Cam Nguyen Development 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. To help 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 areas to increase livelihood. After the success of the Grameen Bank and Accion-affiliated credit program, hundreds of microfinance institutions were created to serve the underserved in rural parts of the world such as the Philippines, Vietnam, Thailand, Guatemala, Armenia and various countries. We observe in actual data that the repayment rates for microfinance group loans are surprisingly high, 90% and above, and also noticed that these loans are mainly given out to women in developing economies. Because microfinance loans are mainly given out to women, microfinance institutions are viewed as gender biased towards women and debates have risen due to this aspect of microfinance institutions. To illustrate the idea of microfinance being gender biased, we can 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 not discriminate gender, age, or race, we need to understand the goals of the microfinance institution and female economic behavior. Microfinance institutions typically try to address 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 unbalanced share 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 means that equality and poverty reduction may be achieved. When microfinance loans are lent out to women, we also observe several positive economic behaviors such as increase household expenditures, more spending on children’s education and higher household welfare. Aside from female economic behaviors, we also observe that women yield higher repayment rates and also have a comparative advantage when functioning in groups (Barr and Kinsey, 2002). Also, studies have shown that enterprises owned by women 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 and microfinance fulfills a need for the socially disadvantage. We can observe sexism in developed and developing economies such as the United States, United Kingdom, Bangladesh, India, Zimbabwe and Guatemala. In the United States and the United Kingdom, we observe sexism in the wage disparity between male and female. In Bangladesh, India, and other developing economies, we observe women being more likely to be credit constrained, have restricted access to the wage labor market and an unbalanced share of power in household decision making (Pitt and Khander, 1998). Experiences of women in developing economies can also be experienced by women in developed 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). Having restricted access to the wage labor market when women are capable workers also limits women’s status in society and shows more of an inequality between male and female. In the rural area of Bangladesh, very few women participate in the wage labor market and the production inefficiency associated with the lack of a women’s labor market generates an incentive for borrowing capital to undertake women’s self-employment that does not exist 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 be addressed. To address this issue, microfinance institutions promote women empowerment which can enhance a woman’s self-esteem and status within the household (Wydick and Kevane, 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 microfinance institutions do provide. Services that women can benefit from are for example, the Grameen Bank, BRAC, and BRDB provide services such as training for skill development, literacy, bank rules, investment strategies, health, schooling, and civil responsibilities 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 provide that 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

whether or not behaviors and consumption patterns do change- the marginal household improvements may lift households into more substantial increases in welfare (Wydick and Kevane, 2001). Pitt and Khander evaluated the impact of participation in credit programs on women’s and men’s labor supply, boys’ and girls’ schooling, and expenditure, and assets by looking at data from Bangladesh and found that credit provided to women will more likely influence labor supply, boys’ and girls’ school and expenditure than credit provided to men. They found that a positive effect of women’s participation on women’s labor supply and also that group-based credit provided women benefits household consumption by increasing productivity of women’s market time whereas when men are provided with loans, there is an increased consumption of leisure. This illustrate women borrowers do misuse funds. They observed a higher increase in household expenditure, welfare and asset holding when credit is given to women as compared to men; for example, household consumption expenditure increased by 18 taka for every additional taka borrowed by women compared with 11 taka for men (Pitt and Khander). Children’s schooling is also affected by giving out credit to women. We observe that women are given loans, both boys’ and girls’ schooling enrollment increasesa 1% increase in credit provided women is predicted to increase the probability of girls’ school enrollment by 1.85% and boys’ school enrollment by 2.4% (Pitt and Khander, 1998). Because we do observe that when women are given access to credit there are positive effects on children’s schooling, labor supply, household expenditures and assets, women should be an ideal candidate for credit borrowing. Not only does household welfare increase when women are given loans, but we can also observe that female entrepreneurs are as good as their male counterparts and this

may aid in economic growth and poverty alleviation. Wydick and Kevane used Guatemalan data to show that there are differences between female and male-owned enterprises in terms of employment generation but in terms of ability to generate increases in sales, there is little difference between male and female entrepreneurs. They observed that employment generation for women who are in their childbearing years is lower than that of men but after the childbearing years, they do observe that female entrepreneurs are predicted to add about 0.35 to 0.5 more employees to their small business than male-owned enterprises. Their results are consistent with social norms; in traditional societies, women have a higher marginal value of home activity because they are typically the primary caregivers to children and are mainly responsible for household activities. Though their employment generation abilities during their childbearing years may be lower than that of men we should also keep in mind that due to the increase time at home, children’s welfare also increases. We must see the overall picture when comparing the cost and benefits of running an enterprise. And lastly aside from fulfilling the needs of women who are at a social disadvantage, increasing household welfare, and being equally good at running enterprises as compared to men, women have a comparative advantage over men when it comes to functioning in groups. Barr and Kinsley used experimental data from Zimbabwe to examine gender differences in responsiveness to social or shame sanctions imposed by others and gender efficacy in sanctioning others in a public goods game. They replicated micro-credit groups by making experiment participants play a public goods game where each individual in the group can contribute to the public good and the sum of the group’s contribution will be multiplied by some factor and the resulting

amount will be equally divided among group members. They observed that in every game played on average, women contributed more than men but also were criticized for contributing too little to the public good. Their experiment suggests that women are more effective at sanctioning others while there are no difference between the responses between men and women when it comes to being sanctioned by others. Their results are consistent with Anthony and Horne’s experiment where Anthony and Horne examine gender cooperation for explaining loan repayment in micro-credit groups. Their findings suggest that behavior which might appear to be a consequence of gender differences more likely results from expectations associated with group gender composition. The rationale for this is that people form expectations about how a group made up largely of one sex or the other will act. People entering a group largely of men will expect more competition and self interested behavior. Those entering into a largely female group will expect more cooperation. Both men and women will respond according to these expectations but from experiments. Because women tend to be more cooperative in group settings and also more effective in sanctioning others, we can see the advantages to having women in group-loans which is also a good reason why microfinance should target women. After examining various literatures on gender differences and microfinance, women seem to be the ideal candidate for microfinance loans. Though women are at a social disadvantage compared to men, they are equally good at being entrepreneurs and great at repaying loans. Also because of the nature of microfinance dealing with grouploans, we can also see why women have a comparative advantage over men in a group setting which may account for the high repayment rates that we observe in actual data. The cooperative nature and the ability to effectively sanction others puts women a notch

above men when it comes to the group setting. Aside from having a comparative advantage over men in group settings, being equally good entrepreneurs, women do not misuse funds which help the welfare of their household. The ultimate goal of microfinance is to help alleviate poverty and with the characteristics that are innate in women, women can be seen as the ideal candidate for loans. Not to say men are not good candidates for microfinance loans, but we do see that evidence do show that women are just better candidates for microfinance loans and women should be targeted by microfinance.

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