By Simone du Toit, journalist for Pharma in Focus
Most would agree that empowering women is a good idea, but increasingly it's shown to be a smart investment as well.
According to a recent Time Magazine article, when women do earn an income they reinvest 90% of it in their families, whereas men invest around 30-40%. Former chief economist at the World Bank Larry Summers once wrote that “Investment in girls' education may well be the highest-return investment available in the developing world," yet less than 2¢ of every development dollar goes to girls.
Roughly nine of 10 youth programs are aimed at boys, more than 70% of people who live below the poverty line are women and 60% of the world’s chronically hungry people are female, according to World Food Program statistics. Also, women are traditionally more likely to be denied a loan by a bank and often face high levels of financial discrimination.
One problem for impoverished women is that banks are designed to service those who already have money. They make more money on a large loan than a small one and savings accounts containing meagre funds are not highly sought after. CGAP, an independent policy and research centre developed to advance financial access for the world's poor, says the less fortunate have few options:
"Credit is available from informal commercial and non-commercial money-lenders but usually at a very high cost to borrowers. Savings services are available through a variety of informal relationships like savings clubs, rotating savings and credit associations, and mutual insurance societies that have a tendency to be erratic and insecure."
So what’s the solution?
One proposed by well known Nobel Peace Prize recipient Professor Muhammad Yunus, during his tenure at Chittagong University in the 1970s, is microfinance. Yunus began by experimenting with small loans to poor women in a small Bangladesh village and went on to establish Grameen Bank in 1983. Its success is widely credited for stimulating the establishment of similar institutions around the world. (It should be noted that Yunus himself is currently facing some serious legal allegations discussed here and here, and in fact as we go to print, he has just been removed as Managing Director of Grameen Bank).
Microfinance (further information here) is a general term describing financial services to low-income individuals, or to those who do not have access to typical banking services. Is has also emerged as a highly effective tool for empowering women. According to Kiva, a micro-lending website for the working poor, many qualitative and quantitative studies have shown access to financial services improves the status of women within the family and community, while violence against women was reported as declining.
“Women have become more assertive and confident. In regions where women's mobility is strictly regulated, women have become more visible and are better able to negotiate the public sphere. “Women own assets, including land and housing, and play a stronger role in decision making,”.
The private sector has pushed this idea one step further with innovative skincare brand Dermalogica pledging to extend microloans to 24,000 women worldwide though its 'Financial Independence Through Entrepreneurship' (FITE) program. Developed with Kiva, the program targets low-income women in the US and in 56 other countries. The skincare company provided a $500,000 grant to develop the campaign and contributes US$1 every time a consumer goes to joinFITE.org and enters a code printed on FITE-themed packaging that the company is using for five of its best-selling products. Customers are also able to lend between $25 and the entire amount of the loan if they choose, and can even team up with celebrity endorsers.
Dermalogica founder Jane Wurwand explains:
“This initiative is designed to help marginalised women in the belief that women’s financial independence is a key step in creating a healthy world economy. From the beginning of our business, we’ve been an active part in helping women get their start. And now we’re extending the concept beyond our own industry".
One woman applying for a loan is 41-year-old Mongolian merchant, Erdenechimeg Dorjsuren. She lives in a traditional Mongolian tent with her husband, a taxi driver using his own car, and her two sons, one at university and the other at school. She is applying for a 1,500,000 MNT (just under $2000) loan to buy winter products to sell to her customers. Another, 23-year-old Sophea Chum lives with her husband and daughter on an island in the Mekong River in Cambodia. Mrs Chum has been a silk weaver for five years and will be using her loan to expand her business.
Kiva agrees that microfinance is not the sole solution to ending poverty, explaining that for microcredit to be appropriate, clients must have the capacity to repay the loan under the terms by which it is provided.
Microfinance becomes a challenge in geographically dispersed or nomadic populations and in those with a high incidence of debilitating illnesses, such as HIV/AIDs. Dependence on a single economic activity or single agricultural crop, or reliance on barter rather than cash transactions can pose problems, as can the presence of hyperinflation, or an absence of law and order in a community.
In an article published last month in Inter Press Service, author Kanya D'Almeida argues microcredit does not always equal emancipation. She sites Bangladesh and Bolivia as two countries widely recognised for having successful microcredit programmes, yet they remain two of the poorest countries in the world.
Another criticism voiced by Indian development journalist Palagummi Sainath is that the interest rates micro-indebted women are paying in India are far higher than commercial bank lending rates. Kiva admits that interest rates are high in order to return the cost of the small loan and that costs include the money a financial institution lends, the cost of loan defaults, which are proportional to the amount lent, and the transactional cost. Kiva says that the transaction cost of the $500 loan does not differ much from the transaction cost of the $100 loan and in both cases costs must be recovered, making the interest on the smaller loan proportionately larger.
Even with its limitations, microcredit is one way to involve the private sector in development, foster entrepreneurship in developing countries, and lift-up the impoverished without relying on, often volatile and uncertain (see here), foreign aid grants doled out by donor countries.
Image by Flickr user petit zozio.