With the award last December of a Nobel Peace Prize to Mohammed Yunis, founder of the Grameen Bank, micro-credit has received another round of accolades and promotions as an answer to widespread poverty around the world. Give poor women access to small bank loans, so the thinking goes, and they can start micro-businesses and improve their livelihoods by competing better in free markets.
Admittedly, this is an oversimplification of Yunis’s and other micro-credit advocates’ efforts. Another version of this thinking comes recently as microfinance, and is promoted by a new group of “social entrepreneurs” who tend to rephrase goals of ending poverty with ones promoting economic empowerment. While we think that there is a place for micro-credit and micro-finance in efforts to end poverty, we believe that there are some fundamental flaws in thinking of this approach as a key one in ending poverty and improving the lives of poor women.
We urge the G8 to recognize the complexity, and especially the social aspects, of poverty in addition to the dollar aspects, and support a web of strategies that combine to build skills and capacity, reduce vulnerability and benefit women and their communities in a sustainable way.
Why Micro-Credit Isn’t the Answer
Part of the problem with micro-credit rests not with the real benefits it provides to a certain segment of the population, but rather with the expectation by some that it is the answer to rural poverty. This belief shows a lack of understanding of the complex nature of poverty. Capitalizing micro-businesses is one piece of the solution, but without a wider, holistic effort, this kind of credit will mainly benefit the entrepreneurs and slightly less poor who are able to develop business plans and make them work.
Another significant issue with micro-credit is the fact that in the vast majority of cases, control of capital stays outside the community and the money itself reverts to an outside institution. Therefore, micro-credit tends to focus on individual successes and neglects the possibilities and power of collective action and work. When control rests outside the community, it is easy to lose sight of the welfare of the borrowers and focus only on better “returns on investment.”
Additionally, micro-credit models often fail to build borrowers’ capacity to do anything but develop a market analysis and basic business plan. A large number of the world’s poor women are marginalized within their communities and even their families, and lack confidence and experience in trying something new. They have responsibility not only for contributing to family income but to caring for children and the ill, collecting water and fuel wood, preparing their family’s meals, maintaining the home and any number of assorted family responsibilities. If the bigger picture of workload and marginalization is not addressed in a significant way throughout the process, women will continue to struggle with an impossible burden.
Finally, micro-credit, but especially microfinance, rest on an unexamined assumption that free markets are the answer to social problems like poverty. They leave unchallenged the idea that the poor only need a hand up at the start and will then be able to compete with large businesses in producing and selling their wares. Susan Feiner and Drucilla Barker point out that micro-credit on its own ignores the structural reasons that women are poor and neglects the social and political work needed to ensure that women business owners and workers improve their lot and enjoy basic human rights.
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Another Approach: Savings and Credit Groups
World Neighbors has successfully worked with savings and credit groups – mainly women’s – for a number of decades. In fact, the formation of a women’s savings and credit group is often an entry point in new partnerships with villages, since they can be a very positive first experience for women in the power of collective action, as well as increase women’s status as they are increasingly able to contribute to community well-being.
Though successful groups vary somewhat in the details in different regions of the world, World Neighbors savings and credit groups have some common basic elements. First and foremost, they are just one part of the development work the community takes on. Other pieces vary, but may include improving agricultural production, addressing community health issues and diversifying sources of income. This more holistic approach is one that others have taken, including Pro-Mujer, which in Latin America integrates women’s health and microfinancing services.
An important aspect of World Neighbors savings and credit groups is that members contribute to the pool of funds from their own assets. Often, the amount of the contribution for each member is set at what the poorest member of the group can pay. That may be as little as US$0.25 a month. Though outsiders sometimes scoff at the plausibility of this requirement for the poorest of the poor, we have found that it is not only possible but empowering. Indeed, some women who initially feel they are unable to save anything later become contributing members when they see the power of group work based on small, steady contributions. Because the goal is not just to increase access to credit but to empower communities to manage their own development process, this aspect is key to sustainable and equitable development. Sometimes seed money is used to start a credit pool and jumpstart efforts, but some reciprocity is built in to this gift so that, for example, the group then passes along the gift to start a group in a neighboring village.
Groups receive training in basic financial management, and credit is often linked to support in related areas that will improve the production or success of income earning. Groups define their own rules, structure and responsibilities, as well as set their own interest rates and make their own credit decisions. The pool of money is theirs and repayments of credit go back to the group. Said another way: funds are not siphoned away from the community, but rather go to enrich it. This is one of the key differences in savings and credit work as opposed to micro-credit and microfinance. The community women we partner with are not “opportunities” for the micro-credit industry, they are actors and decision makers with regards to community development and their role in it.
In addition, groups often decide to invest in needed community improvement efforts in addition to responding to members’ individual needs. In Nepal, where our savings and credit groups have the longest history, women’s groups have funded water projects and reproductive health clinics where before there were none. In this region, savings and credit groups from a number of villages came together into cooperatives. The credit work continues to be carried out, but a portion of the dividends are designated to go to support community projects, like health clinics.
Finally, gender work is integrated into savings and credit work. These groups are often the first time poor women have had the opportunity to work collectively and share problems and concerns. This experience often increases trust and cohesiveness among women and generates group action on some community problems. As women are able to contribute to family income, they often build their self-confidence and have more say in family decisions, and eventually community work. When this doesn’t happen organically, male leaders can be challenged to see the benefits of wider participation and shared decision making. In the words of one woman:
“We have benefited very much. Women’s group members are now more active, we can talk and we can meet in a group. Before the group formation it wasn’t like that—we were not so open and could not speak with outsiders. We used to bow to men. But being in the group, we can talk and we have unity. We have revitalized ourselves.”
Sundra Flansburg currently coordinates the Work of Women (WOW!) initiative, a membership organization of World Neighbors that mobilizes support for improving the lives of poor women and their families who live in rural communities throughout the world.
Natalie Elwell is associate vice president for action learning, communication and gender at World Neighbors.