This blog post continues a series of excerpts from a conversation between Jonathan Morduch and Marc Labie, published in Mondes en Développement.
In this excerpt Morduch and Labie take a look back at two of the original goals of the microfinance movement—empowering women, and bolstering rural development—and discuss the evidence on how well interventions have achieved those aims.
ML: An aspect that contributed originally a lot to the attention devoted to microfinance was the role it was supposed to play in the empowerment of women. Microfinance was supposed to help women who were themselves supposed to be not only poorer but also more socially and financially responsible than men. Besides, many microfinance organizations were created by women (let’s remember for instance the founders of FIE in Bolivia, of SEWA in India or those of the Women World Banking network worldwide). 50 years later, doubts have emerged on the social performance of microfinance and many organizations originally created by women are now run by men. Do you think that microfinance has a contribution to provide to a world where women and men would be treated in a more equal way? And if so, how?
JM: One of the ironies of microfinance is that it aims for the empowerment of women, yet microfinance also succeeds in part because female customers are often disempowered, with limited options for access to capital. Thus, poor women, especially, have strong incentives to repay loans at all costs, helping to maintain high loan repayment rates; in that sense the disempowerment of women has contributed to the viability of microfinance.
This irony does not mean that microfinance is unhelpful to women, but it points to complexities in understanding gender in microfinance. Recent work by researchers affiliated with CERMi shows, for example, that microfinance lending in India can reinforce gendered burdens to manage household budgets, rather than undoing those roles (Guérin et al., 2020).
As SEWA’s Ela Bhatt demonstrated, having a gender lens is not just about the genders and commitments of the top leadership but also about the structure of incentives and the genders and commitments of loan officers and other employees (Périlleux, Szafarz, 2015). Creating fairer labor markets— access to good jobs at good wages—is likely more important for most women, but creating fairer capital markets remains critical too.
ML: Many international institutions and local governments would like microfinance organizations to support the development of rural and agricultural communities which are often much poorer than urban areas. But microfinance works particularly well for income generating activities that combine high return and short-term cash flow cycle, which are not the prime characteristics of agriculture. Isn’t there a contradiction there? And what could microfinance and financial inclusion do in the future for poor rural areas?
JM: Is it a contradiction? I never saw it that way, but it is an interesting strategic question. Yunus took a step that was not at all obvious but which turned out to be pivotal for the success of microfinance. That step was to focus on rural communities, but not on agriculture. Yunus knew that agriculture is risky because revenues depend on seasonal fluctuations of weather and prices. Public banks had for decades failed to manage the risks. Farmers are also a powerful political bloc, which creates its own challenges. So, from the start, microfinance instead focused on other kinds of rural activities, like small-scale manufacturing, small shops, and other businesses, which are less seasonal and less sensitive politically. The early pioneers showed that this strategy could work – and that it was a better way to reach women as well.
Is it more valuable to try to do one narrow thing reliably and efficiently? Or is it better to attempt to meet a wider set of needs against the odds? Early in my career I would have definitely said the latter, but now I appreciate the former. I hope that’s not a sign of waning idealism.
My sense is that the success of microfinance comes from tackling narrow problems, not from trying (and perhaps failing) to tackle larger problems like transforming agriculture. In the same way, the earliest microfinance pioneers did not try to add technical training or marketing services alongside capital. From the perspective of economic development, that’s a surprising choice. But, from the perspective of trying to deliver capital services in risky environments, the narrow strategy was very deliberate in hyper-focusing on streamlining costs and processes.
Is it more valuable to try to do one narrow thing reliably and efficiently? Or is it better to attempt to meet a wider set of needs against the odds? Early in my career I would have definitely said the latter, but now I appreciate the former. I hope that’s not a sign of waning idealism.
What more can microfinance do for poor rural areas? For one, I think it can provide finance to a broader range of workers, who may or may not run businesses. And it could do more to connect urban migrants back to their extended families in rural areas. (footnote1)
–
Read parts 1 and 2 of the series, on how the birth and evolution of microfinance were shaped by broader currents in anti-poverty thinking, and on microfinance buzzwords. The full article, “A dialogue on the future of microfinance and international development,” published in Mondes en Développement is available here (with access through NYU or another academic institution), or in an ungated draft version here.
Footnote1: One idea on finance and rural-urban connectivity is in Lee et al., 2021.