds of the Hezbollah group. Hezbollah is named a terrorist organization by the United States because of their supposed connection to violent terrorist acts. These microcredit loans are also given to women but do not encourage their empowerment by the nature of the organization (Higgins).

As the study of the Jordanian women weaving rugs addressed, sometimes the free market is a cruel force and can put a project out of business just as easily as it had given the project success. Women will put their hard work into the business and may not receive economic benefit to their labor. In the case of the Jordanian weaving project, the women were so successful that they attracted fierce competition that would utilize cheap labor from Egypt in order to drive down their prices. Many other groups were funded by international aid organizations for the same purpose of economic development. The women who began the project were unable to lower their prices and the demand for their products dropped significantly. One woman explained, “It was so hard to compete. We had to do everything by hand. It’s like having the government in the market, and the NGO is the government” (Glain).

In first word countries, the effects of microcredit programs are very different. The only two Grameen-affiliated programs in the United States are located in Dallas and Harlem. Though these programs have had a successful experience, it is a difficult process for one to receive a loan—including classes and strict rules. Those that make it through this process have found success in their new businesses. Veronica Rivera, a woman from Mexico City, was enrolled in the Dallas microfinance program- called the PLAN fund. She began her own janitorial company and is now grossing $100,000 a year. The program has helped her understand the intricacies of owning a business, such as taxes and payroll accounts (Hall). Though this is a very different account from the developing world, these microfinance programs seem to have a positive effect, particularly on women, even in developed countries.

Similarly, banking designed specifically for women, has become a recent trend in developed countries. In the United Kingdom and Germany, bankers have realized that women are an enormous customer group, and it would be unreasonable to ignore them. The Raiffeisenbank Gastein in Germany has reached many women looking for banking for managing household finances or managing their businesses. In the UK, the private bank Coutts has been attempting to attract more women to its business. Indeed, a 2006 Centre for Economic Business Research study predicts that 53% of millionaires in 2020 will be women. The report also estimates that there are 448,000 women currently in the UK who are classified as being of “high net worth”. The banks support female entrepreneurship and empowerment of women through control of their financial services. Supporting women’s economic development also leads to greater gains in the country’s economic welfare, even when considering first word countries. In Canada, women’s self-employment grew 43% in the last ten years, and has contributed to approximately $18 billion dollars to Canada’s economic growth (Odoi). Lending banking services to women and encouraging self-employment among women is lucrative for banks, is empowering to women, and is effective for encouraging growth in the entire economy.

Case studies worldwide have come up with success stories concerning the microcredit programs and their ability to advance the social and economic status of women. In the Niger Delta, for example, the United Nations Development Fund for Women has joined forces with Micro Credit Finance Institutions in the region to encourage entrepreneurship and to give the women of the area capital that they can start businesses with. The training that they have been able to receive gives the women valuable computer skills and management skills—as well as naturally organizing the women into cooperatives. The program has been so successful that identical projects are finding themselves implemented in other parts of the state (Ilbom).

In the mostly Muslim area of Narathiawat in south Thailand, the effects of female entrepreneurship have truly shown what microcredit can do for the individual woman, women in groups, and women advancing their communities. Several groups were started to produce certain products, such as embroidery. Funds were given to each group and the women have successfully marketed and sold their products. With this growth, women have been able to be more in touch with the world around them through computer technology and from trading with nearby regions. According to the study that was conducted regarding these groups, the women were more empowered within their household to be major decision-makers. Many women also went on to work with the structure of the community and address certain political issues they found relevant during their entrepreneurship (Kay).

Perhaps the most successful of countries for advancing women through microcredit is India. A case study in Haveli Tauka in western India reports that 3000 women were given the chance to utilize small loans for their development. The program was successful and women reported income through activities such as goat rearing, jewelry making, and farming and vegetable cultivation. According to the article, “the poorest of the poor have been helped to break the barrier of poverty and gain economic independence” (Fernandes). Along with the loans, the women have been given training in empowerment and “capacity building”—setting unlimited goals for women and their advancement.

Where the idea for microcredit began is also an excellent example of how it has helped women. The country of Bangladesh uses small loans to provide credit to the rural areas of the country. Groups have been so successful in this country because people can choose which groups they would like to work with and can have support and guidance through these groups. Groups also make the repayment rate very high—for the Grameen Bank, women recovered loans at 99.4% in 1994. This is unheard of in commercial banking institutions. Though the societal standards looking down upon women who leave their households for work in the labor market have not changed significantly, women can achieve income of their own working in the household and not forgoing nonmarket work. Women’s nonland assets increased 2% for each labor hour worked, with a 10% increase in borrowing from the Grameen Bank. Credit given to men in this study does not have any impact on their purchasing power or their advancement.

Women have the potential for incredible economic growth through microcredit programs. Though these programs are not substantial enough to lift women and countries out of poverty alone, they are a brilliant idea for helping to ease the pain of the impoverished. Banking services are essential for economic growth and need to be available for all people- especially women in developing countries. Microcredit programs must be designed differently for women in third and first world countries. The programs must change according to each country’s specific needs and development goals.

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