01 July 2010

Microfinance Boosts Economic Power of Women in South Asia

By Burton Bollag
Special Correspondent

Washington — What started as a few small loans by an economics professor in Bangladesh to help local laborers avoid unscrupulous, high-interest loan services has become a booming specialized banking business. The business, microfinance, refers to small loans to poor people who generally have no access to banks. Microfinance is widely credited with improving the lives of millions of families around the world.

While the rise of microfinance tells a story about growth in a banking sector, it also tells one about women’s economic empowerment. According to economists, women are the big beneficiaries of microfinance, especially women in South Asia, where the majority of microlending takes place. Grameen Bank, the Bangladesh institution at the forefront of microlending, reports that almost all of its borrowers are low-income women. Their access to small amounts of money to support their businesses is giving them more say inside their families and their communities, according to several officials from international organizations.

Muhammad Yunus, the economics professor, founded Grameen Bank in the late 1970s. Grameen means “village,” and the bank is so named because its clients are mostly in rural areas. Today, the bank has 23,037 employees and 8.1 million borrowers. As microfinance expands, it increasingly attracts commercial investments, and provides other services — like savings accounts, insurance policies, money transfers and bill-paying services — to those who typically lack access to banks.

When Grameen Bank first started, it tried to attract an equal number of men and women borrowers. But Yunus said the bank quickly saw that women used their earnings to benefit their families much more than male borrowers did. Grameen and other microlenders in South Asia now lend overwhelmingly to women.

Although microfinance has spread to most parts of the world, the practice is most widely developed in South Asia, home to half of all current borrowers. (Estimates of the number of borrowers worldwide, by international nonprofit groups supporting microfinance, range from 77 million to 150 million.)

Unlike traditional banks, microlenders do not require collateral that would be forfeited if a loan is not repaid. Instead, many microfinance institutions follow the Grameen model of requiring those who take out a loan to join a group of about a half-dozen fellow borrowers. The group holds regular meetings at which an officer of the lending institution collects repayments.

Experts say the support and pressure from the group contributes to very high repayment rates: Typically more than 95 percent of loans are repaid. For comparison, according to Coleman Publishing, 88 percent of small business loans in a U.S. Small Business Administration program were repaid in 2008; repayment rose to 94 percent in 2009 as the financial crisis eased.

The microfinance system has another built-in means of improving the welfare of borrowers and their families. Lending officers often provide information about such topics as health, nutrition and borrowers’ legal rights in their dealings with landlords. Supporters say that, in this and other ways, microfinance empowers women in societies where property and economic decisionmaking has traditionally been in men’s hands.

Borrowers typically take out loans of no more than a few hundred dollars, which they use to finance business activities such as selling food or small items from a market stall, raising chickens or vegetables, or providing services like sewing or cleaning.

Mary Ellen Iskenderian, president of Women’s World Banking, a global network supporting microfinance, said the benefits of access to small loans at reasonable interest rates may seem subtle, but are nonetheless significant for families. “They may be able to move from a mud floor to a wood floor, which has enormous health benefits, or allow a girl to stay longer in school, which has a long-term impact.”

Small loans reduce economic shocks to families with few resources to fall back on. If drought hurts their crops or they need money for a medical emergency, families “don’t have to sell off productive assets or reduce their food consumption,” said Katherine McKee, an economist with the Consultative Group to Assist the Poor, a World Bank-based research organization promoting financial services for the poor. “Microfinance helps families smooth consumption, which is very valuable.”

Increasingly, local governments and international donors support microlending. As the practice continues to expand, microfinance institutions are attracting more capital from commercial investors — $10 billion worldwide in the last four years, according to Iskenderian.

Ujjivan Financial Services, a company founded in Bangalore, India, in 2005 to bring microlending to India’s urban poor, is typical of this trend. The company started with investments from both nonprofit foundations and for-profit investment funds in the United States, Europe and India.

“We’re a social enterprise; our objective is poverty alleviation,” said Samit Ghosh, a former Citibank manager and Ujjivan’s director. “But we’re run as a profit-making enterprise. Otherwise, we wouldn’t attract enough capital or good people to work for us.”

Ujjivan provides small life insurance policies to its slum-dwelling customers. But Indian banking regulations prohibit the nonbank finance company, as it is officially designated, from offering savings accounts. Across the region, however, financial institutions are beginning to provide savings accounts, bill-paying and other services.

Experts say there is a great demand for such services in the region. Ujjivan, for example, has seen its business grow by nearly 100 percent in each of the last three years, to 700,000 borrowers today — all of them women.

(This is a product of the Bureau of International Information Programs, U.S. Department of State. Web site: http://www.america.gov)