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Microcredit: A Model of Empowerment for Women?

Dissenting Voices Volume 3 Issue Microcredit: A Model of Empowerment for Women? Kelsey Mahoney The College at Brockport, Recommended Citation Mahoney, Kelsey (2014) Microcredit:
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Dissenting Voices Volume 3 Issue Microcredit: A Model of Empowerment for Women? Kelsey Mahoney The College at Brockport, Recommended Citation Mahoney, Kelsey (2014) Microcredit: A Model of Empowerment for Women?, Dissenting Voices: Vol. 3: Iss. 1, Article 6. Available at: This Opening Voices is brought to you for free and open access by Digital It has been accepted for inclusion in Dissenting Voices by an authorized administrator of Digital For more information, please contact KELSEY MAHONEY The College at Brockport State University of New York Microcredit: A Model of Empowerment for Women? Patriarchal cultures all over the world oppress women within their communities and their own homes. Microfinancing and microcredit show potential as ways to help women empower women. However, one must question if microfinancing and microcredit are as promising as they seem to be. This paper looks at case studies and analyzes different aspects of microcredit programs and concludes that microfinancing and microcredit are not the answer to women s economic problems. Microcredit programs have some promising aspects. For example, they give individual women financial security and more respect within their communities and families. Overall, however, microcredit can do more harm for women than good, as it can lead to an increase in domestic violence, and in some instances, greater debt for certain women. Introduction A great deal of recent research positions microcredit and microfinancing as the way to solve the world s problems with money. It is often depicted as a cure-all, saving women from domestic abuse and children from malnutrition. Problematically, in many cultures around the world women have limited freedoms even within their own households. Microcredit programs specifically go against many of the ideals within the cultures of the countries where these programs are most needed. Initially, development initiatives concentrated primarily on men, inaccurately assuming helping men would help Dissenting Voices, v. 3, issue 1, Spring everyone else. Microcredit programs proceed from an alternative perspective; the recognition that supporting women s economic endeavors can have reverberations within communities, cultures, and nations. Despite the positive promises associated with microcredit programs, numerous women face more domestic abuse and sometimes even more financial problems when they try to better their lives by joining a microcredit program. These facts are perhaps surprisingly not as public as the more positive aspects of microcredit programs and initiatives. This paper explores the definitions of microcredit and microfinance, and whether they really do what they advertise alleviate poverty and empower women or, whether they might work in ways that harm women more than help them. Microfinance and Microcredit: Definitions and Origins Although the terms microfinance and microcredit are often used interchangeably, they are not the same. Microfinance is the broader term and includes microcredit as well as microsavings, and sometimes, microinsurance (Siraj, 2012). Ideally, microfinance institutions should be able to support themselves without government or private support (Rahman, 2010). As of 2009, there were more than seven thousand microfinance institutions in more than one-hundred-and-forty-three different nations (Siraj, 2012). Microcredit is the act of lending small amounts of money, typically to women, often with high interest rates for short terms (Eisenstein, 2009). The high repayment and interest rates are what makes microcredit successful in certain areas (Rahman, 2010). Simply put, women pay these loans back. The loans are undertaken with the understanding that the women will use them to support microenterprises that will make them financially better off than they were prior to the loan and that these women will remain self-sufficient once the loan is repaid. Microfinance and microcredit are universal in our world today. They are what we as Americans perceive as finance, but on a much smaller scale. Microcredit also exists in America, but the perspective is quite different. What Americans think of as micro are loans that are typically anywhere from $1,500 to $8,000 (Dewan, 2013). Comparatively, in one of the case studies examined later in this paper, a woman from northern Burundi was able to create her own successful Dissenting Voices, v. 3, issue 1, Spring business starting with a loan of only two dollars (Kristof & WuDunn, 2009). The idea of microcredit originated in the early 1970s (Rahman, 2010). While teaching at Chittagong University in Bangladesh, Muhammad Yunus, a professor and social entrepreneur, became concerned with the implications and manifestations of poverty on rural people (Eisenstein, 2009, p. 152). People in the area were forced to borrow from middlemen to make goods out of bamboo, just to sell them back to the same middlemen at the end of the day. Beginning in 1976, Yunus began loaning money to local people living in the town of Jobra in Bangladesh. Through small loans, people were able to buy their own materials and sell on their own terms. People were finally able to make a profit, which successfully broke the cycle of poverty (Rahman, 2010). Yunus won the Nobel Peace Prize in 2006 for his work with microcredit, and microfinance has been celebrated ever since. Many of today s microfinance programs, while adopting different loan and interest rate structures, have modeled themselves after Yunus and his pioneering work with the Grameen Bank. Who do Microcredit Programs Target? The main purpose of Muhammad Yunus program was to help alleviate poverty. For this reason, it is no surprise that microcredit programs are aimed at women. Seventy percent of the world s poor population is female (Siraj, 2012). As of 2012, eighty-eight percent of the clients reached by microfinance were women. In the original microcredit model that Yunus created, the Grameen model, there are over four million borrowers, ninety-five percent of them women as of 2009 (Eisenstein, 2009). Women are the poorest group for three main reasons: they are more likely than men to be credit constrained, have restricted access to the wage labor market, and have an inequitable share of power in the household (Siraj, 2012, pp. 1-18). Importantly, microcredit does not alleviate poverty or empower women as much as many of us have been led to believe. As a United Nations gender specialist stated, I don t think it [microcredit] is about empowerment. It s about introducing modern economic forms into the deepest rural areas, the penetration of capital away from the capital cities into rural areas, and transforming the way rural societies Dissenting Voices, v. 3, issue 1, Spring are structured (Isserles, 2003, pp ). Microcredit was not created as a way to empower women, but rather, as an attempt to try to eliminate the world s extreme poverty through introducing economic ideas into areas that were being taken advantage of by the individuals who had more money. Using microcredit as example, women typically have higher repayment rates than men because research has shown women to be more susceptible to group pressure, and a group loan model that relies on peer pressure is common to many microcredit systems. The purpose of having a group of women serve as collateral for each other when taking out loans assures the financer that their loans will be repaid, if not by the woman who took out the loan, than by the group. The groups provide a kind of positive peer pressure helping individual women to pay back their own loans because they do not want to have to pay for each other s loans or to have others pay for their own. The responsibility that women have shown within microcredit lending systems is why so many microcredit models use groups of women. The United States Agency for International Development has created legislation aimed at helping women, as they were often critiqued by feminist activists for aiming most prior development policies towards men (Eisenstein, 2009). Another reason that microcredit targets women as borrowers is that women have been shown to put money back into their families and communities more often than men (Kristof & WuDunn, 2009). Women tend to put money towards food, preventative medicine, and housing, while men often spend extra income on themselves (Kristof & WuDunn, 2009). Education is also a key area in which women invest. Some of the poorest families in the world spend ten times as much on alcohol, prostitutes, candy, sugary drinks, and lavish feasts as they do on educating their children (p. 192). Men, more often than women, tend to spend money on something that will give them immediate pleasure. Many men would rather buy themselves beer, which they see as a necessity, than buy medicine for their children (Kristof & WuDunn, 2009). Although these ideas of where women and men put their money reinforce existing stereotypes about men and women, research has shown that when it comes to microloans, women are a better bet. Cultural limitations are one of several factors that cause women to need microcredit loans. Ideally, microcredit loans should give women Dissenting Voices, v. 3, issue 1, Spring the opportunity to make their own money and build their self-confidence so they are able to have a say in their own families and communities. Stereotypical feminine traits and roles, such as the idea of being seen and not heard, having to focus on the family, and simply not being given the same opportunities as men, are reasons why women in many cultures are searching for a way to help themselves and improve their circumstances. Society typically provides men more opportunities in education and occupations. This recreates the norms of masculinity that reinforce men s need to feel in control of the family, often with violence. As discussed later in this paper, domestic violence increases for some women who borrow from microfinance institutions. As a group, women all over the world have the most difficulty finding opportunity. Women have also proven to be the most responsible, largely because of their caregiving roles, for paying back any money that they borrow as well as for investing their profits into their families and communities. This is why women have become the targets of microcredit programs. Microcredit Models: Grameen, FINCA, Kashf Foundation, Kiva, and CARE Muhammad Yunus developed the Grameen model after his initial experiment in Bangladesh. Yunus aimed to alleviate poverty, but the people that most needed his loans had no collateral to offer (Rahman, 2010). Therefore, with the Grameen model, groups of nonrelated people became responsible for each other (Eisenstein, 2009). These groups are typically composed of six individuals with similar socioeconomic backgrounds. Each group begins with two of the six individuals getting loans. Depending on their performance, more women from the group could later apply for loans (Isserles, 2003). Good performance means the individuals who have borrowed are repaying their loans weekly. They also must attend weekly meetings with their loan groups. At the end of the loan cycle, if the group has been successful and paid back all of their loans on time, the group and its individuals can seek larger loans. Several other microcredit models have emerged since Yunus first created the Grameen model in Although most of the models proceed from the same premise, they have been tweaked to help enhance whatever finance and Dissenting Voices, v. 3, issue 1, Spring credit aspects the funders want to embody. For instance, the Foundation for International Community Assistance, commonly known as FINCA, was created in 1984 (FINCA, n.d.). FINCA is known for pioneering the Village Banking Method, a village banking system that relies on support groups typically made up of ten to fifty members. FINCA provides three main services: (1) small self-employment loans, (2) an incentive to save, and (3) ( the community system. Within the community, the members provide support and encouragement to each other. FINCA has a loan repayment average of ninety-seven percent and is funded through the interest accrued on the loans as well as commercial capital sources and donations. FINCA helps people in poverty all over the world, including South America, Central America, Africa, and Eurasia. Another microcredit model is the Kashf Foundation, located in Pakistan (Kashf Foundation, 2014). Kashf began in 1999 and has now transformed itself into the first wealth management company for women from low income households (Kashf Foundation). Kashf lends to women in groups of twenty-five or more. The groups meet bi-weekly to make payments and discuss a social issue (Kristof & WuDunn, 2009, p. 187). After paying back their first loan, women can seek larger loans. Kashf builds on the Grameen model by making the loan groups larger to ensure more solidarity among members and to increase the rate of repayment. After having many delinquent loans, they found that larger groups of women were associated with higher repayment rates. Requiring women to be responsible for each other makes them do their own background checks on each other, because they do not want to have to pay back someone else s loan. The groups use the information they receive from background checks to choose group membership and to determine their own investment reliability. Kashf has virtually one hundred percent repayment, if not by the individual than by the group that Dissenting Voices, v. 3, issue 1, Spring they belong to, because they are considered collateral for each other. Kiva is the most contemporary approach to microcredit. Kiva currently operates in around thirty-five different countries (Moore, 2007). Kiva connects an average Westerner who possesses loan capital with someone who wants to start or expand their business or continue their education. Through ( Kiva, a lender can give a loan as little as twenty-five dollars, to an individual of his or her own choice. Interested lenders can search through the Kiva database by country, gender, or business type to find a business venture that they would like to support (Huerta, 2008). After choosing a business and making the loan, the lender can get updates from the individual about how her or his business is going. Currently, these loans are interest free, but borrowers often insist that investors know that this is not charity and they will be paid back in full (Moore, 2007). Kiva has a repayment rate of ninetynine percent, which is interesting because there is no collateral. One thought is that perhaps these borrowers feel a greater sense of accountability because someone personally selected them and gave them the opportunity to follow their dreams. After the loans have been repaid, a lender can choose to help fund another venture. It is also important to note that through 2007 no [Kiva] loan request has gone unfunded (Moore, 2007, p. 24). Although Kiva is successful in helping many people, it potentially reproduces the stereotype of Westerners, specifically Americans, coming in to save the day in other countries. This is problematic as it creates a rescue narrative and reinforces the ideologies of dominant Western cultures. Many Westerners know nothing about the countries that they are trying to help, and it seems unreasonable to make an individual conform to Western ideals if they want to receive Western help. Another model that uses microcredit in a different distribution context is the Cooperative for American Remittances to Europe (CARE). CARE creates Village Savings and Loan Associations in different villages across twenty-six different African countries (CARE, 2013). CARE has created over 150,000 different groups that are completely Dissenting Voices, v. 3, issue 1, Spring self-reliant and run on their own investments and interest. Meeting once a week to discuss community issues, women bring small donations and can take out small loans. The groups often work together to help each other. These groups are created and organized for easy expansion to other areas. Groups often vary in size as that aspect is left completely in control of the women. The Grameen Model, FINCA, the Kashf Foundation, and CARE all share the same microfinance premise. The Grameen Model was the start of microcredit, designed to provide small loans to the poorest people in the world, so most of the models that followed used the same goal as a starting point. Later models expanded the size of the group of borrowers, a variable that helped assure higher rates of repayment. The Kashf Foundation is somewhat different from the other models in that it operates in a single country. Kiva also is different from the other models as there is no interest and no middleman between the borrower and the lender. Lenders choose for themselves where their money is going rather than putting it into an organization where it could go to a business that is against the lender s beliefs. There are many aspects to these microcredit programs that work well. The larger groups allow for microcredit to be a feasible option, as there is no other way to ensure that loans are repaid. The weekly group meetings where borrowers talk about different problems that plague their communities and their microenterprise efforts is a useful variable to the microloan process. Coming together to help with each other s ventures is important; it allows the women in the group to see what they each are capable of, celebrate each other s successes, and support each other through struggles. Although the necessity of high interest rates among some microcredit programs may be the only way to allow these lending organizations to accrue income, it can add a financial hardship for women as they try to pay back their loans. Also important, microcredit should provide more education to its participants. None of the microfinance models researched here discussed educating women on how to handle finances in a culture where many women have never been allowed to so much as hold money before. The following cases help illustrate some of the gains and shortfalls with microcredit programs. Dissenting Voices, v. 3, issue 1, Spring Case Studies There are a variety of benefits associated with microcredit programs which have helped women and families around the world. While these are positive results, praise of microcredit programs often comes without critical thought. When we do this, we ignore some of the consequences shown to be associated with microcredit. The following case studies illuminate some of the positives and negatives of microcredit. Research shows that asking whether microcredit promotes or inhibits gender equality side-steps an important consideration that it might do both at the same time (Kristof & WuDunn, 2009). According to a case study on microcredit in Bangladesh, Isserles (2003) found the reason for the high repayment rate among borrowers is that women are being coerced. For instance, one of Isserles interviewees said, There is a pressure to repay. The husband feels comfortable in telling the loan officer to get stuffed, I ll pay you next week kind of thing, but it s harder for her to do [the same] (pp ). Stereotypically, women are considered weak and subordinate to men, whereas men have not had to care about the consequences of defaulting on payments to other men as much. It is not necessarily surprising then that many different cultures implicitly or explicitly instruct women not to challenge authority. One of the other findings from Isserles study was a higher occurrence of domestic violence against borrowers. Isserles stated that most women already experienced domestic violence within their households and the prevalence increased after they received a loan. Fifty-seven percent of the women interviewed admitted to a rise in verbal aggression and thirteen percent admitted a
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