empowerment of women through microfinance

8/9/2019 Empowerment of Women Through Microfinance

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Definition:

The definition of microfinance, which has its roots in micro credit, has evolved in recent

decades. Microfinance, today, refers to small savings, credit and insurance services

extended to socially and economically disadvantaged segments of society and is

emerging as a powerful tool for poverty alleviation.

According to the United Nations, microfinance institutions can be broadly defined as

provider of small-scale financial services such as savings, credit and other basic financial

services to poor and low-income people. The term microfinance institution now refers to

a wide range of organizations dedicated to providing these services and includes NGOs,

credit unions, co-operatives, private commercial banks, NBFCs and parts of state-owned

banks.

Access to financial services has been recognized as a human right. Strengthening credit

delivery services and increasing their outreach has always been an important component

of Indian development strategy. A large proportion of the poor have always been out of

reach of formal banking facilities and both the market and the government have failed to

provide credit services access to the poor. It was the failure of these formal procedures

and systems that necessitated the birth of microfinance institutions.

Microfinance programs sometimes also provide skill based training and education to

enhance productivity and operational efficiency among those who avail micro loans.

History of Microfinance:

The history of microfinance started in the 1800s with theorist Lysander Spooner.

However, it was at the end of World War 2, that the concept began to have major impact,

with the creation of the Marshall Plan.


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1983: Prof. Yunus creates Grameen Bank. To date, Grameen has lent more than $6

billion (to 7.4 million Bangladeshis). Its methods have become the basis for modern

microfinance that includes group lending, women-focused, and good repayment rates.

1992: ACCION helps found BancoSol, a microfinance institution in Bolivia as a

nonprofit organization.

1997: The National Microfinance Bank in Tanzania (NMB) is created. Meanwhile,

Deutsche Bank enters microfinance as part of its drive to embrace social investing. And,

Grameen Foundation is founded in the US.

2000: Banco Sol in Bolivia becomes the first regulated bank in the world that is solely

dedicated to microfinance.

2001: The Microenterprise Access to Banking Services initiative in the Philippines helps

integrate rural banks microfinance loan clients into the credit system.

2005: The UN names 2005 the International Year of Microcredit. Citibank opens Citi

Microfinance, based in London, New York , India and Colombia to broaden the reach of

its financial services.

2006:

* The Microfinance Summit Campaign Report estimates that there are more than 3,000

microfinance institutions serving 106 million poor people in developing countries. The

total cash turnover of these institutions worldwide is estimated at $2.5bn.

* Prof. Yunus is awarded the Nobel Peace Prize

* Barclays Launches Ghanaian Microfinance, tapping into one of Africas most ancient

forms of banking, Susu collection.

* International Finance Corporation, part of the World Bank, announces a $45m


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investment in credit-linked notes to be issued via Standard Chartered bank to facilitate

microfinance lending in Africa and Asia.

2008: Microfinance continues going mainstream. Retail investors/lenders participate in

Kiva.org and MicroPlace.org that allows individuals to invest in small loans to

microfinance clients directly online.

Objective:

The main objective of microfinance is financial inclusion. Financial inclusion or inclusive

finance is the delivery of financial services at affordable costs to sections of

disadvantaged and low-income segments of society.

The Economic and Social Council of the United Nations, in a move to build the

entrepreneurial spirit of the poor, worldwide, proclaimed the year 2005 as the

International Year Of Microfinance.

The International year of Microcredit consists of five goals:

1. Assess and promote the contribution of microfinance to the MFIs

2. Make microfinance more visible for public awareness und understanding as a

very important part of the development situation

3. The promotion should be inclusive the financial sector

4. Make a supporting system for sustainable access to financial services

5. Support strategic partnerships by encouraging new partnerships and innovation to

build and expand the outreach and success of microfinance for all

Evolution of modern microfinance:

Prof. Muhammad Yunus was awarded the Nobel Peace Prize in 2006 for his efforts in

alleviation of the status of poor and his work in the spread of formal modern

microfinance.


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Since then, microcredit programs throughout the world have improved upon the original

methodologies and defied conventional wisdom about financing the poor. First, they

showed that poor people, especially women, had excellent repayment rates among the

better programs, rates that were better than the formal financial sectors of most

developing countries. Second, the poor were willing and able to pay interest rates that

allowed microfinance institutions (MFIs) to cover their costs.Recently, there have been a

slew of innovations in the microfinance sector. Some innovations include:

1. ICICI Bank (India): Two state banks in India (Corporation and Canara)

partnered with an NGO to provide salaried low-income workers with access to

savings. The project uses the already established automatic teller machines(ATMs) in the factories to offer a recurring savings product, along with education

on personal finance

2. BASIX in Indiareduced transportation and transaction costs for its clients and

decreased staff expenses by establishing tellers in manned phone booths operating

in India. The company operating the phone booths receives a service fee and

phone booth operators are being trained in basic collection operations and

accounting. BASIX is currently redesigning the project after the pilot and

preparing it for re-launching.

3. The international NGO Technoservehas developed an inventory credit scheme

in Ghana that enables farmers' groups to obtain higher value for their crops by

providing post-harvest credit through linkage with a rural financial institution.

Instead of selling all of their crop at harvest - when prices are lowest - in order to

meet cash needs, small-scale farmers in the scheme store their crop in a

cooperatively-managed warehouse and receive a loan of about 75-80% of the

value of the stored crop, which serves as collateral. This loan permits them to

clear their accumulated debts and satisfy immediate cash requirements. Then,

when prices have risen in the off-season, the farmers either sell the stored crop or

redeem it for home consumption.


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Microfinance in India:

1. SHG Bank Linkage Model:

SHGs are a manner of cooperative credit societies that are linked to a commercial

bank instead of a cooperative bank. The SHGs are then given access to pooled

savings for disbursement to members. An SHG selects its leader on a rotation

basis and the members also appoint a treasurer. Minutes of each meeting are

recorded, along with all receipts of savings and disbursement of loans. High

repayment rate has encouraged banks to institutionalize SHGs under the bank-

SHG linkage model.

2. MFI Model:

Microfinance Institutions form SHGs and finance them by obtaining resource

support from various channels. In India, majority of micro credit activity is under

the Banking model (NABARDs Bank-SHG Linkage) and 10-15% of the

activity is through MFI model

SHGs emerged as a component of the Indian financial system after 1996. They are small,

informal and homogenous groups of not more than 20 members each. The size of 20 has

been made mandatory because any group larger that this has to be registered under the

Indian Societies Registration Act.

Empowerment:

Empowerment literally means making someone powerful; facilitating the weak to attain

strength, enabling someone to confront injustice and oppression. Empowerment is a

process, which makes the powerless to acquire and control over power through

awareness, capacity building, participation in decision making, acquiring information,

attaining confidence and self-employment


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One must be clear about the notion of empowerment, with the concept of gender,

ideology and power. Empowerment is defined as the process and it results in a situation

where the powerless or less powerful members of society gain greater control and access

over material resources and knowledge and challenge the ideologies that justify the

unequal distribution. Empowerment is displayed through a change in the balance of

power in terms of ways of thinking, or distribution of resources. It is hence a process by

which an individual gains control over intellectual and material resources to challenge

and change the prevailing ideologies and the structures of society.

It has also been linked to terms such as self-direction, agency, liberation, autonomy, self-

determination, life of dignity in accordance with ones values, capacity to fight for ones

rights, independence, own decision making, being free, awakening, self-strength,

capability participation, control, own choice, self-confidence and mobilization

All these definitions however, contain the idea that empowerment is about making

personal change, changing the perception of the community and improving capabilities to

formulate strategic choices for ones life.

The underlying assumption of empowerment through microfinance is that people caneffectively strategize ways to get out of poverty if they have direct access to economic

resources and are able to employ them in meaningful ways.

Microfinance and Women:

Empowerment is about the ability to make strategic life choices, and constitutes three

dimensions: resources (defined broadly to include not only access, but also future claimsto material, human and social resources); agency (including processes of decision-making

and less-measurable manifestations of agency such as negotiation, deception and

manipulation); and achievements (well-being outcomes).


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Empowerment and education increase self-confidence and the organizational and mental

abilities of any individual. Women experience an increase in their decision-making areas

both in family life, as well as financial aspects, which were traditionally male-dominated.

The empowerment of women through microfinance is measured in terms of the following

three aspects:

1. Economic empowerment: When the woman of a household is given the power to

make economic decisions, they tend to optimize their own as well as the

households welfare. Thus, investment in womens economic pursuits tend to

have a percolating effect and equate to an investment in the entire family unit.

Economic empowerment emphasizes a womans own income generatingactivities, and there is more emphasis on increasing incomes at the household

level and use of loans for consumption. Individual economic empowerment of a

woman is seen as dependent of social and political empowerment.

2. Increased wellbeing: Control of financial, credit and savings decisions increases a

womans say in economic decisions of the household. This enables women to

increase the expenditure on overall wellbeing of the family, with specific focus on

themselves and their children. This also prevents the money of the family from

being utilized in harmful or detrimental avenues and leaking the income of the

household. Improved wellbeing is therefore an assumed outcome from increasing

a womans economic activities and incomes.

3. Political and social empowerment: A womens status within the community is

enhanced with her increased control over financial and economic matters. The

creation of groups enhances the power of social and political movements

organized by them. Social standing is escalated with regard to decision making

and implementation.

Microfinance institutions around the world have found a variety of ways and developed

multiple products and services that help overcome the barriers that have traditionally kept


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women from having access to financial services. These are requirements such as

collateral, male or salaried guarantor requirements, documentation requirements, cultural

barriers, limited mobility, and literacy. The major reasons for microfinance institutions

and the banks, which encourage the targeting of women, include:

1. Gender Equality for Development:

Research done by UNDP, UNIFEM, and the World Bank, among others, indicate

that gender inequalities in developing societies inhibit economic growth and

development. For example, a World Bank report confirms that societies that

discriminate on the basis of gender pay the cost of greater poverty, slower

economic growth, weaker governance, and a lower living standard of their people.

The UNDP found a very strong correlation between its gender empowermentmeasure and gender-related development indices and its Human Development

Index. Overall, evidence is mounting that improved gender equality is a critical

component of any development strategy. By giving women access to working

capital and training, microfinance helps mobilize womens productive capacity to

alleviate poverty and maximize economic output.

2. Women are the Poorest of the Poor:

It is generally accepted that women are disproportionately represented among theworlds poorest people. According to the World Banks gender statistics database,

women have a higher unemployment rate than men in virtually every country. In

general, women also make up the majority of the lower paid, unorganized

informal sector of most economies. These statistics are used to justify giving

priority to increasing womens access to financial services on the grounds that

women are relatively more disadvantaged than men.

3. Women spending on their Families:Women have been shown to spend more of their income on their households;

therefore, when women are helped to increase their incomes, the welfare of the

whole family is improved as women have a greater tendency to spend on their

childrens health, education and overall welfare of the family. A womans success


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benefits more than one person. Assisting women therefore generates a multiplier

effect that enlarges the impact of the institutions activities.

4. Efficiency and Sustainability:

Proponents of targeting women on the grounds of sustainability cite womens

repayment records and cooperativeness. A collective wisdom has emerged that

womens repayment rates are typically far superior to those of men. Lower arrears

and loan loss rates have an important effect on the efficiency and sustainability of

the institution. Many programs have also found women to be more cooperative

and prefer to work with them for that reason as well.

5. Women's Rights Perspective:

Women's equal access to financial resources is a human rights issue. Because

access to credit is an important mechanism for reducing women's poverty and

access to credit has been recognized as a basic human right, it has been an explicit

focus of a variety of human rights instruments.

6. Empowering Women:

Last, but not least, one of the often articulated rationales for supporting

microfinance and the targeting of women by microfinance programs is that

microfinance is an effective means or entry point for empowering women. By

putting financial resources in the hands of women, microfinance institutions help

level the playing field and promote gender equality.

IMPACT OF WOMEN EMPOWERMENT

1. Impact on Decision Making:

Womens ability to influence or make decisions that affect their lives and their

futures is considered to be one of the principal components of empowerment by

most scholars. It is much less clear, however, what types of decisions and what

degree of influence should be classified as empowerment in different contexts.

The Womens Empowerment Program in Nepal, for example, conducted a study

that showed an average of 89,000 out of 130,000 or 68 percent of women in its

program experienced an increase in their decision-making roles in the areas of


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family planning, childrens marriage, buying and selling property, and sending

their daughters to schoolall areas of decision making traditionally dominated by

men.

2. Impact on Self-Confidence:Self-confidence is one of the most crucial areas of change for empowerment, yet

it is also one of the most difficult to measure or assess. Self-confidence is a

complex concept relating to both womens perception of their capabilities and

their actual level of skills and capabilities. It is related to Kabeers concept of

agency that allows women to define and achieve goals as well as the sense of

power women have within themselves.

3. Impact on Family Relationships and Domestic Violence:Although there have been a few studies that have asserted that womens

participation in microfinance leads to an increase in domestic violence, most

practitioners have reported the opposite experience. Microfinance programs

strengthen womens economic autonomy and give them the means to pursue non-

traditional activities. In some cases, women who begin to assert themselves and

their opinions in their households incur the wrath of angry husbands who feel

their authority and sometimes their reputations are being threatened by their

wives behaviour. Other way round many practitioners have found that family

relationships can be strengthened when the home becomes a more comfortable

place to be, and when each member of the family feels secure in his or her ability

to contribute productively to the family.

4. Impact on Womens Involvement and Status in theCommunity:

Several microfinance and microenterprise support programs have observed

improvements in womens status in their communities. Contributing financial

resources to the family or community confers greater legitimacy and value to

womens views and gives them more entitlements than they would otherwise

have. Studies of microfinance clients from various institutions around the world

show that the women themselves very often perceive that they receive more


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respect from their families and their communities particularly from the male

membersthan they did before joining a microfinance program.

5. Impact on Political Empowerment of Women and Womens Rights:

Widespread political empowerment is a fairly rare outcome of most microfinance

programs. Microfinance programs offer services and products that can enhance

individual womens abilities to participate effectively in politics. Nevertheless,

many examples testify that womens participation in lending centers and groups

increases their knowledge of political parties, processes, and channels of

influence. Women clients of Opportunity Microfinance Bank in the Philippines

have gained leadership experience and confidence as leaders of their Trust Banks

and have gone on to be elected as leaders within their barangays.

Review of Literature


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Longwe and Clarke (1994)explained women empowerment as an on going cyclical

process having five stages. The first stage is welfare stage and at this stage the womens

resources are not fully recognized and met. The second is access stage, where women

recognize it and take action to gain access to these resources. The third stage is the

awareness level stage, where women realize that their lack of access to resources and

their general subordinate status are due to socially constructed beliefs and phenomena.

The fourth stage is the participation level stage, where women become actively involved

in decision-making processes within their households, communities and societies. The

final stage is control stage; in which women get control over access to resources and

distribution of benefits by increasing their participation. This control increases womens

power and respect within their households, communities and societies at large.

According to Pillai (1995), women empowerment is an active, multidimensional

process, which enables women to realise their full identity and powers in all spheres of

life. Power is neither a commodity to be transacted nor can it be given away as alms.

Power has to be acquired and once acquired it needs to be exercised, sustained and

preserved.

Stromquist (1995) wrote that empowerment includes both cognitive and psychological

elements. It involves womens understanding of their conditions of subordination and

the causes of such conditions at both micro and macro levels of society. It involves

understanding the self and the need to make choices that may go against cultural and

social expectations.

Kabeer (1999)explained that womens empowerment refers to the process by which

those who have been denied the ability to make strategic life choices, acquire such

ability. The ability to exercise choices incorporates three inter-related dimensions:


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Resources, which include access as well as future claims to both material and social

resources; Agency, which includes the process of decision-making, negotiation,

deception and manipulation; and Achievements, which refers to the well-being outcomes

of choice.

Kabeer (2001)has shown that there are two essential elements of women empowerment,

i.e., process and agency. A process is defined as the series of events that produce gradual

change. The process of women empowerment leads to expansion in their ability to have

resources and to make strategic life choices. The agency element of women

empowerment describes that women themselves are the significant actors in the process

of change. It is the process through which choices are made. Empowerment cannot be

offered by a third party; rather, it has to be claimed by those who would become

empowered.

Kalpana (2008)has shown the diversity of bypass strategies implemented by women

(arrangements with the staff and with bankers, use of intermediaries, etc.) to do as if

they were using microcredit for productive use. The motivation there was to access

credit rather than to redefine the uses to which it was put as productive. But definitely

that is a reflection of womens capacity to negotiate access to resources and use them for

their livelihood promotion.

Sengupta and Aubuchon (2008) have focused on achievement made by Prof.

Muhammad Yunus and the Grameen Bank for their efforts to create economic and social

development from below. Their article was intended as a non- technical overview on the

growth and development of microcredit and microfinance. The Grameen bank and its

achievement were reviewed. The paper also emphasized on the group-lending mode of

granting microfinance and its benefit and reviewed the modes and methods of

microfinance in different economies and its future.

Mummidi (2009) discussed in her paper that women should be entitled to work with the


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utilization of resources provided to them through microfinance institutions. Along with

this, the efficiency of utilization of these resources has also been discussed. The paper

suggests that a better understanding of the diversity of womens livelihood and a better

understanding of the range of constraints, motivations, skills and capabilities of women

through the livelihood framework might help to understand the impact of microfinance.

The limitation, however, lies in the broad scope of this framework making it difficult to

operationalize. This paper was a narrow demonstration of this difficult possibility.

Pillai and Nadarajan (2010) in their paper provided evidence about Microfinance being

a powerful tool to alleviate poverty and empowering rural women and also in bringing

social and economic changes in the rural India. Microfinance and self-help groups were

found to be successful in promoting empowerment of women leading to development.

Their paper analyzed the impact of microfinance on the empowerment of SHG leaders in

psychological, economic, social aspects, managerial skills and their attitudes in the

Kanyakumari Disrtict.

Devaraja (2011) has described the evolution of the Microfinance revolution in India. The

study stated that the outreach of such activities has been low along with the question

mark on the profitability and sustainability of MFIs. This paper defined the three distinctaspects where government needs to play a significant role. The first was to protect the

rights of the micro-borrower. The second was that of prudential oversight of risk-taking

by firms operating in microfinance. The third was a developmental role, emphasizing

scale-up of the microfinance industry where the key issues are diversification of access to

funds, innovations in distribution and product structure, and the use of new technologies

such as credit bureaus and the UID. He also suggested having proper regulation

mechanism for the microfinance industry.

Mamun and Adaikalam (2011) investigated the effect of Amanah Ikhtiar Malaysias

(AIM) Urban Microfinance Program on their clients quality of life in Peninsular

Malaysia. This study employed a cross sectional design with stratified random sampling

method. A quality of life index using eleven selected indicators was developed. Findings


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of this study extend the literature by providing empirical evidence that access to

microfinance improved quality of life of participating households in urban Peninsular

Malaysia. The findings showed that the respondents participation status is associated

with the size and quality of clients houses. It was recommended that AIM should focus

on increasing the outreach by targeting low income clients in urban Peninsular

Malaysia. Moreover it should also review and re-organize their programs in order to

present a dynamic and well- diversified microfinance program that fulfills the financial

needs of their urban clients.

Amin and Patel (2012) stated that in any developing economy contribution of villages or

the ruler segment is essential. As per the author, to improve efficiency at this level in

developing economy maximum weight age should be given to financial institution. Now

days through Self Help Group such targeted population is provided financial help for

economic upliftment and also for betterment of the poor people. T o have faster

development of any segment contribution of the woman is essential. In India, 48%

population is of woman and literacy ratio of woman is 54.16%, but still their contribution

in the economy is very negligible. Micro finance institutes play the most significant role

to provide woman empowerment in to the Indian economy. Such foundation not only

gives them empowerment with finance only but also revolutionizes their social, cultural

and behavioral pattern, which is helpful for development of the economy.


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Statement of the problem:

Earlier, women were stopped from taking part in any social or economic activity and

never given an active role in decision making. This social situation was only heightened

in rural areas. However, with the concepts of empowerment and education of women, and

provision of microfinance to this, this social structure is starting to see change. NGOs

and financial institutions have seen that women are the smallest source of credit risk and

the most favorable bet when it comes to generating income from activities engaged in by

availing microcredit. This has induced research to focus on empowerment of urban

women who participate in microfinance.

Objective of the study:

- To outline the various benefits experienced by women who have availed

microfinance and created their own businesses

- To determine degree of penetration of microfinance to women

- To trace out the problems in provision of microfinance and provide possible

solutions to the same

Research Methodology:

This research is based on descriptive research method. The study is based on thesecondary data so descriptive research method is suitable for this study.

Secondary data is used for the research. This study is not based on the primary

data so there is no requirement for sampling techniques. Secondary data from various

microfinance related websites and research articles are being used for this study.


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Limitations of the study:

The main problems in measuring the degree of empowerment of women are:

The measurement of women empowerment involves both quantitative as well as

qualitative data such as access to financial resources, participation in household decision-

making, change in the level of self-confidence, self-esteem, level of spatial mobility,

level of awareness etc. The qualitative indicators of empowerment are difficult to

measure.

Empowerment is an ongoing process and to measure the changes in a process, data is to

be collected for at least two points in time. But this method is further restricted as it is

difficult to decide the time gap over which the changes are to be measured because some

signs of empowerment can be seen in a short time period of 2 to 3 years while for others

a longer time period may be required. There may be a shift in the relevance of

empowerment indicators over time. Also, more time and resources are required to

measure the impact.

PROBLEM AND CHALLENGES

Previous research and studies have shown that many factors are involved in increasing

the difficulty for women empowerment through microfinance and micro businesses.

These include:

- Lack of knowledge and training

-Inadequate book-keeping

- Lack of capital

- High interest rates

- Employment of too many relatives which increases social pressure to share

benefits


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- Credit policies that can gradually ruin their business (many customers cannot pay

cash; on the other hand, suppliers are very harsh towards women).

- Inventory and inflation accounting is disregarded

Other shortcomings include:

1. Burden of meeting: Time consuming meetings, in particular in programmes based

on group lending, and time consuming income generating activities without reduction

of traditional responsibilities increase womens work and time burden.

2. New Pressures: By using social capital, in-group lending/group collateral

programmes, additional stresses and pressures are introduced, which might increase

vulnerability and reflect disempowerment.

4. Reinforcement of traditional gender roles: Lack of economic empowerment:

Micro finance assists women to perform traditional roles better and women thus

remain trapped in low productivity sectors, not moving from the group of survival

enterprises to micro-enterprises. There is evidence of men withdrawing their

contributions to certain types of household expenditures.

Urban Poor Statistics:

Indias population 1.1 billionUrban population 352 million (32% of total population)

Urban poor 106 Million (30% of urban population)


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Reasons for borrowing by urban poor:


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Chapter 1: Introduction

Chapter 2: Review of Literature

Chapter 3: Research Methodology

Chapter 4: Analysis and Interpretation

Chapter 5: Findings, Suggestions and Conclusion


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empowerment of women through microfinance

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