Confronting the Evidence on Microcredit and Freedom

Chapter 7 of my book analyzes the impacts microfinance through Amartya Sen's definition of "development as freedom." It focuses on credit, the financial service whose impacts on freedom are most ambiguous. Perusing the thoughtful commentary on the blog post for the chapter draft, I was struck by how most of it deals in concepts. Rich Rosenberg points to the paradox of people exercising their freedom in order to limit it, by taking loans that oblige them to future repayments. Milford Bateman says that "The global rationale for this movement is...very clearly to disempower women (and men) by making them – more fully than virtually ever before – subject to the whims of brute market forces."None of the comments directly confront the evidence at the end of the chapter draft, which consists mostly of summaries of and quotes from studies done by qualitative researchers who spent weeks or months among microborrowers. That's probably my fault. I too spend a lot of pages wrangling concepts, and put evidence at the end. You are probably too busy to read through this long draft. The post only contains the draft conclusion, in its sweeping abstractness. But on reflection, I realize that the evidence needs to be exposed. I think it founds my conclusions. It, for example, is why I came away from the chapter most doubtful about classic solidarity group lending made famous by the Grameen Bank. (Also see Why I’m Afraid to Fund Group Microcredit, the post from which this section grew.)So here is a slightly condensed version. The draft has footnotes that link to the References.Solidarity group credit[Helen Todd] found inspiring stories of women clawing their way up economically, and gaining stature within their families. She describes a particularly successful woman, Habibah, as the brains of her household. Habibah’s husband and son were exempt by virtue of their sex from the purdah restrictions that kept Habibah away from public markets. But that merely turned them into Habibah’s “hands and feet.” She instructed them on what to buy and sell and demanded a full account on their return. Habibah was also chief of her credit group, and continued to exercise power unofficially even after Grameen’s rules forced her to step down, pressing members to cover each others’ payments when necessary in order to keep the credit flowing. As noted before, the caveat for generalizing about effects of microcredit on power is that Todd chose not to study dropouts. The borrowers she followed had all been with Grameen at least 10 years, and may have been an exceptional group. Habibah for example, “must have been a strong woman even before joining Grameen Bank.” Yet even with this optimistic assessment, Todd tagged as myth the idea that credit groups fosters solidarity that led women to look after each other in times of need and fight patriarchy with joined fists. Empowerment came through economic success not alongside it:

The fundamental meaning of these two centers is not a collective one for their members. They go to the meetings and keep the discipline in order to keep open a regular line of reasonably priced credit. For the same reason, to keep their eligibility for loans, members would help others with repayment, so long as they did not ask too often, and pressure each other to follow the rules and keep the good name of the center. Their purpose is not a group purpose but an individual one, firmly rooted in self-interest and based squarely on their primary loyalty to their immediate family.”

Another qualitative researcher we met in chapter 6, Sanae Ito, arrived at a bleaker view of the empowerment link, perhaps because she did not tilt her sample like Todd, perhaps because she did not peer as effectively into households, and so dwelt more on credit group dynamics, where Todd too found less to cheer. The traditional microcredit group emerges from Ito’s writing as an assemblage in which women placed strong pressure on one another when necessary while Grameen employers, many of them male, presided like more or less benevolent dictators. In running the mandatory weekly meetings, the branch managers exercised discretion created by the opacity of the loan approval rules. The managers turned the screws when necessary. Ito describes

…two recent cases in which several centre members raided the houses of the members in arrears, under pressure from the branch manager. One of them was Kateja. She went into arrears when her son, who drove an auto-rickshaw in Dhaka, fell ill and could not send her remittances. Several members went to her house, took away her cow and yoked it at the front yard of the branch office as a punishment. Kateja could not stand the embarrassment for too long, She borrowed money from her brother, repaid her loan, got her cow back, and sold it immediately to pay her brother back. In Rehena’s case, her husband spent her general loan on purchasing a motor to start a rice husking business. When the motor failed to work, Rehena immediately got into repayment difficulties. The branch manager at first threatened to ask the union chairman to intervene if she did not bring her repayments up to date, a standard tactic used by the branch manager in such situations. When it did not work, he went to the centre meeting and suggested that the members should go to Rehena’s house to persuade her to repay. When members showed reluctance to do so, he reportedly declared: “All right then. All of you will pay back her loan together.” Upon hearing this, several …went to her house, and verbally threatened to take away her assets. One of the members managed to steal a torch light [flashlight] from Rehena’s house…though it was later returned through the mediation of the branch manager.

The most negative assessment I have seen of traditional Grameen group credit is that of Aminur Rahman, introduced in chapter 5, who also spent a year in a Bangladeshi village in the mid-1990s, paying attention to the connection between microcredit and violence against women in the home. He was distanced from his subjects by his gender. But he hired a full-time female assistant on the idea that she would draw out local women more easily. And compared to Todd and Ito, he was brought closer to his subjects by his native fluency in Bengali. Like Todd, Rahman found that certain members exercised more power within the credit groups: sometimes for the best, as when they arranged for one group member to lend money to another in order to cover a weekly payment; sometimes for more questionable ends such as exacting retribution in a personal dispute by blocking a loan request. Rahman’s verdict is harsh: “In the study community, many borrowers maintain their regular repayment schedules through a process of loan recycling that considerably increases the debt-liability on the individual households, increases tension and frustration among household members, produces new forms of dominance over women and increases violence in society.” A few instances convey the tenor of Rahman’s writings. On the subject of bank-worker-orchestrated peer pressure, he reported that

often there are one or two members in every loan center who, because they were unable to arrange their instalments, did not come to center meetings.…[O]ther regular members in the center are forced to sit on their bare feet on a mud floor for several hours until all instalments are collected. If the absent member is available in the village, her peers persuade her to come to the center. The appearance of the absentee…usually releases an outburst of anger toward her by fellow members and the bank worker.”

One woman, Ramena, sat through those extra hours only to return home to a beating from a husband furious at having to wait so long for his breakfast. The husband had invested her loan in a brown sugar business that was not earning enough to cover the interest, which no doubt added to his stress. In another case, a woman named Yuri had her husband get a two-week moneylender loan to bridge her from one Grameen loan, nearly repaid, to the next. But the center chief, a fellow borrower, blocked her request for the new Grameen loan. The reason? Yuri refused to pass part of her new loan to the chief’s mother. Again the result was a beating for the cornered wife. Toward the end of his time, Rahman surveyed 120 women in the village. All said that they experienced some violence in the home. Eight-four said they had suffered more since joining Grameen Bank while 18 reported less. Of course, the usual caveats apply: they may have tilted their answers according to what they thought Rahman and his assistant wanted to hear. Regardless of their generalizability, Rahman’s conclusions about how some women experience microcredit seem fundamental plausibility. As noted, Sen’s argument that freedom begets freedom also works in reverse: loss of freedom in one domain causes loss in another. In a society where domestic violence is endemic, when a woman loses financial freedom because of failure to stay on top of a loan, she can also lose the freedom of personal security. By the same token, though Rahman does not say this, when women like Habibah gain financially through loans, they probably also find home life more secure....Self-help groupsIn contrast, the distinctive Indian variety of collective credit, the self-help group, appears to have been designed and implemented much more deliberately to help women perceive and attack the injustices done to them. As described in chapter 4, Indian non-profit organizations organize groups of 10–20 women at a time into SHGs. They help the members save into a shared bank account and then obtain a loan from the same bank. Using government or charitable funds, many of these non-profit “promoters” also invest considerable energy in teaching members to see themselves as victims of pervasive sexism who can find power in collective action. Here’s an account from one middle-aged SHG member, related via sociologist Paromita Sanyal:

[The program director] asked us, “Say for instance, the husband earns Rs [rupees] 50 and he thinks that his wife doesn’t even earn Rs5. But that is not the case. Women too earn Rs50! But, from where? Let me see if any of you can tell me, from where?” Some of the women tried, some were incorrect, some couldn’t even think of anything. Then he explained, “Consider this, women tend to their cows, goats and hens throughout the day. How much do they earn daily doing that? Or, consider how much you’d have to pay someone if you employed the person to do all the household chores? But husbands never have to pay their wives anything! That money is extra, so that is what women earn!” But we’d never thought in that manner before, we’d never perceived it in that way. Then he said, “OK let’s take independence, men have all the freedoms. Why don’t women have any freedom? Because they can’t protest!”

In time for the U.N.-declared International Year of Microcredit, 2005, the U.N. Development Programme and a major banker to SHGs, ICICI, commissioned a book of qualitative studies of the groups. ......the chapter by Shashi Rajagopalan on an SHG promoter called Lokadrusti, which operates in one of the poorest parts of India, in the state of Orissa. Within 20 of the 146 villages in which Lokadrusti worked, Rajagopalan commendably chose 55 women at random to interview. She also held larger meetings in each of the 20 villages with representatives from all local SHGs, including some that had defaulted on their collective bank loans. Her report mixes good and bad news in a way that exhibits critical thinking. She concluded that “the women appeared to have gained very significantly in terms of mobility, self-confidence, widening of interests, access to financial services, building of own savings, competence in public affairs, and status at home and in the community.” On women’s mobility, for example:

Almost all women spoke of the widening of their world because of the SHG. They said that it was not as if they had not been out of their villages earlier. More than the geography, it was the agenda for which they now travelled [to visit a bank], and the fact that they travelled, not with family members, but with friends from other castes, that made them feel that their world had become larger.

On their collective power when supported by the SHG promoter Lokadrusti:

In one village, the local priest had felt threatened by the SHG and warned the women of tragedy befalling their children if they continued to work as an SHG, or used the community-cum-storage centre built for them by Lokadrusti. The women, despite their collective strength, felt overwhelmed, and were unwilling to challenge him. They did, however, work on him with Lokadrusti’s help, did overcome their fears, and finally began to conduct meetings inside the new centre.

But Rajagopalan’s critical eye also picked up the SHGs’ loose financial culture, which they acquired along with the loans from the government bank. One SHG member explained that:

The government has taught us to ask for [30–40,000 rupees] under various schemes. When it says that such money is available and that we should try and access it, it is too much to resist, even though we are all conscious that we will not be able to absorb such a large loan. Also, the government has given indications that it does not expect its loans back; so those of us who know the art of accessing such “loans” do get such loans, and do not think of them as repayable.

Not surprisingly, “default was not frowned upon by Lokadrusti, even though it was worried about it, as was true of many voluntary development organizations and government agencies….Most…do not have a system where a defaulter pays a price for default. Default is explained away: drought, illness, and so on.” It is easy to see how a tacit license to default would be empowering even if it sets a costly example of bringing financial services to the poor.An excellent and more comprehensive work whose conclusions resonate with this portrait from Orissa is Self Help Groups in India: A Study of the Lights and Shades by Frances Sinha....The report strikes a more positive note on the training that SHG-promoters provide. The studied promoter in Andhra Pradesh, for example, “appears to have been very successful in educating women about their rights, and raised their consciousness on dowry, desertion, domestic violence, property and other issues affecting women to their disadvantage.” The women sometimes turned those ideas into community action, if “not as frequent[ly] as might be hoped for.” The report tabulates instances in which members collectively intervened in domestic disputes, such as by confronting a wife-beating husband, or in community issues, such as by pressuring local leaders to shut down alcohol shops. An example from Andhra Pradesh:

Kamala…was married to Narayana of Pantulapally village three years ago. Kamala brought with her a sum of [50,000 rupees] as dowry. Narayana, dissatisfied with the dowry, mistreated her and asked her to return to her parental home.His parents found him another match—with a dowry deal of [Rupees 200,000] cash, a vehicle and 120 [grams] of gold. The arrangements for the wedding commenced. On the advice of the NGO…Kamala told Narayana that unless he divorced her he could not remarry and warned him that if he went ahead with his second marriage, she would lodge a police complaint. Narayana ignored her and his family continued with his wedding arrangements. On hearing this, and irked by the greed for dowry, all the SHGs of Pantulapally went on a rally to the [local government] office in Nallabelly. They staged a dharna [protest], expressed solidarity with Kamala and demanded that justice be done to her. They submitted a memorandum saying that the matter was grave and action must be taken immediately against Narayana….Narayana was arrested and imprisoned for three months. After his release, he and Kamala resumed their married life, and they now have a child.

As with Lokadrusti, the subsidized NGOs that formed the SHGs were central to organizing such actions: the actions did not generally arise spontaneously. Actually, according to the tabulation, SHGs rarely involved themselves in such domestic matters. But they did engage with community issues in 40 of the 108 villages studied. On the other hand, since studied SHGs were at least five years old on average, the total of 40 works out to roughly eight events per year in the 108 villages—and must be deflated further since Sinha’s team went out of its way to include socially active SHGs in the sample. Meanwhile, as with Lokadrusti, financial management seemed lax: “In relation to financial transactions, books and records need to be well maintained with systems in place to verify the records and as a basis for transparency with group members. This is largely not happening.” ...Individual microcreditIndividual loans, by not binding people to each other’s debts, are inherently more freeing than group loans. In her writings, Naila Kabeer, like Helen Todd, brilliantly detailed the various effects of microcredit on women in a few villages in Bangladesh. But unlike Todd, Kabeer studied a program, the government-backed Small Enterprise Development Project (SEDP), that made subsidized individual loans to women with at least half an acre of land. Classic solidarity group credit aims to minimize subsidy while serving those with less than half an acre. Thus Kabeer’s study group began taking microcredit with better prospects, then lived free of joint liability.Overall, Kabeer’s assessment is positive. Despite the landownership minimum, many of her subjects were poor by any reasonable standard, and for them access to credit could still mean a great deal. Said one:

If I had not gone to that SEDP meeting, had not taken a loan, had not learnt the work, I would not get the value I have, I would have to continue to ask my husband for every taka I needed. Once I had a headache, I wanted one taka for a bandage to tie around my head, I wept for eight days, he still would not give me the money. Just one taka.

Kabeer saw little sign that borrowers became more active politically as a result of the microcredit, but many reported gaining more power and respect in the home. The few who were married to particularly abusive husbands either gained more independence from them or established a less violent power balance with them. While Kabeer’s work is hardly free of the standard sources of potential bias, several subtle and contrarian observations give the work credibility. For one, Kabeer questions feminist authors who equate empowering women with challenging cultural and legal norms. Some women (though not all) told her that they used loans to comply with purdah. They stopped working in the fields for day wages and instead bought and raised cows near home, elevating themselves in the eyes of their neighbors. They exercised their loan-bestowed freedom in order to confine themselves. For another, Kabeer delineates how women’s experiences with individual and group credit differed:

…there was general agreement among SEDP loanees, including those who had previously borrowed from BRAC and Grameen, that there were greater stresses and strains associated with repayment of loans from poverty-oriented programs. These often spilt over into conflict, sometimes between husband and wife…sometimes between “irresponsible” loanees and other group members worried about their future creditworthiness…but most often between loanees’ families and program officers seeking to recover repayments.…The discipline built into poverty-related lending, which gave rise to the stresses remarked on by the loanees, reflected a concern with loan recovery and with long-term sustainability on the part of these programs. SEDP could afford to run a more relaxed lending regime because a concern with sustainability had not been built into program design while its loan recovery efforts were backed up by the perceived authority of a government bank. It was one of the constant ironies thrown up by the fieldwork that relatively well-off households could access loans at subsidized interest rates with greater flexibility built into their repayment schedules while all around us, poverty-focused credit organizations were lending far smaller sums of money to much poorer sections of the population at much higher interest rates with far more inflexible weekly repayment schedules. Indeed, the pressures of meeting weekly repayments was mentioned as the single most important source of the tensions generated by poverty-oriented lending.