Gender and Microfinance Impact

From the point of view of the microfinance community, the hierarchy of philanthropy goes something like this:

1) Give a man a fish and he eats for a day.

2) Teach a man to fish and he eats for the rest of his life.

3) Teach a woman a bit about financial planning, give her a loan to purchase a fishing rod and not only does she eat for the rest of her life, but you have not been patronizing and others can be served with the interest paid by this woman on the loan.

Wonderfully appealing, but I think we may have been a little hasty in entirely dropping the “man.”

On the Grameen Foundation’s website they explain they focus on giving credit to women because “Women have proven to be the best poverty fighters. Experience and studies have shown that they use the profits from their businesses to send their children to school, improve their families’ living conditions and nutrition, and expand their businesses.” Although I do believe that those working for Grameen actually believe this statement, the evidence for its truth of is tenuous.

I believe the more accurate explanation for the focus on distributing loans to women is one based on a sound business decision by microfinance institutions (MFIs), not one focused on fighting poverty. It is simply that women are more likely to repay. This is conventional wisdom in the microfinance sector, and Aghion and Morduch cite a number of cases in which women have shown to be more compliant in this paper.

As I have mentioned on this blog before, I often find that the microfinance community conflates high repayment rates with success and high impact. Extremely high repayment rates may in fact be a sign that customers are taking on very little risk and that the loans are going towards low risk-low reward projects, rather than the high risk-high reward businesses that badly need funding.

There is even some evidence that men may be more likely to use funds towards business expansion than women, and with higher returns to capital. A fascinating study authored by de Mel, McKenzie and Woodruff, gave cash or kind grants to small business owners in rural Sri Lanka. The authors found through different methods of calculation, “the mean real returns to capital are estimated to be just over 11 percent per month for males, and slightly negative but not significantly different from zero for females.” The design of the study split the grants between those of about 100 dollars and 200 dollars. Men invested a hugely larger amount of this smaller grant than women, but strangely women, on average, invested slightly more of the larger grant (I don’t know what to make of this). This study is not looking at loans, but simple cash grants that did not call for repayment, so it is not entirely comparable to MF, but these results are also worth consideration from microfinanciers.

There are a number of possible reasons for why men may be more successful with these grants, but I find most compelling the argument that the lack of mobility and freedom for women may cause them to have less profitable business opportunities.

Although I am not sure how much it adds to the discussion, I thought I would present some of the preliminary data from a study I am now working on in Western Orissa. In this survey we are interviewing households in Western Orissa located in villages in which the NGO/MFI BISWA currently has operations. The interviewed households were randomly selected from the 2002 BPL/APL census.

In a sample of 744 household, 470 (64%) of these households claim to have at least one outstanding loan. In these HHs, the loan with the highest initial loan size was taken in the name of a man 71% of the time and 29% of the time by a woman. In the survey, we ask households to list up three purposes for which this largest loan was used. The following data represents the proportion that each of the following categories make up of loan usages mentioned.

Loan Usages	Men	Women
Repay Old Debt	1.86%	9.66%
Health	19.26%	13.07%
Education	2.55%	1.70%
Business	42.23%	39.77%
HH Consumption	31.79%	32.39%
Other	2.32%	3.41%
# of Observations	333	136

We do not know how efficiently these loans were used or even if the men and women were telling us the truth, but once again there is clearly no evidence here that women are using loans in a way that would make them better “poverty fighters” than men.

This entry is not intended to entirely dismiss the benefits of lending to women. There is surely some empowering impact for many women to help that family access needed funds. And of course, economic development is not the be all end all. If increasing lending to men leads to worsening disparities in freedoms between the genders, than it may not be worth any of the possible efficiency gains.

**** Many people I have spoken to have argued that women who take loans from microfinance organizations immediately pass them onto their husbands. I do not take on this issue because I am unaware of any data on the subject. Does anybody know of any?