In its efforts to create economic and social development from the bottom-up, microfinance institution Grameen Bank sent a signal to much of the developmental world that combating poverty should start on local grounds. Arguably the creator of microfinance, Grameen Bank founder Muhammad Yunus was awarded the Nobel Peace Prize in 2006 for crafting microcredit loans, that is lending to individuals who would not have access to traditional bank loans due to the absence of collateral and a qualifying fiscal background. Successor microfinance organizations have grown in various parts of the world and have seen economic growth and empowerment within its local communities. With 70 percent of the world’s poor comprised of women, many microfinance institutions (MFI’s) focus on lending to women. Using Grameen Bank as a case study, this paper will seek to explain how microfinance programs have improved the living standards of women, their families, and their communities, as access to microfinance increases economic development, welfare in the household, and social empowerment. With majority of MFI’s focus on targeting specific populations and objectives, the positive consequences from microfinance have helped to bridge the gap in gender inequality in much of the underdeveloped world and promote democratic ideals of human rights and enterprise. The key findings from the program include:

- Giving impoverished individuals stake in their actions leads to better, more efficient results in the long run. For example, disbursing loans that they promise to pay back once they have made monetary gains versus handing them free money without discretion
- Attaching social goals to a financing program yields better results because individuals participating are able to create a community amongst themselves that create a supportive, longlasting, and more enjoyable process.
- Giving women in underprivileged areas economic autonomy has various positive, spillover effects such as less violence in the household, increased mental health, and familial success.

Brief Background

Prior to the 1980s, government agencies were the main credit providers to the poor and there was a large disconnect between the donors and recipients, creating many problems by not understanding the needs and capabilities of the clients. This resulted in vast loan losses and constant recapitalization, leading to a new approach to properly accommodate these clients. Microfinance refers to the financial practice of lending small loans, or microcredits, to low-income individuals, with women in rural areas making up 75 percent of recipients across the globe. Other services include providing transfer payments, insurance, and savings accounts. Aside from just providing financial services, many MFI’s provide social and educational improvement services, such as community and group formation, literacy training, entrepreneurial skills, and self-confidence development.

MFI’s can take on many forms such as retail banks, commercial banks, credit unions, and nongovernmental organizations. Clients usually stem from poor, self-employed entrepreneurs, street vendors, small farmers, blacksmiths, and service providers. Grameen Bank serves as a model for MFI’s today, as its targets are the same populations in need in other impoverished areas. However, other organizations are able to tailor their approaches to local necessities. The essentials of women in rural regions in Bangladesh are not the same as those in Latin America, for example, so Grameen Bank’s structure innately forces other MFI’s to accommodate to native needs.

Economic development among women

Access to funds and increased income

Participation in microfinance has increased overall income of women and income of their households, reducing the poverty rate and the gender inequality gap. The World Bank recently reported that societies which discriminate against females in economic activities face greater poverty, weaker governance, and a lower standard of living verses societies that do not, demonstrating the benefits of granting equality to women through methods such as microfinance. In a study with Grameen Bank borrowers and non-borrowers over a one-year time period, the poverty rates for the participants were considerably lower, with 58 percent no longer poor based on the poverty measure.5 The provisions of the microcredits and use towards fueling the small businesses of women has allowed them to grow their enterprises, providing or increasing previous income. This would not have been possible without microfinancing, as poor, rural women would not be granted these loans by traditional banks because of a lack of collateral and credit history. The absence of financial tools previous to microfinancing was mainly in part due to societal structures that marginalized women because of their gender.

Grameen bank, for instance, recognized that this inequality would continue if no one invested in women by not giving them access to resources that are available to other demographics. The Grameen microcredits to Bengali women generates high, marginal incomes stemmed from financing flourishing local business practices. They are able to use the increased income to provide food, sanitized water to drink, proper medicine, and education for their children. The investment in labor for their businesses also provides incomes for individuals not directly participating in microfinance, demonstrating the positive spillover effects within the environment. These positive consequences of female-focused microfinancing reduces poverty within individual women, their families, and communities.

Autonomy over use of loans

Women have also been able to have control over the credits they receive and the income they earn. MFI programs have given them the power to do what they want with their loans in terms of entrepreneurial projects, as a recent study shows that 70 percent used all of their loans for enterprises they executed alone and only nine percent surrendered their funds to their husbands.6 For example, with access to funds and the ability to use them on their own accord, microfinance has motivated women to use loans to buy and lease in their own names, further adding to their incomes. They have been able to buy materials for their small businesses and help it grow and invest in employing workers to divide up work and produce more efficiently, among other capabilities. The personal autonomy over the loans creates self-confidence and aptitude within the women.

Proper, relevant training

By not attempting to tackle broad-range goals from top-down, MFI’s have the ability to focus on particularities that they otherwise would not be able to do if they had to accommodate large demographics. Like most MFI’s, Grameen Bank does not provide loans for any sole purpose; it lends for entrepreneurial aims to help local business thrive. If the women do not handle the microcredits the right way, their business suffers and they are not able to generate the income they need to rise out of poverty. The participants are given the tools and proper training before to ensure success, verses just being handed the funds, since a lot of women had never been in possession of money before, let alone knew the capabilities of it. In response, they are taught the basics of business and finance, like banking, investing, and savings. Appropriate preparation before indulging in the business world empowers them to want to succeed, not only because they do not want to acquire debt, but because they attach sentimental value to the loan. It is not just money a governmental organization uses for what they believe is needed, but funds invested directly in the individuals affected by poverty. They are responsible for their success, but not before proper and relevant training.

Additionally, women build on the valuable skills they already have, instead of learning how to do something completely unknown or irrelevant to their lives. Microfinance applies business and technical education to skills women in their respective communities are well-versed in, and invests in those skills with loans other institutions would not. For example, many Grameen Bank loans are disbursed for the purposes of cow fattening to ensure healthy cattle to sell into the market, shown in Table 1 below. MFI’s “assume that recipients possess valuable skills as well as knowledge of the market…they know what they can do and they know what they can sell,” and puts trust and accountability in women and their capabilities, empowering them to make smart economic decisions for themselves and families and improve their standards of living by the greater wealth acquired. As previously mentioned, implementing methods such as microfinance that specifically targets female economic participation not only increases quality of life among the participants, but also decreases poverty for society as whole.

Table 1. Top 5 Uses of Loans
Source: http://www.grameen-info.org/annualreport/2002/la-top25.htm

Increased welfare in the household

Increased bargaining power

There are strategic reasons for targeting anti-poverty initiatives for women, as studies show that women are more likely to spend their income on household improvements than men, such as better nutrition and health and higher investments in education and housing. Additionally, with MFI’s allowing women to be more financially-independent, they gain respect in their households which leads to greater bargaining power and better treatment in the household. In patriarchal societies, such as Bangladesh and other poor, rural areas, men make most of the decisions for the family and reap more benefits from household resources. For example, it is tradition for men to receive the best food and eat first, so when facing shortages of food, women eat small quantities of the worst available food.

In studying household bargaining in societies like Bangladesh, the model of cooperative conflict is most relevant as it states “each family member has input into the decision-making process, where the weight given each person’s input depends upon his or her opportunities outside the family. The most impactful opportunity that increases autonomy in the household is the generation of income because establishes credibility for the women. As microfinance increases the incomes of women, they become less financially-dependent on their husbands than before and gain relative decision-making within the home. This increases the likelihood that household operations will reflect their preferences, and as studies show, women are more likely to make decisions for short and long-term betterment the household than men.

Decreased domestic violence

Access to microfinance has also proven to decrease domestic violence, which is highly prevalent in Asian patriarchal societies. In a study conducted by the World Bank on woman who received Grameen Bank loans, reports show that women’s contribution to income and decision-making increased their credibility and position within the household, which decreased abuse by their husbands. Non-borrowers were found three times more likely to be beaten than borrowers. The increases in income also permits women in abusive relationships to escape, as they are able to financially support themselves which they were not able to do before. Due to microfinancing granting higher incomes for women, it leads to improved outcomes for their families in areas of nutrition, education, and health and also improves the life of the women themselves as they gain respect within the household, experiencing greater autonomy and less domestic abuse.

Social and political empowerment

Social development constitutions

Microfinance institutions structures themselves in a way that allows and encourages women to build skill-sets beyond economic development. The social development initiatives built in to Grameen Bank programs has served as a model to other MFI’s, which all make sure microfinancing is not just strictly an “economic development enterprise.” The social development constitution by Grameen Bank was created by the women who borrowed to reflect their wellbeing, not by individuals funding the Bank in accords to their judgements, or their donor agendas. By allowing those participating in the microfinancing process to create adherence guidelines, they gain self-worth and autonomy in how they are governed and the programs are reflective of their own concerns and motivations. They are also held more accountable to these guidelines because they are not just created by disconnected donors; they are ideals the women want to pursue and know will better their communities. The constitutions core focuses are to institute social change among poor, rural women with fundamental principles such as courage, discipline, unity, and hard work.

The Sixteen Decisions (see Appendix A), the social development constitution of Grameen Bank has become a “public transcript” to other MFI’s, making appropriate changes to fit the principles relevant to their specific regions. In its writings, the Sixteen Decisions stresses that the borrowers not only memorize the constitution, but incorporate it into their daily lives beyond the microfinancing process. Members have to continue attending social development workshops frequently after the loan process ends, creating strong unity and support among workshop groups. They are also encouraged to teach new borrowers the skills and outcomes of microcrediting, building leadership and public speaking skills. The social aptitudes gained from these initiatives have enabled women to participate in their communities in ways they were never able to before, such as awareness and participation in political campaigns, running in local elections, promoting human and women’s rights, and overall political mobilization. Microcredit recipients are therefore more vocal and confident than non-borrowers, and exercise this new voice to improve the lives of all in their communities.

Social networks and support groups

In addition to social development constitutions, MFI’s create strong networks among the women borrowers, allowing for comradery and support. In an interview, a Grameen Bank borrower recounted how “when someone gets a house loan, we help each other construct the house…I am grateful for the Bank’s idea of forming groups where we support each other.” Instead of just issuing loans, microfinance organizations have followed the model of implementing group lending structures to expose participants to other likeminded individuals that work to support one another succeed before, during, and after the borrowing process. This ensures that no one is alone at any point of this new, unfamiliar practice and enables the flow of advice and ideas throughout the process. In having a foundation of core principles to follow, a voice in governance, and a strong support network, the women of microfinance are able to develop outside economic activities and apply it to their daily lives, while helping one another thrive, which all contribute to the overall well-being of the rural environment.

Conclusion and Lessons Learned

Microfinance institutions like Grameen Bank have proven to have considerable economic and social impact on the everyday lives of poor women in underdeveloped areas. Due to influential patriarchal structures in rural villages, majority of women have an inferior position in their families and communities due to their isolation from the market and social activities. Given access to credit means access to opportunities these women were never given before. Before microfinancing was introduced to women in impoverished villages, they were held stagnant in traditional, house-hold duties that limited their abilities to rise out of a poverty-stricken environment. Even if women give the entire loan to their husband, it still increases welfare within the household as they are given the skills beforehand to successfully capitalize and pay back the loan, increasing their household incomes which allows for the purchasing of necessities not accessible before.

As the number of years of borrowing increased, women’s self-worth, political participation, social networking, and incomes have improved, and domestic violence has decreased. The goals the women set for themselves are practical and achievable, accounting for the 98 percent success rate in paying back the microcredit loans, which demonstrates the benefits of granting women autonomy in how they are governed. MFI’s allow them to learn not just finance and business skills, but the social programs built in empower women to gain respect and decision-making power within their homes and communities. In specifically targeting women, microfinance programs have evidenced to improve the quality of life for not just the borrowers, but all those effected by the services as well. It has contributed to fighting gender inequality, aiding poor societies rise out of poverty, and instilling democratic principles in even the smallest villages. Moving forward, it is time to introduce and expand microfinance to other developing areas.

“Microcredit is about much more than access to money. It is about women gaining control over the means to make a living. It is about women lifting themselves out of poverty and vulnerability. It is about women achieving economic and political empowerment within their homes, their villages, their countries.”

– Noeleen Heyzer, Executive Director of the United Nations Fund for Women (UNIFEM), Microcredit Summit Campaign 200

APPENDIX A:

The Sixteen Decisions of Grameen Bank

 # DECISION

1. ---The four principles – discipline, unity, courage, and hard work – we shall follow and advance in all walks of our lives

2. ---Prosperity we shall bring to our families.

3. ---We shall not live in dilapidated houses. We shall repair our houses and work towards constructing new houses at the earliest.

4. ---We shall grow vegetables all the year round. We shall eat plenty of them and sell the surplus.

5. ---During the planting seasons, we shall plant as many seedlings as possible.

6. ---We shall plan to keep our families small. We shall minimize our expenditures. We shall look after our health.

7. ---We shall educate our children and ensure that they can earn enough to pay for their education.

8. ---We shall always keep our children and environment clean.

9. ---We shall build and use pit latrines.

10. --We shall drink tube well water. If it is not available, we shall boil water or use alum.

11. --We shall not take any dowry in our sons’ weddings, neither shall we give any dowry in our daughters’ marriage.

12. --We shall not inflict any injustice on anyone, neither shall we allow anyone to do so.

13. --For higher income we shall collectively undertake bigger investments.

14. --We shall always be ready to help each other. If anyone is in difficulty, we shall all help him or her.

15. --If we come to know any breach of discipline in any center, we shall all go there and help restore discipline.

16. --We shall introduce physical exercise in all our centres. We shall take part in all social activities collectively.

Source: http://www.grameen.com/16-decisions/