Small Loans, Big Dreams: Women and Microcredit in a Globalising Economy

The Rationale

Microcredit emerged as a strategy to address the institutionalised exclusion of the poor, especially women, from formal financial systems. Since 1969 (after the bank nationalisation era), poverty strategies have focused on helping the poor with cheap

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credit (through priority sector lending by banks) and the distribution of assets under anti-poverty programmes.

The case of microcredit as a tool for poverty reduction is based on the premise that improved access to credit by the poor is crucial to improve the returns to economic activities; it expands selfemployment and promotes business and entrepreneurial activities; it allows incomes to grow and provides a “safety net” to the poor who are vulnerable to income fluctuations.

The evolution of thinking on microcredit and women also reflects an acknowledgement of the failure of the credit market to reach out to women. In the 1970s organisations like the Self- Employed Women’s Association (SEWA), Working Women’s Forum (WWF) and Annapurna Mahila Mandal (AMM) demonstrated the mobilising potential of microcredit for women in the informal sector. They also revealed the importance of the “power of community” in resolving issues that could not be solved by the market and state institutions. The initial argument that poor women are not bankable or creditworthy was disproved by these early pioneering experiments. The Shram Shakti Report (National Commission for Self-employed Women and Women in the Informal Sector 1988), drew lessons from these early experiments and recommended a separate institution to facilitate credit to women and other measures to soften the attitude of the banking system towards the needs of poor women and grass-roots organisations. The national programme of the Rashtriya Mahila Kosh (RMK) was set up as a registered society in 1993 in response to the recommendations by the Shram Shakti Report.

Gender policies over the years have also emphasised increased microcredit outreach to women. After the UN Mexico Conference (1975) there was renewed debate on women’s productive roles and the need to increase their access to resources. From the mid-1980s, the government, non-governmental organisations (NGOs) and international donor agencies sponsored credit programmes with a rapid expansion of “minimalist credit programmes” as part of anti-poverty strategies. The liberalisation era in the 1990s also influenced “gender and development discourse” by refocusing on poverty concerns and “safety nets” for poor women. Microcredit received major support in both antipoverty programmes and gender planning frameworks.

In 1991-92, the National Bank for Agriculture and Rural Development (NABARD) initiated a pilot project – the SHGs and Bank Linkage Programme (SBLP), with the objective to develop innovative, participatory and self-sustaining credit delivery systems for improving the rural poor’s access to institutional credit. By 1998 over 14,000 SHGs were linked with banks and it was estimated that women formed 78% of the total beneficiaries. The SHG-Linkage programme has taken strong roots in the southern region with the further development of SHG federations.2

There is not a single model of credit intervention.3 A plurality of approaches is evident in terms of goals, processes and the responses of intermediaries, underlying values and ideologies, organisations’ gender policy, product design, non-financial interventions and the quantum of external funding. There seems to be considerable disagreement between those emphasising issues of gender equity and justice and those advocating efficiency and

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financial sustainability and a shift away from providing subsidised credit and a minimalist approach.

Women, Poverty and Microcredit: Targeting Women by Default or Design

Conceptualisations of poverty – its causes and consequences – have been at the centre of development studies. Poverty in India is too complex and variegated for standardised approaches. The top-down funding of large poverty alleviation programmes such as the Integrated Rural Development Programme (IRDP) have made little dent. Several evaluations of IRDP have noted the misclassification of beneficiaries, leakages of funds, little support for skill formation, or linkages with markets and chasing targets rather than ensuring viability. It created a large number of bank defaulters. The extent, severity and characteristics of poverty vary across region and among different socio-economic groups. Interventions therefore need a differentiated analysis of intersections between class, caste, gender and ethnicity. Within this diver sity, gender remains a crucial variable and a key determinant of vulnerability to poverty. Gender differentials thus need a more nuanced analysis of poverty – both absolute and relative.

The “gender and poverty” debate has focused on several issue s, within which women are seen to be disproportionately poor because they lack access to resources. Gender inequalities are particularly visible in resource-based entitlements (land titles , property rights, credit, etc). Hence the rationale that access to credit will generate income and livelihood options, give women more bargaining power within the household and contribute to family well-being.

The emphasis or the rationale for providing microcredit to poor women has to be seen in the context where they are predominantly in the informal sector and where most home-based workers are women. The Planning Commission’s Report of the Sub-Group on “Gender and Agriculture” (2007) says that “118 million workers, 97% of the female workforce, are in the unorganised sector and around 57% of working women are home-based workers”, who need productive employment, social security, childcare, maternity benefits, healthcare and better working conditions. A majority of these women are trapped in vulnerable employment.

Much of the increase in employment among women has been in the form of self-employment,4 characterised by inadequate earnings, low productivity and difficult conditions of work.

Those pushing for microcredit as an answer to poverty reduction see self-help as the main option of the poor particularly where employment generation has slowed down considerably. “The exaggerated focus on microcredit as a solution to poverty has resulted in the neglect by the state and public institutions in seriously addressing the employment and livelihood needs of the poor within main economic policies. We should pay greater attention to how microcredit is delivered, what are the social, political processes that sustain this approach” (Gopalan 2001: 5).

Is there an unsupported claim of the role of microcredit and microenterprises in poverty reduction? The notion of “poor women as entrepreneurs” ignores the fact that most of the clients of microcredit have no specialised skills, have few assets, little capital, entry barriers, low production and meagre earnings. The efficacy of financial services to poor women will depend on what happens in

Pro-poor?

Is microcredit pro-poor?6 Not all microfinance borrowers are poor. In the SBLP which covered about 10 million persons in 2006-07, over 90% were women but only about 50% of them were poor. About half of SHG members and only 30% of micro finance institution members are estimated to be below the poverty line.

Interestingly, a study of the Planning Commission (2007) indicates that 63% of total credit availed by the poor is for consumption purposes while only 37% is for productive use. The study gave several reasons for the low overall share of the organised sector in credit flow to the rural poor including – non-availability of credit for consumption needs, high transaction costs, rigidity in the terms of loans, delay in sanction and high rates of default under government-sponsored programmes. More than micro loans, the poor also need investments in health, education and developmental inputs in farm and non-farm activities. Poverty cannot be explained in terms of income deprivations only.

A number of development agencies see microcredit pro grammes as combining the demand of gender lobbies with increased efficiency (good repayment rates). Mayoux, while acknowle dging its contribution to household poverty reduction, argues that the overwhelming evidence indicates that this “one-dimensional approach” to credit ignores structural issues (Mayoux 2002).

There is disagreement among some microcredit providers on whether it should go to the poorest of the poor. Mahajan (2005) believes that credit should go to small and medium businesses capable of creating jobs and not to small enterprises in the subsistence sector. He argues that self-employment may not be the first choice of the poor. Women have different experiences with small enterprises as they face significant barriers to achieve sustained incomes and need support in other areas. Furthermore, informal sector trade increases their dependence on male family members due to restricted mobility.

Compulsory savings also exclude those who have irregular incomes and thus cannot save regularly. Many women drop out of SHGs. A system based on quick repayment of very small loans does not allow funds to go into income promoting activities that requires a gestation period. Default rates rise with the frequency of loans. There is no reliable data to show whether indebtedness has decreased or increased among poor women. SEWA, which does not use collateral but a “borrowers repayment record”, finds that overdues are a major area of concern.

Hulme and Mosley (1996)7 have shown that increases in income of microcredit borrowers are directly proportionate to their starting levels of income – the poorer they are the less the impact of the loan. A vast majority of those starting below the poverty line actually ended up with less incremental income after getting the micro loan.

Another argument for targeting women in microcredit programmes was the large number of non-defaulters on loan repayments under the IRDP. With high repayment rates among women they were considered creditworthy and risk free. The economic logic makes microcredit attractive to women, however, what explains the fact that women constitute the majority of borrowers?

Kalpana has observed that the “numerical preponderance of female borrowers (the feminisation of microcredit) and the concomitant ideological construction of disciplined female borrowers, is the outcome of a complex constellation of forces, including growth of gender lobbies within development bureaucracies, the emergence of women’s movement and scholarship foregrounding women’s productive capacities and their agency as workers” (Kalpana 2004). Research in Africa also suggests that microcredit to women acts more like a disciplinary power turning them into “efficient economic actors” to be inserted in to market economies (Lairap 2000: 182).

There is little research that shows the chain of causality from microcredit to poverty reduction, though its dynamics of collective responsibility has allowed many poor women to roll back pervasive poverty. It does help in smoothening cash flows and increasing women’s self-confidence. There is a difference between a plurality of approaches and the kind of straitjacket approach to microcredit that is being followed in many areas. Experiences of organisation like Myrada (Karnataka), DHAN (Tamil Nadu), SEWA (Ahmedabad) and others demonstrate how savings, credit and enterprise management can mobilise and build capacity of grass-roots women’s groups. Earlier approaches of SEWA and WWF have also shown the importance of the power of communities in resolving issues that cannot be solved by the market and the state institutions.

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Oommen’s study of nearly 7,000 Kudumbashree households in Kerala found dual or multiple membership due to the mushrooming of SHGs and high indebtedness among families. A large majority (75.6%) reported no improvement in assets and 59% reported no improvement in income (2008: 13). Most of the women, however, reported improvements in their ability to collectively bargain and improved awareness of women’s rights and gender discrimination.

Another study in eastern UP exploring women’s need for financial products and services and their experiences with financial service providers and delivery systems showed that

women resort to borrowing as an important strategy to cope with expenditure on consumption and emergencies. Apart from coping with economic issues they also have to deal with intra-household disagreements about women’s participation, restrictions on mobility and conflicts within and across households over social dynamics (ISMW 2010: 15).

The belief in the credit-based model of development has captured the imagination of poor households, NGOs and the government but few other efforts are made to explore alternate strategies to combat poverty and unemployment. Microcredit is just one tool which cannot dismantle structural inequalities.

Locating Women in the Domain of SHGs8 as Collectives: The Empowerment Narrative

The logic of SHGs as spaces for engagement, negotiation and struggle, goes beyond credit and addresses a wide range of development issues, including the role of social mobilisation in women’s empowerment. India has a much longer history in organising poor women around microcredit. Despite ideolo gical diversity, community-based grass-roots initiatives have been regarded as an effective strategy for reducing women’s vulnerabilities and increasing their bargaining power and agency. The collective grass-roots model is expected to provide women an identity, solidarity and institutionalised agency. Has the SHG-based microcredit model taken away the focus from the collective social space to concentrate on mutual accountability for individual gains?

Group pressure or group liability is a common mechanism for making groups responsible for loan repayment.9 Group liability also creates tensions within the group from defaulters and dropouts. Microcredit groups can strain intra-group dynamics if the repayment of loans becomes a problem.

There is a need to understand and analyse the concept of “collective identity” in relation to internal group dynamics and confidence building. The economic foundation of joint collective action is a “common fund” and its joint and efficient management will depend on groups’ ability to act collectively; interdependence and relationships within groups; reciprocity, patterns of interaction and feedback mechanisms for resolving intragroup conflicts; training and building a vision for strengthening structures of mutual cooperation (Fernandez 2005).10 External linkages facilitate the formation of groups and facilitate some of these processes. Group formation is seen as a “critical mass” which can be harnessed to pull households out of poverty trap.

Since more often than not SHGs are promoted and nurtured by external agencies, the processes of organising, capacity building and supporting the groups in the formative stages assumes critical importance. Social intermediation is seen as a process of

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building both “social capital” and “institutional capital” for preparing these groups to engage in financial and social mediation. Little rigorous research exists that analyses how different contexts and approaches to mobilisation around credit and other inputs can change outcomes.

There is growing dissension on the potential of microcredit to change gender relations or challenge existing social hierarchies. In fact some believe that the massive expansion of women’s SHGs results in a situation characterised by “depoliticised collective action” (Batliwala and Dhanraj 2004).11

The needs that form the basis of these collectives are livelihood issues and economic compulsions, social exclusions and vulnerabilities which women are not able to address individually. The collective logic of SHGs is that, given time and leadership, it would go beyond credit to addressing larger issues of gender justice that affect women’s lives. Women’s own perceptions of negotiating “multiple patriarchies”12 (state, community, household, caste and other identities) is very diverse and breaking out of the circle of vulnerability, deprivation and marginalisation needs integrated and multidimensional strategies. NGOs (Myrada, SEWA, DHAN) are conscious of the fact that though credit is the crucial element binding these groups, other inputs are equally critical to enable women to negotiate patriarchy and other forces of social and cultural oppression.

Is there an aspirational overload on SHGs? SHGs serve the interests of several players – state, banks, corporations, NGOs, communities and women. State governments use SHGs for various programmes. They are expected to meet several goals from service delivery to convergence of services, microenterprise development, increased household income, well-being and women’s empowerment. There are vast differences in the financial and institutional viability of these organisations. Most of the SHGs are occupied with inter loaning among members rather than building strong grass-roots organisations. The rural power structure is too deeply entrenched to allow these groups to achieve a restructuring of social relations. It does not automatically change intrahousehold inequalities nor does it significantly alter spaces which determine women’s capacity to renegotiate their entitlements.

The earlier agenda of using policies to mobilise women for a struggle to enlarge their entitlements (over water, forest, land, etc), has undergone a notable change as there is a potential danger of the bureaucratisation of the self-help centred philosophy of welfare.13 Targets, rules and procedures take precedence over the inclusion of women’s needs and interests in policies and the allocation of resources.

The political claims of women’s empowerment through microcredit are pegged less on collective rights and struggle and more on the economic interests of a group. The term “empowerment” and the idea it represents has been hijacked by populist politics. It has been adopted by grass-roots action groups, microcredit enthusiasts, policymakers, national development agencies and international donors. A new feel good discourse on women’s empowerment regards it as a destination which can be reached through programmes and policy intervention without addressing complex structural issues. Power is a structural issue and interventions like credit, political quotas, special component plans and so on, bypass

Complex Empowerment Effects

There is an all pervasive notion that access to financial resources is equal to economic empowerment, just as the political representation of women in elected bodies leads to political empowerment. A growing body of research shows that the empowerment effect of these interventions is complex and sometimes consolidates rather than challenges existing hierarchies, either through co-option or manipulation by dominant social and political interests. “Positioning of the discourse of empowerment through microcredit is located in the historical interplay between, capitalism, culture and development” (Fernandez 2005).

There are issues within gender impact assessments about measurable and observable indicators of empowerment. There is also the question of interlinkages and trade-offs between different interventions and different dimensions of empowerment. The relationship between increased income and empowerment is difficult to measure. Most of the poorer households have incomes from multiple sources. Neither are the poor a homogeneous group nor are households homogeneous units. Pitt and Khandekar’s study (1998) uses the concept of heterogeneous and divergent preferences in households. The study indicates that credit does contribute to the empowerment of women by increasing their contribution to household consumption expenditure. But the study does not explain how these changes lead to women’s empowerment and changes in intra-household power relations.

Another problem with correlations of income and empowerment is that the issue of ownership and control over income and loan repayments is ignored. Goetz and Sengupta (1996) found that “a significant portion of credit given to women was actually controlled by men who come to weekly meetings to submit loans on behalf of women”. Loan repayment sometimes comes from other sources rather than income from the microenterprise. In several cases conflict over loans14 led to violence within the families (ibid). Lingam’s study in selected villages of AP found that loans made to women’s credit groups are used for agriculture. She argues that women’s experiences in the public domain cannot be assumed to transform the other domains of women’s lives automatically (2008: 125).

In most studies there are divergent views on indicators (both quantitative and qualitative); the effectiveness of the group approach and different models of credit delivery; programme strategies and the role of intermediaries; assumed interlinkages between access and control; women’s contribution and role in household decision-making. The key debate revolves round which indicators other than access and repayment rates should be taken to assess the impact of the microcredit intervention on women. Microcredit thus presents a range of possibilities rather than predetermined outcomes.

Elliot (2008: 7) suggests three closely related dimensions of empowerment15 – individual capabilities such as health, education, knowledge, self-confidence, vision, etc; institutional, cultural and other resources that provide opportunities and constraints; and agency or processes through which choices are made and put into effect. “Transformational empowerment is usually collective, as processes move from single actions to collective assertions of power, from the private sphere to the public arena, from resistance to change”. The discourse that views access to credit as empowering will need to be expanded to include other parametres of entitlements, control and change in gender relations in the public and private domains.

The belief in the credit-based collective model has failed to explore the impact of microcredit beyond its immediate project environment and how resources – both financial and cultural – are politically invested by the groups in a given sociocultural context. There is inadequate understanding as to how the discourse on empowerment through microcredit is framed by different actors and what the trade-offs are between different dimensions of empowerment. “The collective grass-roots models encourage rather a romantic equation between empowerment, inclusion and voice that papers over the complexities of empowerment both as a process and a goal” (Parapart, Rai and Staudt 2008: 18). Limited attention is paid to the role of various institutions – local and national – on microcredit and women’s empowerment.

Advocates of “empowerment” endorse the articulation of gender interests within mainstream development. Ironically, the language and strategies of the empowerment discourse progressively blunts its radical edges. Fernando has discussed how the empowerment of women via microcredit is a new orthodoxy in the development discourse of the 1990s, where women’s interests were being subordinated to the priorities of mainstream development in ways detrimental to the NGO’s empowerment project (Fernando 1997).

The issue is not only “access to resources” but how the resources (both financial and human) are invested in a given cultural context. Current discourses on women’s empowerment need to analyse multiple voices which explain how power and privileges are sustained as opposed to the pure economic logic with its restricted potential to address gendered inequalities. Microcredit provides women a practical basis to come together and also addresses their practical needs, but it is no substitute for broader policy initiatives addressing gender equity dimensions within a macroeconomic framework.

To conclude, more than three decades of experimentation with microcredit to poor women begs many questions. The debate on microcredit is underpinned by diverse and sometimes contradictory ideological and institutional positions. Would poor people’s money management be able to withstand commercialisation and the internationalisation of the credit market? As discussed earlier, there is a concern that it has become a tool to promote the neo-liberal agenda and transfer state responsibilities as a service provider to women. In the process it is losing its earlier ideological orientation.

Despite claims and counterclaims and different expectations from microcredit, it does not lessen its importance for poor women. The evidence suggests that microcredit through groups has the potential for microenterprise development and

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