Women, micro-finance and peace
WOMEN comprise a sizeable proportion of the world’s poor. Traditionally, they have been marginalized. They face disproportionate gender specific barriers. Women in India seem to earn less than men, have lower levels of literacy skills and face higher levels of physical vulnerability. They have also the responsibility of taking care of their families. They face social and economic discrimination and have little access to credit. Lack of access to credit by women poses an enormous challenge in addressing such inequalities.
Micro-finance is a powerful and effective instrument for poverty alleviation and women’s empowerment. Access to credit gives women an opportunity to overcome exploitation and become self-sufficient. Micro-credit programmes play a crucial role in improving their skills, income and self-esteem. Women are better borrowers, wiser spenders and are more trustworthy. However, women have specific financial needs. Therefore, they need products which are sensitive to their requirements. Innovative, tailor-made credit programmes specially designed for women have a lasting impact on women in developing countries. Micro-finance has not only improved the economic well-being of women in India, but also empowered them. I sincerely believe that economically empowered women in society introduce elements of peace in the community in which they reside. And hence the importance that we attach to this movement and the contribution of institutions such as SEWA.
The most fundamental distinction between micro-finance and all other forms of conventional banking is that the core clients of micro-finance institutions are the self-employed and informal enterprises, clients that conventional banking has traditionally excluded. The magic of micro-finance is that it has developed techniques to lend to its members and their enterprises. These techniques are built around several key principles, which are widely known as core best practices in micro-finance:
1. Focus on motivating the borrower to repay through promise of continued access to credit, peer pressure and other collateral substitutes.
2. Approach of granting loan and determining the size of loan based on analysis of existing repayment capacity, or stepped lending.
3. Strong delinquency management systems, including immediate, personal follow-up, staff incentives, and management information systems.
It has been successfully proved that financial services can be effective and powerful instruments for poverty reduction by enhancing the ability of women to increase incomes, build assets, and reduce their vulnerability. At the core of the movement is a fundamental belief that access to financial services protects and empowers the poor by mitigating them from risks and giving them choices. The multiple role of financial services for the poor, parallel the multiple dimensions of the poverty captured in the Millennium Development Goals (MDGs). It is felt that impact of micro-finance is not only on poverty reduction but also on several other MDGs such as achieving universal education, promoting gender equality and women’s empowerment as well as reducing child mortality, improving maternal health and combating diseases.
In this background, it may be mentioned that the micro-finance movement has so far multiplied its lending to a sizeable scale. This signals an urgent need to explore and deploy new delivery mechanisms to complement existing structures and underlines the significance of institutional diversity. However, reaching significant scale will require moving beyond the NGOs model and tapping into selected large banking and financial institutions that have extensive distribution networks already in place, particularly in poorer regions.
With their large regional and national network, cooperatives are already a significant institutional channel for delivery of financial services to low income groups. Experiments with alternate delivery mechanism such as post offices, retail networks of fertilizer shops/agricultural implements, supermarkets, beverage suppliers, and petrol stations have already begun, and may offer additional prospects for reaching out to large numbers. In this connection, the concept of financial services for the poor will no longer be only dominated by microcredit. The types of financial services needed by the poor extend far beyond working capital loans, encompassing an array of savings, credit, insurance and money transfer services. Convenient, safe and secured deposit services are a particularly crucial need.
However, much depends on the extent to which government and other regulatory organizations can create an enabling framework for orderly growth of the micro-finance sector. Depending on their approach, regulators/supervisors can either undermine or encourage the development of micro-finance. The overarching goal of all stakeholders should be to support the development of financial systems that work for the poor. This approach requires that we remove the walls – real and imaginary – that separate a micro-finance community from the much broader world of financial systems, markets and development. It requires that we refuse to accept the status quo, in which it is considered normal for a country’s financial systems to serve only a tiny minority of its population, while the vast majority remains outside the systems.
However, a way out of the above situation is to strengthen the public and private financial intermediaries, particularly those engaged in lending to the unorganized sector. The governments should not get directly involved in providing financial services to the poor. Subsidized and inefficient lending programmes foster a culture of non-repayment on the part of clients and undermine good micro-finance institutions. It should not be encouraged.
As new solutions are found for the delivery of financial products and services to the poor and as these systems become more integrated in the overall financial systems, policy and legal frameworks will need to adapt so that governments can play their appropriate role as facilitators rather than direct providers of financial services for the poor. Our goal in this area should be to:
1. Foster diversity of institutions and financial products through the policy and legal regime that gives them equal treatment and is not biased in favour of one institutional model or product.
2. Establish supportive legal and regulatory frameworks that safeguard poor peoples’ money and promotes competition.
3. Develop the technical expertize of supervisory and regulatory authorities.
The need to regulate is being emphasized for the simple reason that the exposure to micro-finance has become very large. Many poor people have staked their family’s future on the credibility of the movement. Any failure or collapse will not only ruin families but also totally erode people’s confidence in the process. This will be very dangerous. Hence, to deter unscrupulous elements, it is essential that at a nascent stage itself, appropriate checks and balances are put in place.
In general, the government/regulators’ role in micro-finance should be to maintain or create an enabling environment that permits the growth of financial services for the poor and their integration in the broader economy. This can be done by addressing broad legal and regulatory constraints such as cumbersome registration processes, multiple laws, and suitable changes in various acts or framing an altogether new micro-finance act. There is a strong case for changing appropriate interest rate ceilings so that micro-lenders can cover their cost. Licensing rules needs to be adjusted so that financially solid instruments can fund their lending activities with deposits from the public. An important element of the regulatory strategy should be to create a regulatory framework that allows a wide array of financial intermediaries to serve the poor.
In a real case scenario it would be worthwhile to examine the model adopted by SEWA and how it works among women. The motivating factor behind the efforts of SEWA is to organize women workers to obtain full employment whereby they attain work security, income security, food security and minimal health and child care. Attaining such goals would mean that women become independent and self-reliant. Such economic self-reliance leads to independence in decision-making capability and thereby full empowerment.
Women in India have continued to be underprivileged in a large number of ways. The core advantage of the micro-finance movement is that those who are hitherto not entitled for assistance from formal banking channels, could avail the flexible loan products to meet their productive credit needs and timely assistance, even for certain family requirements. This has made an important social contribution.
SEWA has the advantage of its own Shri Mahila Sewa Sahakari Bank. The experience of this cooperative bank is that women who were earlier paying a daily interest of 10%, are now able to make a sizeable earning even at 17-18% rate of interest charged by the bank. The banksathis, as the frontline workers are called, are the strongest link in the chain as they belong to the same community and neighbourhood of the borrowers they assist. The sathi has a certain credibility by already owning a bank account and is also educated. A second link is one between the sathi and bank facilitator.
There is thus a strong bond between the bank, its two facilitators and the women clientele. The cornerstone of such a strong movement, which must have long-term sustainability, is the confidence generated among these elements. The client must feel that the bank and the facilitators empathize with them. Through peer pressure and positive encouragement, the banksathi must inculcate in the mind of the woman borrower the fact that timely repayment of loans enhance her borrowing capacity and thereby provides greater opportunities for increasing business and returns.
It has been a long time serious concern to find successful models which are flexible in their approach towards the requirements of the poor. Central to this is the need for timely resources in the hands of the poor to help them reduce the burden of debt. Policy-makers have been applying themselves to this cause but have not yet been able to find the foolproof delivery system to bridge the credit gap. Ad hoc measures such as loan waivers and interest subsidy do not solve the problem to provide sustainability to people living below the poverty line.
The formal banking mechanism has not provided succour. Direct lending of priority sector sub-targets have also not got to the root of the problem. It was in this context that micro-finance has offered financial services to the poor in a sustainable manner, albeit at higher rates of interest. The remarkable experience in this sector has been the fact that despite the prevalence of relatively high interest rates, the borrowers have consistently been able to retire their debt and enhance their borrowing power.
Another offshoot of this model viz., the SHG-bank linkage programme, has been a remarkable success as it has provided banking at the doorstep, improved their capacity and also ensured peer pressure as a motivation for the borrowers to return loans. Today micro-finance stands as a movement which has helped reduce the incidence of poverty by providing the poor with resources at their doorstep. It has enabled them to channelize spending on education and health care. Child mortality has gone down, school dropout rates have reduced and dependence of households on informal moneylenders has been substantially lowered.
The overall experience of the SHG-bank linkage programme and the setting up of micro-finance institutions has debunked the myth that the poor are chronic defaulters and, therefore, not bankable. Due to collective decision-making and having strength in numbers, the poor, organized in the SHGs, have linked up with mainstream financial institutions. Banks have had a pleasant experience as SHG portfolios have much lower NPAs than many formal borrowers. Since this linkage programme has outreached through an existing structure, the cost has been minimized and a parallel set-up not necessitated.
The main ingredient to the success of the programme has been the fact that the poor and quite often those located in rural areas, have to deal with people of their own community to access funds. In some ways approaching a formal bank branch is psychologically intimidating. This barrier has been overcome through the SHG collectively linking with a bank. To ensure the further success of the movement and thereby providing it sustainability in the long run, MFIs must develop strategies for increasing the range and volume of their financial services to ensure that they price credit at cheaper rates. Government and other private institutions must come forward to separately meet the equity requirements of MFIs so that the debt-equity ratios can be reduced. However, care needs to be taken to ensure that MFIs do not over-leverage themselves and remain within prudential borrowing limits.
Isincerely believe that the poor have the desire and capability to repay. Women among the poor have even a greater willingness, as they see in the movement an opportunity of ending their exploitation and attaining empowerment. By nature, women have closer bonds with their children and given the basic economic necessities, would like to provide the protective umbrella of nutrition, education and basic health care. Their economic independence also ensures that they can withstand the challenge of exploitation once they have the confidence to be able to withstand oppression due to their new-found economic independence. They will resist any attempt at social oppression, family exploitation and the ability to suffer in silence.
Seeing such core strength, the society and in particular the male dominated community, will see a deterrence in the further exploitation of women. Such deterrence leads to a more harmonious family existence and a more cohesive community, thereby bringing about peaceful coexistence. If benefits of women’s empowerment, economic independence and their upliftment have to take place, it is micro-finance linked self-help groups which will bring about the revolution. I have great confidence that a strengthening of this movement will improve the bargaining power of women within the family and in society. The initiatives and support provided by SEWA in this direction are remarkable and need to be replicated in all parts of the country.