Credit for Poor Women: Debt or Empowerment?

By Smitha Radhakrishnan

You have heard the story. A poor woman in a rural village is trying to support her four kids with the meager income that her drunkard husband deigns to give her. She is then offered a group loan, without collateral, for a small amount of money that allows her to buy a cow. She tends to the cow and sells the milk, and eventually, starts to earn a bit more money. She pays back her loan and then takes another. Before long, she owns a herd of cows, her children are educated, and her husband has given up drinking to become her business partner. This is the motivating story of the $115 billion global microfinance industry, popularized for years by everyone from the Nike Foundation to the Harvard Business Review.

Now, this story may well have been possible in some places in the world at some point in recent history. But today, microfinance has become a profitable industry that provides financial products to the poor that are too expensive for the rich. At interest rates typically ranging from 22%-90% per year, profitable microfinance companies around the world now consider themselves providers of “financial inclusion,” and not women’s empowerment, poverty alleviation, or even enterprise development. This “mission shift” comes as a result of significant criticism from academics, social activists, and even microfinance practitioners around the world, and a significant crisis in India. Critics have noted that microfinance can push vulnerable families into debt spirals, that microfinance has been associated with suicides due to overly aggressive collection practices, and that for-profit microfinance especially caters to the better off working classes rather than the poorest. In contrast, however, recent research in West Bengal, India supports the idea that some forms of microfinance may provide women with the potential for collective social action.

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Borrowers engage in entrepreneurial training activity, Coimbatore.

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