By Adrian Requena
In 2006, Muhammad Yunus was awarded the Nobel Peace Prize for innovating the credit market. He established the first microcredit institution, Grameen Bank, for the purpose of empowering the poor and giving them an opportunity to become independent entrepreneurs. Yunus had another equally as important goal when he envisioned the revolutionary microcredit service; gender equality.
At the HUB Chamber of Commerce in Santo Domingo, Dominican Republic, Yunus addressed multiple microcredit institution and delivered the conference “Eradicating world poverty, one loan at a time”. Here, he urged the present party to note and continue integrating his principles that make microcredit such a successful venture.
Yunus seems to have noticed that lending money to women is more beneficial to the household. He argues that women are more cautious and therefor spend differently than men. We will discuss this later on in this blog. First, it is crucial to understand the inequality women face in most, if not all, developing countries.
The Reality of Women in Developing Countries
In Julie Shaffner’s “Development Economics: Theory, Empirical Research, and Policy Analysis”, she notes that the lives of women and girls in developing countries are much harder than that of men and boys. Within households, women and girls frequently consume less, work longer hours, and have generally fewer rights compared to men and boys. Shaffner continues to describe what it is like being a girl in South Asia and China, where they receive lower quality of food, are less likely to receive health care when they are sick, and have a higher mortality rate. Women work longer hours than men taking care of all the household chores and jobs needed to keep the family afloat.
This being said, they have more restrictions on their freedom and fewer rights to own property. In many developing areas women have little to no decision-making power when it comes to the finances of the household. Yunus recalls a conversation he had with a woman in India about to receive a loan. She told him, “I have not touched money in my life… how am I going to use this money if I do not know how to handle it?” There is clearly something wrong with this picture, good thing Yunus recognized the problem and decided to do something about it.
Yunus continues to address exactly what his approach towards gender equality was. Under normal circumstances, bank loans should aim at women participation levels of about 50%, likewise for men. Grameen Bank aimed at making 90% of the loans go to poor women. This goal and change of focus by a bank really made an impact and truly empowered women who previously did not have many opportunities. Looking at empirical data around the developing world, this makes a lot of sense. Women are more likely to be self-employed than men. Shaffner reports that in urban Vietnam, “more than 40% of men and more than 60% of women are self employed”. It wasn’t until later that empirical research began to show what the real outcomes of lending to women were.
Impact of Women Decision-Makers
Katherine Esty, Ph.D in social psychology and founder of Ibis Consulting Group, spoke with Yunus in 1994 and was enlightened by the notion that lending to women almost always leads to better spending in ways that help their families over time. Yunus told Esty that women are less likely to use the borrowed money to buy unnecessary goods and luxuries like men, instead, they do what is best for the family and spend money on food and health as well as goods like cows, chickens, or seeds that could be sold and profited off of in the future.
This hypothesis can also by backed up by evidence presented by Shaffner from empirical research in Brazil. Thomas (1990) found that non-labor income in the hands of women had a bigger positive impact on family health and child survival rate than said income in the hands of men. Shaffner continues to point out a study by Duflo (2003) in South Africa. They found that pension income in the hands of women had a positive impact on girls nourishment in the household, while the same could not be said for pension income in the hands of men.
Much like Yunus before, Shaffner comes to the conclusion that “channeling development program benefits to women rather than men can increase program impact on household nutrition and other investments in the human capital of children”.
Prior to Yunus’ Grameen Bank, the participation of women in financial decisions in the household were close to none, Esty points out that 98% of borrowers at commercial banks in Bangladesh were men. Apart from being unjust and wrong, this is extremely inefficient and unproductive. Looking at this from an economic stand point, having 50% of the population that work the hardest and know what is best for the household not able to access capital was completely inefficient.
In order to alleviate poverty in the developing world, Yunus realized, women must be given equal rights when it comes to borrowing and making the tough decisions in the household. Hopefully Yunus’ believes and standards remain at the core of all microcredit institutions around the world.
Pascual, Kelvin. “Yunus: prestarle a mujeres es más beneficioso para familias.” Hoy digital. N.p., 17 Mar. 2017. Web. <http://hoy.com.do/yunus-prestarle-a-mujeres-es-mas-beneficioso-para-familias/>.
Esty, Katherine. “5 Reasons Why Muhammad Yunus Focuses on Lending to Women.” Web log post. Impatient Optimist . Bill & Melinda Gates Foundation, 10 Jan. 2014. Web. <http://www.impatientoptimists.org/Posts/2014/01/5-Reasons-Why-Muhammad-Yunus-Focuses-on-Lending-to-Women#.WPaLqGTyub8>.