Microfinance- the solution to end poverty and

gender inequality?

Maria Ploug Petersen

CAS, September 2009

Programme

• What is microfinance?

• The promises of microfinance (MF)

• Why is MF so popular?

• The intervention logic and underlying assumptions

• Testing the assumptions – case study of Village Savings and Loans Associations in Kasese, Uganda

• The implications for development policy

Microfinance – what is it?

Microfinance:

Multiple services, models (incl. savings, loans, insurance, etc.)

Microcredit:

Small loans

Target group: Poor “unbankables”. Women.

Examples: Grameen Bank in Bangladesh

VSLA

MicrofinanceThe new development fix?

UN:

"Microfinance is much more than simply an income generation tool. By directly empowering poor people, particularly women, microfinance has become one of the key driving mechanisms towards meeting the Millennium Development Goals.” (Mark Malloch Brown, Chef de Cabinet, Office of the Secretary General, UN)

Year of Microcredit

World Bank

Private sector

NGOs

What does MF do?

Microcredit Summit Campaign”by trying to provide women and men one crucial ingredient in

the fight to end poverty, microcredit—you are empowering the men and women of the world, to generate their own jobs, to move out of poverty with dignity” (Microcredit Summit Report 2009: 5).

World Bank - CGAP“access to financial services can empower women to become

more confident, more assertive, more likely to participate in family and community decisions, and better able to confront systemic gender inequities”

(CGAP 2003: 7).

Synergy/multiplier effects

Economic empowerment

(choice and decision-making

power)

Political empowerment

(influence)

Social empowerment (status, norms)

Africa - the new frontier

• ”Africa has lagged behind the rest of the worldin microfinance growth, but that is changing”(Thurman 2008: 4)

• “Microfinance and social entrepreneurship candramatically change the lives of poor people in Africa” (Lobel 2005:1)

• 24 African countries with national microfinance strategies

Case: Uganda

• Extensive donor support for MF

• Strong government support

• Country wide

• Explosive growth in the private MF sector

• Savings and loan groups are forming everywhere

Why has MF become so popular?

+ words in development

Help to self-help

Demand driven

Fighting poverty with dignity

Independency

Empowerment

Entrepreneurship

Market forces

Bottom-up

Actors

Women

- words in development

Recipients (undignified, disempowering)

Donor driven

Dependency on aid

Big plans

Government

Top-down

Structures

Men

Great promises

Intervention logic

• Microfinancetargeting women

Input

• Women will invest/spend money wisely and independently

Actions• Poverty

reduction/entre-preneurs/growth

• Economic empowerment

• Gender equality

Results

Underlying assumptions

1. All women are potential entrepreneurs who will act rationally - “homo oeconomicus”

2. Women are more responsible than men (link btw. reproductive/productive roles)

3. Women are in control, capable of acting independently (despite disadvantaged position, disempowered, suppressed)

Women as change agents

“Access to finance enables poor women to become economic agents of change” (CGAP)

Assumption:

Women have the capabilities and the motivation to act as expected, become empowerment, reduce poverty and create economic growth.

Questions

• Are all women entrepreneurs?

• What is rational behaviour?

• Can and will women act independently?

• Does microfinance automatically lead to poverty reduction, women’s empowerment and gender equality?

Case study

Testing assumption 1

All women are potential entrepreneurs who will act rationally - “homo oeconomicus”

Women as entrepreneurs

Women as entrepreneurs

Coffee farmer Fish seller

Limitations to entrepreneurship and economic growth

• Many women does not take loans

• Profit is rarely reinvested in businesses

• Businesses do not tend to expand

• Loans feed into a general income flow and are often spent on ”unproductive purposes”

Entrepreneurs?

Behaviour restricted by barriers

Loan too small. Loan period too short.

Limited options/ideas/skills

No market access

Norms/habit (gender stereotypes)

Reproductive work and responsibilities

Homo oeconomicus?

Rationality as context specific

• Survival (hand to mouth)

• Minimizing risk and/or exclusion (limiting investments, avoiding debt)

• Risk spreading (- specialization)

Poverty reduction

• Profit/loans spend on food, medicine, clothes, school fees.

• Assets (livestock, household investments)

• Income smoothing

Assumption 2 + 3

• Women are more responsible than men

• In control and capable of acting independently

Women in control?

Scenario 1: Cooperation (less conflict)

Scenario 2: Conflict/violence

Scenario 3: Women have no control. Proxy borrowing.

Is ‘control’ a good indicator for women’s empowerment and gender equality?

Decision-making power

• More influence on day-to-day decisions (consumption) and household investments

• Not necessarily a shift in traditional fe(male)decision-domains (marriage, land purchase, crops)

Women more responsible?

Responsibilities and gender

Men: “Resource persons”, “breadwinners”

Women: “family managers”

Unintended consequence of MF:

Men are sidelined. Women are overburdened.

Gender equality?

More control and decision-making

power

More responsibility/

Increased work burden

Poverty Reduction or Gender Equality

Women’s use of profit:• Food/consumption• Medicine • Clothes• School fees

Analysis:Poverty reduction perspective Feminist – gender equality perspective

Summing up

• Microfinance (VSLA) targeting women

Input

• Entrepreneurs (rational behaviour)

• Responsible mothers

• Independent women

Actions?• Entre-preneurship/

growth

• Poverty reduction

• Economic empowerment

• Gender equality

Results?

Women as change agents• Capital is not necessarily the binding constraint

• Structural barriers (economic, non-economic)

• Motivation

Implications for development policy

“Microcredit allows families to work to end their own poverty – with dignity”

(Microcredit Summit Report 2009)

• Development as the responsibility of the poor (a local problem, which individuals can solve)

• What role for the states and international organisations?

• Blame for failure placed on the loan-takers and not the policy-makers

• The assumption that the poor will gladly take on this new responsibility