The Dickensian World of Micro-Finance: Grameen May Not Be So Good for Women After All
By Susan F. Feiner and Drucilla K. Barker
The 2006 Nobel Committee was absolutely right when it declared,
Lasting peace can not be achieved unless large population groups find ways in which to break out of poverty … Economic growth and political democracy cannot achieve their full potential unless the female half of humanity participates on an equal footing with the male.
Thus, we find it curious that of all the groups working to end poverty among women in the developing world, the Grameen Bank and its founder, economist Muhammad Yunus, were the ones the committee selected for the honor of the Peace Prize. For one thing, there is limited empirical evidence to support the claim that microcredit programs such as those of the Grameen Bank actually reduce national or regional poverty rates. There is even less evidence to support the view that microcredit enhances gender equity.
Virtually all Grameen websites contain language like this:
Grameen believes that charity is not an answer to poverty. It only helps poverty to continue. It creates dependency and takes away an individual’s initiative to break through the wall of poverty. Unleashing of energy and creativity in each human being is the answer to poverty.
This kind of talk about unleashing the energy of individuals in the fight against poverty evokes images of Bangladeshi women competing with Wall Street venture capitalists. Economists have been making this category mistake for decades. As the late Joan Robinson, a progressive economist at Cambridge University noted, one problem with contemporary economics is that it equates the activities of large, conglomerate, capitalist enterprises with those of peasants and artisans bartering their wares at rural fairs. The underlying assumption is that economics is about markets, and markets consist of individual exchanges.
The Grameen Bank, Muhammad Yunus, and some of the world’s most powerful policymakers at the International Monetary Fund and the World Bank share a commitment to this economic individualism. They believe that poverty is best understood as a problem of individual behavior. By rejecting the notion that poverty has structural causes, they deny the need for collective responses. According to this tough-love view, any broad-based, civic commitment to increased employment at decent wages will only make matters worse. Helping poor people through policy interventions is pernicious, because such aid undermines the incentive for hard work. This view is consistent with both the neoliberal agenda and the Grameen Bank’s microcredit program.
What exactly is microcredit, anyway? Yunus started his lending program—called microcredit because the loan amounts are very small, often less than $100—in 1974, in response to the terrible famine in Bangladesh. The “poorest of the poor”—women—lacked property to secure loans, and therefore could not borrow money from banks. They had few alternatives to loan sharks. Indeed, lending to the poor has long been a lucrative enterprise. In desperation, they pay high interest rates to pawnshops, finance companies, payday loan operations, and loan sharks because it’s the only way they can get the money they need to survive. Microlenders can be usurious too, according to Sheryl Nance-Nash, a correspondent for the website Women’s eNews (www.womensenews.org), who explains that “the interest rates on microfinance vary between 25 percent to 50 percent. While these rates are high, they are much lower than informal money lenders, where rates may exceed 10 percent per month.”
Recognizing that the lack of collateral presented the main barrier to borrowing by the poor, Yunus developed the idea of loan circles, and Grameen began operations in areas of severe rural poverty. Women could borrow money by joining a Grameen loan circle. If one woman in the circle did not meet her obligations, the others would have to pay the defaulter’s loan or become ineligible for future loans. The Grameen Bank trumpets its successes: loan repayment rates approach 95 percent, and poor women, empowered by their investments, are not dependent on “handouts.”
Microcredit advocates see these programs as a solution to poverty because poor women generate income when they use borrowed funds to start small-scale enterprises, often home-based handicraft production. Home-workers—mostly women and children— basically do piecework: sewing garments, weaving rugs, and assembling toys and electronic components. They often work long hours for very poor pay in hazardous conditions. Their enterprises are based in the informal sector, which is fiercely competitive as well as unregulated—beyond the reach of laws and institutions that protect workers or ensure their rights. Not surprisingly, women comprise the majority of workers in the informal economy and are heavily represented at the bottom of its already low income scale.
As progressive journalist Gina Neff has said, encouraging the growth of the informal sector sounds like advice from one of Charles Dickens’ more objectionable characters. Why then do national governments and international organizations promote microcredit, thereby encouraging women to work in this sector? While it is important for the poor to have access to credit on relatively reasonable terms, microcredit by itself will neither end poverty nor empower women. For example, widely cited research by the Canadian International Development Agency (CIDA) reports that
Women in particular face significant barriers to achieving sustained increases in income and improving their status, and require complementary support in other areas such as training, marketing, literacy, social mobilization, and other financial services (e.g., consumption loans, savings).
The report goes on to conclude that most micro-borrowers realize only small gains, and the poorest borrowers benefit the least. CIDA also found little relationship between loan repayment and business success.
The evidence on whether microcredit can empower women is inconclusive. According to the World Bank, because microcredit gives women more control over household assets and resources, they enjoy increased autonomy and decision-making power, which in turn enables them to participate more fully in public life. This defense of microcredit stands or falls on stories of individual success, which feature women who have used their loans to start small-scale enterprises by renting a stall in the local market or buying a sewing machine to assemble piece goods. There is no doubt that when women succeed in business, they and their families are better off than they were before they became microdebtors.
However, access to credit is not the sole determinant of women’s empowerment. Credit can increase women’s dual burden of market and household labor. It may also increase conflict within the household if men, rather than women, try to control the use of the loans. Moreover, conflict among women can be exacerbated by the pressure of group repayment obligations. These structural realities of microdebtors’ economic lives suggest that microcredit by itself will not empower poor women.
We wonder how the Nobel Committee could have overlooked the impressive achievements of India’s 700,0000-member Self-Employed Women’s Association (SEWA), founded in 1972 by some of the poorest women workers in India, including those whose work arrangements leave them without legal protection from exploitation. SEWA engages in a range of activities—not just microcredit—organized by and for women. Based on Gandhian principles, it addresses the full spectrum of structural and institutional practices that reproduce women’s poverty. According to Elibah Bhatt, SEWA’s first leader,
The basic elements of SEWA are organizing poor self-employed women through work, building economic organizations for them like unions and cooperatives, creating viable links between a country's grassroots and its macro policies, and combining struggle and development through peaceful means.
One can hardly find a clearer contrast in approaches to gender equity, women’s self-sufficiency, and the alleviation of poverty than those represented by the Grameen Bank and SEWA. Progressive groups like SEWA argue that poverty is structural. Consequently, successful antipoverty programs, rather than adjusting individual behavior, must focus on creating the conditions for women’s positive inclusion in social life. Expanding collective efforts through public funding for initiatives that provide a functional infrastructure are, they argue, the best way to reduce poverty. In contrast, in the neoliberal view represented by the Grameen Bank and Yunus, restricting state aid is the way to help women help themselves.
Does the awarding of the Nobel Peace Prize to Yunus and his Grameen Bank add credence to the neoliberal myth that individuals can escape poverty through hard work? Yes. Can these programs help some women pull themselves up by their bootstraps? Yes. Will micro-enterprises do much to end poverty among the world’s poorest women? Not a chance.
Susan F. Feiner is professor of economics and women’s studies at the University of Southern Maine. Drucilla K. Barker is professor of economics and women’s studies at Hollins University. They are the co-authors of Liberating Economics: Feminist Perspectives on Families, Work, and Globalization (2004).