Vol. 4 Num 258 Mon. February 16, 2004  

Microcredit Special
Women and microfinance: Powerful agents of change

A four-day Asia-Pacific Region Microcredit Summit is being held in Dhaka from today (16--19 February). We print the following article for information of our esteemed readers on the subject. We shall try to publish more articles on the subject till the conclusion of the summit.

The microfinance revolution started among rural women in Bangladesh in the 1970s. The revolution had its roots in the recognition that poor people needed credit and, more importantly, that they could use loans productively and responsibly. It showed that we were wrong in believing that poverty and a lack of collateral meant that poor people were not creditworthy. This belief was simply our own social prejudice. In particular, when rural women were given the opportunity they proved that poor people were a good risk and efficient users of credit.

My own experience has led me to conclude that microfinance, with its combination of savings, loans, investment opportunities, insurance options and other financial services, combined with group solidarity, is a powerful instrument of social change, especially for women.

Microfinance has caused a shift in values and expectations that affects women's roles in society. In Bangladesh, for example, a study of experience in an IFAD project has found that women involved in microfinance not only change the way they manage household income, they also change their own roles and the roles of others in their families and communities. Many women members of micro-finance groups no longer believe they should be dependent or that they should remain confined to the home. They are more likely to send their daughters to school.

Through their involvement in microfinance, many women become leaders, instigating change in social practices and relationships and mobilizing social action. Women's status, both in their homes and communities is improved when they are responsible for loans and for managing savings. When they generate and control their own income, women gain a level of power that means they can make decisions independently and command more respect.

Poor women often have the best credit ratings. In Bangladesh, for example, women default on loans less often than men, and credit extended to women has a much greater impact on household consumption and quality of life for children.

But, in many traditional societies, especially in South Asia and in parts of East and Central Africa, women have been excluded from the market economy. Women in East Africa are expected to do all the farm work and look after the family, while any cash income is controlled mainly by men. The pioneering women who first braved the market were criticized harshly. But today, with microfinance institutions spreading across large parts of Kenya and Uganda, it is widely accepted that rural women can play an important role in the rural economy.

It would be wrong to suggest that experience with microfinance has been universally positive. Nor can it be suggested that microfinance alone is responsible for change. In Bangladesh, the rapid growth of the garment manufacturing industry, which employs mainly women, and the activities of women's rights advocacy groups and movements have also had an impact. Nevertheless, microfinance has drawn millions of women into commercial economic activities for the first time, enabling them to take advantage of new opportunities and develop new roles as cash income earners and economically active members of the community.

It represents a shift away from feudal patron-client relationships towards income-generating work, savings, participation in the market economy, self-confidence and new social norms.

In its early days, the microfinance revolution focused on lending. Loans were typically secured through the mutual guarantee of solidarity groups. The microcredit model pioneered by the Grameen Bank of Bangladesh was adapted in Latin America, Asia and Africa. While a minimum amount of savings was generally required before a loan was granted, in the early days less emphasis was placed on creating flexible and voluntary savings schemes that could be directly controlled by the group members.

Not until the 1990s did we begin to fully understand the key importance of savings by poor people. Significantly, a high rate of household saving has been the cornerstone of economic progress in the high-performing Asian countries. In particular, women's savings represent a significant economic power that extends well beyond local benefits. Women who manage their savings through microfinance institutions are developing attitudes and practices that are necessary for the shift from subsistence economies to economies based on accumulation.

The ripples of women's microfinance can build into waves of transformation, leading not only to greater self-confidence and new roles for women, but also to powerful institutions able to take on complex new tasks serving the whole of society. The women's groups intrinsic to microfinance are now extending their activities well beyond financial services. In India, for example, self-help groups of indigenous women now manage community-based projects, including the contracting of minor irrigation construction and soil conservation works. Indigenous women's groups in a village in Andhra Pradesh, India, have invested in electricity generation, substituting pongamia seed oil for diesel oil and selling the saved carbon on the international market. In North East India, self-help groups in IFAD-funded projects play an important role in peace-making in communities affected by armed conflict and insecurity.

The impact of microfinance on women and their organizations shows that the Millennium Development Goal to promote gender equality is key to achieving the target of halving extreme poverty and hunger by 2015. Women's microfinance groups can and should also be strategic agents for achieving the goals of the Microcredit Summit Campaign.

Phrang Roy is Assistant President, External Affairs Department of the International Fund for Agricultural Development (IFAD).