Anna Dipple, Microfinance, BRAC, and Issues of Women's Empowerment

Microfinance, BRAC, and Issues of Women’s Empowerment

By Anna Dipple

Microfinance is a relatively new phenomenon, and one that has taken the development world by storm. It has, in various instances, been touted as the cure-all for development issues in third world countries. The premise is that by giving impoverished populations access to microfinance services, such as small-scale loans, that they would not normally have access to, it will enable these populations to lift themselves out of poverty through entrepreneurship or good investment. Microfinance is especially marketed as a way to empower women and give them the resources to equalize the gender gap. Women are seen as prime loan receivers because of the high payback rates that have been recorded from women, as well as the assumed empowerment it will bring them. There are many organizations practicing many different methods of microfinance, including the common theme used by organizations such as BRAC (Bangladesh Rehabilitation Assessment Committee), where a small amount of money is lent to a group of women in the community, with relatively low interest rates. Although these organizations can often have some positive impacts on society, they are not cure-alls, and are often band-aid solutions as opposed to long-term poverty-alleviation practices. Issues such as the lack of women’s empowerment, the high risk of high debt rates in clients, as well as many others make microfinance a less-than-optimum solution for addressing development issues. Although microfinance can have a positive impact on the lives of women and the ultra-poor, it cannot be treated as a one-ticket solution for poverty alleviation and women’s empowerment in the developing world.

The idea of micro-credit is not a new one, but it is one that has recently been reestablished, and brought back into the limelight, in the 1970s by (most recognizably) the formation of the Grameen Bank. The Grameen bank was founded by Muhammad Yunus, the head of the Rural Economics program at the University of Chittagong, India, and came out of an action-research project based on developing a money lending system for the impoverished (Hulme, pg. 290). The Grameen Bank, as it is known today, originally started in Bangladesh and developed out of Yunus’s action project and into a full-blown microcredit organization that has over 2,565 branches throughout the world. Its focus is on giving out small-scale loans ($20-$40) to impoverished clients, especially women (women make up 97% of borrowers) who have unequal access to financial assistance, such as loans (grameenbank.com, 5 March 2011).

With the Grameen Bank leading the way, many other microfinance organizations with similar models queued up to contribute to the world’s newest cure to poverty. Organizations such as BRAC, FINCA (Foundation for International Community Assistance), KIVA Microfunds, and many more jumped on board and took the third world by storm with their small-scale loans and big promises of reduced poverty. Although many of them were well intentioned, there have been many critiques of the microfinance model and the problems that it may pose.

Microfinance has grown into a popular practice and has become quite diversified, despite starting out with a very basic model. In her article, “The Imposition of a Global Development Architecture: The Example of Microcredit”, Heloise Weber explains the mechanism of microcredit as being : “the provision of small loans to poor individuals usually within groups as capital investment to enable income-generation through self-employment” (Weber, 540). Event though it seems like a bit of an elementary concept, it was seen as quite revolutionary, and as a way to interrupt the vicious cycle of poverty in the lives of many individuals, and instead instill the means to advance economically.

The microfinance NGO I am going to focus on studying is BRAC- the Bangladesh Rural Advancement Committee. BRAC has had many different focuses, but does significant work in the microfinance sector, and as well, focuses on women’s development through their programs. They started their microfinance operations in the mid 1970s, and although they focus mainly on Bangladesh (as their name suggests), they also do operations in parts of Africa and other areas in Southern Asia and the Middle-East region (brac.net. 5 March 2011). BRAC is involved in a two-tiered microfinance program run by the UN World Food Program that caters to the ultra-poor population, instead of just the moderately poor. BRAC created a system that consisted of food grants, skills training, and microcredit. This program showed a high success rate, and: “Around 80% of the women had joined BRAC’s Rural Development Program and were accessing microcredit and social development services” (Matin, Sulaiman and Rabbani. 12 March 2011). As a part of BRAC’s Rural Development Program, women are offered services of micro-credit, skill-development, education, and other services to help them increase their employment opportunities that can lead to their empowerment (Banu, Farashuddin, Hossain and Akter. 10 March 2011) . BRAC is considered one of the bigger NGOs working on microfinance issues, and one of its main goals is women’s empowerment through the microfinance model.

Among the many organizations working in the microfinance sector, BRAC is one of the better ones because of its social conscience and focus on women and the ultra-poor. Various other microfinance organizations tend to cater to the only moderately-poor, whether intentionally or not. For example, on source states that: “The microcredit programme…actually fuels differentiation among the poor. The concern with discipline results in an organizational culture which discriminates against the less credit worthy poor and a shift away from the poorest to the better-off among the poor” (Lieten, 4 April 2011). This is one of the strong points of BRAC, that it recognizes some of the flaws in the microfinance model, and attempts to address them through changes in structure, “It is now official that MFIs in Bangladesh failed to reach the extreme poor within a chosen community. Recognizing this problem BRAC has devised its CFPR/TUP programme specifically tailored to serve the extreme poor” (Mallick, 4 April 2011). BRAC is also doing well in regards to improving women’s empowerment in the community and on the household level. It has been found that “Women who were previously not involved in any economic activities have now begun to participate in them, after having received credit, training and input supports from BRAC” (Husein, 5 April 2011). But although BRAC is one of the better organizations in regards to providing women with the support and training the need in order to gain empowerment in their community, “evidence suggests that over half of the women who receive credit from BRAC still involve their male counterparts for utilizing it” (Husein, 5 April 2011). Many people, though, question these methods and whether they are truly effective in helping empower women in the long run. For example, in a study conducted on BRAC, it states: “All of our sample members from BRAC households are female but few of them are household heads. The household head usually utilizes the loan borrowed from BRAC” (Husein, 5 April 2011), showcasing the fact that although BRAC puts a lot of focus on women’s empowerment initiatives, in the end the loan management still often falls to the head of the household, who is typically male.

Women’s empowerment is often one of the main focuses of the microfinance model of development (including in the example of BRAC), but does microfinance really empower women? This is a highly debated topic, and one that is not easy to find an answer for. Although microfinance attempts to give women more power by giving them better access to monetary support and the chance to start an enterprise to earn a stable income, it does not change the patriarchal systems that are often in place. These systems tend to limit the level of empowerment that women are able to reach. It is taken for granted that women gain empowerment from access to these financial assistance programs: “in evaluation of credit programs, women’s high demand for loans and regular repayment rates are commonly taken as proxy indicators of empowerment” (Goetz andand Gupta, pg. 51). Although a woman may be receiving the loan, in many cases it can often fall into the control of the dominant male in the household. In a study of Bangladesh and microfinance loans given out to women : “about 63% of the cases fall into the three categories of partial, very limited, or no control; indicating a fairly significant pattern of loss of direct control over credit” (Goetz and Gupta, pg. 49) . Part of this loss of control by women of microfinance loans is due to the fact that control of loans and money are often seen as the job of the males in society, “cash… is more strongly culturally marked as a resource for men to control. It is fungible primarily through the market, a public realm culturally prohibited to women” (Goetz and Gupta, pg.51). There are many things holding women back from utilizing loans to their full ability, including their lack of economic control in the familial setting, the pressure to pay back loans that they do not even get to use, and the risk of creating conflict in the home because of a change in gender dynamics due to a difference in monetary power (Goertz and Gupta, pg. 54). Gender roles are not necessarily challenged through microfinance, and therefore it is hard for women to gain empowerment if they continue to be oppressed in the home. In some cases, loan repayment has lead to divorce or abandonment, tension between women in the loaning group, as well as the perpetuation of gendered household roles and jobs. (Mayoux, pg. 237). So although lending money to women in the form of loans to increase women’s empowerment and social stability, sounds good in theory, in practice it does not always turn out as well as planned. In the end, some women are worse off after receiving loans because the control of the money is taken from them, but they still hold the responsibility to pay it back, and experience societal pressure to do so.

Although microfinance seems like a good idea at first glance, is it just another way that western society is forcing its capitalist ideals onto the third world? Can money really buy third world development? These are interesting questions, and ones that many people are asking in regards to the microfinance model. In an interview for Democracy Now, Vandana Shiva states: “I think we need to recognize that there are systems beyond capital and at least for maintaining the ecological processes of this planet and defending the commons on this planet.” (Goodman. democracynow.org). This furthers the idea that the capitalist system cannot offer a sustainable solution to all our problems. The microfinance system is also modeled after our western capitalist society in the way that it promotes spending of money that one does not actually possess. Microfinance requires a person to wrack up debt that can lead to long-term debt problems, as mentioned by Shiva in the same article: “I think one of the key issues about credit has to be, it is a debt trap sucking people in to permanent dependence on more and more and more borrowing?” (Goodman. Democracynow.org). With a rise in debt rates in the third world, has also come an increased suicide rate among farmers, due to the overwhelming realization that they are unable to repay their loans and debt accrued: “Farmer suicides, of which there have been 150,000 in the last decade of market opening made possible because of credit, micro and macro” (Goodman. Democracynow.org). Microfinance is taking its toll on farmers’ lives, and not in the positive ways that were originally expected when the microfinance movement exploded back in the 70’s.

Another issue with microfinance is the problem with high market competition and debt traps. In many cases the goal of microfinance is to help disadvantaged people enter a cycle of greater economic stability in which they have a stable and consistent source of income. Often this takes the shape of entrepreneurship and the starting small-scale businesses in the informal market is encouraged. One of the problems with this, though, is that often many people in the same community will choose the same product to supply, thus leading to a high level of market competition in which it is hard to make enough money. For example, in Bosnia, it was common for those who signed up for microfinance loans to invest in cattle in order to produce milk to sell. The large influx of milk in the market let to a price-drop, which in turn led to reduced income and an inability to pay back the loans (Batemen and Chang , 6 April 2011). This kind of situation is not uncommon, and is often a huge problem of the participants in the microfinance program. Often situations like the one described in Bosnia can lead to many participants going into debt because they cannot make enough money to repay their loans. It also increases the chance that they will take out more loans in order to repay the first one- leading them into an even greater debt trap. Being unable to repay loans due to unprofitable enterprises or unforeseen circumstances, is one of the major delimiting factors for those receiving microcredit loans. It has been shown that it is very common for those who have taken out a loan from a formal microfinance organization will also need to take out loans from an informal credit source in order to pay back the first loan, as stated by a study in Madhuparthana in Northern Bangladesh, “ 94 percent of micro-credit borrowing households in their village were also indebted to informal sources of credit. Target group households depended on one informal sector loan every 10 weeks, while the frequency was 12 weeks in the case of non-target group households” (Chavan and Ramakumar, 6 April 2011). This is a dangerous cycle for someone who is impoverished to get into, as it can easily turn into a debt trap that will haunt them for years. This can often leave households worse off than in before they took out the first loan, and often “individuals are effectively plunged into deeper asset and income poverty than before they accessed their microloan.” (Bateman and Chang, 5 April 2011)

Another issue that comes into play is the fact that many microfinance organizations are starting to seek a profit. Instead of taking an NGO model which aims to alleviate poverty, these companies are aiming to make a profit off the poor. It has been shown that many of the interest rates being charged are rising, and that “very high interest rates are being charged by the many new commercial ‘new wave’ MFIs.” (Batemen and Chang, 12). This has caused huge problems for those who are taking out the micro-loans, and it is these high interest rates that also play into the high number of borrowers taking out secondary loans. These high interest rates are often what make the difference between the poor being able to utilize the money they receive in the loan to create a more stable life, and the inability to pay it back, resulting in a cycle of debt and borrowing. Oftn, when a borrower cannot afford to pay off the loan, “the microloan has to be repaid by selling long- held family assets (equipment, land, buildings, etc), further indebtedness (e.g., taking out a second microloan to repay the existing microloan) and the diversion of other income flows (remittances, pensions) into repayment.” (Bateman and Chang, 6 April 2011), adding further stress and hardship to the family. It is because of these high interest rates charged by many microfinance companies that the repayment rate of loans has decreased, and the effectiveness of microfinance in reducing poverty is greatly lowered.

Originally the idea of microfinance was seen as a beneficial way to help to alleviate poverty and empower women in third world countries through small-scale loans. But after the result of many studies on the effects of microfinance, it has become clear that microfinance is not turning out to be the development miracle-drug that the western world expected. In many ways, microfinance just seems to be another first world capitalist enterprise that is being foisted on the third world as a way for the poor to buy their way to empowerment and economic stability. As well, with the growth of the microfinance movement has come companies that are aiming to make a profit, and because of this, are charging high interest rates. This, along with other things, has helped cause the high rate of secondary loans being taken out in order for clients to pay off their first loan. Although there is still some benefit to small-scale lending in third world countries, it needs to be done in a responsible manner, and cannot be seen as the full solution to development issues. There needs to be recognition that loaning impoverished women money does not necessarily break down the systemic patriarchy that is in place, and may even perpetuate it. It is also important to make sure that microfinance loans do not result in debt traps for the recipients: it is up to the western organizations to loan out money responsibly in a way that won’t lead to long-term debt problems in the clients. These, among other issues, are ones that our society needs to address before we jump too far into the microfinance movement.

Works Cited

Banu, Dilruba, Farashuddin, Fehmin, Hossain, Altaf and Akter, Shahnuj. “Empowering Women in Rural Bangladesh: Bangladesh Rural Advancement Committee’s (BRAC’s Programme”. 7 March 2011. http://www.bridgew.edu/soas/jiws/June01/Dilruba.pdf

“BRAC: Microfinance”. www. Brac.net. 5 March 2011. http://www.brac.net/content/microfinance

Bateman, Milford and Chang, Ha-Joon. “The Microfinance Illusion”. University of Juraj Bobrila Pula, and the University of Cambridge. 5 April 2011. www.econ.cam.ac.uk/faculty/chang/pubs/Microfinance.pdf

Chavan, Pallavi andRamukumar, R. “Microcredit and Rural Poverty”. Economic and Political Weekly. 6 April 2011. http://www.jstor.org/pss/4411845

Goetz, Anne Marie and Gupta, Rina Sen. “Who Gets the Credit? Gender, Power and Control Over Loan Use in Rural Credit Programs in Bangladesh”. 7 March 2011. https://rpirg.basecamphq.com/projects/5555921/file/60071601/Who%20Takes%

Goodman, Amy. “Microcredit: Solution to Poverty or False ‘Compassionate Capitalism?’”. Democracynow.org. 12 March 2011. http://www.democracynow.org/2006/12/13/microcredit_solution_to_poverty_or_false20the%20Credit%20-%20GoetzandSenGupta2003.pdf

“Grameen Bank at a Glance”. www. Grameenbank.com. 5 March 2011. "http://www.grameen.com/index.php?option=com_content&task=view&id=26&Itemid=175

Heloise Weber. “The Imposition of a Global Development Architecture: The Example of Microcredit”. 8 March, 2011. http://wrap.warwick.ac.uk/2041/1/WRAP_Weber_wp7701.pdf

Hulme, David. “Can the Grameen Bank be Replicated? Recent experiments in Malaysia, Malawi and Sri Lanka”. Blackwell Publishing: 1990. 10 March 2011.http://onlinelibrary.wiley.com/doi/10.1111/j.1467-7679.1990.tb00161.x/pdf

Husain, A. M. Muazzam. “Poverty Alleviation and Empowerment”. Research and Evaluation Division, BRAC. 4 April 2011. http://www.bracresearch.org/publications_details.php?scat=29&tid=96&v=

Leiten, G. K. “Review: Microfinance Dissected”. Economic and Political Weekly. 5 April 2011. http://www.jstor.org/stable/4406291

Mayoux, Linda. “Women’s Empowerment and Micro-Finance Programmes: Strategies for Increasing Impact”. 9 March 2011. http://www.jstor.org/stable/4029310

Matin, Imran, Sulaiman, Munshi and Rabbani, Mehnaz. “Crafting a Graduation Pathway for the Ultra Poor: Lessons and Evidence from a BRAC Programme”. Chronic Poverty Research Centre. 7 March 2011, http://www.dfid.gov.uk/R4D//PDF/Outputs/ChronicPoverty_RC/109Matin_et_al.pdf

Mallick, Debdulal. “Microfinance and Moneylender Interest Rate: Evidence from Bangladesh”. Research and Evaluation Division, BRAC. 5 Apirl 2011. http://mpra.ub.uni-muenchen.de/17800/