Just another bank loan?
“In the 1970s, when I began working here on what would eventually be called “microcredit,” one of my goals was to eliminate the presence of loan sharks who grow rich by preying on the poor. At that time, I never imagined that one day microcredit would give rise to its own breed of loan sharks.” Muhammad Yunus (2011, p.A23)
Since the inception of microfinancing (or micro loans), a term coined by the Nobel Prize winning economist Muhammad Yunus, it was considered to be a conceptthat helps the financially marginalised by providing them with the necessary capital to start a business and work toward financial independence (Hickle 2015). He began experimenting with lending to poor women in the village of Jobra, Bangladesh, during his tenure as a professor of economics at Chittagong University, in the 1970s. In 2006, he won the Nobel Peace prize for pioneering the concepts of microfinance and establishing the Grameen Bank in 1983.
The lack of start-up capital and raising finances to sustain the enterprise being one of top reasons for small business failure (Cautero and Rasre 2021) and in principle, microfinancing acts as that important lifeline for many small to medium enterprise (SME) owners. The impact of microfinancing loans have been felt more in south Asian countries than others and women in particular have been attracted to this “bottom of the pyramid” development strategy due to the utopian idea of the transformational and the empowering power of the micro-loan (Hickle 2015). What makes it different to other business loans ? These loans are significant because they are given out even though the borrower has no collateral - by holding groups of women responsible for each other’s loans. However, the interest rates for these microloans are often very high due to the risk of default. Here lies the trap. Significant research has been carried out in the past decade about the predatory nature if microfinancing and trapping individuals in a cycle of debt and despair often leading to economic destituteness, mental health issues and sadly even suicide (Kadiragamar & Kadiragamar 2019; Raccanello 2019; Daily Mirror 2021) In Sri Lanka, most of the low-income individuals lack access to basic financial services (CBSL 2018). Hence, the challenge of providing financial services to them still remains. Increased access to finance among the low-income population would contribute towards income generation activities, and thereby improve savings habits as well as their living standards. Further, “the microfinance services help people fight poverty on their own terms, in a sustainable way” (CGAP, 2006), at least in principle. Therefore, microfinance is promoted as a powerful instrument for the poor, in the form of financial services directed specifically towards poverty reduction, enabling the poor to build assets, increase their income, and reduce their vulnerability to economic stress. As a result, the poor can improve their living conditions, while taking an active role in economic activities (CBSL 2018).
Why target women?
Commercial banks often focus on men and formal businesses, neglecting the women who make up a large and growing segment of the informal economy. Microfinance on the other hand often targets women, in some cases exclusively. Female clients represent 85% of the poorest microfinance clients reached. Therefore, targeting women borrowers makes sense from a public policy standpoint. The business case for focusing on female clients is substantial, as women clients register higher repayment rates. They also contribute larger portions of their income to household consumption than their male counterparts. There is thus a strong business and public policy case for targeting female borrowers. Statistics from South Africa shows at 94% of the microfinancing market is women and since 70 % of the world’s poor are women it isn’t hard to understand the corelation in these numbers. An increase in the proportion of women accessing microfinance services by just 15% could potentially reduce gender inequality, as measured by the Gender Inequality Index (2013), by half in the average developing nation.
According to the International Labour Office (ILO) microcredit also plays a critical role in women empowerment, helps deliver newfound respect, independence, and participation for women in their communities and in their households.
Thousands of innocent villagers, especially in the Northern, Eastern, and North Central Provinces are holding protests to raise a collective cry against the longstanding issues related to the microfinance debt trap that had claimed the lives of three women within the first three months of this year. Committee of Abolition of Illegitimate Debt – Sri Lanka
However, the microfinance victims who have been terribly affected by the debt trap and were also overwhelmed with economic and social issues in mostly rural areas of the country, and a series of protests and ‘satyagraha’ were organised during the first quarter of 2021. As pointed out by the protesters, more than 2.4 million Sri Lankan women who are unable to repay their loans due to high interest rates, have been subjected to various forms of physical and mental abuse, including insults from finance companies and debt collectors and in some cases demanding sexual favours to cover the default payments.