In 1979, the Nobel Peace Prize went to Mother Teresa for her work to help the poor die with dignity. In 2006, the Nobel Peace Prize went to Grameen Bank (GB), Bangladesh and Dr Muhammad Yunus for his work to help the poor live with dignity. Even though 2005 was marked as the year of microcredit by the United Nations (UN), it was perhaps because of the Nobel Peace Prize awarded to GB that brought the microfinance movement to centre-stage. Since then, many scholars, economists and practitioners have evaluated GB as a model for poverty alleviation, sustainable development and gender empowerment amongst the poor. Enthusiasm for a new-found formula to eradicate poverty has led to its spread to every continent in the world and a number of countries are replicating the model as a solution to alleviating poverty. But the espousal of GB by researchers has taken an increasingly jaundiced view of its positive dimensions and the model’s imbalanced, uncritical and wholesale endorsement, eschews weaknesses which need to be highlighted as a means of caution for those replicating the model in other parts of the world.
This imbalance needs to be critically examined by studying several aspects of the model; such as gender empowerment among poor women which is widely claimed by Grameen as one of its major contributions.
According to the World Bank, 1.1 billion people across the globe live in extreme poverty, making poverty reduction the core challenge for future sustainability and development of communities.
The total percentage of population living below a dollar a day in Bangladesh is 36 percent, while for Pakistan the figure is estimated to be 13.4 percent. Though both countries’ economies are affected by the political and social turmoil, a recurrence of natural disasters such as floods, cyclones, and earthquakes exacerbates the plight of the poor. Poor communities in these countries, which have little or no access to basic necessities continue to suffer with little or no help from the governments. What worsens their state is a lack of collateral precluding them to gain access to loans which may be used to start a small-scale business to earn a living. Microfinance Institutions (MFIs) like GB Banlgadesh and Kashf Foundation Pakistan circumvent the issue of collateral by providing small amounts of collateral-free loans to the poor, allowing them to repay through small businesses they set-up through the loaned amount thereby providing a sustainable solution to combating poverty.
With loan recovery rates of over 95 percent, the GB model’s innovative approach of incorporating social collateral for lending has been one of the reasons for its success. Group-lending contracts effectively make a borrower’s neighbours co-signers to loans, mitigating problems created by informational asymmetries between lender and borrower. Neighbours have incentives to monitor each other and to exclude risky borrowers from participating; promoting repayments in the absence of collateral.
Borrowers organise themselves into a group of five and apply for loan at the GB. After agreeing to GB’s rules, the first two members of the group receive a loan. If these members successfully repay their loans, then the next two are extended loan offers; after their honouring their repayment commitment, the last person is finally offered a loan. Repayment schedules differ for different loan schemes. Initial loans are small, generally less than $100, and require weekly repayments that amount to a rate of 10 percent per annum.
As long as all members in the group repay their loans, the promise of future credit is extended. If any member of the group defaults then all members are denied access to future credit. Furthermore, eight groups of Grameen borrowers are organised into centres and repayment is collected during public meetings. While this ensures transparency, any borrower who defaults is visible to the entire village, which imposes a sense of shame. In rural Bangladesh, this societal pressure is a strong disincentive to default on the loan and many women seldom default to avoid public censure.
97 percent of GB’s clients are women where they serve as effective conduits of microcredit leading to sustainability. The benefit of microcredit for women through their empowerment is one of the much-acclaimed achievements of the Grameen model.
According to World Bank, 70 percent of the world’s poor are women. By the beginning of the year 2007, there were a total of 4,189 MFIs worldwide serving over 133 billion clients, of which 80 million (60 percent) were women.
MFIs may diverge in several ways but “the gender of the majority of their borrowers tends to be a common feature” since “women ... prove not only reliable borrowers but also astute entrepreneurs”. Several studies divulge compelling evidence for sustainable development to be most beneficial when poor women are given credit as compared to men.
The other benefit of microcredit is the empowerment of women. Poor women who chose to participate in Grameen programs were more empowered than those who did not. However, the notion of what constitutes empowerment remains muddled in extant literature. In several reviews of Bangladeshi impact studies highlights have been made that different studies do not necessarily use the same concept of empowerment, neither do they measure it in the same way however, most have a consensus on defining it as a destitute woman’s ability to make decisions in household, financial and personal matters. A woman was considered empowered if she scored on five of the eight criteria. A study showed that GB members were found to be seven and a half times as likely as the comparable non-GB group to be empowered on the eight-point empowerment indicator.
To ascertain some of the issues of replicating the GB model in another developing country like Pakistan, the president of KFP was telephonically interviewed to comment on the gender empowerment aspects of the GB model whereby it was found that “Women are often used by men to gain access to funds. I witnessed a woman being brutally beaten up by her husband after a village centre meeting when she told him she could no longer take a loan since KFP would not lend any as a result of her defaulting. Some of our women borrowers are not active participants in the entrepreneurial activities we advise them to take up unless their husbands grant permission...I personally feel that the KFP model that ironically set out to empower poor women entraps them since there is the lure of money seen by men who treat their wives as tools for access to funds”.
Other issues reported by the loan officer were related to the villages having a male-dominated culture where female loan officers were victims of constant harassment when unaccompanied by male KFP members of staff. KFP management had failed to protect these women officers in the field. Three branches were vandalised in 2007 where a female loan officer had been murdered; a story KFP has managed to keep strictly confidential. The loan officer was sceptical of the GESA department and commented that although KFP had delivered thousands of loans to poor women, there was no clear commitment and strategy for women empowerment.
The first research question on the capacity of Grameen to empower women is answered through the critique and interview findings as evidence that the model exacerbates existing gender issues and may not always succeed in empowering poor women. The premise assumed by GB of choosing women as effective agents of sustainable poverty alleviation may fall flat in the face of failure to effectively empower them.
The second question on implications for MFIs replicating the model in other developing countries has been answered through the example of KFP where failure to address gender empowerment issues in the GB model reinforced the more negative aspects of traditional male dominance even while intending the opposite.
In my opinion, merely assuming that a credit mechanism with a high repayment rate and outreach has an empowering effect on women borrowers is a naive approach for those seeking a larger effective sustainable strategy to poverty alleviation. The Microcredit Summit, UN MDG committee and microfinancial donors need to address the often-neglected negative aspects of empowerment to provide caution and remedy to MFIs emulating GB. Gauging socio-economic sensitivities and accordingly devising strategies to build capacities of women-borrowers as active managers and decision-makers of microcredit may be one of the ways of forward.
In conclusion, gender empowerment is just one of the many issues which MFIs emulating GB need to understand thoroughly. Emulation should not be mistaken for cloning. Emulating the GB model should spell avoidance of repeating the model’s weaknesses.
