Show her the money

When it comes to providing individual loans to fight poverty, microfinance institutions often prioritize women. Not only are

they better bets for repaying the loans, but they also help others in their community. Andrea Booth reports.

When 2006 Nobel Peace Laureate Muhammad Yunus lent US$17 of his own money to a woman struggling to survive in Bangladesh back in 1974, he discovered that this small loan helped pull her out of poverty. Microfinance institutions (MFIs) have not looked back since.

Nine years later, Yunus formed the Grameen Bank. Initially an action-research project, it developed a credit delivery system to provide banking services to people, especially women, living in poverty. In 1997, the NGO Grameen Foundation was established by friends of the Grameen Bank, where Yunus still serves as a director, to help microfinance organizations’ work prosper.

Some of the foundation’s most notable work involving women began in the wake of the December 2004 tsunami in Aceh. With funding from the American Red Cross, it partnered with a microfinance organization lending to women, Koperasi Mitra Dhu’afa, or KOMIDA.

Providing support to Indonesian-owned and managed microfinance institutions, the focus on women as loan recipients is not by default.

Grameen Foundation program officer Erin Connor says the foundation works with MFIs with female clients for a number of reasons.

“The purpose of microfinance is to provide financial services to people who are excluded from formal financial services and are most vulnerable,” she says. “The vast majority of these people are women.”

The foundation has documents showing how lending to women often has far-reaching effects on communities in poverty. Connor says the microfinance industry focuses on women because they have a greater tendency to distribute the money and benefits from their business to the whole family and beyond.

Magdalena, a cook, caterer and mother of six in Aceh, was only earning $2 a day after the tsunami hit. She received her first $200 loan from KOMIDA, which she used to purchase the resources she needed to start a business delivering cooked meals.

Her customer base soon grew to include students at boarding schools. She then took out another $200 loan to expand the family business, getting her children to help her prepare and deliver the meals.

“I want my children to get into business early,” she says.

Magdalena now also buys phone vouchers for her children to sell at school.

“Microcredit is especially beneficial to women because they tend to spend more income on their households, improving the living situation for the family, especially the children,” Connor says.

She adds that lending to women increases their confidence, resulting in greater productivity.

A study conducted in 1996 found that among Grameen Bank and Bangladesh-based NGO BRAC clients, each year of membership increased the likelihood of a female client being empowered by 16 percent.

“Even non-members were more than twice as likely to be empowered simply by virtue of living in the villages Grameen worked in,” Connor says.

A recent study conducted by a Grameen partner, the Kashf Foundation in Pakistan, also found that 82 percent of its clients had noted a positive change in self-esteem after signing on.

“Through access to microfinance services, the prestige and responsibility of earning a greater proportion of the family income also tends to elevate a woman’s position in her home and community, leading to greater self-confidence, independent decision-making and empowerment to help make a difference,” Connor says.

A further benefit, she goes on, is that using a group-lending system creates social cohesion among women in the group.

“Weekly group meetings serve as a forum where women can openly discuss the problems they face in their business and family life,” she says. “Women often form strong bonds and create a social network that empowers them to assert themselves and recognize their self-worth.”

Sandra Hamid, senior program director of the Asia Foundation Indonesia, says her group has found many of the same benefits in empowering women. The NGO supports programs to improve economic development, among others, in Asia, and Sandra believes that boosting women’s confidence strengthens communities living in poverty.

“When you provide women with opportunities, you help create gender equality, which empowers women and improves their ability to meet their families’ financial needs,” she says.

The Rebuild Aceh Forum (FBA) is another microfinance institution that believes women have the potential to make a difference in Indonesia.

“Lending to women has a huge impact,” says FBA chairman Azwar Hasan. “Women have a strong, silent power in creating social values in the community, particularly within the immediate family.”

Just as with KOMIDA’s loan client Magdalena, who enlisted her children in her catering and phone-voucher business, Azwar says mothers play a significant role in their children’s lives.

“We must increase women’s capacity by providing them with better access to capital, because by increasing their income, their families benefit,” he says.

“Women help form their children’s values, our future generation, because of the powerful bond between mother and child. We can create a better future through our children.”

Azwar says another benefit of lending to women is their tendency to repay on time.

“In 2009, 100 percent of our female microfinance clients paid back their loans on time, and we believe this trend will continue.”

He also points out women are less likely to spend the money on themselves as men tend to, such as to buy cigarettes.

“Women are also generally more patient and cooperative,” he adds.

But while women have long been recognized as reputed clients of microfinance loans, some institutions working to fight poverty in Indonesia believe there are more elements to consider to ensure that microfinance is effective.

“Women are assets in addressing the poverty problem through microfinance – they’re reliable and spread the positive effects across their community,” says Mercy Corps country director Sean Granville-Ross.

“There are many other factors, however, that need to be addressed to eradicate poverty through this medium.”

He adds the international perception of microfinance in Indonesia must shift.

“Internationally, Indonesia is recognized as having a strong microfinance system with 50,000 registered microfinance institutions,” he says.

“But the reality is that not all are effective and there are more issues that prevent the MFI industry in Indonesia achieving its objective.”

Granville-Ross says that while finance is available, better education must be implemented to provide clients with business skills to ensure that resources are utilized effectively.

“The infrastructure exists, so it’s a matter of growing knowledge to increase productivity, which is harder than it seems,” he says.

He also says that because microfinance clients are categorized as a “super-risk group”, Indonesia must boost banks’ trust in them. Additionally, there is the issue of 80 percent of Indonesia’s 700,000 migrant workers being women.

“This causes problems because when women leave their families, familial discord occurs, breaking the important bonds with the children and damaging support,” Granville-Ross says.

He adds Mercy Corps is currently engaged with providing links between MFIs and migrant workers.

He argues microfinance is only a small part of the broader scheme of poverty eradication in Indonesia.

“The most important question is how we address the problem of poverty. And there are many aspects to consider to achieve that.”

Building agricultural services, governance and urban planning, and boosting public involvement and healthcare are among the initiatives Granville-Ross believes need further attention in the fight against poverty.

“There are 120 million people in Indonesia living on less than $2 a day,” he says. “Microfinance is important, and certainly women play an important role, but it’s only a small part of the mammoth task to end poverty in Indonesia.”

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