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Microfinance

Following India’s Microfinance Crisis, A Shift to Male Clients

The 2010 Andhra Pradesh microfinance crisis may cause MFIs to shift away from a majority female client base to a more gender-balanced portfolio.

Since the 2010 microfinance crisis in Andhra Pradesh, India has turned the industry up-side down. One thing is sure: microfinance institutions (MFIs) that survive the crisis will have to make drastic changes to their methods to survive financially, and those changes will alter the institutions’ social effects.

One of the unexpected findings of my research on women’s control of microloans in Andhra Pradesh and Mahashtra this past summer was that the crisis may cause MFIs to shift away from a majority female client base to a more gender-balanced portfolio. The reasons for this shift unveil some of the lesser-known dynamics of MFIs with regard to women

The shift away from targeting women mirrors a shift away from the group-lending model originally developed by Grameen Bank. Whereas before the crisis it was thought that lending to groups of women was safer—the idea being that peer pressure acts as a sub-stitute for collateral—afterward, as the Andhra Pradesh government’s call for client de-fault spread, that same security has turned to poison.
“It’s like a plague,” explained the chief of one of BASIX’s larger units in Maharashtra. “As soon as one member of the group catches wind that they can default on repayment and the government will support them, they will encourage other members of the group to follow. Soon the whole district refuses to repay.”

Indeed, one can map the spread of the default epidemic from Andhra Pradesh to the border towns in Maharashtra. As a result, many MFIs are switching tactics and begin-ning to favor lending to individuals.

This increased preference for individual lending is intimately linked to an increased pref-erence for male clients, although it may not be immediately obvious why this should be the case. If, as many MFIs around the world argue, the rationale for lending to women is that they are a more secure and socially responsible investment than men, then it does not follow that with the breakdown in security of group lending MFIs should shy away from female clients. The crisis is actually bringing to the surface a long-understood but underemphasized fact about microfinance vis-à-vis women: they are the favored clients of MFIs not necessarily because they invest loans more responsibly, but because they are more docile.

When I asked a BASIX field manager why MFIs prefer lending to women, he replied without hesitation, “Women don’t stand up to you the way that men do. They are always at home, and they are easier to form into groups.”

In fact, most women never touch the money that is lent in their name; they hand it over to their husbands. And now the Indian MFI crisis is removing women further from the microfinance equation.

Those of us who care deeply about microfinance as a means of empowering women will doubtless be disappointed by this change of direction. But the move toward a more gen-der-balanced portfolio may actually be a good thing for female clients. The practice of aggressively lending to women, when many lack the social authority to retain control over their loans, is often more harmful than beneficial. Research done in Bangladesh since 1996, most notably by Anne Marie Goetz and Rina Sen Gupta and later by Aminur Rahman, indicates that the majority of women with access to microcredit are not nearly involved enough in the handling of microloans to achieve any sort of “empowerment.” On the contrary, Rahman’s research shows that many women suffer from an increase in domestic violence following their first loan due to ensuing power struggles in the home.

My research shows that the same tension exists in India. There, as in Bangladesh, women are caught between the loan officer, who holds her accountable for timely re-payment, and her husband, who, despite not having his name on the loan paperwork, is actually the one controlling the loan. Only 26 percent of women in my two-month study of 90 women decided themselves that they wanted to take the loan. For such women, it may be a relief that MFIs are beginning to consider giving individual loans directly to male clients.

This does not mean that microfinance should stop targeting women altogether. On the contrary, many women are benefiting significantly from access to credit. Eighteen per-cent of the women in my study had full control over their loans and ran their own mi-croenterprises, and 49 percent said that they wanted to be the one to take the loan even if they were only partially in control of its use after disbursal. These are the women the MFIs should continue to support.

For the 26 percent that want nothing to do with microfinance, a convergence of many more supportive efforts, mostly outside the scope of a typical MFI, will be required to achieve any kind of empowerment—and premature access to loans without this support may have the opposite effect. The best outcome for women at this stage may be for commercial MFIs to shift to a more gender-balanced portfolio, targeting only those women with a reasonable chance of using the loan themselves, while leaving financial empowerment of the most oppressed to those institutions willing to dedicate the re-sources to holistic support.

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COMMENTS

  • BY Tina Crouse

    ON December 17, 2011 09:48 AM

    There is something here that I had not considered. When lending to women, particularly in groups, I mistakenly thought the group would support the individuals and not allow access to the funds by others (husbands). Of course that problem of someone else not being responsible yet accessing the dollars would create many more issues for female borrowers. Would it not be better to re-emphasize ‘group lending’ again, over individual. Women in groups can be powerful influencers when it comes to interfering husbands.

  • Jenifer Morgan (SSIR)'s avatar

    BY Jenifer Morgan (SSIR)

    ON December 20, 2011 12:34 PM

    Posted on behalf of Elena Bridgers:

    Tina, I think it depends on the nature of the group. For instance, I found in my research that women who participated in Self Help Groups maintained better control of loans than those who did not. Note that these women were accessing their loans already as a JLG (Joint Liability Group,) as were almost all the women I interviewed, but they were also participating in an SHG on the side. While SHG’s meet regularly and require members to participate in group financial decisions and some basic financial training, JLG’s are simply a prerequisite for accessing loans. In fact, JLG’s may in some cases serve to hide situations in which women have lost control of the loan because field staff will interact only with the group leader during collection times and never actually visit the homes of the other borrowers. In the Grameen Bank model, much more is required of women in the way of group meetings and support, but this model is purposefully avoided by BASIX and many Indian MFI’s. You are perhaps right then, that more cohesive groups of female borrowers could be protective against loss of control.

  • Like you pointed out, lending to women-only groups makes the grameen model highly scalable in the good times, but prone to mass default when things go bad. Still, I don’t think the move towards a gender balanced portfolio alone will prevent another AP style mass default; a state announced loan-waiver scheme would affect everyone equally I think.

    btw, I remember the presentation you showed us had many more tables/charts. They could’ve been useful here to put the rest of the article in context..but this is very good as it is, and you should definitely share this with Rama and the others you worked with - they’ll be very happy to see this.

  • There is a fundamental wrong in choosing a customer on the basis of gender. It need not necessarily be in accordance with the prudence of lending to the user.

    As long as the system is good enough to appraise customers for their credit worthiness, flaws like uneven gender balance or lack of control over credit will not arise. If system is robust enough to appraise its customers correctly it will not worry about how docile customers are. It will also ensure that only users avail the loan. Many a times the household is a user, even in such cases most prominent and active users of the loan should be given the credit.

    However, MFIs may promote credit to women, but even in such cases appraisal system cannot be compromised. This will also mean refraining from lucrative statistics.

    I would like to know if there is a research that substantiates that status of women in family improves if they are the source through which the household has availed the credit and also if availing credit increased the participation of women in economic activity.

  • Aditya Agarwal's avatar

    BY Aditya Agarwal

    ON December 30, 2011 10:09 AM

    Hi Elena,

    I agree with your point about women not controlling the loan. I was in Dhaka recently and spoke to several women borrowers of BRAC. The latest member of one of the women groups had taken the loan for her husband and her husband’s insistence was the only reason she opted to be a part of BRAC’s microfinance group. It might be interesting to see if a woman’s age plays role in how much control she has over the loan.

    On your other point re the shift from JLG to individual, I don’t know how that will pan out (more importantly if MF industry can survive without JLG). Group-lending offers several advantages, collateral-aside it also lowers the cost of operations. Individual lending is tougher and requires larger ticket sizes to really be economically viable for a MFI. Came across a women co-op in Maharashtra who wants to shift from individual to JLG simply because the scale and economics of their operations are being limited in their current biz model of lending to individuals.

    Time is ripe for innovation as there is no one answer for JLG vs individual. I believe we will see more specialization in the industry (for e.g. purpose-led lending) and also more focus around choosing the target segment carefully.

    Best,
    Aditya

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