Female Empowerment and the Promise of Microfinance
Thursday, January 22, 2009
By Roshaneh Zafar
Recently, I came across a quote from Edmund Burke, an Anglo-Irish statesman of the eighteenth century, ?the only thing necessary for the triumph of evil is for good men (and women) to do nothing? (parentheses and emphasis, mine). The emphasis on ?women? is obviously my attempt to remind us that we need to review Pakistan?s situation through a gender lens. Looking at the recent events in Pakistan, I feel, at times, that a malaise ? a malaise of indifference – is beginning to creep into our psyche. This malaise is at the forefront of the multifarious problems we face as a society and as a nation.
However, all is not lost. There exist oases of hope in Pakistan like microfinance which can provide long-term financial choices and services to the poor. Microfinance is no panacea, however. It will not defeat global poverty by itself. Nonetheless, it is an important part of the solution. Microfinance provides a stable and sustainable source of income that enables microfinance clients to climb steadily out of poverty, while simultaneously providing better living conditions and opportunities for families. Microfinance borrowers take great pride in their ability to lift themselves out of poverty through their own agency (initiative). While a charitable donation can be helpful in the short run, it is hardly ever an ongoing source of financial support.
I have been associated with the field of microfinance for the past 18 years. As a young development economist at Yale, I came across the amazing story of Khairoon Apa ? a Grameen Bank client ? who had taken a loan of $100 from the bank and invested in her business. Based on that first loan transaction, Khairoon had built up a mini-financial empire in her community by owning a mithai (sweetmeat) store, a poultry farm and a thriving public call office.
In other words, Khairoon had become the Ted Turner of this small village in Putuakhali on the Bay of Bengal. Khairoon?s story of a woman who started her life owning only one sari that she would wash from one side wrapping the wet end around herself since she did not have the resources to buy another, is a poignant reminder about the undignified nature of poverty.
Khairoon?s story stayed with me for many years, until one day fate took me to her village where the sun never sets and the umpteen tributaries of the Meghna River lazily wind their way into the Bay of Bengal. This visit was to be my personal epiphany. It was in Putuakhali that I saw the miracle of microfinance unfold in front of my own eyes, when Khairoon proudly took me to her home and showed me the dozens of colourful saris she now owned to wear on all possible occasions, including the marriage of her son which was a few weeks away.
In any economy the sources of credit are often divided into two categories: formal and informal. Mainly, formal credit sources include commercial banks, leasing companies and other non-banking financial corporations. Formal credit sources are usually characterised by highly bureaucratic, and in many ways, anti-poor and anti-women procedures and rules, which essentially push poor households out of the formal financial sector ? as the poor are considered ?unbankable.? The lack of access to formal financial services is a major obstacle that propagates the vicious cycle of poverty and drastically reduces the economic opportunities that low-income households have. As a result, poor households often have to rely on informal sources of credit: the moneylenders. Moneylenders dominate this sector and are thus poor people?s most important source of credit. Though credit from the moneylender is often provided without the need of collateral, interest rates are almost always exorbitantly high (sometimes up to 25 per cent per month!) and tend to exploit the poor. Due to the nature of this extortive credit source, the poor are often vulnerable and can find themselves trapped in a ?vicious circle of debt?, which can continue for generations.
Microfinance is the best solution for two chief reasons: First, microfinance is a market-based solution aimed at resolving the demand for credit by the bottom of the pyramid.
Second, it fulfills the needs not met by the formal banking sector ? it is essentially about making financial services affordable and accessible to the poor. People have often asked me why does microfinance work best with women? In patriarchal societies, especially in developing countries, women often tend to be dependent on males for access to resources and their contributions to family income are not properly recognised.
The work women do outside the home is usually in addition to the care they provide for their families, which limits their business opportunities. Moreover, they often face even greater obstacles and are considered less ?credit worthy? than their male counterparts when it comes to getting credit from formal sources. Microfinance, therefore, comes as an alternative to satisfy the credit needs of women in order to help them start micro-businesses and contribute to household income. Increased income in the hands of women is invested in health, education and housing for their families. Experience and studies have shown that women use the profits from their businesses to send their children to school, improve their families? living conditions and nutrition, and expand their businesses. As micro entrepreneurs, women not only make a huge contribution to GDP, but they also create tangible social safety nets for their families and communities.
Today, as a society, we have two clear choices. We can either continue to treat the poor as orphans in the economic system and keep them deprived and locked out of the formal economy thus forcing them to rely on moneylenders and be endlessly caught in the vicious cycle of poverty. Or, we can actively promote and support microfinance, which allows poor people to live with dignity. Fortunately in Pakistan, we have one of the most progressive microfinance regulations which actively promote commercialisation of the sector, thus enabling poor people to be included in the formal economy. Unfortunately, our mindset as a society has not evolved to accept that poor people deserve financial services the same way the rich do. We are still teetering between misplaced good intentions of providing the poor with charity or hoping to build a subsidised financial option for low-income communities. Both these alternatives will ultimately force poor people to rely on money lenders, since none of these are long-term options in terms of access to financial services. I have personally seen thousands of poor families forced into the grinding and brutal indebtedness of the aarthi ? the moneylender. Compare this with microfinance that gives people the choice to not only return their loans but to also live with dignity.
We must make the right choices as a society. Let us unite to denounce all those elements that are denying the economic rights for the poor women of Pakistan.
The writer is founder of the Kashf Foundation, Pakistan?s first specialised microfinance institution