Nettime — Micro-credit no Panacea for Poor Women

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Given the recent discussions again of micro-credit, I thought this article may be interesting for folks. If micro-credit is presented as THE SOLUTION, this article does a great deal to clarify that it does short. However, the question remains, given that these structural changes are not taking place, is this not a better solution than leaving families without any possibility of credit? -rg
Micro-credit no Panacea for Poor Women
by Nan Dawkins Scully
Microenterprise credit is increasingly promoted by the North as a
panacea for the South. “World Bank President James Wolfensohn says
that credit is “a particularly effective way of reaching women.” The
U.N. Secretary General calls it “a critical anti-poverty tool for the
poorest, especially women.” Even First Lady Hillary Rodham Clinton
points to microcredit as a tool that will help poor women “survive
Microenterprise development has, in some circumstances, contributed
positively to women’s empowerment and helped extremely poor women
survive economic crises in the short term. However, donors and
advocates consistently over-exaggerate the power of microenterprise
credit and related assistance, while ignoring key structural issues
that are far more pertinent to the long-term problem of women and
poverty =AD i.e., agrarian reform, programs favoring export production
(typically male-dominated) over subsistence crops (typically
female-dominated), and trade agreements structured in the interests of
transnational corporations,. Three popular misconceptions permeate the
current rhetoric regarding microenterprise development and encourage
its mischaracterization as a panacea:
Myth #1: Microcredit programs empower women. Because some credit
programs foster group formation and enable women to generate income,
they offer potential for both political and economic empowerment.
However, since credit by itself cannot overcome patriarchal systems of
control at household and community levels, this potential is not
always realized. In Who Takes The Credit: Gender, Power, and Control
Over Loan Use in Rural Credit Programs in Bangladesh (World
Development, 1996), Anne Marie Goetz found that the majority of women
borrowers in the programs studied did not control either the loans
received or the income generated from their microenterprises.
Moreover, recent research suggests that the very non-contractual
nature of informal-sector trade can reinforce women’s reliance on male
family members as enforcers in the marketplace (Peter Gibbons,
Structural Adjustment and the Working Poor in Zimbabwe, 1995).
Myth #2: Microcredit programs help the poorest of the poor. The
reality is that credit programs rarely reach the poorest. One reason
for this is that the tiny loans required by the very poorest people
are too small to generate significant interest income for lenders and
are expensive to deliver, especially in the case of hard-to-reach rur
al populations. Microlenders –=AD under pressure from donors to become
financially self-sustaining in a short period of time –=AD are drawn
toward less poor borrowers who can take out larger loans.
In some cases, microcredit programs that target the poorest exacerbate
the very poverty conditions they were designed to address. Some
lenders attempt to cover the costs of lending to the poorest by
charging usuriously high rates of interest, while forgoing the costly
–=AD but crucial –=AD services necessary to improve the productive
capacity of the poorest borrowers. This “efficiency” approach to
lending is especially detrimental where there is a weak market for the
products microentrepreneurs can produce and sell. According to
microlender Jaya Aranachulum (Working Women’s Forum, India), the
donor-driven emphasis on financial efficiency undermines the potential
of credit as a poverty-alleviation tool: “Microcredit will never be
the only solution for poverty, especially when it comes with
exorbitant interest rates [which] create a debt burden on the poor.”
Myth #3 The informal-sector is an answer to jobless growth and a
refuge from the shock of structural adjustment.
As unemployment rates continue to rise even in countries where
structural adjustment is said to have worked (Argentina, for example),
the World Bank increasingly lionizes the informal sector as “the real
economy.” Yet, only a few microenterprises =C2=AD typically the ones owned
by economically better off men and women who can afford to capitalize
their businesses =C2=AD ever provide significant and sustainable sources
of income. (See for example, K. Meagher, Limits to Labor Absorption,
UNRISD Discussion Paper #28).
As long as microenterprise development is offered as a substitute for
meaningful social development … it will only impede progress towards
finding real answers to the very real problem of poverty in the South.
Moreover, the very structural adjustment policies that help create a
burgeoning informal sector by destroying small enterprises, farms and
formal-sector jobs also undermine the potential for income generation
in that sector. The cumulative effect of rising costs, declining
demand, and competition from both cheap imports and increased entrants
into the sector leads to shrinking profits in informal-sector trade.
In Zimbabwe for example, women traders in the informal sector
experienced significant declines in income following the
implementation of structural adjustment, and new entrants into the
sector reported earning less than they had previously earned in their
formal-sector jobs.
The current wave of euphoria over microcredit misses the salient
question: Since a majority of people have neither the skills nor the
inclination to be entrepreneurs, why are microenterprises
proliferating? It has been clear for decades that the informal sector
is a depository for the victims of the failure of the formal sector.
As long as microenterprise development is offered as a substitute for
meaningful social development, for employment that offers real
security, for viable small-farm and enterprise production, and for
fundamental changes in the economic policies prescribed by
institutions such as the World Bank and the IMF, it will only impede
progress toward finding real answers to the very real problem of
poverty in the South.
Nan Dawkins Scully heads the Women’s Microcredit Accountability
NETwork (WOMAN).
Does micro-credit empower women : evidence from Bangladesh
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research | Statistics
Author Info
Pitt, Mark M.
Khandker, Shahidur R.
Cartwright, Jennifer
This paper examines the effects of men’s and women’s participation in
group-based micro-credit programs on a large set of qualitative
responses to questions that characterize women’s autonomy and gender
relations within the household. The data come from a special survey
carried out in rural Bangladesh in 1998-99. The results are consistent
with the view that women’s participation in micro-credit programs
helps to increase women’s empowerment. Credit program participation
leads to women taking a greater role in household decisionmaking,
having greater access to financial and economic resources, having
greater social networks, having greater bargaining power compared with
their husbands, and having greater freedom of mobility. Female credit
also tended to increase spousal communication in general about family
planning and parenting concerns. The effects of male credit on women’s
empowerment were, at best, neutral, and at worse, decidedly negative.
Male credit had a negative effect on several arenas of women’s
empowerment, including physical mobility, access to savings and
economic resources, and power to manage some household transactions.
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Paper provided by The World Bank in its series Policy Research Working
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Date of creation: 31 Mar 2003
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Handle: RePEc:wbk:wbrwps:2998
Keywords: Public Health Promotion,Economic Theory&Research,Health
Economics&Policies,Housing&Human Habitats,Economic Theory&Research
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Related research
This paper has been announced in the following NEP Reports:
* NEP-ALL-2004-08-16 (All new papers)
* NEP-MFD-2004-09-12 (Microfinance)
References listed on IDEAS
Please report citation or reference errors to Jose.Barrueco@uv.es:
1. Khandker, S.R. & Khalily, B. & Khan, Z., 1995. “Grameen Bank:
Performance and Sustainability,” World Bank – Discussion Papers 306,
World Bank.
2. Hashemi, Syed M. & Schuler, Sidney Ruth & Riley, Ann P., 1996.
“Rural credit programs and women’s empowerment in Bangladesh,” World
Development, Elsevier, vol. 24(4), pages 635-653, April. [Downloadable!]
3. Mark M. Pitt & Shahidur R. Khandker & Omar Haider Chowdhury &
Daniel L. Millimet, 2003. “Credit Programs for the Poor And the Health
Status of Children in Rural Bangladesh,” International Economic
Review, Department of Economics, University of Pennsylvania and Osaka
University Institute of Social and Economic Research Association, vol.
44(1), pages 87-118, February. [Downloadable!]
4. Goetz, Anne Marie & Gupta, Rina Sen, 1996. “Who takes the
credit? Gender, power, and control over loan use in rural credit
programs in Bangladesh,” World Development, Elsevier, vol. 24(1),
pages 45-63, January. [Downloadable!]
5. M. Browning & P. A. Chiappori, 1998. “Efficient Intra-Household
Allocations: A General Characterization and Empirical Tests,”
Econometrica, Econometric Society, vol. 66(6), pages 1241-1278, November.
Other versions:
* Martin Browning & Pierre-Andre Chiappori, 1994. “Efficient
Intra-Household Allocations: a General Characterization and Empirical
Tests,” Department of Economics Working Papers 1994-02, McMaster
University. [Downloadable!]
* Browning, M. & Chiappori, P.A., 1994. “Efficient Intra-Household
allocations: A General Characterization and Empirical Tests,” DELTA
Working Papers 94-16, DELTA (Ecole normale sup=E9rieure).
* Martin Browning & P.A. Chiappori, 1996. “Efficient Intra-Household
Allocations – A General Characterization and Empirical Tests,”
Discussion Papers 96-10, University of Copenhagen. Department of
Economics (formerly Institute of Economics).
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