synopsis on microfinance

ANNEXURE I :


Introduction

Microfinance is often considered one of the most effective and flexible strategies in the fight against global poverty. It is sustainable and can be implemented on the massive scale necessary to respond to the urgent needs of those living on less than $1 a day, the World’s poorest.
The last twenty years have shown that microfinance is a proven development tool capable of providing vast numbers of the poor, particularly women, with sustainable financial services to support their livelihoods. The 2005 State of the Micro credit Summit Campaign reports that microfinance institutions reached over ninety-two million clients and benefited 333 million family members.
The success of microfinance represents a paradigm shift in the development industry: poor people are no longer recipients of charity, but customers to be served. Women make up approximately eighty-three percent, or sixty-six million, of reported microfinance clients. They not only make good clients — women have proven better at paying on time than men — but are also key drivers of development. Investing in women, literally, has proven the most effective way to increase individual family expenditures on health and education, improve nutrition and food security, protect against emergencies, and begin the slow process of tackling the gender inequalities that hinder development in so many countries around the world.
Funding for micro-finance programs is set to increase further in the years to come, also with the intention to promote gender policies. The access to micro-finance services (credit, savings, insurance and pensions) is still highly unequal between men and women. Considerable advances were made in the 1990s in the design of NGO-managed programs and poverty-targeted banks to increase women’s access to small loans and savings facilities.
Microfinance is being promoted as a key poverty alleviation strategy to enable poor women and men to cope with the adverse economic and social impacts of structural adjustment policies and globalization.






Annexure II:

Literature Review


What Is Microfinance?
Microfinance, according to Otero (1999, p.8) is “the provision of financial services to low-income poor and very poor self-employed people”. These financial services according to Ledgerwood (1999) generally include savings and credit but can also include other financial services such as insurance and
Payment services. Schreiner and Colombet (2001, p.339) define microfinance as “the attempt to improve access to small deposits and small loans for poor households neglected by banks.”
Therefore, microfinance involves the provision of financial services such as savings, loans and insurance to poor people living in both urban and rural settings who are unable to obtain such services from the formal financial sector.
1. Microfinance and micro credit
In the literature, the terms micro credit and microfinance are often used interchangeably, but it is important to highlight the difference between them because both terms are often confused. Sinha (1998, p.2) states “micro credit refers to small loans, whereas microfinance is appropriate where NGOs
and MFIs1 supplement the loans with other financial services (savings, insurance, etc)”. Therefore micro credit is a component of microfinance in that it involves providing credit to the poor, but microfinance also involves additional non-credit financial services such as savings, insurance, pensions
and payment services (Okiocredit, 2005).

2. The History of Microfinance
Micro credit and microfinance are relatively new terms in the field of development, first coming to prominence in the 1970s, according to Robinson (2001) and Otero (1999). Prior to then, from the 1950s through to the 1970s, the provision of financial services by donors or governments was mainly in the form of subsidized rural credit programs. These often resulted in high loan defaults, high lose and an inability to reach poor rural households (Robinson, 2001). Robinson states that the 1980s represented a turning point in the history of microfinance in that MFIs such as Grameen Bank and BRI2 began to show that they could provide small loans and savings services profitably on a large scale. They received no continuing subsidies, were commercially funded and fully sustainable, and could attain wide outreach to clients (Robinson, 2001). It was also at this time that the term “micro credit” came to prominence in development (MIX3, 2005). The difference between micro credit and the subsidized rural credit programs of the 1950s and 1960s was that micro credit insisted on repayment, on charging interest rates that covered the cost of credit delivery and by focusing on clients who were dependent on the informal sector for credit (ibid.). It was now clear for the first time that micro credit could provide large-scale outreach profitably.
The importance of microfinance in the field of development was reinforced with the launch of the Micro credit Summit in 1997. The Summit aims to reach 175 million of the world’s poorest families, especially the women of those families, with credit for the self-employed and other financial and business services, by the end of 20154 (Micro credit Summit, 2005).

3. Women In Micro Finance
In developing countries, women play a pivotal role as risk managers and drivers of development, particularly in settings of severe poverty. Microfinance programs have enabled thousands of women to use small sums in creative and successful ways to develop livelihoods, improve their families’ well-being, and build up savings. However, microfinance has proven limited in its ability to really empower women, create upward mobility, and contribute to long-term economic growth. More is needed if we are to help the poor, especially women, move beyond subsistence-level, small income generating activities to become full social and economic participants in their country.

There are four basic views on the link between micro-finance and women's empowerment:

• There are those who stress the positive evidence and are essentially optimistic about the possibility of sustainable micro-finance programs world-wide empowering women;
• Another school of thought recognizes the limitations to empowerment, but explains those with poor program design;
• Others recognize the limitations of micro-finance for promoting empowerment, but see it as a key ingredient as important in themselves within a strategy to alleviate poverty; empowerment in this view needs to be addressed by other means;
• Then there are those who see micro-finance programs as a waste of resources.

4. Women’s empowerment and micro-finance: contrasting paradigms
From the early 1970s, women’s movements in a number of countries identified credit as a major constraint on women’s ability to earn an income and became increasingly interested in the degree to which poverty-focused credit programs and credit cooperatives were actually being used by women. SEWA in India, for example, set up credit programs as part of a multi- pronged strategy for an organization of informal sector women workers. Since the 1970s, many women’s organizations world-wide have included credit and savings, both as a way of increasing women’s incomes and to bring women together to address wider gender issues. In the 1990s, a
combination of evidence of high female repayment rates and the rising influence of gender lobbies within donor agencies and NGOs led to increasing emphasis on targeting women in micro-finance programs.


Annexure III:
Importance of Proposed Research

All over the world, the significant of women entry into the workforce over the past three decades has produced profound transformations in then organization of families, society, the economy, and urban life. Since the late 1950s, women's economic activities have been steadily increasing.
Women have always actively participated in their local economies. In Africa, for example, women produce 80 percent of the food and in Asia 60 percent and in Latin America 40 percent. In many cases, women not only produce the food but market it as well, which gives them a well-developed knowledge of local markets and customers.
Considering the entrepreneurial environment, women's activities are very interesting as they offer a great source of knowledge and innovation. For example: there is no single type of female micro-entrepreneur, they differ in social background, educational level, experience and age. Another interesting factor is their strong social coherence that allows them to maintain strong communications-channels at all levels.
One important element, and perhaps the only characteristic that men will never have, is the possibility to transfer "motherhood skills" to job. These include fostering of other people's development through guiding, monitoring, and sharing information. Women are experienced in balancing claims, in organizing and pacing, and in handling difficulties.
In general terms, female-led micro enterprises tend to be associated with activities that provide part-time employment. They are small in size and have loose, informal structures, require very little start-up capital, and little or no formal education. On the other hand, many women entrepreneurs in the developing world remain illiterate and live in poor rural communities.
Businesswomen in developing and countries share the following general characteristics:
• They are concentrated in market sectors that have low barriers to entry and low levels of outside communication (transfer to other markets).
• They focus on trade, services, and light manufacturing activities.
• Their businesses are smaller than others, employing less than five employees.
• The owners have relatively little previous working experience.
• They use traditional technologies.
• Most employees are family-related
• They are often home based.
• Business growth strategies are affected by household responsibilities.
• Owners tend to have lower levels of education and literacy.
• Women start their enterprises with less professional work experience and knowledge of their sector than their male counterparts.


Promoting Children's Education
One of the first things poor people all over the world do with new income from micro enterprise is invest in their children's education. Studies show that children of microfinance clients are more likely to go to school and stay in school longer. Student drop-out rates are much lower in microfinance client households. To support this priority, many microfinance programs are developing new credit and savings products specifically tailored to school expenses. There have been a few studies on microfinance and its impact on schooling.

Improving Health Outcomes for Women and Children
Illness is generally the most important crisis for poor families. Deaths in the family, taking time off from work when sick, and health-care related expenses can deplete incomes and savings. They can lead to selling assets and indebtedness. For microfinance clients, illness is often the main reason for failure to repay loans. Households of microfinance clients appear to have better nutrition, health practices, and health outcomes than comparable non-client households. Larger and more stable incomes generally lead to better nutrition, living conditions, and preventive health care. Increased earnings and financial management options also allow clients to treat health problems promptly rather than waiting for conditions to deteriorate.
Along with financial services, some microfinance institutions also provide health education, usually in the form of short, simple preventive care messages on immunization, safe drinking water, and pre-natal and post-natal care. Some programs provide credit products for water, sanitation, and housing. A growing number of microfinance institutions have forged partnerships with insurance providers to offer health insurance to clients.
The specific evidence on health outcomes for women and children in program households, though sparse, does point to a strong positive impact.

Empowering Women
Microfinance programs have generally targeted women as clients. Women often prove to be more financially responsible with better repayment performance than men. Also it has been shown that women are more likely than men to invest increased income in the household and family wellbeing.
Perhaps most importantly, access to financial services can empower women to become more confident, more assertive, more likely to participate in family and community decisions, and better able to confront systemic gender inequities. But such empowerment is by no means automatic-gender-related issues are complex. Appropriate program design can have a strong, positive effect on women's empowerment, resulting in women owning more assets, having a more active role in family decisions, and increasing investment in family welfare.


Annexure IV:

Research Methodology


Annexure V:

Data Analysis Methodology
It will be qualitative research, yet to finalize though.

Annexure VI:

Expected Contribution of Research
Women clients who have become business leaders are more exceptions to the rule than the norm. However, they can help make a business case for paying more attention to the full package of business development, support networks and financial services that women need to help them move up. If MFIs and banks are able to think about women as emerging market opportunities, and market research as well as impact data could be designed with an end outcome on products and services specifically designed for women, we may see a significant improvement in client retention and risk reduction, not to mention fulfillment of social performance. Ultimately, empowering women requires fundamental changes within each country context. It necessitates more direct policy instruments that can replace the rules sustaining gender inequality and establish incentives that will improve access to and quality of education as well as offer opportunities for professional advancement. Fundamental change such as this does not happen easily or quickly; at least in the near term, however, microfinance offers one platform for change. Whereas the last decade has seen a move away from the multi-sectoral development approaches of the 1980s, and towards microfinance as a separate activity to better track costs and measure sustainability, it may be time for a modified version of integrated service delivery to make a comeback. Armed with better market research methods and simplified, practical impact information that feeds back into developing better products and services, we will realize that the key to improved service delivery is what we knew from the beginning: Know your customer


Annexure VII:

Short Comings and Limitations
Evidence suggests that, even in financially successful microfinance programs, actual contribution to empowerment is often limited:

• Most women remain confined to a narrow range of female low-income activities.

• Many women have limited control over income and/or what little income they earn may substitute for former male household contributions, as men retain more of their earnings for their own use.

• Women often have greater workloads combining both production and reproductive tasks.

• Women’s expenditure decisions may continue to prioritize men and male children, while daughters or daughters-in-law bear the brunt of unpaid domestic work.

• Where women actively press for change, this may increase tensions in the household and the incidence of domestic violence.

• Women remain marginalized in local and national level political processes.

This is not just a question of lack of impact, but may also be a process of disempowerment:

• Credit is also debt. Savings and loan interest or insurance payments divert resources which might otherwise go towards necessary consumption or investment.

• Putting the responsibility for savings and credit on women may absolve men of responsibility for the household.

• Where group meetings focus only on savings and credit, this uses up women’s precious work and leisure time, cutting program costs but not necessarily benefiting women.

• Repayment pressures may increase tensions between women and/or lead to the exclusion of the most disadvantaged women who may then be further disadvantaged in markets and communities. Impacts are therefore very complex. Women themselves are not passive victims, but active participants using opportunities as best they can in the context of the many constraints of gender inequality and poverty. There may be trade-offs for individual women because of reinforcing and conflicting opportunities and constraints. At both household and community level different women may be affected in different ways
• Lack of knowledge of the market and potential profitability, thus making the choice of business difficult.
• Inadequate bookkeeping.
• Employment of too many relatives which increases social pressure to share benefits.
• Setting prices arbitrarily.
• Lack of capital.
• High interest rates.
• Inventory and inflation accounting is never undertaken.
• Credit policies that can gradually ruin their business (many customers cannot pay cash; on the other hand, suppliers are very harsh towards women).




Bibliography
Barnes, Carolyn. Microfinance Program Clients and Impact: An Assessment of Zambuko
Trust, Zimbabwe. USAID-AIMS Paper. Washington, D.C.: 2001.
Barnes, Caroline, Gary Gaile, and Richard Kimbombo. Impact of Three Microfinance
Programs in Uganda. USAID-AIMS Paper. Washington, D.C.: Management of Systems
International, 2001.
Chen, Martha A., and Donald Snodgrass. Managing Resources, Activities, and Risk in
Urban India: The Impact of SEWA Bank. Washington, D.C.: AIMS, 2001.
Cheston, Susy, and Lisa Kuhn. Empowering Women through Microfinance. New York:
UNIFEM, 2002.
Berger, M. 1995, ‘Key issues in women’s access to and use of credit in the micro- and small-scale sector’, in L. Dignard and J. Have, Women in micro- and small-scale enterprise development, IT Publications London.
Downing, J. 1990, Gender and the growth dynamics of microenterprise, Development Alternatives Inc., Washington, DC. Mayoux, L. 1998a, ‘Microfinance programmes and women’s empowerment: Approaches, evidence and ways forward’, Discussion Paper, Open University, Milton Keynes.
Mayoux, L. 1998b, ‘Participatory programme learning for women’s empowerment: negotiating complexity, conflict and change’, IDS Bulletin, 29(4).
Mayoux, L. 1999, ‘Questioning virtuous spirals: Microfinance and women’s empowerment in Africa’, Journal of International Development, December.
Mayoux, L. 2000, ‘Microfinance and the empowerment of women: A review of the key issues’, Social Finance Unit Working Paper, 23, ILO, Geneva.
Small Enterprise Development, An International Journal Vol 9 No.3, September 98, 1998,72p.
Balancing the double day: Women as managers of microenterprises, Eliana Restrepo Chebair y Rebecca Reichmann, ACCION Internacional, Monograph Series No.10, Colombia, 1995, 84p.
Women in Micro-and Small-scale enterprise Development, Louise Dignard and Josй Havet, IT Publications, USA, 1995, 282p.
Women entrepreneurs, catalysts for transformation, Diane Chamberlin Starcher, Leith Editorial Services, Great Britain, 1996, 30p.