One of the most important outcome of the analysis in this paper has been that while most MFI programmes aim to reduce poverty and empower women through their programme, there is usually no clear implementation mechanism to fulfil these aims; they continue to be programmes with the same requirements and characteristics. Furthermore, one of the major constraints in the discussion of gender and micro credit is the inadequate and insufficient participation of the female clients themselves in the design of the programmes. For example it would be better suited to define what empowerment means to a certain group and then design the project to enable women to achieve this empowerment level. Perhaps the second most important constraint is the insufficient empirical evidence from Africa. The micro credit model most commonly replicated and known internationally was to a great extent born in South East Asia and Bangladesh particularly. Thus, much of the research and studies on successes, failures, weaknesses and opportunities of micro credit are measured with this framework and context in mind. This is a mismatch which is most likely to brand the African experience to be “inadequate”.
Micro-credit programs have progressively increased over the last decades in Africa. In comparison, there is nearly no convincing and/ or comprehensive evidence to show that poverty has been reduced sustainably amongst a certain group of clients. Indicators such as repayment rates and “demand” for credit do not result in poverty reduction; they simply mean that there is a “need”, as always, for more resources. Furthermore, repayments being made simply indicates that the clients are in a position to payback, where and how they get that payback amount is not scrutinised.
Despite such evidence, micro-credit delivery programmes are on the rise, more than ever before.
In Malawi alone there are more than twenty nine micro-credit delivery programmes, projects and institutions. Donors too are infatuated by micro-credit as the answer to all development problems.
However, they view it from a supply side scenario, and very little time is devoted to analyse ‘what kind of credit is desired’ by the potential clients.
One of the misconceptions amongst practitioners is that an MFI targets the ultimate poorest of the poor, the landless, the assetless, and the destitute. However, the paper has demonstrated that for an MFI such a client profile will not ensure returns and increase profits, and it is precisely such a beneficiary profile that is unattractive and unlikely to become a potential client. The changing policy environment, thus, puts more pressure and competition for the scarce resources between the poorest of the poor and the “not-so-poor”. This paper has highlighted the fact that since development interventions put greater focus on, for example, export markets, trade promotion, and medium scale farmers and entrepreneurs, the actual micro-credit clients are not the typical ‘hand-to-mouth’ poor.
The analysis in the paper has discussed the practices of MFIs as units in the business of delivering finance and making profits or at least recovering investments and other costs. Through the analysis of the different features of micro-credit, the paper has raised some questions and concerns on the absolute validity of micro-credit as a poverty reduction mechanism. The factors analysed revealed that there are certain undesired effects of micro-credit delivery, which may hinder the process of poverty reduction. The paper underscored the concern that in the present system, micro-credit at best may help to reduce the depth of poverty of a client and that too for an unsustainable time period. This paper, thus raises some preliminary analytical issues which should be considered carefully in future micro-credit interventions for poverty reduction. Moreover, the analysis of the issues also provide an outline of some areas for further investigations and research which can be both policy and action oriented.
Finally, the paper has highlighted the fact that the micro-finance industry and the development agents have become too slow in responding to the changes occurring amongst the poorest of the poor. In this, the paper has shown that most MFI programmes have been replicating the loan delivery mechanisms and strategies without critical evaluation of the needs of the clients.
The paper has also questioned the assumption that MFIs through delivering credit empower women.
Evidence from the field has shown that many MFIs in both Ethiopia and Malawi do specifically target women as clients. However, this is mainly due to the fact that the characteristics of these micro, short repayment period loans, are best suited to female clients. But the empowerment process which is assumed to occur as a result of these loans, is impeded by the micro size of the loan, the small returns from the use of the loan, and the fact that the returns themselves are still not always the major contributor to the family income in the case where the husband is also earning an income. However, it was also noted that some indicators of empowerment could be verified in the case where the woman benefited from at least the fifth cycle of the micro-credit. In this case the accumulated benefits of the previous loans and their incomes, as well as the increased experience of the female in managing the loan efficiently contributed to her increased and autonomous decision-making powers in the household and the community affairs.
The paper has also demonstrated that the features that makes micro-credit ‘suitable’ for the poor are to a large extent themselves responsible for the inability of the female clients to expand their businesses, or graduate to bigger loans, and eventually be socially and economically empowered.
These features create the environment which will limit the female borrower to accessing the same kind and amount of loan whenever the need arises. Therefore, the paper has indicated that in order to achieve poverty reduction through the micro-credit, the characteristics of such microfinance loans need to be reviewed and adjusted to the contextual needs of the poor, since the poor and in particular women are not a homogenous group. Furthermore, the paper has demonstrated that empowerment is not an automatic result of accessing micro-credit. Therefore, an empowerment process will only be initiated through specific and targeted gender and empowerment training both for the MFI staff and for the female borrowers. For example, it was seen that in the cases where such training was provided, in donor designed MFI programmes in Malawi, women’s awareness to themselves, to their use of the income, as well as management of community and other out-of-home affairs was much more effective and carried out with greater confidence, than otherwise was verifiable.
The findings of this paper have certain implications for the design of future micro-credit interventions for poverty reduction as well as gender and empowerment. Firstly, proposed microcredit interventions should undertake a thorough investigation and invite the complete participation of the targeted communities and in particular record the voice of the women. Most rural communities in Africa do practice some type of micro-credit lending and repayment, whether it is an informal rotating savings group, or with the informal money lender, or any other form unique to a specific context. Therefore, new and more formal micro-credit interventions will be able to learn a lot and as well improve efficiency in targeting the clients, initiating an empowerment process, and as well as reducing poverty by understanding and including local knowledge and best practices. Furthermore, more emphasis should be put on identifying the poor and their life characteristics in order that the programme meets their specific needs. Secondly, each new intervention should develop and include a set of monitoring indicators on the performance of the micro-credit programme vis-à-vis poverty reduction and gender and empowerment process; these indicators should be identified by the target clients and communities. Furthermore, the intervention should include a mechanism which will allow changes and modifications to be made in the programme when the implementation does not meet targeted and planned indicators. Thirdly, gender roles and empowerment sensitisation training should be a standard compulsory activity in all micro-credit delivery programmes. Last but not least, micro-credit programmes, because of their potential for wide rural outreach, should be used as a platform to address major development challenges which may have a negative impact on the performance and progress of the microcredit loans by clients. These challenges are mainly, raising awareness and mitigating the spread and impact of HIV/ AIDS in a targeted community, and designing a programme activity on providing functional literacy and alphabetisation.
ECONOMIC RESEARCH PAPERS NO 74 (January 2003)
Factors Impeding the Poverty Reduction Capacity of Micro-credit: Some Field Observations from Malawi and Ethiopia by Sunita Pitamber
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