國立 交 通 大 學
管 理 學 院
企業管理碩士學位學程
碩 士 論 文
小額信貸在甘比亞父權農村對婦女之影響- 在甘比亞 Nianija 及 Kudan 地區之
案例研究，著眼於 SDF 貸款的婦女受益人
EFFECT OF MICROFINANCE IN EMPOWERING RURAL WOMEN IN THE GAMBIA:
Case Study on Microfinance in Nianija and Kudan District in The Gambia, focusing
on women beneficiaries of the SDF loans.
研 究 生：方圖蔓
指導教授：唐瓔璋
EFFECT OF MICROFINANCE IN EMPOWERING RURAL WOMEN IN THE
GAMBIA: Case Study on Microfinance in Nianija and Kudan District in
The Gambia, focusing on women beneficiaries of the SDF loans.
研 究 生：方圖蔓
Student: Fatoumata Sanyang
指導教授：唐瓔璋
Advisor: Prof. Edwin Tang
國 立 交 通 大 學
管理學院
企業管理碩士學位學程
碩 士 論 文
A Thesis
Submitted to Master Degree Program of Global Business Administration College of Management
National Chiao Tung University In Partial Fulfillment of the Requirements
For the Degree of Master
in
Business Administration June 2014
Hsinchu, Taiwan, Republic of China
i CHINESE ABSTRACT 小額信貸是一種相對較新的名詞，但作為一個概念，它是公認的。它的起源可以追溯到 1976 年，穆罕默德·尤努斯設立了格萊珉銀行，作為實驗，在吉大港大學校園 Jobra，孟加 拉國的鄉村郊外。 自從第一次小額信貸峰會在華盛頓 1997 年 2 月，小額貸款已經開花結果，捕捉發展的世 界和超越的注意。注意力是完全合理的，因為小額信貸已經被證明是達到非常貧窮的最有 效的工具之一。 小額信貸現在被視為一個最重要和有效的機制來扶貧。這些也是通過它來傳播關於如何改 善健康，教育，法律權利，環衛等生活水平，這是有關關切窮人的珍貴信息的有效機制。 最重要的是，許多小額信貸項目有針對性的社會中最脆弱的群體之一 - 婦女，誰住在家庭， 很少或幾乎沒有資產。通過提供自謀職業的機會，許多研究的結論是，這些方案已顯著改 善了婦女的安全性，自主性，在家庭中的自信和狀態。 賦予婦女權力，也是基礎在家庭層面和更廣泛的社會轉化的生活。在這方面，小額信貸的 交付是方法賦予婦女權力之一。 這項研究評估小額信貸在農村婦女在岡比亞的能力的影響的目的。它認識能力的多面性的， 涉及個人，社會和經濟方面的過程。 因此，本研究的目的是展示如何小額信貸工作，通過小組聯保貸款的方法是減少貧困和它 是如何影響女性的生活水準（收入，教育，使決策等），在兩個地區在岡比亞。 這項研究是在 Nianija 和區九段在岡比亞進行的，重點是社會發展基金貸款的婦女受益人。 研究者用定量的方法來獲得一個可靠的數據。收集的信息均來自日本自衛隊的女性客戶的 樣本進行問卷調查。 此外，三個焦點小組討論中進行，涉及 18 名婦女。
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ENGLISH ABSTRACT
Microfinance is a relatively new term, but as a concept it is well established. Its origin can be traced back to 1976, when Muhammad Yunus set up the Grameen Bank, as experiment, on the outskirts of Chittagong University campus in the village of Jobra, Bangladesh.
Since the first Microcredit Summit in Washington in February 1997, microcredit has blossomed and captured the attention of the development world and beyond. That attention is fully justified because microcredit has proven to be one of the most effective instruments in reaching the very poor.
Microfinance is now being considered as one of the most important and an effective mechanism for poverty alleviation. These are also effective mechanisms through which to disseminate precious information on ways to improve the health, education, legal rights, sanitation and other living standards, which are of relevant concerns for the poor. Above all, many micro-credit programs have targeted one of the most vulnerable groups in society – women, who live in households with little or almost no assets. By providing opportunities for self-employment, many studies have concluded that these programs have significantly improved women's security, autonomy, self-confidence and status within the household.
The empowerment of women is also the basis for transforming lives at the household level and in the wider society. In this regard, the delivery of microfinance is one of the approaches to the empowerment of women.
This study has the objective of assessing the impact of microfinance in the empowerment of rural women in The Gambia. It recognizes the multidimensional nature of empowerment as a process involving personal, social and economic dimensions.
The research was conducted in Nianija and Kudan District in The Gambia, focusing on women beneficiaries of the social development fund loans.
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ACKNOWLEDGEMENT
My gratitude first of all goes to the Almighty God for his protection and guidance throughout my academic endeavor in Taiwan ROC.
My very special gratitude goes to the forbearing and indefatigable my supervisor Prof. Edwin Tang. He provided a fruitful blend of intellectual guidance and challenge, emotional support and academic freedom, and his collected experience proved to be a gold mine. Heartfelt thanks to you! Next, I thank all of the colleagues at my department at Global MBA for their support and friendship.
I wish to thank the management and staff at PROGEBE Gambia RCU, NCU and SDF for their assistance and cooperation during my internship and fieldtrip for data collection.
To all the women who participated in this study, whom I salute for their courage, commitment and persistence. This study is dedicated to them.
A special thanks to my family. Words cannot express how grateful I am to my mother, father and my two most lovely brothers; Ousman and Kalifa for all of the sacrifices that you’ve made on my behalf. Your prayer for me was what sustained me thus far. I would also like to thank all of my friends who supported and incented me to strive towards my goal.
With so much good advice from so many good people, it is unlikely that they all agree on everything. The final responsibility is, of course, my own.
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TABLE OF CONTENTS Title Page
Acknowledgement Abstract
CHAPTER ONE: INTRODUCTION
1 . 1 B A C K G R O U N D O F T H E S T U D Y … … … . . . … 1 1 . 2 R E S E A R C H Q U E S T I O N … … … . . . 5 1 . 3 O B J E C T I V E S O F T H E S T U D Y … … … 5 1 . 4 S I G N I F I C A N C E O F T H E S T U D Y … … … . . … . 6 1 . 5 L I M I T A T I O N O F T H E S T U D Y … … … . . . . 6 C H A P T E R T W O : T H E L I T E R A T U R E R E V I E W A N D G L O B A L V I E W O F M I C R O F I N A N C E 2 . 0 T H E O R E T I C A L B A C K G R O U N D … … … . 7 2 . 1 C O N C E P T O F E M P O W E R M E N T … … … . … . . 8 2 . 2 R E V I E W O F L I T E R A T U R E … … … 1 1 2 . 3 W H A T I S M I C R O F I N A N C E … … … . . 1 2 2 . 3 . 1 T a r g e t i n g W o m e n u n d e r M i c r o f i n a n c e … … … . . . 1 5 2 . 4 P A R A D I G M S O F M I C R O F I N A N C E I N S T I T U T I O N S T O W A R D S W O M E N E M P O W E R M E N T … … … . . … … … . . . . … 2 . 4 . 1 F e m i n i s t e m p o w e r m e n t p a r a d i g m … … … . … . 1 7 2 . 4 . 2 P o v e r t y r e d u c t i o n p a r a d i g m … … … . . . . 1 7 2 . 4 . 3 F i n a n c i a l s u s t a i n a b i l i t y P a r a d i g m … … … . . . 1 8 2 . 5 E C O N O M I C I M P A C T O F M I C R O F I N A N C E … … … . 1 8 2 . 6 S O C I A L I M P A C T O F M I C R O F I N A N C E … … … 2 0 2 . 7 P O L I T I C A L I M P A C T O F M I C R O F I N A N C E … … … . . . 2 1 2 . 8 G E N D E R B A S E D M I C R O F I N A N C E D E L I V E R Y … … … . . . … . . 2 2 2 . 9 I M P O R T A N C E O F M I C R O F I N A N C E T O T H E T H I R D W O R L D … … … 2 5 2 . 1 0 P E R F O R M A N C E M E A S U R E … … … . . . 2 7 2 . 1 0 . 1 C o r e P e r f o r m a n c e I n d i c a t o r s f o r M i c r o f i n a n c e … … … . . . 2 8 2 . 1 1 S U B S T A N I B I L I T Y … … … . . … . . 3 0 2 . 1 1 . 1 O P E R A T I O N A L S U S T A I N A B I L I T Y … … … . . 3 2 2 . 1 1 . 2 F I N A N C I A L S U S T A I N A B I L I T Y … … … . 3 3
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2 . 1 1 . 3 D O U B L E B O T T O M L I N E P R I N C I P L E … … … . . 3 4
CHAPTER THERE: GAMBIA AND MIFs
3 . 1 E C O N O M Y O F T H E G A M B I A … … … . 3 5 3 . 1 . 1 F i n a n c i a l S e c t o r … … … . . . 4 8 3 . 1 . 2 P o l i t i c a l S y s t e m … … … . … . 5 0 3 . 1 . 3 S o c i a l S y s t e m … … … . . . 5 2 3 . 1 . 4 E m p l o y m e n t , M i c r o a n d S m a l l E n t e r p r i s e ( M S E ) … … … . 5 4 3 . 2 P O V E R T Y A N D V U L N E R A B I L I T Y I N T H E G A M B I A … … … . . . … . 5 6 3 . 2 . 1 G e n d e r i s s u e s … … … . . . 5 7 3 . 3 M F I s A N D T H E I R R O L E I N T H E G A M B I A … … … 5 8 3 . 3 . 1 T h e M i c r o f i n a n c e S e r v i c e P r o v i d e r s i n T h e G a m b i a … … … . . . 6 2 3 . 3 . 2 M i c r o f i n a n c e M a r k e t a n d P r o d u c t s … … … . . . 6 3 3 . 3 . 3 O u t r e a c h a n d S u s t a i n a b i l i t y … … … . . . . 6 5 3 . 3 . 4 I n t e r e s t R a t e D e t e r m i n a t i o n … … … . . 6 6 3 . 3 . 5 S u p p o r t S e r v i c e s T o t h e M i c r o f i n a n c e I n s t i t u t i o n s … … … . . … 6 6 C H A P T E R F O U R : S D F O P E R A T I O N S A N D M A N A G E M E N T P R O B L E M 4 O V E R V I E W … … … . 4 . 1 H I S T O R Y A N D V I S I O N … … … 5 9 4 . 2 C O R E A N D S U P P O R T P R O G R A M S … … … . . . 6 1 4 . 3 O R G A N I Z A T I O N A L S T R U C T U R E … … … . . . 6 1 4 . 4 S D F I N S H O R T … … … 6 2 4 . 5 C O R E V A L U E S , C O R E P R I N C I P L E S … … … . . 6 2 4 . 1 H O W S D F W O R K … … … . . . . 4 . 1 . 1 T h e G r a m e e n M o d e l … … … . . . 6 4 4 . 1 . 1 . 1 F u n c t i o n i n g o f t h e G r a m e e n m o d e l … … … . . . 6 4 4 . 1 . 2 M e t h o d o l o g y … … … . . . 6 6 4 . 1 . 2 . 1 S o l i d a r i t y g r o u p … … … . . . 6 6 4 . 1 . 2 . 1 I n d i v i d u a l L e n d i n g … … … 6 7 4 . 2 P E R F O R M A N C E … … … . . . 6 8 4 . 3 C H A L L E N G E S F A C E B Y S D F … … … . . . 7 0
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4 . 4 H O W T O I M P R O V E S D F … … … . . . … … 7 2
CHAPTER FIVE: PREVIOUS STUDY, CONCLUSIONS AND SCOPE FOR FURTHER RSEARCH
5 . 1 P R E V I O U S S T U D Y / E M P I R I C A L E V I D E N C E … … … . . . 7 4 5 . 2 D I S C U S S I O N A N D C O N C L U S I O N S … … … . . . … . 7 6 5 . 3 S C O P E F O R F U R T H U R E R E S E A R C H … … … . . . … 7 9 L I S T O F R E F E R E N C E S … … … . . . 8 1 O t h e r S o u r c e s … … … . . . 8 3 APPENDIX ...84 LIST OF TABLES T ab l e1 : M i cr o fi n an c e M ar ket i n t h e Ga mb i a. . . 5 5 LIST OF FIGURE
F i gu r e1 : S o ci al Devel op men t p ro gr ams. . . . .. .. . .. .. . .. .. .. . .. . .. .. . .. .. . .. .. .. . .. .. .. . .. .. . .. .. .. . ... . .. .. . .. .. . .. .. . . . .. .. .. . .. .. 60
ACRONYMS AND ABBREVIATIONS
ADF African Development Fund ROSAC
As
Rotating Savings and Credit Associations CBG Central Bank of The Gambia SACAs Savings and Credit Associations
BPFA Beijing Platform for Action SOCR Statistics Online Computational Resource CGAP Consultative Group to Assist the Poor SDF Social Development Fund
CRB Credit Reference Bureau SHGs Self Help Groups
CRD constitutional review commission UNO United Nations Organization
CSD Central Statistics Department UNDP United Nations Development Program
CSIP Community Skills Improvement Project UNIFEM United Nations Development Fund for Women ECA Economic Commission for Africa USAID United States Agency for International
Development GAMSAVIN
GS
Gambia Savings Society UNCDF United Nations Capital Development Fund GAWFA Gambia Women Farmers Association URD Upper River Division
GCCI Gambia Chamber of Commerce International
VAT Value Added Tax
GDP Gross Domestic Product VISACA
s
Village Savings and Credit Associations HDI Human Development Index WFP World Food Program
IFAD International Fund for Agriculture and Development
WHDR World Human Development Report MDG Millennium Development Goals WHO World Health Organization
MFIs Microfinance Institutions NSFP National Strategic Framework Paper MICROFIMS Micro Finance Service & Market Developer NYSS National Youth Service Scheme MSEs Micro and small enterprises OER Operating Expense Ratio NACCUG National Credit Cooperative Union of
Gambia
OSS Operational sustainability
NASACA National Savings and Credit Association OECD Organization for Economic Co-operation and Development
NBD North Bank Division ROE Return on Equity
NBFIs Non-Bank Financial Institutions ROA Returns on Asset
NGOs Non Governmental Organizations RDI Rural Development Institute
NHDR National Human Development Report NMFPS National Micro-Finance Policy and Strategy NHPSR National Household Poverty Survey Report
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CHAPTER ONE
INTRODUCTION 1.1 BACKGROUND OF THE STUDY
Women are central to household well-being and national economic development, however, their role are impeded because they generally hold a low status in many developing countries.
According to the World Bank’s gender equality data and statistics, in most countries, women are less likely than men to participate in the labor market, that is, less likely to be employed or looking actively for a job. Women’s participation rates tend to follow a U-shape with respect to income: participation rates are highest in low-income countries—where a majority of women are active because they are involved in unpaid subsistence agriculture, although they are less involved in paid activities outside the household.
This is evidence in The Gambia where the rural population is overly dependent on agriculture as the single source of income generation for which they are poorly equipped and lack sufficient coping mechanism. About 59% (National Household Poverty Survey Report - NHPSR) of the population is categorized as potential labor force but only 14% is actually employed, of which 79% is operating in the informal sector National Economic Census, (2005).
The highest percentage (71%) of economically active women was found to be in North Bank Division (NBD), where the poverty level is reported to be the highest (80%); the highest percentage (77%) of economically active men was found to be in Central River Division (CRD) where the reported poverty level is 74%. Moreover, 55% of the male youth are unemployed as compared to 45% of female youth. In the Gambia, 70% of persons involved in the agricultural sector are categorized as being extremely poor of which 71% are women. Furthermore, the rural
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agriculture population is reported to earn a mean annual income of only Gambian Dalasi (GMD) 2,742 as compared to those in the business and finance services who earn an annual mean income of GMD 14,990.
The major constraint for the rural poor is the dependence on single economic activity, lack of skills to diversify source of income to supplement household livelihoods, insufficient access to financial and technical resources to engage in other productive activities, and lack of market opportunities for diversified products and services. This indicates that the Gambian population especially women are unable to effectively reduce their poverty and as a result they are increasingly vulnerable to external shocks which push them further into poverty and household livelihoods insecurity.
Stated by Harper, (1996) women everywhere, particularly in poor countries are seriously disadvantaged due to various reasons. While women handle a large part of the world’s work, they receive a very small part of the reward of the work, in terms of money which they can control and social position.
They constitute the bulk of those who need microfinance services. Giving women access to microcredit loans therefore generates a multiplier effect that increases the impact of a microfinance institution’s activities, benefiting multiple generations.
In line with the human rights issue, the prevailing condition of women calls for taking measures to empower them. Access to financial services can help men and women build their assets and to make education and entrepreneurial investments. Global Findex data shows that regardless of education levels, women are less likely than men to have borrowed from a formal financial institution. These statistics are used to justify giving priority and increasing women’s access to financial services on the grounds that women are relatively more disadvantaged than men.
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Narayan (2008), in most poor countries, men’s domination of women is strongest within the household. Access to credit and participation in income-generating activities is assumed to strengthen women’s bargaining position within the household thereby allowing them to influence a greater number of strategic decisions.
United Nations Organization (UNO) announced the millennium development goals, aimed to eradicate poverty by 2015. In this regard, microfinance is the form of financial development that has its primary aim to alleviate the poverty.
Governments, donors and NGOs around the world responded enthusiastically with plans and promised to work together towards the realization of these goals.
In the recognition of microfinance, the UNO celebrated the year 2005 as a year of micro-credit, as a result this financing instrument is perceived worldwide as a very effective mean against hunger and poverty, mainly in developing countries.
Microfinance has a huge impact on the lives of millions of poor people particularly women. As a result scholars and NGOs are working to take microfinance within the reach of poor people, who are still not benefited by the conventional financial system.
Women empowerment differs from one country to another and between different income groups within each country. However, women’s economic, social and political position is generally worse in poor countries as compared to the rich.
The goal of microfinance institutions as development organizations is to service the financial needs of un-served or underserved markets as a means of meeting development. It includes reducing poverty, empowering women or other disadvantaged population groups to create employment Ledgerwood, (2007).
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Microfinance empowers women by putting capital in their hands and allowing them to earn an independent income and contribute financially to their households and communities. The economic empowerment is expected to generate increased self-esteem, respect and other forms of empowerment for women beneficiaries. It is clearly visible that involvement in successful income generating activities should translate into greater control and empowerment Narayan (2008).
Considering the above and The Gambia being a developing country, this studies deals with the effect of microfinance in empowering rural women in The Gambia.
Social Development Fund (SDF) has been considered for this study to look into the role of microfinance on empowering rural women in The Gambia. SDF provides both financial and non-financial services.
SDF supported 560 community based micro-projects in demand driven social infrastructure it made direct loans to 51,837 individual clients (79% women) in 828 groups, as well as 65,918 clients (80% women) in 1,006 groups through NBFIs. In addition, SDF is currently managing the micro-credit component for the following ADF projects: (i) the Community Skills Improvement Project, (ii) The Per-urban Smallholder Improvement Project, (iii) and the Artisanal Fisheries Development Project.
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1.2 RESEARCH QUESTION
In view of the problem, the background study leads to the following problem statement, which will be the overarching question for this study:
What is the effect of microfinance on empowering rural women?
Case Study on Microfinance in Nianija and Kudan District in The Gambia, focusing on women beneficiaries of the SDF loan.
1.3 OBJECTIVES OF THE STUDY
1.4 In light of the research question, the main objective of this study is to investigate how effective micro finance is in empowering rural Gambian women. These women in question are benefiting from SDF loan through group lending methodology and improving their business for social and economy empowerment.
Specific objective includes:
1. To understand the meaning, concepts, issues and dimensions of empowerment.
2. Assess the degree to which micro finance improve the living standard of the participating women (Income, saving, decisions making, access to health and education)
3. Identifying the role of microfinance in relation to women’s self confidence
4. Assess the challenges faced by women clients in the microfinance institutions in the study area.
5. To suggest appropriate policy intervention for the effective performance of women participation in microfinance scheme.
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1.4 SIGNIFICANCE OF THE STUDY
Given the above situation in the state of research in microfinance, this study is deemed important because it intends to put the understanding of how microfinance is effectively improving the lives of the financial disadvantage women in the rural part of The Gambia.
The findings of the study are believed to show the economic, financial and social benefits of microfinance delivery to women in addition to its impact in enhancing their awareness and knowledge.
Furthermore, the study also identifies the challenges women face with Social Development Fund. The findings of the study can be used by other researchers who might be interested to conduct further studies on the subject. In addition, the results of the study will serve as a source of information for the government; donors, NGOs and the general public that need to know the role of micro finance on women empowerment in The Gambia.
1.5 LIMITATION OF THE STUDY
The research work is limited to women clients of only one microfinance institute, namely SDF. Hence, generalization of some facts and findings of the study may be limited to the specific institution considered in the undertaking. A large sample size made up of different microfinance institutions from within and outside The Gambia could have allowed for generalizations of the findings. Nevertheless, this research missed such opportunity due to time constraints.
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CHAPTER TWO
THE LITERATURE REVIEW
2.0 THEORETICAL BACKGROUND
Women hold an equal or even a more powerful position under the communal mode of production. However, women’s role and their corresponding power in the household and the community eventually diminished with the evolution of private ownership. The family also changes to a patriarchal one where women are treated as the property of men as the latter control property and manage to generate surplus. The rise of capitalism also further intensified men’s control over women making the latter economically dependents on the former Engles (1999).
According to Engles (1999), the development of socialism and the socialization of housework are required to attain the full liberation of women. In addition, feminists should join the struggle against capital if the objective of women’s liberation is to be met Cliff (2008). Liberal feminists call for the involvement of women in the public sphere while maintaining the existing class structures. On the other hand, Engles (1999) argued for the elimination of private property as the key to women’s liberation Friedan, (1963).
A number of Marxist feminist thinkers have conducted studies on the earlier kinship and economic models and the role of sexual and/or gender division of labor in support or against the social power of women Reed, (2005). Economic independence is called for by various theories to ensure the equality of women. Housework is denounced by the Second Wave Movement, including liberal feminists, because it is basically unpaid. It is insisted that such work devalues women and makes them dependent on men since it is not within the sphere of public economic production Friedan (1963). Feminists propose interventions to provide access to economic
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resources such as micro credit as a stepping point to promote the empowerment of women in the economic, social and political arena Solomon (1999).
2.1 THE CONCEPT OF EMPOWERMENT
Empowerment is a term that has been embraced by a diverse range of institutions, from the World Bank to Oxfam to many more radical NGOs, but few of these share common definitions. Some organizations leave the term undefined (for example, UNDP, Oxfam and Save the Children UK).
However some researchers defined empowerment as a process through which women are able to transform their self perceptions-equivalent to alchemy of visibly transforming gender roles. Empowerment generally involves change at three broad levels: within the household, within the community, and at a broader institutional or policy-making level.
Empowerment is usually associated with women not only because they have been historically disadvantaged in access to material resources like credit, property and money, but they have also been excluded from social resources like education or inside knowledge of some businesses Zafar, (2006).
The roots of thinking on empowerment lie in feminist theory and Popular Education Freire, (1970), which stressed the personal and inner dimensions of power. It is viewed that Empowerment is associated with the Gender and Development approach and challenging the way in which the inclusion of women in the development process can increase their work burden. Moreover, it is also observed from the existing literature that empowerment as a concept was first brought at the International Women’s conference in 1985 at Nairobi. The conference
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concluded that empowerment is a redistribution of power and control of resources in favor of women through positive intervention.
The idea of ‘power’ is at the root of the term empowerment. Power can be understood as operating in a number of different ways.
According to Oakley, 2001, people’s empowerment can manifest itself in three broad areas: Power through greater confidence in one’s ability to successfully undertake some form of
action.
Power in terms of increasing and effecting relations that powerless people establish with other organizations.
Power as a result of increasing access to economic resources, such as credit and inputs. Implicit in the use of various indicators for measurement of empowerment is that they have independent influences even if they are adjusted for one another. The reason for this is that each indicators of women empowerment can be thought to relate to a specific aspect of social, economic and psychology variables.
In view of fact, the meaning of any empowerment indicator will always depend on its inter-relationships with other variables. It is also true that a single indicator is not usually sufficient to measure even a specific dimension of empowerment Kishor (2000); Estudillo (et al.2001).
Access to resources does not by itself translate into empowerment or equality unless women acquire the ability to use the resources to meet their goals. For resources to empower women they must be able to use them for the purposes of their choice. The effective use of resources requires agency, which is, the process of decision making, negotiation and manipulation Kabeer, (2005).
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Women who have been excluded from decision making for most of their lives often lack this sense of agency that allows them to define goals and act effectively to achieve them.
The World Bank has also identified empowerment as one of the key constituent elements of poverty reduction, and as a primary development goal. The promotion of women’s empowerment as a development goal is based on the dual argument that social justice is an important aspect of human welfare and is intrinsically worth pursuing. A similar dual rationale for supporting women’s empowerment has been articulated in the policy statements put forth at several high level international conferences in the past decade e.g. (Beijing Platform for Action, 1995), (Beijing +5 Declaration, 2000), and (CEDAW,1979).
The empowerment of women is essential for achieving the goals of sustainable development centered on human beings. It also requires appropriate public polices to ensure that women enjoy all human rights and fundamental freedoms and participate fully and equally in all spheres of public life including decision making.
Public policies to promote women’s economic potential and independence and their full and equal participation in development are also essential for women’s empowerment. Measures are also needed to ensure women’s equal access to education and to training and retraining.
The extension of microfinance to impoverished women in developing countries is increasingly being promoted and endorsed as an effective strategy for poverty reduction and empowerment by a large number of actors in the international development arena, such as the World Bank, UN organizations, bilateral donors and NGOs, as well as private sector investors.
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2.2 REVIEW OF LITERATURE
Pattanaik, (2003) in her study reveals that Self Help Groups (SHGs) are continuously striving for a better future for tribal women as participants, decision-makers and beneficiaries in the domestic, economic, social and cultural spheres of life.
But due to certain constraints like gender inequality, exploitation, women tortures for which various Self Help Groups are not organized properly and effectively.
Malhotra (2004) in her book has examined how women entrepreneurs affect the global economy, why women start business, how women’s business associations promote entrepreneurs, and to what extent women contribute to international trade.
It explores potential of micro-finance programs for empowering and employing women and also discusses the opportunities and challenges of using micro-finance to tackle the feminization of poverty.
According to her, the microfinance programs are aimed to increase women’s income levels and control over income leading to greater levels of economic independence. They enable women’s access to networks and markets, access to information and possibilities for development of other social and political role. They also enhance perceptions of women’s contribution to household income and family welfare, increasing women’s participation in household decisions about expenditure and other issues leading to greater expenditure on women’s welfare.
Gudaganavar (2008) made an attempt to examine the empowerment of rural women through SHG. They highlighted the process of SHGs in India from 1992-93 to 2006-07. They also highlighted the region-wise progress of SHGs and employment of women through SHGs. They concluded that no development was possible without empowerment of women.
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Women Empowerment through Micro Enterprise Development,”Vasanthakumar
(2008) has made an attempt to examine the role of micro enterprises in empowering women in Kerala. The author took a sample of 328 micro entrepreneurs. The study revealed that these enterprises helped in empowering rural women economically, socially and individually. The study suggested giving priority to commercial viability of enterprises
“Micro Credit through SHG for Rural Development”, Anita and Revenkar (2007), made an attempt to study rural development through micro credit, the growth of SHGs from 1992-93 to 2003-04, and agency wise SHGs linked on March 31, 2004. They concluded that the success of SHGs not only improve the economic status of women, but also brought lot of changes in their social status.
Cheston & Kuhn (2011) in their study concluded that micro-finance programs have been very successful in reaching women. This gives micro-finance institutions an extraordinary opportunity to act intentionally to empower poor women and to minimize the potentially negative impacts some women experiences.
Das Gupta (2012) in his article commented that a paradigm shift is required from “financial sector reform” to “micro-finance reform”. While the priority sector needs to be made lean, mandatory micro credit must be monitored rigorously. Simultaneously space and scope have to be properly designed for providing competitive environment to micro-finance services. Extensive database needs to be created by the RBI for understanding micro-finance.
2.3 WHAT IS MICRO FINANCE
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.
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Micro finance through Self Help Group (SHG) has been recognized internationally as the modern tool to combat poverty and for rural development.
Micro finance and SHGs are effective in reducing poverty, empowering women and creating awareness which finally results in sustainable development of the nation.
According to Otero (2005) Microfinance is the provision of financial services to low-income, poor, and very poor self-employed people. In her paper title Bringing Development back, into Microfinance, she explores three points at which microfinance intersects with development. Reaching the Poor: microfinance’s objective to alleviate poverty, conceptually, microfinance addresses one constraint faced by the poor: their shortage of material capital (i.e., the input necessary to generate income).
Building Institutions: Microfinance seeks to create private institutions that deliver financial services to the poor. These institutions become part of the infrastructure of the country; that is, they are distribution channels for deploying services that respond to the material capital needs of poor.
Deepening The Financial System’s Reach: By joining the financial systems of their country, microfinance institutions deepen dramatically the reach of financial systems to populations previously excluded from banks and other financial institutions. One essential means of alleviating poverty becomes the creation of a broader and deeper financial system which does not restrict the allocation of capital to a tiny group of elites, but instead integrates the poor as a market segment and reallocates resources from other sectors.
For microfinance to continue its path toward becoming a successful development strategy, it must display these three dimensions: a relationship to the poor, a reliance on permanent institutions, and a connection with the financial system of a country.
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Gert van Maanen (2004), in his publication describes what he refers to as the two different schools of thought in microfinance. One is primarily development-oriented and the other is more commercially-oriented.
He however describe microcredit, or microfinance, as banking the unbankables, bringing credit, savings and other essential financial services within the reach of tens - or rather hundreds - of millions of people who are too poor to be served by regular banks, in most cases because they are unable to offer sufficient collateral.
In general, banks are for people with money, not for people without. Microcredit - or microfinance - has captured the attention of the development world because of its extraordinary relevance to enable the poor to improve their economic situation. He elaborates on a number of aspects that influence the success (or failure) of Microfinance Institutions (MFIs). In particular he deals with the question whether microfinance should be seen as a business that - like all businesses - should aim at profitability or as a development instrument that should aim primarily at increasing its outreach and effectiveness. In his view the latter approach should prevail.
Micro credit programmers aimed at empowering women have become popular among donors and NGOs.
Development polices with the approach of women’s empowerment through women organizing for greater self-reliance has also resulted in a change of policies for the enhancement of women’s economic role. Since microfinance organizations have financial focus, they are expected to impact the lives of the poor Kabeer (2005).
Micro credit is about much more than access to money. It is about women gaining control over the means to make a living. It is about women lifting themselves out of poverty and vulnerability.
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It is about women achieving economic and political empowerment within their homes, their villages, their countries. (Beijing +5 Conference, 2000)
Kabeer (2005) states that in order to bring women’s empowerment, microfinance needs to help poor women address their daily needs as well as their strategic gender interests. It is recognized that strategic gender interests go to the very heart of the structures of patriarchal power: the abolition of a coercive gender division of labor; of unequal control over resources; ending male violence, women’s control over their own bodies, the establishment of political equality and the ending of sexual exploitation
2.3.1 Targeting of women under microfinance
Most micro finance organizations target poor women and usually those from socially excluded groups. The reason for the targeting of women under microfinance schemes is the relationship between gender and development. Various researches conducted by institutions such as UNDP (1995) and the World Bank (2001) indicate that gender inequalities inhibit growth and development. Hence, acknowledging the prevalent gender inequalities and the impact on development, microfinance provides women with access to working capital and training to mobilize women’s productive capacity to alleviate poverty and pave the way for development. Women are basically the poorest of the poor. According to UNDP (2003) Human Development Reports, women make up the majority of lower paid and unemployed portion of most economies. It is believed that the welfare of a family is enhanced, when women are helped to increase their incomes. This is due to the fact that women spend most of their incomes on their households. Hence, assisting women generates a multiplier effect enlarging the impact of the family needs
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and, therefore, another justification for giving priority to them. Another argument in favor of priorities to women is their efficiency and sustainability.
Women are believed to be better in their repayment records and cooperativeness Cheston and Kuhn, (2002). Women’s repayment rates also excel that of men and their lower arrears and loan rates have an important effect on their efficiency and sustainability of the institutions. Women’s equal access to financial resources is also a human rights issue (Beijing platform for action, 1995).
According to USAID (1995) financial institutions that offer deposit services are very attractive to women. If a gender -based organization is aiming to meet the preferences and needs of its clients, savings services must be an integral component of its program.
Saving programs targeting at women have the potential to enhance economic empowerment since women make financial security safety and provision priorities in their households UN Expert group on women and Finance, (1995).
As indicated previously, microfinance services initially target women. However, it is not sufficient only to cater to women clients to solve gender issues. A gender sensitive approach is inclusive rather than exclusive Jahan, (1995). Gender sensitivity is assured when taking into account the needs and constraints of both women and men during the design and delivery of finance. On the other hand, the "women only" targeting approach might further exacerbate gender inequalities.
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2.4
PARADIGMS OF MICROFINANCE INSTITUTIONS TOWARDS WOMEN
EMPOWERMENT
Support for targeting women in microfinance programs comes from organizations of widely differing perspectives. Mayoux (2005) identifies three contrasting paradigms with different underlying aims and understandings and different policy prescriptions and priorities in relation to microfinance and gender policy. The three paradigms, namely the feminist empowerment, poverty reduction and financial sustainability, also have different emphasis in the way they perceive the inter-linkages between microfinance and women’s empowerment.
2.4.1 Feminist empowerment paradigm
With a focus on gender awareness and feminist organization, microfinance is promoted in light of a wider strategy for women’s economic and socio-political empowerment. In this regard, microfinance must be part of a sectional strategy for change that identifies opportunities and constraints within industries which can raise the prospects for women, when addressed. In addition, microfinance should be based on participatory principles to build up incremental knowledge of industries and enable women to develop their strategies for change.
2.4.2 Poverty reduction paradigm
This paradigm is touched by many NGO integrated poverty-targeted community development programs. The main focus of such programs is the development of sustainable livelihoods, community development and social service provision like literacy, health care and infrastructure. The programs typically target the poorest of the poor.
The strategies target women because of higher levels of female poverty and women’s responsibility for household well-being. The assumption is that increasing women’s access to
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microfinance will enable them to make greater contribution to household income which is believed to translate into well being for women and result in changes gender inequality.
2.4.3 Financial sustainability Paradigm
This underlies the models of microfinance promoted since the mid-1905 by most donor agencies. Large programs which are profitable and self supporting and that, compete with other private banking institutions and capable of raising funds from international financial markets, is the ultimate aim of such endeavors. Financial sustainability is seen as addition to create institutions which reach significant number of the poor. The success of the programs is measured in terms of covering costs from incomes.
The need for targeting women is justified on grounds of high female repayment rates and the need to stimulate women’s economic activity. It is believed that increasing women’s access to microfinance services will in itself lead to individual economic empowerment though enabling women’s decisions about savings and credit use to set up micro enterprise, increasing incomes under their control.
2.5 ECONOMIC IMPACT OF MICROFINANCE
Women’s access to credit is generally believed to result in their economic empowerment. As a result, the provision of microfinance to women has been called for by various international and national organizations in light of their productive role for economic development and women’s rights. However, many still question the empowering capacity of credit in relation to the economic social and political conditions of women. Mayoux, (2002)
The impact of microfinance on income has been observed to be variable. It appears that for the majority of borrowers income increases are small and even in some cases negative. This is due to
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the fact that most women invest in existing activities which are low profit and insecure. In addition, women’s choices and ability to increase income is constrained by gender inequalities in access to other resources for investment in household responsibility and lack of mobility Mayoux, (2002). Hence, the presumption that access to credit automatically leads to women’s empowerment is not often true. This is because women with access to credit are usually unable to gain and maintain control of it. In addition there are additional disadvantages that women face including inability to access information, productive resources and social networks that hider their access to and control of resources Mayoux, (2002).
As mentioned earlier, access to microfinance, by and large, has a positive economic impact. The impact becomes larger for those closer to the poverty line and it also increases with the duration of membership or intensity of loans as members begin to invest in assets rather than consumption Morduch and Haley (2001). Microfinance delivery in various points of the world has improved the economic position of households, enhancing the asset base and diversification in to higher return occupations among members.
However, there are also a number of issues within the women’s empowerment framework that impede the poverty reduction capacity of microfinance Skarlatos, (2004). First the size of the loans is too small which does not enable the women to make long lasting income change for the household. Secondly, the increased access to credit in the same geographic area could contribute to market saturation of products provided by women.
This is because poor women usually engage in similar businesses. Thirdly, there is the possibility that the women’s successful business might have a negative impact on the girl child who might be required to help her mother leaving the school.
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Women have a stake in the overall economic achievement of the household. However, in societies where there are restrictions on women’s public mobility the impacts of microfinance on women are marginal or even nonexistent. In addition, the economic impact of microfinance on women depends on whether they have full control over the loan secured and their voice in house hold decision making Goetz and Gupta, (1996).
2.6 SOCIAL IMPACT OF MICROFINANCE
In addition to economic impacts, social changes also result from the work of micro finance organizations Kabeer (2005). The delivery of microfinance is expected to result in social changes because women working in groups can achieve what might not be achievable individually. Micro finance organization strategies provide the poor the possibility of belonging to a group they choose despite the socially or economically imposed relationships Kaber, (2005).
This allows for meeting with others as similar experience and share knowledge. Such practices in effect are believed to empower them both individually and collectively. The provision of financial services is directly associated with two specific sets of social relations. The first relate to interactions with the staff of the organizations which have the potential to bring change through training and other activities. The second set of social relations is those between members of the groups organized by microfinance organizations. However, these groups do not embody the same principles of organization or the same kind of relationships between members Mayoux, (2002). Child education also improves with the provision of microfinance. In this regard, the delivery of microfinance to women results in greater return as compared to men Kaber, (2005). Microfinance members are also expected to have enhanced decision making powers regarding reproductive rights than non-members. These include the decision on abortion, contraception use,
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and number of children and age at marriage for their daughter. In addition, the livelihood of female decision making has been increases when channeling loans through women’s groups rather than to individual women Goetz and Gupta, (1996).
Claims that participation in microfinance activities has implications for women’s empowerment within the household were investigated by a number of studies with varying results. Intra-household decision-making was one commonly investigated indicator of women’s empowerment. While there is evidence that microfinance can have an impact on women’s role in household decision-making, it has not occurred evenly in all contexts or in all areas of decision-making Cheston and Kuhn, (2002).
The other social impact of microfinance is on domestic violence. Domestic violence might reveal either a declining or an increasing trend with women’s access to microfinance Goetz and Gupta, (1996).The reason for the decline could be the increase in awareness among family members that provides women a public forum where they discuss matters that were previously kept privately. On the other hand, according to the report compiled by Rahman, (1999) an increase in domestic violence has been observed for 70 percent of 120 women borrowers of Grameen Bank (microfinance institute found in Bangladesh) following their involvement in microfinance.
2.7 POLITICAL IMPACT OF MICROFINANCE
Microfinance is viewed as an effective tool for overcoming the political exclusion of women Cheston and Kuhn, (2002). The global average of women’s representation in national parliaments remains low at 17 per cent as of 31 January 2007(UN, 2007).
Women in government, parliament, the judiciary and other institutions serve as role models and thus as pull factors for other women. There are a range of possible mechanisms to increase
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women’s participation in political life with varying degrees of success (Byrne et.al, 1996). The first is the reform of political parties through quotas and other forms of affirmative action. Another mechanism is training to develop women’s skills and gender sensitive working with women’s political organizations is the other mechanisms to enhance their participation. Measures that can be taken by microfinance institutions to increase the quality of women’s political participation include awareness raising, training programs for female candidates, the cultivation of links and networks between women in local government and quotas in NGOs and timing of meetings and provisions of child-care to fit with women’s domestic responsibilities.
Measures to increase the quantity of women representatives need to be accompanied by measures to improve the quality of their participation.
Even programs that are not explicitly addressing women’s rights and political participation have had some impact on political and legal empowerment Cheston and Kuhn, (2002). By contributing to women’s knowledge and self-confidence and by widening their social networks, many microfinance programs give women the tools and skills they need to participate more effectively and successfully in formal politics and to informally influence decisions and policies that affect their lives.
2.8 GENDER BASED MICROFINANCE DELIVERY
Women’s access to financial resources has been substantially increasing over the years. However; their ability to benefit from the access in is limited by the gender related disadvantages Skarlatos, (2004). In addition, despite their growing capacities, some microfinance institutions provide a decreasing percentage of loans to women. The loan size provided to women also appears to be smaller in comparison to men although both participate in the same program and belong to the
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same community. In addition to women’s poverty levels, social discrimination against women results in smaller loan sizes in comparison to men.
Furthermore there are only a limited number of women in the leadership of microfinance institutions, which might be one reason for the biased loan access. However, regardless of the odds, microfinance programs still have the potential to transform power relations and empower the poor. Although microfinance does not address all the impediments to women’s empowerment, it can contribute to their empowerment if properly implemented Kabeer, (2005). The goal of empowerment can be achieved through microfinance programs that are broad based, gender focused and financially sustainable. A gender based policy involves more than just targeting women. Creating gender- based policy involves a process through which an institution re-examines all of the underling structures and assumptions about gender roles, rights and responsibilities that have historically discriminated against women as borrowers and employees. It is also important for microfinance institutions to set guidelines pertaining to employee recruitment, promotion, roles and responsibilities.
In this regard, the formulation and enforcement of the guidelines is expected to bring about positive social changes. Furthermore, involving women both as staff and borrowers has the potential for increased levels of economic empowerment and financial stability that will benefit the individual omen, their families and communities Mayoux, (2002).
The following are some general considerations that should be made when designing programs with the aim of creating gender based strategy Vyas, (2002). First, a program must contribute to the self esteem, confidence and competency of women. This is because women often find it difficult to express their concerns about harmful political and economic policies much less discuss their consequences for gender empowerment.
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Second, there must be a strong female contingency in the leadership and planning roles of microfinance program. Filling management positions with women would help to break the belief that women are not capable of handling jobs traditionally held by men. With proper education and increased self esteem, women will have the ability to break traditional cycles of subordination and inherent cultural procession. Lastly, a microfinance program with a focus on gender must have an idea, founded on solid research and reliable information of the financial senses that will be most beneficial to women clients.
Agencies also need to develop approaches that provide opportunities for women to decide for themselves about their needs and interests and how positive change can be achieved.
Promoting empowerment also requires some fundamental changes within agencies in reviewing their structures and procedures to increase their accountability to the women whose empowerment they aim to support. Generally, it is essential that empowerment strategies are designed to enable women to gain greater access to information, access and control over resources and the ability to make decisions themselves. Kabeer, (2005)
In order to enhance women’s access to credit, the establishment of new and strengthening of existing micro credit mechanisms and micro-finance institutions needs to be undertaken to enhance the outreach of credit Cheston and Kuhn, (2002). In addition, other supportive measures should be undertaken to ensure adequate flow of funds. The promotion of women’s political participation is an important approach to supporting their empowerment. This includes promoting women in government and national and local party politics as well as supporting women’s involvement in NGOs and women’s movements. Generally although women are found
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in large numbers in lower-level positions in public administration political parties, trade unions and business, their representation in chief executive and economic areas is generally very poor. Microfinance has also been strategically used by some NGOs as an entry point for wider social and political mobilization of women around gender issues Mayoux, (2002).
However, in most programs there is little attempt to link micro-finance with wider social and political activity. In the absence of this, it is not possible to measure the contribution of microfinance. To the contrary, there is the possibility that micro-finance and income earning may take women away from other social and political activities.
2.9 IMPORTANCE OF MICROFINANCE TO THE THIRD WORLD
Microfinance has a very important role to play for development in the developing countries according to proponents of microfinance.
UNCDF (2004) states that studies have shown that microfinance plays three key roles in development around the globe especially in the third world.
helps very poor households meet basic needs and protects against risks, is associated with improvements in household economic welfare,
Helps to empower women by supporting women’s economic participation and so promotes gender equity.
Otero (1999, p.10) illustrates the various ways in which “microfinance, at its core combats poverty”.
She states that microfinance creates access to productive capital for the poor, which together with human capital, addressed through education and training, and social capital, achieved through local organization building, enables people to move out of poverty (1999). By providing
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material capital to a poor person, their sense of dignity is strengthened and this can help to empower the person to participate in the economy and society..
The aim of microfinance according to Otero (1999) is not just about providing capital to the poor to combat poverty on an individual level, it also has a role at an institutional level. It seeks to create institutions that deliver financial services to the poor, who are continuously ignored by the formal banking sector.
Littlefield and Rosenberg (2004) state that the poor are generally excluded from the financial services sector of the economy so MFIs have emerged to address this market failure. By addressing this gap in the market in a financially sustainable manner, an MFI can become part of the formal financial system of a country and so can access capital markets to fund their lending portfolios, allowing them to dramatically increase the number of poor people they can reach Otero( 1999).
More recently, commentators such as Littlefield, Murduch and Hashemi (2003), Simanowitz and Brody (2004) and the IMF (2005) have commented on the critical role of microfinance in achieving the Millennium Development Goals.
Simanowitz and Brody (2004, p.1) state, “Microfinance is a key strategy in reaching the MDGs and in building global financial systems that meet the needs of the most poor people.” Littlefield, Murduch and Hashemi (2003) state “microfinance is a critical contextual factor with strong impact on the achievements of the MDGs…microfinance is unique among development interventions: it can deliver social benefits on an ongoing, permanent basis and on a large scale”. Referring to various case studies, they show how microfinance has played a role in eradicating poverty, promoting education, improving health and empowering women in the developing worlds.
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2.5 PERFORMANCE MEASURE
2.10.1 Core Performance Indicators for Microfinance
Experience has shown that funding agencies’ microfinance interventions produce better results when design, reporting, and monitoring focus explicitly on key measures of performance. Unfortunately, many projects fail to include such measurement. These basic tools measure performance of microfinance institutions (MFIs) in five core areas:
1. The best measurement of outreach is straightforward: The number of clients or accounts that are active at a given point in time.
This indicator is more useful than the cumulative number of loans made or of clients served during a period. Among other distortions, cumulative numbers make an MFI offering short-term loans look better than one providing longer-short-term loans.
The recommended measure counts active clients rather than “members” in order to reflect actual service delivery: members may be inactive for long periods of time, especially in financial cooperatives.
Expanding the number of clients being served is an ultimate goal of almost all microfinance interventions. But rapid expansion sometimes proves to be unsustainable, especially during an MFI’s early years when it needs to design its products and build its systems. It has very seldom been useful for funders to pressure MFIs for rapid expansion.
2. Client poverty level; There are various techniques for measuring client poverty levels, some quite expensive and others simpler, but as yet there is no widespread agreement on any one of them. If the project does not use a more sophisticated indicator, it should at a minimum report the following rough proxy for the poverty level of loan or savings clients at a point in time:
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Avg. Outstanding Balance = Gross amount of loans or savings outstanding Number of active clients or accounts
Average Outstanding Balance is roughly related to client poverty, because better-off clients tend to be uninterested in smaller loans. But the correlation between loan balances and poverty is very far from precise. Low loan sizes do not guarantee a poor clientele. Likewise, growth in average loan size does not necessarily mean that a MFI is suffering “mission drift.”
As an MFI matures and growth slows, a lower percentage of its clients are first-time borrowers, and average loan sizes will rise even if there has been no shift in the market it is serving.
3. Collection performance: Repayment of an MFI’s loans is a crucial indicator of performance. Poor collection of microloans is almost always traceable to management and systems weaknesses. The strongest repayment incentive for uncollateralized microloans is probably not peer pressure, but rather the client’s desire to preserve her future access to a loan service she finds very useful to her and her family: thus, healthy repayment rates are a strong signal that the loans are of real value to the clients.
Finally, high delinquency makes financial sustainability impossible. As a rough rule of thumb when dealing with uncollateralized loans, Portfolio or Loans at Risk (30 days or one payment period) above 10%, or Annual Loan-Loss Rates above 5%, must be reduced quickly or they will spin out of control.
4. Financial Sustainability (Profitability)
In banks and other commercial institutions, the commonest measures of profitability are Return on Equity (ROE), which measures the returns produced for the owners, and Return on Assets (ROA), which reflects that organization’s ability to use its assets productively.
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Some believe that, absent exceptional circumstances, donors should only support financial intermediaries that are on a credible track to financial sustainability. On the other hand, some people believe that there should be room for permanently-subsidized financial services for certain client groups. Whatever one’s position on this question, it makes sense to measure intermediaries’ financial sustainability, either to tell whether they’re meeting a goal of the project, or else to quantify clearly the level of subsidy that is being invested for a particular result.
The fact that an MFI’s sustainability indicator improves over a period of years does not necessarily mean that the MFI will reach financial sustainability. Sustainability indicators for MFIs will improve almost automatically in the early years; but the majority of MFIs never become fully sustainable, and thus can never expand beyond the limits of scarce subsidized funding.
It takes some sophistication to judge whether an MFI’s sustainability is improving fast enough. Most MFIs that have become profitable have done so within 10 years of start-up. However, now that microfinance knowledge and expertise are more widely available, MFIs should usually not take more than 5 years to reach sustainability, with the possible exception of MFIs working in rural areas with very low population density.
One important factor is the pace of growth: rapid growth will temporarily depress an MFI’s profitability because such growth requires new investments in staff and facilities that take a period of time to become fully productive.
For MFIs that are growing fast, analysis of mature branches and loan officers can often reveal whether the institution is on a trajectory that leads to sustainability.
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5. Efficiency: The most commonly used indicator of efficiency expresses non-financial expenses as a percentage of the gross loan portfolio:
Operating Expense Ratio = Personnel and administrative expense Period - average gross loan portfolio
Measured in terms of costs as a percentage of amounts on loan, tiny loans are more expensive to make than large loans. Only a few extremely efficient MFIs have an Operating Expense Ratio (OER) below 10 percent; commercial banks making larger loans usually have OERs well below 5 percent. The average OER of MFIs reporting to The Micro Banking Bulletin9 is about 30 percent, which probably reflects considerable inefficiency.
As mentioned earlier, the OER tilts the scales against MFIs making smaller loans: six $50 loans cost more to make than one $300 loan. Measured this way, an MFI can become more “efficient” by simply dropping its smaller borrowers, even without making any improvements in operating systems.
Cost per Client avoids this perverse result. When a microfinance market starts to mature and MFIs have to compete for clients, price competition on interest rates will usually push the MFIs to get more efficient. But many MFIs face little real competition. External monitoring of efficiency is especially important in those cases. Young or fast-growing MFIs will look less efficient by either of these measures, because those MFIs are paying for staff, infrastructure, and overhead that are not yet fully used.
2.11 SUBSTANIBILITY
As the concept of microfinance came into focus, the question of whether donor support is necessary in the long term and the issue of sustainability of such institutions came up as well. It
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could be argued that the long term sustainability of MFIs is not important as long as money was given to micro entrepreneurs and a start up help was given. This would imply that sustainability of the micro enterprises is more important than the long term existence of the financial institution that stood behind the start up.
As MFIs seek to reach as many poor people as possible in the long run to fulfill their goal to fight against the worldwide poverty, it became clear that this outreach is only possible on a sustainable and efficient basis. Some opponents of this argument state that sustainability is not possible by reaching the poorest people on the planet. They furthermore argue that there exists a tradeoff between outreach and sustainability.
One might assume that sustainable MFIs are typically for-profit commercial companies, but this is not true. Actually, almost two-thirds of the sustainable MFIs are NGOs, cooperatives, public banks, or other not-for-profit organizations Rosenberg (et al., 2009).
Sustainability in general means the ability of a program to continuously carry out activities and services in pursuit of its statutory objectives. For an ideal MFI this would mean the ability to continue operating as a development financial institution for the rural poor. Since MFIs are more and more viewing their financial services as profitable businesses, it is of importance to constantly look for possible cost reductions or reallocations in order to operate profitable and economically viable. For a better understanding of the profitability and sustainability, ratio analyses are often used. In the following part different forms of sustainability and ratio analyses are examined and the principle of “double bottom line” of MFIs is discussed.
