COMPLEXITIES OF MICROFINANCE

During my time working at a microfinance institution, I became aware of the many complexities of microfinance as a form of poverty alleviation. I saw both the amazing positive change it is bringing to the lives of poor, rural women as well as some of the detrimental effects. Per expressed interest from several people regarding this topic, I have shared some of my thoughts and experiences about the microfinance movement. My apologies in advance if this is really long, wordy and dry.

Overview of Microfinance
Microfinance in the developing world became popularized by Mohammed Yunas and his work with the Grameen Bank in Bangladesh. He developed the concept of microcredit to help poor populations through an effort to make the poor ‘bankable’ and then went on to introduce this model to other developing countries. This caught on fast, particularly in India, and in 1996 Yunas was awarded the Nobel peace prize for his efforts in assisting poor populations. The Grameen Bank utilizes a joint liability model of lending wherein, a group of 8-14 low income individuals agree to form a group and then are automatically approved for a loan through a microfinance ininstitution as a result of the joint liability and responsibility the group is taking for the loan. This capitalizes on the fact that although the poor may not have a lot of assets or credit, they do have strong relationships with their community as well as firm convictions about repayment and accountability. Although this movement has without a doubt benefited many poor people by giving them access to loans and money to build their businesses and increase their income, it has also proven to be problematic in some respects. This model has received critiques for taking advantage of the ignorance of poor people and getting them stuck in debt traps that they are often unable to come out of while banks and institutions are the real beneficiaries. Microfinance, in some cases is a way that marginalized populations are taken advantage of and targeted as easy consumers. As a result, over the years, there have been numerous cases of fraud and mishandling of funds by organizations in which poor populations have suffered the consequences. More pragmatically, some argue that this concept promotes an underlying current of capitalist and individualist values, placing the responsibility on the poor individual to improve their particular situation as opposed to seeing poverty as a vicious cycle that institutions and governments reinforce. My own personal critique is that I think like many other programs aimed at poverty alleviation, it favors the highest functioning of the poor population and fails to address the needs if those that are the most impoverished and desperate.

There is an alternate model of microcredit that developed and spread from the joint liability concept which is the self-help group model derived from the women’s movement. Chaitanya, the organization I am interning with, uses the self-help group model of microfinance to promote women’s empowerment. Logistically, the way this works is a group of 12-18 women gather together and from a group. They elect leadership in this group and all receive training from Chaitanya on how to manage their own individual finances, the concept of microfinance and other financial literacy skills. These women then contribute a mutually agreed upon amount of money on a monthly basis which makes up the pool that is then used to disburse loans to group members from the group savings. The difference compared to the joint liability model is that instead of borrowing from a microfinance institution, the group is self-generating funds to loan and whatever interests the women pay, goes directly back to the group. This promotes a more empowerment based and sustainable approach to addressing poverty which is not only financially based but also focuses on participation and mobilization of communities. This approach works much better in rural areas as compared to urban because of the camaraderie and trust that is already present in these communities. To expand, sustain and bring all the SHG’s under one umbrella, a formal three tiered structure currently exists. About 30 self-help groups (SHGs) come together to form a cluster and then 5-6 clusters together link up to form a federation. Each group gives a small amount of money to the federation once they link with it which allows their members to access larger sized loans on the federation level. In essence, these linkages form to make a self-sustaining microfinance institution that acts as a local credit union. It really is very fascinating and I have personally witnessed the numerous improvements it has brought to poor people’s lives. With that said, like everything in India, it is not without its set of problems therefore I feel it is only accurate to present both sides of the story.

The Benefits of Microfinance

During my time in the village and through my numerous interviews with women I cannot even count the number of times that women expressed how drastically the self-help groups (SHG) has changed their lives. They often stated that it has earned them a decision making role in the family, they have gained confidence and respect as a result of their involvement and most importantly, their family’s financial situation has improved as a result of access to the loans. Many woman have started their own microenterprises with SHG loans such as bangle shops, a beauty salon, incense business, buying an additional cow for farming and milk production or even sending their children to college or paying for a new roof on their house. In addition to this, women expressed to me how much they appreciate having a forum to discuss issues with other women. They often state that before their involvement in the group they felt very isolated and having the community of women has made them feel stronger and supported which resulted in increased leadership. My host mom, Savita Tai is a perfect example of this. She went from being a house wife to being the president of her self-help group, being elected to serve as the village representative, becoming an expert on financial literacy and being involved with cluster and federation level loan disbursement. Although women’s empowerment is really hard to define and measure, you can clearly witness a deep sense of empowerment in Savita Tai’s eyes and spirit.

SHG groups also provide opportunities to communities that have often been marginalized in society. While I was in the village of Pargoan, as part of my field work I organized the first informational meeting regarding microfinance and self-help groups (SHG) in the Thaker tribal (indigenous) community. I came to find out a bit about the history of this community in India which is similar to many other indigenous groups; historically, they have had a lot of their land and rights taken away from them yet they continue to have a strong communal identity and culture. As a result of this marginalization, they have often been left out of outreach and social services that are offered to other communities. Initially, in the meeting, the tribal women were very apprehensive about their ability to participate in a microfinance group because of their very low poverty level as well as illiteracy and lack of education. To overcome this, on our way to the village we contacted a member of another SHG group and asked to her to accompany us to the village. She agreed and shared her story of her initial fears of joining a self-help group and how being involved has impacted her life with the women in the tribal community. Seeing this example of someone in their community that they could relate to was a turning point for these women and with this, they began to show interest and talked about their hopes for the future and how saving and microfinance may help them achieve these goals. We also explained that the self-help groups were designed to accommodate those who may not have very little reading/writing skills. Hearing this, the group felt more encouraged to participate in a group.

In addition to the new formation of groups, SHG’s continue to greatly benefit groups that have been operating for years. During my time in Pargoan, I also worked with an SHG group that have been together for 9 years. Since this group had such a great rapport together, I was interested in knowing how they go about building trust in a group. First, to establish a relationship with them, I gave them an opportunity to ask me some questions about America and after the basics such as, ‘what is your house like?’ ‘how do you wash your clothes and dishes?’ ‘what kind of food do you eat?’ etc were out of the way, they asked me, “Do you have SHG groups in America?” I answered no and then they were puzzled as to why. In a country that has machines that do everything for us and is so contemporary in so many respects, why are we so behind in this front? I replied that the issue in the US is that it is hard to gather a group of women and establish trust and accountability particularly in regards to finances. They still seemed slightly confused and it was within this moment that I realized how much a collective versus individualist culture makes a difference in how we see the world. While I was sitting there attempting to find out how these women build trust, the women could not even imagine the idea of not having this trust inherently. The unique thing about the concept of the self-help groups is a builds on the assets and strengths that rural communities have of collective identity, communal trust and a high degree of accountability. Although I do believe there is potential for this type of financial and empowerment based movement even in western countries, I think the barrier is that we fail to think of ourselves as a collective and the thought of contributing to something that we will not see the benefits of right away, particularly for impoverished populations who are just desperately trying to get by, unfortunately at this point seems impossible.

Drawbacks of Microfinance

Unfortunately, not all microfinance experiences are solely positive. One aspect of this that I have learned about that has been hard to digest is many of the women in the self-help groups are actually used by their husbands as a tool to access loans and money for their businesses. These efforts are then being labeled as women’s empowerment even though in some (not all) instances it is just furthering the oppression of women by taking advantage of their vulnerable positions to get what they (men) need. Within this, the flicker of hope is that regardless of the financial issues, the significance of women gathering together in a group will essentially promote empowerment in and of itself.

Although not specific to microfinance, I encountered a specific situation in which a man was exploiting the women’s movement for his own benefit which was particularly hard to swallow. This is very similar to how women’s access to microfinance is also taken advantage of by men. Rural areas of India have a three tier system of government (similar to the SHG model): the local/village level (Gram Panchayat), block level (Taluka Panchayat Samiti), and district level (Jilla Prishad). About a decade ago, a federal regulation was passed setting an ordinance that 33% of the governing boards on all three levels in both rural and urban areas must be comprised of women. This was done in an effort to promote gender equality and provide more leadership opportunities for women. To learn a little more about this, we interviewed a woman who had won the election and was the government representative (called the surpancht) on the village level. As we were preparing, I had this image of this very strong willed, motivated woman who was a leader in her community. When we went to interview her I was quite surprised by her demeanor. As we were asking questions, her husband spoke for her the whole time and he said openly that although officially, she is the one who was elected to serve as the representative, he makes all of the decisions and completes the work that this position entails He stated that she is not capable of doing this because she does not have an education and she has other responsibilities in the home which is why he has taken over. When we asked the woman representative directly, “What do you hope to do for the women of this village?” she turned to her husband and quickly deferred to him for an answer. It was clear that a woman filing this position was just a cover up and an alternate way for a man to gain control. Seeing this was quite disheartening but also made me realize that things are often a lot more complex than they seem. A simple law or quota will not undo the centuries of brutal gender oppression and discrimination that have left their mark on contemporary society.

In addition to gender issues, I also witnessed some of the complexities of microfinance as a solution to poverty. While I was in Gujarat, I visited an urban slum and interviewed a woman there who had recently invested in a micro pension plan through one of the largest microfinance institutions in India. Through this interview, I learned about some of the complications with this micro pension product that is being sold to very poor populations and how little these consumers understand about how their money is invested. The women we interviewed contributes 100 rupees (about $2 which is a large portion of her income) a month to her pension plan but has virtually no information about how her money is being invested and when she will be able to access this money. She innocently stated that the bank told her it will ‘help her in old age.’ Although this is true, there is no guarantee that the money will be there in her old age. There is a good chance that the market may crash or other economic problems may arise. Though there is some amount of risk involved in any investment, the difference is that those who are investing understand the risks they are taking and the fluctuations of the market where as these poor populations have no concept of this and believe the bank is just holding on to their money for them until they are ready to use it. This lack of information puts them in a very vulnerable position and keeps microfinance institutions in signification positions of power.

Overall, I think like many movements worldwide, microfinance, particularly with the self-help group model, is an excellent movement and concept but unfortunately when executed and carried out can also quite often be problem ridden. I hope these organizations and women’s groups can become further aware of the negative aspects and actively work towards overcoming them in order to utilize microfinance to successfully contribute to women’s empowerment and poverty alleviation.

*If you are really interested in this topic or would like more information on either issues of women’s empowerment within microfinance or the comparison of the joint liability to the SHG model, please let me know and I will email you a copy of my final report to Chaitanya that further details these topics.

**All facts, figures and information contained in this blog are based solely on my recollection and may not be totally accurate.