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The Role of Microcredit in Poverty Reduction and Promoting Gender Equity 1

Prepared by:Norman MacIsaacSouth Asia Partnership Canada

For:Strategic Policy and Planning Division

Asia BranchCIDA

June 12, 1997

The Role Of Microcredit inPoverty Reduction and Promoting

Gender EquityA Discussion Paper

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Executive Summary ... 1

Section 1: Results Achieved ... 5

Section 2: Measuring Results ... 72.1 Repayment and disbursements ... 72.2 Income levels ... 92.3 Household income ...122.4 Womens control of loans ...122.5 Village and macro-level impact ...142.6 Borrower sustainability ...142.7 Long-term quantitative and qualitative indicators ...15

Section 3: Program Design: Issues and Lessons Learned ...203.1 Microcredit: integrated approach ...203.1.1 Case in point: microcredit and technology ...22

3.1.2 Program design and the role of NGOs ...243.2 Microfinance: income protection to reduce thevulnerability of the poor ...27

3.2.1 Savings: the forgotten half of micro-finance . ..28

3.3 Reaching those excluded by existing micro-lendingprograms ...31

Section 4: Recommended Reading ...32

Section 5: Research ...335.1 A few research questions raised in this paper ...335.2 CCIC Learning Circle on Microenterprise:

A Research Agenda ...35

5.3 Major Research Project:Microfinance and Womens Empowerment:Strategies for Increasing Impact ...36

Section 6: Bibliography ...37

Boxes:

1. Use and repayment of loans ... 82. Borrowing charges: biased against poor women? ... 83. Why don't the poorest women and men participate in microcredit programs?4. Results: critical findings ...145. Qualitative and quantitative data: indicators of womens empowerment in Bangladesh

6. Changing perceptions of womens role: the case of ECI ...187. Experimenting with new approaches in non-credit services for microenterprises:excluding economically disadvantaged women and men? ...22

8. Further reading: sub-sector approach and delivering effective businessdevelopment services ...23

9. CCIC Learning Circle on Microenterprise Development ...2510. Peer-group lending: lessons learned ...2611. Reality check: management and cost implications of diverse financial services12. Reality check: credit is debt ...2813. Savings and gender: more research required ...2914. Reality check: who needs credit? ...30

Table of Contents

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This paper examines the role of microcredit as a tool in the fight against poverty and gender in-equity. Building from the experience of South Asia Partnership (SAP) and non-governmental or-ganizations (NGOs) in South Asia, program evaluations and research in the field, as well as SAPCanadas participation in the Canadian Council for International Cooperation (CCIC) LearningCircle on Microenterprise (January and June 1996), it summarizes key issues and highlightsemerging issues in microcredit. This document is for circulation in the agency and among itspartners.

This paper aims to add to the body of lessons learned, best practices and indicators of the re-sults, to spark discussion within CIDA and among its partners, and to create increased aware-ness of gender and poverty impacts of microcredit. It is not intended as the definitive responseregarding the question of the social and gender impact of credit, but rather a tool for discussion.

This paper focuses on the South Asian experience. As a result, the lessons learned shared inthis document may not be relevant in every context. However, many of the issues raised in thisdocument will be relevant beyond that region.

The first two sections of this document are structured with Q & A (questions and answers) forreadability and accessibility. The balance of the document looks at some of the design issuesand the need for further research.

This document was commissioned by Marie Powell (Gender Equity Specialist, Asia Branch),Brian Hunter (Chief Economist, Asia Branch), and was completed by Norm MacIsaac, South AsiaPartnership. Norm MacIsaac is a microcredit specialist and has worked for South Asia Partner-ship since 1991.

About this paper

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Executive Summary

This paper looks at the role of microcredit in reducing poverty and promoting gender equity. Itargues that the use of repayment and disbursement figures and aggregate data on incomechanges do not accurately reflect the impact of microcredit on social and gender relations. It rec-

ommends examining indicators beyond financial data and, over the long term, including disag-gregated quantifiable data as well as qualitative information. It also identifies gaps in our under-standing of impact and the need for more research.

Microcredit has proven its potential to generate results. However, these results are generallyshort-term and vary significantly among borrowers. In general, studies suggest thepoorestsel-dom benefit from microcredit, while the middle and upperpoor benefit the most. Women in par-ticular face significant barriers to achieving sustained increases in income and improving theirstatus, and require complementary support in other areas, such as training, marketing, literacy,social mobilization, and other financial services (e.g., consumption loans, savings). In fact, it isdifficult to separate the impact of microcredit from that of other interventions.

This paper identifies three key design issues. First, microcredit produces stronger results in

combination with other interventions. In the period following the Microcredit Summit, with a strongfocus on credit-centered approaches and scaling up, it is important to examine the fullest range ofprogram options and their impact on different segments of the community. NGOs should considertheir capacity to implement microcredit programs, and may consider alternatives to direct provi-sion of credit.

Second, we should look beyond microcredit to other financial services including (voluntary andaccessible) savings. In the interest of the poorest and women in particular, there may be newpossibilities when we view microfinance as a tool not only for income promotion, but income pro-tection as well.

Third, maximizing impact requires that we understand the limitations of microcredit, work to im-prove programs, and, in some cases, offer alternatives for those excluded from microcredit pro-grams, especially the poorest women.

The key lessons in this paper:

Microcredit programs have generated positive results for large numbers of thepoor and women in particular.

The accomplishments of microcredit are a manifestation of a paradigm shift in microfi-nance, defeating the notion that the economically disadvantaged constitute a poor risk and arenot creditworthy. The discussions now taking place around the role of microcredit and the needfor diversified financial services and complementary non-financial programming aim to build uponthe impressive progress of recent years.

Poor women and men, however, do not automatically benefit. In some instances, theimpact on the poorest may in fact be negative. Numerous studies have concluded that mostborrowers realize marginal gains, while only a small percentage generate significant and sus-tained income increases.

The poorest borrowers benefit less compared to the middle and upper poor. Thepoorest 10-15 per cent of the population are largely excluded from microcredit programs.

Financial data is not directly related to results. Sound financial management and thesuccess of borrowers businesses are crucial to achieving results. However, there is no direct

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NGOs must consider their capacity to manage microfinance programs. The CCICLearning Circle on Microenterprise suggested greater specialization may be more effective, eithersectorally, or by working collaboratively with NGOs which have complementary skills.

The conflict between social and business objectives is often a challenge for NGOs. Inseveral large organizations, which are themselves implementing microfinance programs, organi-

zations have separated microfinance functions from the socialempowermentfunctions of theorganizations. In other cases, NGOs might consider alternatives to direct implementationsuch as facilitating linkages and promoting financial services, and concentrating on non-financialaspects such as group formation and training.

A key lesson for microfinance implementors is that microcredit involves a long-termcommitment. Financial intermediation is an on-going requirement, and short-term interventionsmay have a negative impact on existing informal and formal financial arrangements.

Poverty can be measured not only by income, but in terms ofvulnerability. It may there-fore be useful to consider greater flexibility of financial services, such as consumption loans,savings, insurance and other mechanisms to reduce vulnerability. Incomeprotection strategiesmay have potential, both on their own merit and as a complement to income promotion schemes.

Savings is the forgotten half of microfinance. Most lending programs include a forcedsavings component, but access to savings has been limited in most programs. Compared tocredit, there has been much less reflection on the impact and importance of savings for the poorand women in particular.

While the effectiveness of business development services, excluding credit, has beenseriously questioned in the past, some have pinned their hopes on sub-sector analysis, whichhas proven effective in organizations including Self-Employed Womens Association (SEWA) andBangladesh Rural Advancement Committee (BRAC). Continued experimentation and researchinto complementary efforts to microcredit are required.

Considering lessons learned from the widest range of experience and exploringother forms of support are prerequisites to building further upon successes in micro-credit. It is important to examine different approaches and compare their appropriateness in dif-ferent contexts. For instance, current trends would appear to favour the short-term cost efficiencyof credit onlyapproaches and may indirectly discourage the examination of models other thanpeer lending. An overemphasis on cost efficiency in the short term could end up jeopardizingthe sustainability of borrower enterprises by discouraging additional and costly inputs. We arealready seeing signs that the trend is away from social mobilization, and leaning towards mini-malist credit (credit only).

Finally, it is important to acknowledge that microcredit may not be the appropriate in-tervention in all cases. If very few programs have actually helped the poorest of the poor, thequestion is, is it program failure, or is it because credit is not always the most appropriate ap-

proach to supporting the efforts of the poor? As one researcher noted, microfinance institutionsapparent failure to reach the poor may not be a failure at all, but rather, a realization that micro-credit is not the way out of poverty for all the poor.(Zaman 1997, p.253).

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sidered illusory in the field of microfinance. The discussions now taking place around the role ofmicrocredit and the need for diversified financial services and complementary non-financial pro-gramming aim to build upon the impressive progress of recent years.

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2. Measuring Resultsthe quest for reliable indicators of social and gender impact

The evidence on performance of these schemes in reducing poverty is still fragmentary.(...) Even the better micro finance schemes have had limi ted impact on the poorest who are

often risk averse, and often lack the capability (in education or health) to take advantage of creditfor self-employment activities. (...) Sound program design can often enhance an interventionseffect on poverty. But this type of intervention (credit) seems unlikely to be the main route outof poverty.

(Martin Ravaillon, World Bank 1996, cited in Jacob Yaron et al., 1997, p.50)

2. 1 Repayment and disbursements

Q:How effective are repayment and disbursements as indicators of social and gender im-pact?

A: Most studies evaluate microcredit based on the indicators of repayment and disbursements.These indicators, are often referred to as proxies, because they are not directly related to thesuccess of borrowers, or to the impact on social or gender relations. The assumption is that effi-cient RFIs (rural financial institutions) should lead to the desired development impact (Yaron etal.,1997, p.102). However, there is no direct correlation between repayment and business suc-cess, and even less so between repayment and impacts on social and gender relations.

First, repayment is not an accurate indicator that funds were used to invest in successful produc-tive activities. Even when a borrower repays a loan on time, the source of income is notnecessarily from revenues generated by investing the loan in productive activities.

In most peer lending microcredit programs, for instance, borrowers must commence weekly in-stallments almost immediately after the investment is made. Hence, borrowers will either be

forced to choose activities that generate almost immediate revenue (and these activities tend togenerate the lowest returns), or they will have to repay the loan from other sources. In practice,repayment is often derived from general family income rather than the income-generating activityitself. Hence, repayment may be good, due to discipline or peer pressure, regardless of businessperformance.

Furthermore, while repayment might remain high, drop-out rates may also be high. Hence,high repayment rates do not necessarily suggest borrowers, especially the poorest women whoare more likely to drop out, are able to borrow repeatedly. Repayment and disbursement figuresonly reflect the ability to repay of those who remain in the program.Some borrowers may in fact be facing difficulties, repaying from other sources of income, or beunable to identify other investment opportunities. Research has shown drop-out rates in the 10-15per cent range annually in Bangladesh (see next section for more on drop-outs).

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Use and repayment of loans

The poor will often use loans to meet their needs as they see them, regardless of the intent oflending programs. Loans may be used for a wide variety of purposes, including:

to invest in an income-generating activity, of the borrower herself or another family member to use as collateral to obtain a larger loan from a moneylender

to engage in moneylending (a female borrower) to hand over to a male family member for either investment or non-

productive purposes to pay off debts with moneylenders for consumption or emergency purposes

Repayment may be derived from sources other than microenterprise earnings. These might in-clude, for instance: savings, other earnings, borrowings from a moneylender; a loan from aspouse or relative; or the wage earnings of the borrower or another family member.

(MacIsaac, 1996A)

In addition, aggregate repayment and disbursement figures may mask important differences be-tween men and women, and the poorest and other borrowers. For example, consider not onlythe percentage of women borrowers, but the relative size of loans and total portfolio sizefor women and men. Given mens preferential access to markets and information, they tend tohave better opportunities to invest, and capture larger loans (Kabeer, 1996). Hence, the numbersof borrowers may not accurately indicate the gender division of financial resources.

Borrowing charges: biased against poor women?

Some programs charge a flat interest rate (e.g., BRAC, Bangladesh Rural Development Bank in1996) or calculate interest charges at the outset regardless of early payments. However, someborrowers pay off their loans early. Because they do not benefit from a reduction in the lending

charge, they pay a higher effective rate of interest than others. The question that remains is:which groups are paying off loans in advance? Are the poor and the poorest women in particular,who tend to be the most debt averse and have few additional sources of income for repayment,the most likely to pay early? Answers to questions such as this one improve our ability tostrengthen impact and improve services for those most in need.

2.2 Income Levels

Q: Are data on changes in income an accurate measure of impact?

A: Income is one indicator of social and gender impact, but when presented in aggregate form, italso has serious limitations. Nor should income be seen as the only measure of poverty reduc-tion and gender equity. Equally important are indicators that demonstrate impact on the vulner-ability of the poor (see Section 3.2) and social impact and empowerment (see Section 2.7).

First, it is problematic to measure income. Income has often been confused with cash flow.An income-generating activity may produce more cash, but associated costs may also be high.Especially because microentrepreneurs often mix business and family finances, certain costsmay remain hidden, leaving an impression that income has increased more than it actually has(MacIsaac, 1996A, p.8). Furthermore, seldom factored in are the respective opportunity cost and

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return on labour for both women and men in the household. In some cases, women may be in-creasing their workload significantly in exchange for marginal increases in income.

Second, aggregate figures on income changes may mask significant differences among bor-rowers. The best programs have proven the ability to bring about short-term increases in borrow-ers income. But a closer look at results shows a big difference between impact on the poor, andimpact on the poorest. The poor are not homogeneous, so impact will vary significantly be-tween different segments of the population according to socio-economic status, gender, class,

caste and other factors such as family composition.

In some instances, the impact on the poorest may in fact be negative. Paul Mosley and DavidHulme surveyed successful microcredit programs in seven different countries. In all microcredit

programs, the average earnings of borrowers increased. They also discovered that, thewealthier the borrower, the greater the income increases derived from credit. However, borrow-ers below the poverty line actually had lower incomes than before joining the programs, i.e., thepoor actually became poorer through microcredit. The reasons for this are not clear. Ac-cording to Mosley and Hulme, the poor may use the loans differently, for consumption or to investin lower risk (and generally less remunerative) activities. Meanwhile, the better-off borrowerstend to invest in riskier and more productive ventures, including technological improvements. Thestudy concluded that while credit may be an effective vehicle for boosting the incomes of the

poor, it may be less effective, or even counter-productive, in helping the poorest of the

poorraise their living standards. Alternative poverty reduction mechanisms are probably advis-able for this group.(Mosley, in Yaron 1997; Hulme and Mosley 1996).

Third, not only do the poorest borrowers benefit least, but most evidence also indicates thepoorest 10-15 per cent of the population are being altogether excluded from microcreditprograms, and the poorest women face more barriers than men (see p.10).

Why dont the poorest women and men participate in microcredit programs?

There are several reasons why the poor do not participate in microcredit programs:

The leading cause is self-exclusion . The poorest, especially the poorest women, oftenlack confidence, skills, and market contacts. They deem themselves unable to repay debt.

This may be particularly relevant for women, who may have limited control over the revenuesused for repayment. Some analysts refer to the poorest as debt-averse. One might also saythey have more to lose if their investment doesnt pan out. Some women do not join due tosocial sanctions which restrict their mobility (Hashemi in Wood and Sharif, 1997). Evenwhere targeting is highly effective, self-selection appears to be the leading reason why theultra-poor are excluded from microcredit programs.

Another reason is shortage of time. Borrowers must incur the opportunity costof weeklymeetings and other program demands on time. These activities, however valuable, take timeaway from important domestic tasks as well as other remunerative activities. Some of thepoorest people, such as destitute single mothers with sick children, as well as mothers withyoung children, may not participate because they cannot afford the time demands of weeklymeetings. Unfortunately, this tends to be a stronger barrier for the poorest women who oftenhave the heaviest workloads.

Yet another explanation is peer group exclusion. Peer groups (as well as staff) may havea tendency to exclude those most likely to experience repayment difficulties. While donorstend to view the poor as homogeneous, during the process of self-selection, group memberswill filter out those who represent the greatest risk for the group (Montgomery 1996, Hulmeand Mosley, 1996; Noponen, 1990) and may also include wealthier individuals for social rea-sons. (Hassan 1997).

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Second, while family income may be rising,net impact may actually be negative for certainfamily members. Income increases may actually mask unequal and even worsening gaps in thegender division of labour and control of income within the household. In the worst case scenario,credit may result in increased work for women in exchange for increased revenues controlled bymen. As one practitioner in Bangladesh stated: Before women worked like cows. Now they worklike horses! In other cases, men have taken on more of the housework (Bhowmik and Jhabvala,1996). One lesson is clear in income generation promotion: Unless men are sharing domesticwork more equitably, microcredit for income generation will likely increase womens, and in some

cases childrens, workload, especially girls who share domestic responsibilities and are less likelyto be attending school. Moreover, as families seek to increase incomes with labour-intensive ac-tivities, given their limited time, children are often asked to contribute their labour to the familybusiness. Hence, there is also a danger microcredit (unless it is accompanied by technologicalimprovements) will increase the incidence of child labour. The division of the domestic work-load within the family unit would be a useful indicator of impact.

2.4 Womens control of loans and benefits

Q: How much do women actually control the businesses started with their loans?

A: Studies on womens control of credit in Bangladesh indicate that most women borrowers have

only partial control over loans, or have relinquished all control to male members of the family.Depending on the individual study, it would appear that about 20 - 50 per cent of Bangladeshiwomen hand over the entire loan to males in the family. And even when women do respond (insurveys) that they have at least partial control over income, this is often confined by their owndefinitions of what degree of control women or men can expect over different aspects of the fam-ily budget. Moreover, women with greater control over loans tend to be those engaged in tradi-tional home-based activities (Goetz and Gupta, 1994).

Nevertheless, while it is important, lack of control over credit does not negate all benefits forwomens role and status in the community. As part of a broader effort to raise awareness andmobilize women, credit could play an important role as an entry point to empowerment (MacI-saac, 1995). First, women increase their interaction and strengthen their networks with otherwomen through meetings. Second, womens ability to take loans, repay them and accumulate

savings can increase their self-confidence and sense of self-worth. Third, studies in Bangladeshdemonstrate participation in credit programs can result in increased status for women in thehousehold and the community (Hashemi et al., 1996).

However, credit alone is unlikely to have significant and sustained impact on womens status. Asan Oxfam study of the gender impact of income-generating activities concluded: Experience hasshown that too many factors militate against relying solely on increasing womens income as away of increasing their status (Lopez and March, 1990, p.12).

If they are to control credit, more will have to be invested in enhancing womens manage-rial control, skills development, social development, opening market access for women,and changing women and mens attitudes to issues of womens financial independ-ence.(Anne Marie Goetz, 1994 p.4).

In addition to the distribution of labour, the distribution of benefits by gendershould also beexamined. There are three levels of control:

control over funds borrowed control over the business/income-generating activity control over spending/utilization of earnings

Questions about distribution of benefits might include, for example: Do the benefits go to women?

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Are benefits spent equitably among female and male family members? (For instance, somestudies indicate girls may still benefit less than male offspring from increased expenditure).

How have family spending patterns changed? For example, is increased female income re-sulting in a decrease in mens contribution to certain family expenditures (as has been ob-served in some cases)?

In mixed credit programs, how does womens expenditure for re-investment in their busi-

nesses compare to mens?

Results: critical findings

An Oxfam U.K. study of their income generation programs concluded that many income genera-tion schemes were failing economically as well as in terms of social impact. The study foundthat many businesses made no or only minimal profit. In many cases, income generating activi-ties simply increase womens workload and stress. In reality, the womens position is often wors-ened by the intervention.(Lopez and March, 1990, p.10)

Most projects have either assisted a few at the expense of many, or have even damaged the fewthey have tried to help.(Malcolm Harper, in Levitsky, 1987)

2.5 Village and macro-level impact

Q: What is the impact on income levels at the community level?

A: The impact of microcredit, because it affects the market for goods and services, will extendbeyond the borrowers themselves.For example, flooding the market with goods for which there is

a finite demand will cause prices to fall. Inversely, in some cases, the growth of microenterprisesmay shrink the supply of landless labourers, and have a positive effect on wages. Business,macro or micro, is about competition, so supporting the success of some microentrepreneursmay have a negative impact on other entrepreneurs.

While microcredit has shown improvement in household level wages, there is little evidence ofany significant change in the macro-economic figures (R.I. Rahman, quoted in Hashemi, 1997).This begs the question of whether the income increases of some households are taking place tothe detriment of others, and whether the situation of those who are excluded is worsening.Some research has indicated that some income increases may be gained at the expense of theincomes of existing traders (Osmani 1990; Quasem 1991).

2.6 Borrower sustainability: is the road out of pverty a cul de sac?

Q: Microcredit programs have been able to lend to the poor without collateral, and in-comes may rise in the short term. But are income rises sustainable?

A: Numerous studies have concluded that most borrowers realize marginal gains, while only asmall percentage generate significant and sustained income increases. Studies indicate thatwhen incomes increase, they tend to level off after some time and only a small percentage of bor-rowers will realize sustained increases in income. Moreover, the use of loans for productive pur-

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poses also has a propensity to decrease over time (ORegan 1983; Goetz and Gupta, 1994; No-ponen, 1990). A detailed study of program impact on borrower incomes revealed that only 11 percent of long-term borrowers had sustained rises in income (Hulme and Mosley, 1996).

The majority of microcredit is used to finance livelihood (survival) activities such as trading(e.g., vegetable vending) and food processing (e.g., paddy husking). These activities are moreopportunisticthan entrepreneurialand carry a lower risk of generating negative results (such asincreased indebtedness, increased vulnerability). However, returns on labour tend to be low, and

possibilities to expand income beyond marginal increases (i.e. in the medium and long term) areminimal. Survival activities offer only limited potential for significant and sustained increases inincome.

There is little evidence of improvements to fixed capital or investment in technology among mostmicroborrowers. Borrowers seldom use credit for technological improvements. Rather, repeatloans are used either to expand the scope of activities (husking more paddy) or to embark uponseparate income-generating activities (e.g., cow fattening, in addition to paddy husking). Oppor-tunities to continue increasing wages are limited by:

market constraints (overcrowding in certain sectors) available time for working (especially given womens double burden and when activities are

labour intensive)

the overall economic climate.

There is a qualitative difference in the entrepreneurial businesses. There may be opportunitiesfor increased income and higher returns, as well as sustained increases in income in the mediumand long term. However, the entrepreneur also generally incurs larger risks and invests in fixedcapital over more than the short term. These entrepreneurs may require increasingly large loansand usually require technical assistance.

Two important indicators of business sustainability include: accumulation of business as-sets and technological improvements. Womens businesses may not be accumulating fixedcapital as rapidly as men. Women may be spending the surplus generated, rather than re-investing it. Alternatively, the return may be too low, making significant capital improvements un-affordable. Women will also focus on different economic sectors than men, and may not be

adopting new technologies.

2.7 Long-term quantitative and qualitative indicators

Q: Is it possible to capture the impacts of microcredit on poverty and gender equity usingshort-term quantitative data?

A: Impacts on social and gender relations is complex; seldom is short-term quantitative data suf-ficient to demonstrate impact. Assessment of poverty and inequity require more than relativechanges in income levels - and assessing results in terms of empowermentrequire more creativeapproaches to quantitative information, as well as qualitative data (see Annex). Monitoring overthe long term is required, given the dynamic and complex processes involved in social change.

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Qualitative and quantitative data:indicators of womens empowerment in Bangladesh

Schuler and Hashemi outline six elements of womens empowerment in Bangladesh:

1. sense of self and vision of a future2. mobility and visibility3. economic security4. status and decision-making power within the household5. ability to interact effectively in the public sphere6. participation in non-family groups

(cited in: Marilyn Carr, Martha Chen and Renana Jhabvala, 1996, p.214.)

First, the process of changes in womens status, role and power in society is as important

as the actual change. For example, organizational indicators would go beyond financial viabilityto cover questions such as who sets the agenda? How dependent are groups on the apex bodyor organization to set the agenda and take action at the community level? It can be argued thatby definition, people owning and managing their own organization are more empowered thanthose who are beneficiaries of someone elses organization. (Carr et al., 1996, p.6) This shouldbe a key consideration in monitoring and evaluation.

Indeed, one important way to compare different approaches to promoting womensempowerment is to determine who takes the decision as to what domains of womensempowerment to address, in what sequence, and at what pace, rather than simply tocompare what domains of womens empowerment are being addressed. (Carr et al,1996, pp. 214-215)

Participants at an international workshop in Colombo in 1995 expressed concern that some pro-grams may actually reinforce the very attitudes and behaviour that are at the root of poverty. Par-ticipants cautioned that individual economic betterment through microenterprise may appeaseindividuals to buy into the system, thereby discouraging activism. Furthermore, microcredit canperpetuate socio-economic disparities within communities. Microenterprise can reinforce the po-sition of a selected few to the detriment of others, weakening the relative position of the poorestcompared to elites, or of women relative to men.

...On the face of it, it looks very good. But, again, what are we doing? Somewhere alongthe road, theres always a fear we may forget why we did this. It wasnt only for the eco-nomic benefits. There is a danger that you end up creating a strange class of middlemenor a strange class of enterprising people

who end up in fact exploiting or behaving in the same manner (as those who used to ex-ploit them) ... (Mohammed Tahseen, SAP Pakistan - at the SAP International Workshopon Micro-Enterprise as a Means of Empowerment, Colombo, Sri Lanka, 1995. in MacI-saac, 1995, p.11)

The South Asia Partnership analytical framework for analyzing the empowerment impact of mi-croenterprise programs highlights the impact of the program on collective solidarity(see Annex). Examples of collective activism abound. For example, women members of MASES,a Bangladeshi organization, collectively challenged a husband who was beating another member.The same community revealed examples of collective action and involvement in conflict resolu-

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However, assessing impact is challenging and often involves comparing social benefits tosocial costs. For example, a womans participation in a credit program may increase her status,but also increase her workload. Assessing the benefits of participation in peer groups in equallychallenging. As mentioned earlier, it is generally accepted that womens participation in peergroups, in many countries, will increase her interaction with others, improve her information, andresult in increased mobility, confidence and solidarity. Meetings can be empowering for women(Hashemi, 1996 ; Osmani 1996), but it depends, for example, on whether or not women discusstheir personal problems as well, or whether discussion is largely centered upon repayment and

the management of the program. Meetings also take time away from other activities. In the finalanalysis, the quality of meetings will play an important role in determining benefits.

Furthermore, qualitative indicators are contextual and hence difficult to compare. Efforts toimprove womens socio-economic status have to be understood within a specific context. Forexample, in a study of urban SEWA members, Schuler and Hashemi concluded that, in the Indianurban context, mobility and visibility were much less significant indicators than others. In starkcontrast to their rural counterparts in BRAC and Grameen Bank, SEWA urban self-employedwomen had always been more visible, mobile and independent. While rural Bangladeshi womenwork in relative isolation, the Indian urban vendors, for instance, interact daily with traders andmiddlemen. Hence, within any specific context the pace and manifestation of changes inwomens position in society will vary.

Using another example, it would be wrong to perceive that, because an older women who hasbeen abandoned by her husband goes to the market on her own, she has now been empow-ered. Some women may go to market independently only because they have no other alterna-tive. Different sub-groups will react differently according to their socio-economic status, and de-pending on the type of income-generating activity. For example, destitute women (single, di-vorced or widowed) are far more likely to control the income they earn (Goetz and Gupta, 1994):55 per cent of these borrowers fully control their loans, compared to 18 per cent of all women.

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There was a strong argument that empowerment cannot be limited to any one sector. Hence, the

proposal that micro-enterprise leads to empowerment was dismissed by some as spurious. Mr.Susil Sirivardana cautioned that micro-enterprise by itself is not sufficient; it could be a neces-sary condition, but it is not a sufficient condition for empowerment.(MacIsaac, 1995, p.7)

Microcredit is more effective in combination with other efforts. It is necessary to buildupon a wide range of grassroots experience in South Asia and understand the need forother forms of support. This requires viewing impact more broadly than short-term in-come changes.

The issue for practitioners is not whether microcredit works or not, but in what context, for whom,and in tandem with which efforts. BRAC, like many other NGOs, freely admits that credit alonehas severe limitations as a development tool,(BRAC, 1992) and is experimenting with programalternatives to improve results.

One threat to continued improvements in microcredit programming is a possible overemphasisonone approach - peer-group based microlending - to the detriment of other forms of support andthe complementary of different interventions. At the Microcredit Summit, for example, SEWA(Self-Employed Womens Association), which is a combination trade union and cooperative forself-employed women in India, based on a Ghandian philosophy of activism, was presented aslittle more than a bank. Yet there is so much more to SEWA than their lending program. A dan-ger is that group lending will begin to be seen as the only option. Another concern is that pro-

grams will promote credit (i.e., debt) when credit is either not needed, or other interventions couldhave a more meaningful and positive impact.

In efforts to seek recognition for success in microcredit, there is a risk of attributing all success inmicroenterprise support, poverty reduction and womens empowerment to that one element. Yetit is unlikely that microcredit alone can address the structural causes of poverty. In fact, some areconcerned that, if microcredit is promoted alone, programming will end up promoting individual-ism, cloning minimalist credit models, and neglecting the kind of social mobilization that has madeorganizations like SEWA so successful.

Anoveremphasis on cost efficiency in the short-term could jeopardize the sustainability of bor-rower enterprises by discouraging additional and costly inputs (Johnson and Rogaly, 1997; Bun-dell, 1996). Pressures to emphasize financial performance may lead to further exclusion of the

poorest. Smaller loans are preferred by the poorest borrowers, but are also more costly to ad-minister. Ultimately, the push for financial performance creates incentives for programs to in-creasingly filter out those at greatest risk of default and delinquency. This creates disincentivesto working with the poorest and strengthens the bias against unquantifiable goals such as genderequity and womens empowerment.

3. Program Design: Issues and Lessons Learned

3.1 Microcredit: integrated approach increases effectiveness

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Those who have been trapped in poverty require a broad range of interventions, fromgeneral policy changes to specific forms of support, to move into sustainable livelihoods.

A large-scale transfer of resources into one specific type of intervention - microcredit - asthe World Banks CGAP has done, and is being proposed at the Microcredit Summit, mayactually divert resources away from those in greatest need.

(Questioning the Panacea: Lessons from a CCIC Learning Circle on Mi-croenterprise Development)

Other studies suggest the increasing focus on scaling up microcredit program may have negativeimplications for smaller organizations which aim to address the broader structural causes of pov-erty and gender subordination. (Arn and Lily 1992, Ebdon 1994) One of the primary tenets of thepromotion of microcredit as a cost-effective strategy is that, unlike other strategies, microcreditrequires that programs take advantage of economies of scale to achieve higher degrees of finan-cial viability. Hence, embracing this approach could filter out smaller organizations that may nottake advantage of economies of scale.

Signs are already evident that the trend is away from social mobilization, and leaning towardsminimalist credit. BRAC, for example, has shortened the conscientization stage and reducedsavings provisions and time pre-requisites before disbursing loans (Wood and Sharif 1997, p.35).Montgomery reports a shift in BRAC from a relatively egalitarian and participatory mode to a

more hierarchical and managerial mode. (Montgomery, 1996, p. 299). He refers to this as a shiftfrom `bhai` (brother) culture to `sir` culture, and warns that this may be a forewarning of the pos-sible institutional changes as organizations grow. Even authors who argue in favour of micro-credits empowering impact readily admit that other components such as social and politicalconsciousness-raising, literacy training and skill development have been increasingly down-played. (Hashemi et al., 1996)

The challenge is that complementary support - be it in marketing, literacy or awareness-raising -is perceived as relatively cost inefficient compared to credit. Furthermore, the prevailing wisdomis that microcredit alone does have an impact, and is sustainable, while other forms of supporthave had mixed results.

Technological support is an excellent demonstration of the challenge of complementary support.Ensuring the sustainability of income increases of microenterprise activities may often requireraising productivity through training or new technology. Unfortunately, the effectiveness of busi-ness development services, excluding credit, have been seriously questioned. By the mid 1980s,many had written technical assistance off as an ineffective way to support microenterprises.Study after study condemned technical assistance programs as costly and inappropriate.(ORegan 1983, Hunt 1985, Tendler 1989) At an international conference on microenterprise in1989, Malcolm Harper summed up the prevailing sentiment: Technical assistance, he wrote, asopposed to credit, has a limited role to play in the microenterprise sector. (Harper, 1989)

The challenge is that most microenterprises require more than credit to sustain themselves andgrow. As BRAC learned from decades of experience: (W)ithout viable, tested investment op-portunities geared to the skills and resources of the poor, credit alone has severe limitations as adevelopment tool (BRAC, 1992). As the limitations to microcredit alone are recognized, otherways to provide the other services necessary if businesses are to grow must be sought.

In technology, as in other areas, in order to continue to build on successes in microcredit, it willbe necessary to consider lessons learned from a wide range of experiences. For example, somehave identified the sub-sector approach as a possible methodology to ensure technical support isboth appropriate and affordable. According to

3.1.1 Case in point: microcredit and technology

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Experimenting with new approaches in non-credit services for microenterprises: exclud-ing economically disadvantaged women and men?

Another trend in the delivery of non-credit services is towards cost recovery. NGOs and microfi-nance institutions also offer training, but aim for (at least partial) cost recovery. The theory is thatmicroentrepreneurs will not pay for services that they do not expect to result in tangible improve-

ments in the business.

Several analysts cite the use of training vouchers in Paraguay to promote competition amongtraining providers. Such market mechanisms open the door to at least partial cost recovery. Thedisadvantage is that many, especially the poor and poor women with limited control over spend-ing, are unlikely to be able to afford fees, let alone the opportunity costof lost time during trainingsessions. Hence, in many training programs for the poor, organizations offer a stipend to offsetopportunity cost and other costs incurred to attend training.

Jonathan Dawson (Intermediate Technology Development Group), in a paper presented at theMicrocredit Summit:

Recent experience challenges conventional assumptions that business-developmentservices cannot be designed so as to reach large numbers of clients. At the heart of thisexperience lies the use of sub-sector analysis, involving a study of the vertical structureof a given economic activity, from input supply through production process and marketingof the finished product. (Dawson 1997A, p.4)

Sub-sector analysis has proven effective in organizations including SEWA and BRAC. Thoseorganizations use the sub-sector approach to identify bottlenecks within the entire productionchain in a given economic sub-sector, from the supply of inputs to marketing and governmentregulations. The sub-sectoral approach also allows for and even encourages linking local issuesto political activism. In the case of SEWA, this has played an important role in womens mobiliza-tion and increasing the visibility of womens economic contribution and leadership.

While subsector analysis has notable limitations, it demonstrates both the diversity of experiencein South Asia, and the potential for deeper and more sustainable impact of microcredit in combi-nation with non-credit support.

Further reading:

Sub-sector approach and delivering effective business development services

Frank Lusby. The Subsector/Trade Group Method: A Demand-Driven Approach to NonfinancialAssistance for Micro and Small Enterprises, GEMINI Working Paper No. 55, 1995.

Lara Goldmark, Sira Berte and Sergio Campos. Preliminary Survey Results and Case Studies onBusiness Development Services for Microenterprise. Washington, D.C.: Microenterprise Unit,Inter-American Development Bank, 1997.

Jonathan Dawson. Beyond Credit: The Role of Complementary Business Development Servicesin Promoting Innovation Among Small Producers. (Draft and Executive Summary available)Rugby, U.K.: ITDG, 1997.

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More research is required on the effectiveness of different models in different situations (e.g.,sectoral approach, group lending, cooperatives), and on the results of program activities com-

bined with microcredit. For example, different case studies show varying results of microcreditprograms on family violence. In some cases, microcredit strengthens womens capacity to standup to violence. In others, anecdotal evidence shows microcredit has resulted in increases inviolence against women (backlash) and family break-up. However, there is no clear understand-ing of why different programs generate positive social impact. Research is particularly needed inthe area of impact on womens empowerment.

The challenge for practitioners and their partners is to view results more broadly than in-come earned, and over much longer term than is presently done. A focus on short-term costefficiency will result in approaches which generate short-term income at minimal cost, as opposedto long-term efforts to promote sustainable benefits, and social change and transformation.

This doesnotimply that NGOs should work in all sectors, or that it is wrong to focus on microfi-nance alone. The CCIC Learning Circle on Microenterprise, an exercise involving nearly 20

NGOs from Canada, Africa and Asia, concluded that NGOs are working in too many projects,trying to manage too many complex relationships. It suggested greater specialization, eithersectorally, or by working collaboratively with NGOs with complementary skills. In several largeorganizations which are themselves implementing microfinance programs, NGOs have separatedmicrofinance functions from the socialempowermentfunctions of the organizations. In SEWA,this is done through SEWA Bank. In a nutshell, adopting an integrated approach need not implyone organization will take on the challenges of both social and financial intermediation.

NGOs have a lot of strengths, but they also tend to have weaknesses in their financial manage-ment abilities and in managing conflicting social and business development goals. Some NGOsmight consider alternatives to direct implementation, focusing on collaborative efforts with organi-zations having complementary strengths. For example:

NGOs may play a role in facilitating linkages (for example, to existing thrift and credit so-cieties, or to formal lending programs) and promoting financial services, rather than actually de-livering these services.

NGOs might also concentrate efforts on non-financial aspects such as group formationand training.

Despite the proliferation of known success stories, many NGOs are still operating ineffective,poorly designed credit programs. However, awareness of the need for strong capacities in pro-

gram design and development is spreading rapidly, and some once smallNGO programs havebeen able to reach significant scale. For example, Dhanghamara Mahila Sobuj Sangha startedwith modest support from South Asia Partnership and other supporters, and now has over 40,000members.

One of the key lessons for implementors is that microcredit involvesa long-term commit-ment. Many NGOs and donors still maintain the illusion that lending programs, like branches ofBRAC or the Grameen Bank, can become self-sustaining in a matter of years. This is now recog-nized to be unrealistic. While the branches of the established organizations may envisage somedegree of financial viability in, say , three to six years, independent organizations will take much

3.1.2 Program design and the role of NGOs

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longer. Grameen Bank and BRAC, for example, have been operating for about two decades, andmay envisage a greater degree of financial sustainability in the new millennium, at which timethey will likely face new challenges (MacIsaac and Wahid, 1995).

CCIC Learning Circ le on MicroenterpriseOttawa, January - June 1996

The Learning Circle on Microenterprise Development brought together 18 participants from NGOsin Canada, Bangladesh, India, Pakistan, the Philippines, Ethiopia and Zimbabwe to reflect uponand draw lessons from their experience in microcredit and microenterprise development. Partici-pants discussed a range of assumptions and issues behind their work in supporting microenter-prises in South Asia, Africa and Canada. The purpose of the Learning Circle was to enhanceparticipants understanding of the issues, and to find ways to broaden this learning process in thewider community. This exercise challenged participants own assumptions about their work, and,in doing so, often raised more questions than they could answer. (CCIC - extract)

Partic ipants statement

As practitioners in this field, we are concerned about the wave of enthusiasm for microcredit as a

leading strategy for poverty reduction. We have a responsibility to examine this approach criti-cally. We believe that microenterprise has potential as an approach to creating sustainable live-lihoods, but it is not a panacea, and credit is not the one key success factor. (Questioning thePanacea, p.1)

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Peer-group lending: lessons learned

Peer-group lending has gained widespread popularity as a microlending methodology. However,there may be considerable variations in its applications, and some previously held assumptionsabout group lending, once held as truisms, are now being drawn into question. For example:

There is a vast variation in the size of groups ranging from 5 to 40 or more. Some researchers now question the importance of the solidarity group in programs such

as Grameen Bank and BRAC. They call into question the extent to which staff actuallyutilize the group mechanism (Montgomery 1996), and point out that group pressure mustfirst be activated by staff.

It may be that weekly meetings are far more important than the groups themselves, asthey play a role in increasing discipline, ensuring regular payments, and promoting thetransparency of financial transactions with bank staff (Jain, 1996).

Possible pitfalls of peer lending

There may also be side effects to group lending. In his article, Richard Montgomery comparesBRACs Rural Development Program (RDP, based on solidarity group lending) to SANASA (thrift

and credit cooperatives based on collectively managed financial services). He presents SANASAas an alternative to the peer-lending model, to which he associates costs including:

heightened perception of risk erosion of mutual trust and willingness to support fellow solidarity group members, and ultimately, an increased likelihood that the poorer and more vulnerable will be excluded from

such groups.

The ideal and ability to provide mutual support are undermined, and the tendency to excludethose facing temporary or sporadic repayment problems is strengthened. In sum, RDPs empha-sis on disciplining rather than protecting the poor entails social costs which contradict the broaderobjectives of solidarity group schemes. (Montgomery 1996, p.304)

Best practices: beyond group lending

While group lending has captured most of the attention, other best practices have emergedwhich merit our attention as well. For example, BRI (Indonesia) disburses loans to individuals,but uses means other than the group mechanism to obtain what Johnson and Rogaly (1997) terminsider information. Other programs, such as SANASA (Sri Lanka), MYRADA (India) and Clus-ter Development Program (SAP) in Sri Lanka, emphasize the importance of hot money, (i.e.,lending capital derived from local savings). These programs emphasize savings first, and espe-cially in the case of SANASA, cold money (lending capital derived from outside sources) is keptto a minimum. The result of this emphasis on savings first is that members own savings serve asa guarantee. But more importantly, because most of the funds are derived from the community,failure to repay is seen as stealing from ones own neighbours. This finding is confirmed inseparate studies by Rogaly and Copestake which emphasize the importance of a sense of own-ership and mutual interest in the organizations survival.

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Some researchers and practitioners have been considering greater flexibility of financialservices and view income protection (savings, insurance and other mechanisms to reducevulnerability) as a priority overincome promotion.

The Dhaka Declaration (signed by 21 South Asian NGOs in 1996) underlines the importance ofdeploying a wide portfolio of financial services to meet the diverse financial needs of the poor andthe poorest and concedes that financial services may not significantly alter the more entrenchedstructural causes of poverty. One researcher argues that programs such as RDP (BRACs peer-group lending program), which do not provide financial services necessary for coping (e.g., ac-cess to savings, consumption loans, insurance schemes) are more likely to result in the exclusionof the poor during difficult periods due to peer pressure (Montgomery 1996).

This provides ample reason to consider the broader financial needs of poor women and men.Savings, consumption loans and insurance schemes can play an important role in coping strate-gies, which can reduce the vulnerability of the poor. At present, most microcredit programs areresponding to only a portion of womens and mens financial needs. It is therefore not surprisingthat microfinance institutions seldom replace all informal sources of credit. Even after becomingmembers of a microcredit program, borrowers will continue to seek financial services from family,neighbours, traders, and informal arrangements including ROSCAS (Rotating Savings and CreditAssociations).

While the trend is towards minimalist credit, many Asian NGOs have evolved a wider variety offinancial services for the poor. For example, WRATC (Womens Regional Association of ThriftCo-operatives, Sri Lanka) manages a life insurance scheme on outstanding loans. SANASAsCooperative Development Foundation (CDF) has been offering easy access to consumptionloans, much the way informal lenders do. This is despite the prevailing view, in other creditmethodologies and in a lot of circles of thinking, that loans should be for productive purposesonly.

Reality check: management and cost implications of diverse financial services

Hassan Zaman, senior researcher at BRAC, cautions that the extra administrative costs of flexi-ble and diverse financial services have to be weighed against the benefits. Zaman recommendsfurther research on this issue, to assess the optimal degree of flexibility, given the possiblebenefits of tailored services for a heterogeneous client group and the extra administrative costsfor the micro-finance institution. (Zaman 1996, p.84)

Reality check: credit is debt

Credit is debt - its a double-edged sword. On one hand, the ability to borrow money and repay aloan can boost the borrowers sense of pride and self-esteem. Conversely, debt tends to in-crease vulnerability, and the stress of debt or business failure can be devastating.

There have been, though it is assumed not to be widespread, examples of extreme negative re-actions to inability to repay, including suicide, bankruptcy, seizure of assets, and cases of bor-rowers informally offered assets as collateral to other group members. (Hulme and Mosley,1996, p.120-122)

For women, credit may also mean responsibility for debt, with limited control over how credit isused, or how income generated is spent.

3.2 Microfinance: income protection to reduce the vulnerability of the poor

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It appears that people always need savings accounts but that loans are needed only occasionally.(Johnson and Rogaly,, 1997, p.45)

Offering diverse financial service also means focusing more on savings, which Robert Vo-gel referred to as the forgotten half of rural finance. Despite having accumulated collectivesavings in the millions of dollars at BRAC, Grameen Bank and other organizations, microcredit isstill the focus of donors and NGOs alike. Also, although most lending programs also include acompulsorysavings component, access to savings has been limited.

First, savings is often conceived as a method to ensure repayment, rather than an end initself. In the majority of microcredit programs, compulsory savings are a pre-requisite to qualifyfor a loan. In ASA (Association for Social Advancement), members must save for about 12weeks before qualifying for a loan. In other organizations, the size of the loan is linked to theamount saved at the lending institution. While the present orthodoxy is more concerned with re-payment, it may be relevant to ask whether borrowers actually needed the loan, and how theyused it.

Second, access to savings has been restricted in many programs. This has led to discon-tent among participants, and in the case of the Grameen Bank, led to demonstrations by borrow-ers demanding access to their savings. While other programs have provided open access tosavings, Grameen Bank only opened up access to savings in 1996. Prior to that year, borrowershad to drop out of the program to gain full access. However, not all programs have been so fo-cused. MYRADA (India) has placed a much stronger emphasis on savings, and does not believein encouraging debt. Other programs have gone even farther to contributing to coping strategiesby also offering quick-access consumption loans. In SANASA (Sri Lanka), for example, short-term high-interest consumption loans are frequent and popular.

Third, compared to credit, there has been much less reflection on the impact and impor-tance of savings for the poor and poor women in particular. For example, while the debate

about lending rates rages on, discussions about interest rates on savings are subdued at best.There has been limited thinking, for example, on how to increase interest earnings on savingsdeposits (Sobhan, in Woods and Sharif, 1997).

Savings and Gender Equity: More research required

Accumulation of savings is often a good measure of decreased vulnerability. But we should lookbeyond the amount and understand what women and men do with their savings and, above all,what are the conditions to gain access to savings in the microfinance institution.

However, more research is required into the relationship between savings and gender equity. Forexample, do women have firmer control over savings than loans and income? Would more openaccess to savings raise new issues of control? How do womens and mens savings habits andwithdrawals differ?

Anecdotal evidence indicates that, in many socio-cultural settings, women may have greater ac-cess over savings (for example, see Abinta Malik and Sandra Kalleder, in Carr et al. 1995, p.34).But what are the consequences when women, who have limited control of loan funds, are grantedopen access to savings? Savings are sometimes seen as womens domain. Women also mayhave greater control over certain forms of savings, such as jewelry.

3.2.1 Savings: the forgotten half of microfinance

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Reality check: Who needs credit?

The example of ASA is a particularly interesting one because, while ASA prides itself in the sim-plicity of its procedures, some are nevertheless critical of its inflexible supply ledapproach. Thisis the way it works. Members become eligible for loans on a schedule, after saving for some time

(not unlike many ROSCAs), or after repaying their last loan, and must repay the new loan in 50equal installments. Consequently, (Rutherford, 1995a; cited in Johnson and Rogaly, 1997) it isnot infrequent for members to on-lend to other group members.

The example of ASA begs the question posed by Geoffrey Wood and Iffath Sharif in their bookappropriately titled: Who needs credit? (see reference below). Is the focus on lowering transac-tion costs and simplifying of procedures (i.e., the reduction of services), resulting in the promotionof perpetual debt?

Usual questions:What is the repayment rate?What is the average loan size?

Consider these questions:Did the program participants need the loan?How did they use credit? Did it help them?What was the source of funds for loan repayment?

For an excellent exploration of microcredit and poverty in Bangladesh and the need for diversefinancial services:

Geoffrey Wood and Iffath Sharif (eds). Who Needs Credit? Poverty and Finance in Bangladesh.Dhaka: The University Press, 1997.

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Microcredit is not a panacea. Realizing its limitations, some organizations have alreadybegun to develop new programs and approaches to reach those presently excluded by

microcredit programs.

Some organizations working in microcredit are developing programs to bring those excludedwithin the folds of the mainstream programs. BRACs Income Generation for Vulnerable GroupsDevelopment (IGVGD) is one example of a program attempting to reach the poorest women byproviding concessional loans combined with government relief rations. According to the plan,IGVGD members would be gradually absorbed in the mainstream RDP program, where theywould take larger and larger loans.

South Asian NGOs, including BRAC, also have programs designed to create wage employment.Yet others, such as the Orangi Pilot Project in Pakistan are working to help existing small busi-nesses create employment for the poor. However, as it works with established productive activi-ties, it supports mostly male entrepreneurs, and there are few studies to indicate whether suchenterprises will create employment for the poorest women as well as men.

In some areas, another way to increase the incomes of the poor and promote gender equity is tosupport labour movements where the poor, and poor women in particular, are prevalent in neweconomic sectors. Due to liberalized trade and rapid economic growth in many Asian economies,low-paying employment and piece-rate work in and around free trade zones is increasing rapidly,often with mixed consequences, especially for women. In many contexts, organizing women tobargain for fair wages, benefits and working conditions is an appropriate intervention to fight pov-erty and promote gender equity.

Finally, it is important to acknowledge that microcredit may not be the appropriate interven-tion in all cases. If very few programs have actually helped the poorest of the poor, is this dueto program failure, or because credit is not always the most appropriate approach to supportingthe efforts of the poor? As one researcher noted, microfinance institutions apparent failure to

reach the poor may not be a failure at all, but rather, a realization that microcredit is not the wayout of poverty for all the poor.(Zaman 1997, 253).

3.3 Reaching those excluded by existing micro-lending programs

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Carr, Marilyn, Martha Chen and Renana Jhabvala (eds.), Speaking Out: Womens economicempowerment in South Asia. London: IT Publications, 1996.

Dawson, Jonathan. Beyond Credit: The Role of Complementary Business DevelopmentServices in Promoting Innovation Among Small Producers. Rugby, U.K.: ITDG, 1997.

Goetz, Anne-Marie and R.S. Gupta. Who takes credit? Gender, power and control overloan use in rural credit programmes in Bangladesh, IDS Working Paper No. 8. Brighton:IDS (Univerity of Sussex), 1994.

Johnson, Susan and Ben Rogaly. Microfinance and Poverty Reduction. Oxford: Oxfam,1997.

Mayoux, Linda. From Vicious to Virtuous Circles? Gender and Micro-Enterprise Develop-

ment. Geneva: United Nations Research Institute for Social Development, May 1995.

South Asia Partnership. Micro-Enterprise as a Means of Empowerment. Colombo: SouthAsia Partnership, 1995.

Wood, Geoffrey D. and Iffath A. Sharif. Who Needs Credit? Poverty and Finance in Bangla-desh. Dhaka: The University Press, 1997.

4. Recommended Reading

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... there is no single appropriate model for such systems, and most definitely not a model im-posed from the outside.[...] We need to respond to the tough challenge of reaching the poorest ofthe poor, by continuing to learn more about whats needed - microfinance and beyond ...

Huguette Labelle, CIDA President,Plenary address, Microcredit Summit, Washington, D.C., February 1997

This paper has raised a number of research questions. These are only a few in an endless list of

possible research issues. However, this list may help identify some of the gaps in research, andto highlight (especially) the lack of research on gender equity issues related to microcredit.

Drop-out rates: Drop-out rates are around 15 per cent (annually) in many microcredit pro-grams. However, there is a lack of firm data and information, and a need to better under-stand which borrowers are dropping out and why, and what changes take place after drop-out. Research is particularly needed to understand the different dynamics of drop-out forwomen and men borrowers.

Market limitations: Micro-borrowers may face market limitations, saturation and even over-supply in some sectors. Some may fail to join or drop out because they cannot identify op-portunities for productive investment. Women face additional barriers in the marketplace,and often lack information, compared to men. Women are also concentrated in differentsectors (e.g., food processing, livestock) and men in others (e.g. rural trading, irrigation,transportation). What are the gender differences in the market limitations and dynamicsfaced by women and men borrowers?

Macro-level change: What changes, if any, are taking place at the village/macro level? Is(as some have suggested) the situation of those excluded by microcredit programs worsen-ing? Or are many of the gains of microborrowers at the expense of other traders and entre-preneurs? How are macro changes different for women and men?

Sharing the workload: How does microcredit affect the workload of women and children(girls especially) in the household? Are some programs better at promoting increased shar-ing of domestic work or minimal use of child labour? What are the lessons learned?

Distribution of benefits: Has microcredit resulted in different spending patterns (for menand women)? Do girls, for example, reap their fair share of benefits from increased family in-come? How does this vary among different programs and program approaches?

Comparative impact of different approaches: More research is required on the effective-ness of different models in different situations (e.g., sectoral approach, group lending, coop-eratives), and on the results of program activities combined with microcredit. For example,different case studies show varying results of microcredit programs on family violence. Insome cases, microcredit strengthens womens capacity to stand up to violence. In others,anecdotal evidence shows microcredit has resulted in increases in violence against women(backlash) and family break-up. However, there is a need for a thorough understanding ofwhy different programs generate positive social impact. Research is particularly needed inthe area of impact on womens empowerment.

5. Research

5.1 A few research questions raised in this paper

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Women and savings: More research is required into savings and gender equity. For exam-ple, do women have firmer control over savings than loans and income? Would more openaccess to savings raise new issues of control? How do womens and mens savings habitsand withdraws differ? Would womens use of savings (as opposed to borrowing) for invest-ment increase their control over income-generating activities?

Reaching those excluded by microcredit: It is widely accepted that microcredit does notreach the hard core poor (about 10 - 20 per cent of the population). However, this group is

far from homogeneous. Which groups (more precisely) are being excluded from differentprograms (e.g., destitute women, women with young children, smaller or larger families, fami-lies with more than one income earner)? Are some segments of the hard core poorbenefit-ing from microcredit? What have been the results of efforts to reach those excluded by mi-crocredit programs?

Borrowing charges: Which groups are paying off loans in advance? Are the poor and thepoorest women in particular, who tend to be the most debt adverse and have few additionalsources of income for repayment, the most likely to pay early?

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The following is the research agenda proposed by the CCIC Learning Circle on MicroenterpriseDevelopment, an exercise involving NGO practitioners from Canada, Asia and Africa.

Throughout the course of our deliberations we identified a number of critical issues where furtherresearch will benefit our understanding and guide our practice in micro-enterprise support. Werecognize that much research is already taking place; however, we felt that these areas requiremore attention and possibly collaboration on the part of NGOs, academics, consultants and donorinstitutions.

1. Documenting case studies and further research on the factors behind and the process forestablishing viable micro-enterprises on the part of the poor. How do those living in pov-erty identify opportunities, what resources have they brought to their initiatives, how dothey organize themselves, what forms of support were most effective?

2. Researching appropriate delivery structures and the mix of programming mechanisms formicro-credit and other development support for micro-enterprises. To what degree, for

example, can NGOs committed to a holistic approach within a single organization alsobecome specialists in credit/loan delivery programs?

3. Research the impact of micro-enterprise development on poverty reduction, exploringpositive and negative links between economic success factors (as small businesses) tobroader social impact (on community inequality, gender relations, etc.) necessary forsustained poverty reduction. We discover several frameworks for social impact assess-ment and indicators for social transformation and poverty reduction; but we were insuffi-ciently prepared to systematically assess these frameworks and apply them to a micro-enterprise program.

4. Researching the impact of the economic and social policy environment on micro-enterprise development. What constitutes a supportive policy environment and how can

NGOs, social organizations, and governments work together to construct this environ-ment? What constitutes a viable local economy, to which many micro-enterprises relate?Can we develop case studies on the impact of the new trading and investment regimes(now forming under the WTO) on local and national economies, from the perspective ofsustainable micro-enterprise/small business activity?

5. Documenting and sharing analysis of best practices in micro-enterprise support, collect-ing and indexing existing research, and setting out annotated bibliographies. How bestcan we create more inter-change and synergy between those who are conducting re-search and those who are engaged day-to-day in micro-enterprise support work?

Excerpt from:

Questioning the Panacea: Lessons from a CCIC Learning Circle on Microenterprise Devel-opment, Ottawa: CCIC, p. 10).

5.2 CCIC Learning Circle on Microenterprise: A Research Agenda

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UK-based international NGOs are funding a research project entitled: Microfinance andWomens Empowerment: Strategies for Increasing Impact. The pilot phase of research is col-lating existing published and internal NGO material, and holding three regional workshops, in-cluding one in South Asia.

A longer program is planned which will:

undertake detailed research of the impact of selected programs on womens empowerment,the mechanisms through which this occurs and the constraints

develop and pilot frameworks and methodologies for analyzing the inter-relationships be-tween empowerment, participation and sustainability

propose innovative structures for participatory planning to increase impact while maintaining(if possible) financial sustainability

clarify the limitations of microfinance programs as a tool for womens empowerment and the

types of support services necessary to maximize the contribution of microfinance services

Further information:

Linda Mayoux Susan Johnson, Economic Policy Analyst 61 Cheney Way ACTIONAID, Hamlyn House, Macdonald RoadCambridge, UK CB4 1UE London, UK N19 5PGtel: 44 1223 501030 tel: 44 171 281 4101fax: 44 1223 561322 fax: 44 171 263 [email protected] [email protected]

Excerpt from:Linda Mayoux, The Magic Ingredient? Microf inance & Womens Empowerment (A briefingpaper prepared for the Microcredit Summit, Washington, D.C.), February 1997.

5.3 Major Research Project:Microfinance and Womens Empowerment: Strategies for Increasing Impact

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