In 1974, Professor Yunus made a $27 loan to the villagers of Jobra who were too poor to get any traditional bank credit and were preyed on by the loan sharks. Having financed 42 craftsmen and farmers, he devised a model to provide poor women with small loans at a low interest. This microfinance project aimed at providing an alternative to conventional banking and making financial services inclusive to the poor and low-income people, especially women.
Later the Grameen Bank took off. This model has been expanded to more than 100 countries worldwide. Microfinance institutions have become an important tool to “create economic and social development from below” and a major factor to realize SDGs to increase the income of borrowers and reduce poverty. The UN declared the year 2005 as the International Year of Microcredit to support inclusive and accessible financial services to the poor and to achieve sustainable livelihoods for their future.
Microfinance Institutions as the informal banking
Microfinance institutions (MFIs) such as Grameen Bank serve as a great opportunity for unbanked women to reach economic gains and break the cycle of poverty. Traditionally, women are disproportionately affected by poverty. By 2022, 388 million women and girls are living in extreme poverty in the world, and this number is greater than that of men. Women are also less likely to have control over economic resources in households. Microfinance has partially removed their barriers to accessing economic resources by providing poor women with financial services to become entrepreneurs and generate higher income.
Apart from providing loans, Grameen Bank also offers micro savings, micro credits, and microinsurance, as well as lectures on financial basics to improve borrowers’ financial literacy, and so on. In addition to savings and generating income, microfinance allows borrowers to get access to resources that are pivotal for survival. For instance, women in malaria-stricken areas can purchase necessary medicine and materials to protect the family from the fatal disease. In 2012, among the 2,600 branches of Grameen bank, 97% of the loans are borrowed from women, serving about a quarter of the Bangladesh women.
Microfinance is not only an economic tool to address poverty but is also envisioned as an initiative to build their capacity. It is widely reported that MFIs have empowered women as they positively influence females’ decision-making power. Women’s voices and autonomy are encouraged to allocate financial resources. Starting a business makes them independent and delivers newfound respect to them. In the meantime, the signature group-based monetary lending system has generated effects beyond economic interest. The social dynamics that derived from the groups have allowed space for the women to socialize, strengthen their networks and participate in the wider community. Microfinance not only improves females’ socio-economic status and living standards but also their quality of life.
Is microfinance the answer to poor women’s empowerment?
Within the framework of neoliberalism, microfinance shifts the responsibility from the state to individuals. Self-reliance and sustainable development are believed to be the most effective means to fight against poverty. In a financial paradigm, the prevailing belief is that increasing access to economic resources would lead to growing empowerment. If women participate in the financial market and take advantage of the available resources, they can be economically empowered, and financial success necessarily leads to women’s empowerment.
According to Sutton-Brown’s study, in terms of design and implementation, microfinance programs have offered opportunities to women to participate in a variety of projects related to community building, political participation, education, etc. which led women to challenge the existing discriminatory social and cultural norms. But as a multi-dimensional construct, empowerment requires closer examination and cannot be solely determined in economic terms. From the case of Malaysia, women are empowered when they can decide the use of loans and take full ownership of running a business. Whether the empowerment directly comes from microfinance remains unclear, as women tend to borrow from others to meet their financial requirements.
The simplistic measure cannot be deemed as the panacea to poverty or women’s empowerment. Women are vulnerable to dual oppression of the social structure: capitalism and patriarchy. Microfinance has opened up a new market for capitalism to exploit the poor. It has imposed increasing financial burdens on women, who are transformed into indentured laborers and financial assets, consumers, and entrepreneurs. They are forced to gain sufficient investment and create value to repay the loan with interest. The weekly community meetings and the demands of expanding a business are overloaded. Women have to take on multiple works to pay back the loans. This new form of accumulation and exploitation makes it difficult for women to assess their returns on the microfinance program. The low-income and poor women take the risks but fail to accumulate any wealth. As the answer to poverty, microfinance has caused a new form of oppression and perpetuated women’s suffering.
Participation of women in the financial sector
The integration of women into the financial market does not free women from patriarchal oppression. Instead, it strengthens the existing gender roles under patriarchy and capitalism. Financial markets take advantage of feminine characteristics of being risk averse and compliance with the existing gender structure, investing in the subject of relatively safe and reliable women. Even if women can get access to economic resources, it does not necessarily mean that they can control their income and make choices to allocate these gains. There is little space for genuine transformation. In order to repay the debts, women are pressured into selling their lands, forced into prostitution, and even committing suicide, as about 200 Sri Lanka women showed in the past few years. Under the loosely regulated system, the involvement of financiers in the microfinance industry has exploited the poor and led to compounded misery.
Given the success of MFIs, especially the high repayment rate of women, microfinance has been used for other purposes than helping the poor but making money out of the poor. The non-profit organization has been replaced by commercial enterprises. Irresponsible microfinance institutions use high-interest rates and launch IPOs to expand their businesses on the poor. Their operations are lacking transparency, without the carrying out due diligence. Borrowers have faced even greater financial risks. Its primary goal of alleviating poverty has instead turned women to become trapped in the loop of poverty.
Socio-cultural challenges for women to receive a loan
Domestic violence is often cited in the scholarly literature as an undesirable consequence. The change in income level may not necessarily translate into a change in intra-household relations and social structure, so women are in a more disadvantaged position once they get any money. The generated income from microfinance reversed the traditional gender-based role, making men even more hostile towards their wives. Even if women are accessible to funds, they are unable to make decisions to allocate essential living costs to the household. Instead, it was husbands controlled the money and spent it on drinking. Bounded by kinship obligation and gender inequalities, women are subject to domestic violence if they fail to get any.
Women must be empowered at all levels of life, particularly in the household, community and labor force. More development actors, such as family, community should be engaged. Governments should microcredit regulatory authority, aiming to regulating the interest rates for the microfinance institutions, ensuring transparency and preventing abusive loan collection practices. Comprehensive interventions through financial inclusion should be carefully designed in order to eradicate poverty and empower women.
References
https://www.nobelprize.org/prizes/peace/2006/yunus/biographical/
https://press.un.org/en/2004/dev2492.doc.htm
https://data.unwomen.org/features/poverty-deepens-women-and-girls-according-latest-projections
https://hbr.org/2012/12/muhammad-yunus
Sutton-Brown, C. A. (2011). Women’s empowerment in the context of microfinance: A photovoice study. Georgia State University.
Haile, H. B., Osman, I., Shuib, R., & Oon, S. W. (2015). Is there a Convergence or Divergence between Feminist Empowerment and Microfinance Institutions’ Success Indicators?. Journal of International Development, 27(7), 1042-1057.
https://apwld.org/a-feminist-critique-of-micro-credit/
Byatt, B. (2018). The case of Kiva and Grameen: Towards a Marxist feminist critique of ‘smart economics’. Capital & Class, 42(3), 403-409.
https://www.bloomberg.com/graphics/2022-microfinance-banks-profit-off-developing-world/