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Women and Microfinancing

Women and Microfinancing



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Published by Cam Nguyen
research paper explores why women are "ideal" candidates for microfinance loans. paper looks at consumption behavior, repayment patterns, and innate traits.
research paper explores why women are "ideal" candidates for microfinance loans. paper looks at consumption behavior, repayment patterns, and innate traits.

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Published by: Cam Nguyen on May 07, 2009
Copyright:Attribution Non-commercial


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Cam NguyenDevelopment Microeconomics
Should Microfinance be Targeted at Female Borrowers?
In the twentieth century, a new economic innovation came about to help alleviate poverty in developing economies. This innovation fell under the microfinance banner. Tohelp alleviate poverty, microfinance institutions distribute group loans to serve the poorest of the poor, allowing the poor a chance to initiate small enterprises in rural areasto increase livelihood. After the success of the Grameen Bank and Accion-affiliatedcredit program, hundreds of microfinance institutions were created to serve theunderserved in rural parts of the world such as the Philippines, Vietnam, Thailand,Guatemala, Armenia and various countries. We observe in actual data that the repaymentrates for microfinance group loans are surprisingly high, 90% and above, and also noticedthat these loans are mainly given out to women in developing economies. Becausemicrofinance loans are mainly given out to women, microfinance institutions are viewedas gender biased towards women and debates have risen due to this aspect of microfinance institutions. To illustrate the idea of microfinance being gender biased, wecan observe the Grameen Bank in Bangladesh lending to 1.2 million individuals and 93%of these individuals being female (Wydick and Kevane, 2001).To understand why microfinance institutions target women when poverty does notdiscriminate gender, age, or race, we need to understand the goals of the microfinanceinstitution and female economic behavior. Microfinance institutions typically try toaddress issues of women empowerment and poverty reduction. In traditional societies,women face harsh realities that place them in a social disadvantage like being more likely
to be credit constrained, restricted access to the wage labor market and an unbalancedshare of power in household decision making when compared to their male counterparts(Pitt and Khander, 1998). If these disparities in basic rights get smaller, then this meansthat equality and poverty reduction may be achieved. When microfinance loans are lentout to women, we also observe several positive economic behaviors such as increasehousehold expenditures, more spending on children’s education and higher householdwelfare. Aside from female economic behaviors, we also observe that women yieldhigher repayment rates and also have a comparative advantage when functioning ingroups (Barr and Kinsey, 2002). Also, studies have shown that enterprises owned bywomen are successful as enterprises owned by men which aid in economic growth(Wydick and Kevane, 2001). Because of their social disadvantage, economic behaviors,comparative advantage when functioning in groups, and entrepreneurial tendencies,women should be targeted by microfinance institutions for microfinance loans.All around the world, women are placed in a social disadvantage andmicrofinance fulfills a need for the socially disadvantage. We can observe sexism indeveloped and developing economies such as the United States, United Kingdom,Bangladesh, India, Zimbabwe and Guatemala. In the United States and the UnitedKingdom, we observe sexism in the wage disparity between male and female. InBangladesh, India, and other developing economies, we observe women being morelikely to be credit constrained, have restricted access to the wage labor market and anunbalanced share of power in household decision making (Pitt and Khander, 1998).Experiences of women in developing economies can also be experienced by women indeveloped economies and vice versa. Being credit constrained, women cannot borrow
capital to start small business that may increase their livelihood and this may further  perpetuate their poverty condition. Even when women are given credit, their loans may be smaller than that of men- 1132 quetzales versus 781 (Wydick Kevane, 2001). Havingrestricted access to the wage labor market when women are capable workers also limitswomen’s status in society and shows more of an inequality between male and female. Inthe rural area of Bangladesh, very few women participate in the wage labor market andthe production inefficiency associated with the lack of a women’s labor market generatesan incentive for borrowing capital to undertake women’s self-employment that does notexist for men (Pitt and Khander, 1998). As we can now see, microfinance fulfills a need.The practice and unfairness of sexism transcends borders and this issue must beaddressed. To address this issue, microfinance institutions promote women empowermentwhich can enhance a woman’s self-esteem and status within the household (Wydick andKevane, 2001). By targeting women in group-loans, women can greatly benefit from being able to open their own enterprise and also other various services that microfinanceinstitutions do provide. Services that women can benefit from are for example, theGrameen Bank, BRAC, and BRDB provide services such as training for skilldevelopment, literacy, bank rules, investment strategies, health, schooling, and civilresponsibilities and alterations of the attitudes of and towards women (Pitt and Khander,1998).Aside from benefiting from services and the group-loans that MFIs do providethat can possibly help empower women we also observe that when women are program participants in group loans, behavior in the household do change. To alleviate poverty,we may want to look at household welfare and determine the impact of programs to see

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