Microfinance & Women’s Empowerment: A Historical Review

Microfinance & Women’s Empowerment: A Historical Review Agha Nuruzzaman 1 & Adil Zia2 1 Assistant Professor, Dept. of Business Administration, Aligarh Muslim University, Murshidabad Center E-mail: [email protected]; Mobile No+919412545474 2 Assistant Professor, Dept. of Business Administration, Aligarh Muslim University, Murshidabad Center E-mail: [email protected]; Mobile No+919647674809 Abstract: Indian population is one sixth of the world’s population but surprisingly the largest portion of the Indian wealth belongs to only 10% of people. So, a significant number of Indians are under poverty line specially women and children. It is evident why they make that significant chunk of world population suffering from malnutrition. Getting education and knowing their rights are far-fetched dreams. Due to some man-made formalities, they are unable to enjoy many of the financial benefits from financial institutions especially from banks. In this connection, Government of India has focused more on micro finance for past few years. Microfinance is a type of banking service that is provided to unemployed or low-income individuals or groups who would otherwise have no other means of gaining financial services. It is emerging as a powerful tool for poverty alleviation in India. On the basis of past data and reviews the researchers attempted to know whether microfinance really empowered the weaker section of Indian society. The findings showed that the literacy rate, per-capita income, gross domestic savings, life expectancy and infant mortality rate is improving continuously and microfinance is one of the factors for this improvement. Key Words: Microfinance, women empowerment, literacy, mortality 1. INTRODUCTION Microfinance is a type of banking service that is provided to unemployed or low-income individuals/groups who would otherwise have no other means of gaining financial services. Rural micro-financing is defined as “all financial services that are accessible to poor and low-income rural households and individuals” (IFAD 2009). The core function of a microfinance program is to provide financial services, to reach poor women and men and give them access to savings and credit. However, the potential of microcredit goes beyond the provision of financial services to poor and vulnerable people. This critique is well reflected in the three paradigms of women’s empowerment through microfinance: (i) feminist empowerment paradigm; (ii) financial self-sustainability paradigm; and (iii) poverty alleviation paradigm (Mayoux 2005, 2006). Gender equality is an essential component of economic growth, enabling women to become more effective economic actors (Klasen 2002). Women have not only often proved to be better re-payers of loans, but also better savers than men, and more willing to form effective groups to collect savings and decrease the delivery costs of many small loans. Women, at all levels of society, are an under-served and under-developed while working continuously for the family in the name of social norms and trends unpaid. But the contrast is that, apart from extremely poor women – they also make a potentially profitable market (Cheston 2006). At least, presence of a female figure in all the possible products’ advertisements tries to prove the same. Of course, this world loses all colors and beauty of life when conniving at women’s presence. Another view of women’s empowerment argues that it needs to occur in multiple dimensions that is economic, socio-cultural, familial or interpersonal, legal, political and psychological (Malhotra et. al, 2002). These dimensions cover a broad range of factors, and thus women may be empowered within one of these sub-domains. For instance, the socio cultural dimension covers a range of empowerment sub-domains, such as marriage systems, norms regarding women’s physical mobility, non-familial social support systems and networks available to women. Women like men who are confident, make good livelihood and household decisions, have control of resources and can use larger loans effectively to increase their incomes, are potentially very good long-term clients. They can accumulate substantial savings and use a range of insurance and other financial products. They can also pay for services that benefit them. The experiences of empowerment and disempowerment are related not just for material means and interventions, but also to social relationships (Kabeer & Haq 2010; Sardenberg 2010a), voice (Goetz & Nyamu Musembi 2008), choice (Kabeer 2008) and negotiations (Huq 2010; Johnson 2010). Fig 1: A sample frame-work of microfinance Source: http://www.humanityforchildren.org/node/102 cited on 16-11-2013 2. AN OVERVIEW OF INDIAN MICROFINANCE According to the United Nations, microfinance institutions can be broadly defined as provider of small scale financial services such as savings, credit and other basic financial services to poor and low income people. The term “microfinance institution” now refers to a wide range of organizations dedicated to providing these services and includes NGOs, credit unions, co-operatives, private commercial banks, NBFCs and parts of State-owned banks (Tewan & Islam, 2009). In microfinance, key players are National Bank for Agricultural and Rural Development (NABARD), Reserve Bank of India (RBI), Self Help Groups (SHGs), Microfinance Institutions (MFIs), Non-Government Organizations (NGOs). Some popular microfinance companies have been shown in Table 2. There are two models of micro-finance in India that link the formal financial sector with lending to low-income households that cannot afford collateral. The first is the bank-led SHG model, promoted by the State through commercial banks, which lends to groups of 10 to 20 women called the Self-Help Groups (SHGs) The other model is that of micro-finance institutions (MFIs) and are private sector entities lending to small groups similar to the SHGs. Both are based on the joint-liability-group (JLG) method. Table-1: The Indian Financial System as on 2012 Source: M-CRIL Microfinance Review 2012 Table- 2: Important Microfinance Institutions in India (as on March 2012) MFI Date of Establishment Gross Loan in Cr. Active Borrowers (Approx) Bandhan 2001 3274.1845 3600000 Spandana 1998 2383.417 3400000 Share 1989 1852.082 2200000 SKS 1998 1464.9665 4300000 AML NA 1052.847 1100000 Equitas 2007 635.3695 1200000 Basix 1996 256.291 570,520 Trident 2007 112.9645 161,448 Sonata  NA 89.3 132,760 SEWA 1974 49.5615 23000 Total   11170.9835 16664728.02 Source: Data collected from http://www.mixmarket.org Graph 1: Growth in number of MFI-Bank Linkage Program Source: Based on NABARD Report “Status of Microfinance 2011-12” The above graph-1 shows the numbers of MFIs linked to banks and other institutions, having their saving accounts with the banks. As the table depicts the numbers of MFIs were 518 in year 2007-08 which increased by 12.16%. Next year from 581 in the year 2008-09 and it increased by 34% to 779 in year 2009-10. It might be due to the policy formulation of government in order to support the sector. But in 2010-11, it registered a decline of MFIs by 39.53 %, (779 to 471). It may be inferred that recession might be one of the reason. And in the year 2011-12 the MFIs reached to 465 from 471 means 1.27% decline it shows a stable position. Graph 2: Loan disbursed to MFIs Source: Based on NABARD Report “Status of Microfinance 2011-12” Graph 3: Growth of SHGs in India Source: Based on NABARD Report “Status of Microfinance 2011-12” In the above bar graph-3, SHGs established are shown, there were approx. 36 lac registered SGHS in the year 2007-08 and grown by 16.5% and increased approx.42 lac in year 2008-09. By next year in 2009-10 the registered growth was exponential i.e. 64.59% and reached up to approx. 69 lac. Afterwards the SHGs increased up to approx.74 lac and approx.79 lac with growth rate of 7.32% and 6.25% in the year 2010-11 and 2011-12 respectively. Graph 4: Savings of SHGs with Banks (Rs in Cr) Source: Based on NABARD Report “Status of Microfinance 2011-12” The above Grapg-4 shows the savings of SHGs with the banks, the trend is similar to that of established SHGs in the years 2007-08 to 2011-12. In year 2007-08 the savings deposited in banks was 3785.39 Cr, the deposits increased by 46.50% and reached to 5545.62 Cr. In successive years there was increasing trend and the amount in saving account was 6198.71 Cr and 7016.3 Cr with the growth rate of 11.77% and 13.18% in during 2009-10 and 2010-11 respectively. But in 2011-12 the savings went down by 6.6% and came down to 6551.41 Cr Microfinance Institutions are spreading all over India. States like Odisha, Andhra Pradesh, Tamil Nadu and Karnataka have high penetration of microfinance. West Bengal, Kerala, Tripura, Madhya Pradesh and Mararashtra are medium penetrated microfinance states. Assam, Bihar, Uttar Pradesh, Delhi, Rajasthan and Gujarat are low penetration microfinance states and the states like Arunachal Pradesh, Manipur, Jammu Kashmir, Himachal Pradesh and other small states are lacking from microfinance institutions. Graph-5: Coverage of eligible population by microfinance loans (MFIs + SHGs Source: Oxford Policy and Human Development Initiatives 2010. Country Briefing India. http//www.ophi.org.uk/wp-content/uploads/country-brief-India.pdf 3. REVIEW OF LITERATURE Sen (1990) commented that personal and collective empowerment is intrinsically linked because without the latter, the former becomes circumscribed. The study of Bali-Swain (2006) explained the feminist paradigm; empowerment goes beyond economic betterment and well-being to strategic gender interests. According to Singh (2008), microfinance services are designed to help the underprivileged to increase their earning, consolidate their properties and even gain a decent financial stability in life. The advantage of availing the microfinance credit over the more traditional means is the unwillingness of the later to serve the underprivileged people. Allen et al (2007) found that In spite of a large banking sector, about 40% of the Indian population does not have bank accounts. Given that over 75% of the Indian population still lives below $2 a day, and a vast majority in rural areas, microfinance – the provision of thrift savings, credit and other financial products and services at a very scale to the poor to enable them to raise their income and improve living standards – is key to financial inclusion in India. Shastri (2009) showed that the dynamic growth of the microfinance industry has been promoted not only by market forces but also by conscious actions of national governments, Non-Governmental Organizations (NGOs), and the donors who view microfinance as an effective tool for eradicating poverty. Mayoux & Hartl (2009) said that microfinance has been seen as contributing not only to poverty reduction and financial sustainability, but also to a series of ‘virtuous spirals’ of economic empowerment, increased well-being and social and political empowerment for women themselves, thereby addressing goals of gender equality and empowerment. Cheston & Susy (2006) found that in many MFIs, women have become preferred clients as their income benefits their families through improved nutrition, health, education and well-being; because they have higher repayment rates; and because women work better in the group lending programmes that makes reaching the poor efficient. Swainan and Fan (2009) strongly concluded in their study that SHG members were empowered by participating in microfinance program in the sense that they could have a greater propensity to resist existing gender norms and culture that restrict their ability to develop and make choices. Mahajan & Bansal (2009) showed that the impact of microfinance on women empowerment in Punjab and found that participation in microfinance program have not only significantly increased income, but has also developed regular saving habits among women. As a consequence of their economic empowerment, women could actively participate in household decision making, besides enhancing their social and psychological empowerment. Anjugam & Alagumani (2001) concluded that microfinance has brought considerable improvement in decision making skills among women, gave them confidence in managing the financial crisis of the family, decision making capacity in household matters and assertiveness in protesting against social evils like drinking water problem, dowry and gambling etc. Emerlson (2011) found that the impact of microfinance programme especially through Self-Help Groups (SHGs) has been effective in making positive social change to all members, irrespective of the direct borrowers of the micro credit. Therefore, microfinance is a new method to meet the credit requirement in rural areas. It is being viewed as one of the most powerful tools for uplifting the economic conditions of the asset-less poor through group approach that ensures active participation and involvement of the beneficiaries in effective implementation of the programme. Pitt & Khandker (1998) studied the impact of microfinance on poverty in Bangladesh. The study showed that the poverty rate of BRAC (Bangladesh Rural Advancement Committee, set up in 1970) members fell by around 15 per cent for moderate poor and 25 per cent for ultra poor. This rate of poverty reduction appeared to decline with the duration of membership and with cumulative loan size. Dhanya & Sivakumar (2010) commented that in spite of the improvements in savings and banking habits due to the participation in microfinance programmes, the problem of default is an important issue, affecting the sustainability of the SHGs. Cull et al. (2008) found that there is a remarkable success in maintaining high rates of loan repayment in microfinance sector, but their study also suggests that profit-maximizing investors would have limited interest in most of the institutions that are focusing on the poorest customers and women. Those institutions, as a group, charge their customers the highest fees in the sample but also face particularly high transaction costs, in part due to small transaction sizes. Sriram & Upadhyayula (2004) concluded that there is no ideal or easy path for Microfinance Organisations to mainstream in India. They argued that there should be regulatory changes that allow smaller MFOs to get into more complex forms as to grow organically. Ghate (1992) says that Informal sector microfinance institutions have comparative advantage in terms of small transaction costs achieved through adaptability and flexibility of operations. A study by Jyotish (2006) based on 100 SHG members in the Hooghly district, West Bengal found that women who had taken loans for income- generating activities, only 5% reported having total autonomous control over the money, 56% reported that they share control over the loan money with their husbands, and 38% reported that their husbands have sole control over the proceeds of the loan. The above conclusion shows that micro finance program does not explain the strong form of Women empowerment rather it is weak form of women empowerment. Hashemi et al. (1996) for example, attempt to measure a woman’s empowerment using indicators such as level of mobility, ability to make large purchases, and political and legal awareness. However, in other studies, such as Goetz and Sen (1996) and Rahaman (1999), evidence is offered that a woman’s participation in a credit program reinforces her dominated role in the household, and in some cases, the loan ends up under the control of her husband. Ranjula & Fan (2009) in their article ‘Does microfinance empower women? Evidence from self-help groups in India’ concluded that SHG members are empowered by participating in microfinance program in the sense that they have a greater propensity to resist existing gender norms and culture that restrict their ability to develop and make choices. Sarumathi & Mohan (2011) found that microfinance brought psychological and social empowerment than economic empowerment. Impact of micro finance is appreciable in bringing confidence, courage, skill development and empowerment. The SHG members feel free to move with their groups and leaders. It leads them to participate on various social welfare activities with good co-operation. 4. OBJECTIVES An overview of Microfinance in India To know the role of Microfinance in women empowerment To identify the opportunities and challenges of MFI in India 5. RESEARCH METHODOLOGY This is a descriptive type of research. Secondary data collected from different sources has been used. More focused has been given on review of literature to support the findings. With the help of simple calculation, graphs and tables the researcher tried to explain the facts. 6. ANALYSIS From the reviews it is found that women’s empowerment means empowerment of women in multiple dimensions: economic, socio-cultural, political and psychological. This study focused on literacy rate, per-capita income, gross domestic saving, life expectancy and infant mortality rate and one the basis of that the finding of the study has been elaborated. Graph – 6: Literacy Rate of India Source: Data collected from Economic Survey Of India: 2012-13 The above graph-6 shows that the literacy rate of India is continuously increasing. Especially after 1990 the rate of literacy improved more as compared to before 1990. The graph also clearly shows that after 1990 the literacy growth trend of female improved more than male. Also it has been observed from various surveys that microfinance institutions actively participated in India after 1990’s. It may be inferred that microfinance has important role in improving the women’s literacy rate. Cheston & Susy (2006) Graph-7: Per-capita Income at 2004-05 Price Source: Central Statistics office (CSO) From the graph-7, it is observed that per-capita income is continuously growing, but after 1990’s the rate of per-capita income increases more. On the basis of that observation it may be said that microfinance may be one of the factor to boost per-capita income. Mahajan & Bansal (2009). Graph-8: Gross domestic savings as % of GDP at current market prices Source: Economic Survey Of India: 2012-13 Graph-8, indicates that gross domestic saving of Indian are regularly increasing, during the period of 1990 to 2010 the gross domestic saving rate maintained its upward slope but in 2011-12 it is in downward. From the table saving rate is 4 & 5 it has been observed that after 2009-10 the mFI-Bank Linkage Programme and loan disbursed to mFIs decreased. This may be one of the reasons that the gross domestic saving of India went down in 2011-12. It may be inferred that microfinance is an important factor which influences gross domestic rate. Allen 2005; Murray and Rosenberg 2006; Ashe &Parrott 2002 and Cheston 2006. Graph – 9: Life Expectancy of Indians Source: Economic Survey Of India: 2012-13 Graph-9, shows that the life expectancy of Indians are increasing regularly. And after 1990 the expected life of women are more than that of male, which indicates that they are taking good nutrition, availing medical facilities, It can be concluded that the income of women have increased which helps them to take regarding health. From the graph-10, it is also found that the infant mortality rate in India is decreasing which again indicate the awareness and income level of individuals. Cheston & Susy (2006) Graph-10: Infant Mortality Rate (per thousand) 7. Conclusion In India MFIs and SHGs are the main players in microfinance. It is also a fact most of the MFIs are profit oriented and they are charging a high interest rate from their clients. SHGs are doing well but there is a need to educate SHGs group members, how to utilize the funds properly. The present study found that the literacy rate, per-capita income, gross domestic saving, life expectancy rate and infant mortality rate are improving continuously. It is observed that after 1990 the rate of improvements is higher than before 1990. On the other hand studies showed that in Indian microfinance started during 1985 and it keeps penetrating most of the part of the country. It may be inferred that microfinance is an important factor in improving the social indicators like literacy rate, income, saving, life expectancy and infant mortality rate. 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