WAT GD Case Study: Microfinance and its impact on women empowerment
It takes a lot of effort to nail WAT/GD/PI rounds. To be able to perform well in these rounds, one must have adequate knowledge about various topics. In continuation with our case studies series, Shiksha.com spoke to a few Jawaharlal Nehru University (JNU) students, to share their case study with us. Shilpi Swami, Swati Duggal and Vanshika Agarwal, second year students at JNU, shared their work with us.
Most of the 900 million poor people living in rural parts of developing nations live in risky conditions, susceptible to lack of credit, shelter and food. This has the further implication of increased poverty, social inequality, stunted economic growth and slow development. For growth and development of the economy as a whole, it is of key importance that these people living in rural parts of developing nations have some access to credit to foster their income, hold some savings and protect their families from hardships. The major difficulties in lending to these poor include: lack of collateral and lack of information regarding their credit worthiness and riskiness. Generally, the poor have no collateral and lending to the poor has high cost because the size of the loan is small and the poor are located in remote places. Thus, the only source of credit available to them is informal credit for which they pay staggering high interest rates.
One of the ways of addressing this problem is microfinance which is defined as a kind of banking service given to these unemployed or low income individuals or groups who otherwise lack access to banking and other services. Although designed for the poor, the chief beneficiaries of these programs are women.
The Microcredit Summit Campaign claims that at the end of 2007, more than 3,500 microfinance institutions made loans to 100 million of the world’s deprived families and over 80% of the borrowers were women clients.
The pioneer microcredit institutions have found women to be the most responsible clients as they have higher repayment rates and are more credit worthy relative to men. Also, women are keen to abide by the conditions of group borrowing, such as attendance at meetings and required training because they have lower mobility and higher risk averseness. Women borrowers are found to spread their income over their household and children as contrary to men, who are found to spend it on themselves. Thus, if women borrowers earn income through microfinance, it promotes the welfare of the society as a whole. But the question arises: although women are provided with increased access to credit through microfinance; does this also lead to their empowerment?
Women empowerment is a greater say of women in household’s decision making and increase in her bargaining power. When microfinance is given to women of the households, two effects run side-by-side. First is the ‘women-empowerment effect’, which is due to increased expenditures in health and education of all the members of the household as a consequence of increased income in the hands of women. The second effect, ‘women-disempowerment effect’, is due to the friction or tensions created in the household from the exclusion of men from subsidized loans. This is because they feel threatened in their role as primary income-earners in the household. As a result, women in these poor households are often beaten up and are snatched of these loans by their husbands.
Thus, the question remains- why donor subsidize loans given to women who are responsible for repayments when such loans do not give them power to decide over household and business expenditures in health and education?
Thus, Microfinance Institutions (MFOs) are “no magic bullets” which can automatically empower poor women. The design of MFOs should be relied on an empirically-based knowledge of the link between framework, method and impact. There are two types of routes MFOs take: Some MFOs, like PRADAN, take the "financial systems" approach which only offers simple package of financial services to the poor. Whereas, MFOs, like BRAC, link financial service delivery with livelihood support, health and legal training. It is this second route that brings about the increased participation of women in the household decision making and social and political issues- and thus leads to the empowerment of women. Such schemes for women lead to them having a greater role in household decision making process, access to financial and economic resources, social networks, bargaining power vis-à-vis their husbands and freedom of mobility.
Thus, the most significant policy recommendation would be to have a quantitative scheme which solves the credit constraint that the women face and a simultaneous qualitative program which empowers them in the true sense. Although we already have in place schemes providing subsidized loans to women borrowers like Rashtriya Mahila Kosh (National Credit Fund for Woman), this does not ensure women will have control over these loans. So it is important that these schemes are backed up by qualitative schemes like the ‘Magic Bus mentoring program’ (an initiative by Magic Bus NGO), which strives to bring about attitudinal and behavioral change for boys and girls. This is brought about by a weekly agenda of sporting activities, which are used as symphonies to change behavior in the areas of gender, education, health and livelihood. Awareness campaigns which prints the heroic deeds of Malala Yousafzai, Rani Lakshmi Bai, Kalpana Chawla, Indra Nooyi etc. in the minds of both men and women could also help in reducing the gender divide prevalent in the society.
Microfinance’s success largely rests on capacity building, i.e. significant amount of training, entrepreneurial workshops and education opportunities provided to the women to increase their awareness and enhance their skills. Thus, the extent of the success of microfinance programs depends on the broader social framework in which these schemes operate and hence, there is a need to address these social issues along with the financial motives of the schemes undertaken.
As Microfinance cannot substitute for broader social policies promoting empowerment of women, so it can just be seen as a safety net for the poor women rather than a ladder out of social injustice against them.
About the Authors
This case study has been compiled by Shilpi Swami, Swati Duggal and Vanshika Agarwal – second year students of M.A. Economics (with specialisation in International Trade) at Jawaharlal Nehru University.
