Since the inception of the Grameen Bank in Bangladesh (
However, the fact that microfinance institutions (MFIs) usually grant groupmicrocredits exclusively to women, may have as consequence to break social norms and consequently to have a negatively impact on social and family relationships, like marital relationship problems. Changing women’s traditional role is not easy, and it must be undertaken with care. If woman ends up with financial control of a micro-firm, this may cause a dispute with her partner (due to gender sensitivities) and isolation from her family. If this happens, an additional problem emerges in terms of who will bear the brunt of childcare, and take responsibility for the children´s education, which is a traditional woman role. With an absent father and a work absorbed mother, children might benefit from a higher family income, but other aspects of their wellbeing might be neglected.
In this study, we analyze microcredit impact on women. In particular, we are interested in answer the question: which are the advantages and disadvantages for women, involved in Grameen-model microcredit? For this purpose, we selected a 351 women sample with outstanding microcredits in the Mexican State of Jalisco state. We chose Mexico because many MFIs in Mexico are following the Grameen-model without questioning if the model is really applicable to this specific cultural context. In addition, this sector has recently experienced changes in the regulations governing MFI’s with the specific objective of facilitating the expansion of these types of organizations.
We found a significant degree of control by a women’s partner or other male family member in the decision-making process. Another interesting finding is a lack of financial culture, specifically a significant lack of awareness regarding the interest rates associated with the loans, even when they are high. Although, the sample recognized an improvement of women’s lives, due to their micro-firm’s prosperity. Additionally, we found that 23 percent of the sample use personal income to make microcredit payments. However, we found that among microcredits benefits are an improvement in child nutrition. Almost all the sample reported a regular to excellent service from the Micro Finance Institution (MFI), but half of the sample complained about the Grameen model (they prefer individual microcredits). In addition, they complained about the significant amount of time involved in weekly meetings, in waiting to make weekly payments and the travel time involved. Finally, to a lesser degree, we found some evidence of marital problems, and child carelessness.
The main contribution of this paper are the following: the literature review that contrast the dark and bright side of microcredits for women involved in the Grameenmodel microcredit, and second, contribute to the literature at this regard, with a local study for one of the more important Mexican state, in size and population, Jalisco. The rest of the paper is organized as follows: in the following section, we make a microfinance literature review. Then we present the research design and results. Finally we conclude with contributions to the literature and future research.
Microcredit is a small loan typically ranging from 100 to 1,000 dollars and its main characteristic is that is granted to the poorest. Microcredit borrowers are considered “unbankable”: they do not have steady employment, collateral or a verifiable credit history. For these reasons commercial banks do not lend them. The microcredits are granted by MFI´s. MFI´s are organizations devoted to supporting the poor through financial services, mainly lending microcredits, operating savings accounts, offering financial education and giving legal advice. This definition includes a wide range of institutions with different legal structures, missions and methodologies. Some are government development banks, others are non-governmental organizations (NGOs), credit unions or profit-maximizing shareholder banks, like Compartamos Bank, which has recently been listed on the Mexican stock exchange.
In summary, their results were consistent with the view that women's participation in a
microcredit program helped to increase female empowerment and family welfare
(see
Source: Own elavoration.
Concept
Advantage
Disadvantage
Decision
Autonomous decisions
Family /spousal abuse
Empowerment
Standing
Marital issues
Responsibility
Improved managerial skills
Overburdening
Children
Better nutrition
Child neglect/ gangs
Sentimental partner
Independence
Spousal abandonment
Social Relationships
Heightened collective consciousness
Distancing due to excessive demands for repayment
The positive side of microfinance and the benefits for MFIs have traditionally been highlighted in the literature. MFIs are supposed to help the poor through financial services. However, in the
The negative side, analyzing the problems that microfinance generates, has received less attention.
When a woman is unsuccessful in obtaining a microcredit, they may be target of domestic abuse, and if the male invests the credit badly or spends profits, all the pressure falls upon the female borrower. She is required to do other home-based activities in order to keep up the repayments.
The objectives of the women microcredit model are: to give credit directly to women, in order to improve the family´s economic situation, to organize women into groups to raise collective consciousness, to increase group responsibility for each other through weekly meetings, and to assist the MFI advisor at the meetings to promote financial education and women’s social empowerment. However,
“In April 2007, Banco Compartamos of Mexico held an initial public offering of its stock in which insiders sold 30 percent of their holdings. The sale was oversubscribed by 13 times. The bank describes them as low-income women, taking loans to support tiny enterprises like neighborhood shops or tortilla-making businesses. The loans the women seek are small; typically, hundreds of dollars rather than many thousands, and the bank requires no collateral. It is a version of “microfinance,” the idea associated with Muhammad Yunus. For Yunus, microfinance can unleash the productivity of cashstarved entrepreneurs and raise their incomes above poverty lines. It is a vision of poverty reduction that centers on self-help rather than direct income redistribution”. (
There are two credit bureaus, which serve a large share of the adult population. However, many MFIs are reluctant to report information on their clients and such reporting is not legally required, although second-tier funders make such information a condition for granting the loan.
In addition, there has been an expansion of the banking arms of major retailers, such as “Banco Azteca”, “BanCoppel” and “Banco Wal-Mart” into small-scale consumerlending over the past decade. This has raised concerns about the potential for excessive indebtedness owing to the lower rates and looser lending standards offered by these firms compared with MFIs.
Bank Compartamos is the leading MFI in the region. In 2010 it had 1,965,995 borrowers and was growing at 30 percent annually. The total amount of microcredits lent reached $9,760 million pesos ($539 million dollars).
The interest rate that Bank Compartamos charged to economically-disadvantaged borrowers in the period 2007-2010 averaged 76 percent annually. (See
aThe sample includes 51 institutions. Data on Yield on gross portfolio are available for 47 institutions; on Operating expenses/assets for 45; on Write-off ratio for 47; on Administrative expense/assets for 45. Source: Mix Market, 2010.
Year
Yield on gross portfolio (nominal)
Operating expense/ assets
Write-off ratio
Administrative expense/ assets
Compartamos
2007
0.780
0.290
0.010
0.140
2008
0.820
0.300
0.020
0.140
2009
0.730
0.260
0.030
0.100
2010
0.710
0.280
0.030
0.110
Profit-for: Mexican Average
2007
0.679
0.388
0.029
0.156
2008
0.809
0.424
0.053
0.181
2009
0.691
0.377
0.043
0.159
2010
0.715
0.376
0.039
0.151
Mexican Average
2007
0.640
0.372
0.031
0.164
2008
0.772
0.414
0.051
0.177
2009
0.656
0.362
0.040
0.151
2010
0.693
0.373
0.037
0.150
Table B.1 presents some relevant financial indicators of MFIs in Mexico. The data is for the period 2007-2010 and is classified into three categories. In the first panel is the data relating to Bank Compartamos, the biggest MFI in Mexico. In the second panel are the for-profit MFIs, and finally the third panel contains data relating to all Mexican MFI’s.
We analyzed the advantages and disadvantages of Grameen-model microcredits with a sample of 351 women in Mexico. All of the respondents in our sample were women: we decided to conduct a survey specifically with women because, following the Grameen model, most of the MFI’s in the region only lend to women. All respondents in the survey had outstanding microcredit at the time the interviews and survey were carried out. Respondents belonged to a microcredit group (minimum 12 members and maximum 20), and in addition were responsible for attending weekly meetings with an MFI advisor and making weekly payments. All the members of the group were responsible for each other. First, we conducted several personal interviews and convened two focus groups. Based on the information obtained, we designed a survey and tested it with 50 respondents: after some corrections we applied the survey to the entire group (see the entire survey in
Three hundred and fifty-one women answered the survey. We calculated the percentage over 351, with any differences due to some respondents not answering some questions.
The respondents were typically employed as domestic workers during the day and at night they ran micro-firms which for example included such occupations as setting up small food stalls on the sidewalk outside their homes or mending clothing or shoes. The MFI’s grant microcredits exclusively for investment in a micro-firm, not to supplement income or other purposes.
The majority of the micro-firms already existed before the microcredit was granted (73.8 percent) and only 19.4 percent are new ventures. The average age of the microfirms is 5.8 years, with approximately 4.1 microcredits having been granted during this time. On average, each micro-firm was awarded their initial micro-credit 2.4 years ago.
The average age of respondents was 34.3 years, 65.7 percent are married, the rest are single (9.1), divorced (3.4), widowed (2.3) or cohabiting (13.1). At the time of the survey, 74.3 percent were living with a partner. On average 1.7 family members are involved in the micro-firm and 4.9 family members are living under the same roof. All the respondents are living in the Mexican state of Jalisco, in 21 different counties, the majority of those counties are part of the metropolitan area of Guadalajara city, with the most distant being approximately 80 km. from Guadalajara city.
Of the MFI advisors responsible for granting microcredits, attending the weekly meetings and collecting microcredit payments, 58.4 percent are men, 37.0 percent are women and 4.6 percent did not respond to this question: this could have been because their advisor has recently changed.
To evaluate if the respondents are located at the base of the pyramid (BOP), we ask about their micro-firm and personal income (exclusive of the micro-firm income). See results in the following
a Exchange rate used: 18.11 Mexican pesos/US dollar. Source: Own elaboration.
Range (US dollars)
Micro-firm Income (percentage of responses)
Personal Income (percentage of responses)
0-$156
32.3
28.2
$157-$312
36.5
36.7
$313-$625
16.0
17.9
$626-$1,172
5.1
3.1
More than $1,172
0.3
1.4
We aggregated micro-firm income and personal income to locate each respondent within the equivalent level of the income pyramid. We used as references the income level pyramid (or income levels) proposed in the survey of the Mexican Association of Market Research Agencies (“Asociación Mexicana de Agencias de Investigación de Mercado y Opinión Pública A.C.” AMAI). See results in the following
Source: Asociación Mexicana de Agencias de Investigación de Mercado y Opinión Pública A.C. (2008)
Class
Descriptions
Percentage of the Mexican population
Percentage of the survey respondents
A/B
Family income per month over MXN $95,877 ($5,294 dollars) Checking account and more than 2 credit cards homes or apartments with more than three or four bedrooms, and two or three bathrooms, two or more luxury automobiles, two telephone lines, two or more television sets and one computer
7
C+
Family income per month between MXN $39,479 ($2,180 dollars) and MXN $95,876 ($5,294 dollars) One or two credit cards, homes or apartments with two or three bedrooms and one or two bathrooms, one or two cars, two telephone lines, two television sets and 20% of this segment has a computer
14
C
Family income per month between MXN $13,083 ($772 dollars) and MXN $39,478 ($2,180 dollars), Some have a credit card, homes or apartments with two bedrooms and one bathroom, one basic automobile, one telephone line, two television sets and one radio
18
2
D+
Family income per month between MXN $7,671 ($424 dollars) and MXN $13,083 ($722 dollars), no credit cards, homes or apartments with one or two bedrooms and one bathroom, no automobile, one telephone line and one radio
36
18
D
Family income per month between MXN $3,046 ($168 dollars) and MXN $7,670 ($424 dollars), No credit card, homes or apartments with one bedroom and one bathroom, no telephone, one television set and one radio
25
48
E
Family income per month under MXN $3,045 ($168 dollars), small homes, a third of which have a bathroom, but most do not have a connection to a municipal sewage system, no telephone, most have only one television set and one radio
32
Eighty percent of the respondents belong to the lowest levels D/E, 18 percent to de D+ and only 2 percent to the C level. This showed us that a majority of the respondents of the survey belong to the BOP in Mexico.
The main objective of this research is to evaluate the Advantages and disadvantages of microfinance among poor women at the BOP following the Grameen-model in Jalisco, Mexico. Results support both effects (complete results of the survey are in
The first questions focused on measuring the independence of women during the decision-making process: application for credit, utilization of credit, and finally microcredit payment. Questions then focused on the main advantages and disadvantages of the microcredit on the women’s lives. Finally, there are questions designed to evaluate other issues that appeared relevant for the respondents during the interviews and focus groups. The following
Who took the decision:
Microcredit application
Microcredit utilization
Microcredit repayment
Myself
56.7
55.6
54.7
My family
13.1
12.8
11.4
My sentimental partner
19.9
20.2
20.8
All of the above
6.6
6.6
8.3
Others
1.1
1.1
2.0
Almost half of the sample recognizes a sort of dependency or interference by the family (spouse, parents, siblings, cousins, etc.) in the decision about whether to apply for the microcredit, its use and responsibility for repayment the microcredit. The correlation between the question about who decides to apply for the microcredit and the question about who decides the use to which it is put is 0.697. The correlation between who decides to apply for the loan with responsibility for the microcredit repayment is 0.642, and finally the correlation between microcredit uses with repayment is 0.69. What we discovered was that respondents in the three steps of the microcredit process behave similarly but not identically.
The following
Advantages
Disadvantage
Micro-firm growth 81.8
Waste of time in weekly payments 17.9
Better firm management 72.6
Excess of responsibility 15.4
Better money management 39.0
Neglect of children 6.6
Micro-firm productivity 38.5
Diseases because of stress 6.3
Better organization of my payment obligations 25.9
Problems with my family 2.3
Increase of family income 24.8
Problems with my couple 3.1
Better feeding for your children 13.7
Over-debt 1.7
The relationship with group members 10.3
Others 2.8
The relationship with my family 9.4
The relationship with my couple 4.0
Better relationship with your community 2.8
Others 4.3
When asked about the main purpose of the credit, 81.8 percent respondents indicated that it was for expanding their business. Only 24.4 percent declared the purpose of the credit was to increase their family income, 13.7 percent stated better nutrition for their children, 4.0 percent stated that it was for improving the relationship with their partner, 9.4 percent wanted to use it for improving their relationship with the family, 10.3 percent wanted to use it for improving their relationship with the credit group members and 2.8 percent wanted to use it to help build a better relationship with their community in general. An additional 39.0 percent wanted to use the loan to help build their money-management skills, 38.5 percent declared that the loan would improve the productivity of their micro-firm, and 25.9 percent needed extra finance to service debt.
When asked to specify how their micro-firm had grown since receiving the credit, 22.2 percent said significant growth had been experienced, 64.7 percent described growth as regular, 4.6 said little growth had taken place and 2.0 percent reported no growth having takin place.
With regard of questions related to whether or not the credit had affected their relationship with a sentimental partner, 59.1 percent reported that it was not affected, 23.6 percent said had improved and only 1.1 percent declared that it had worsened. Seventy-two point six percent of the respondents answered that in general the credit helped them to manage their micro-firm more efficiently. Around 80 percent of the respondents reported growth in their micro-business and developing better moneymanagement skills thanks to the microcredit, and only 24 percent declared a positive income in their household income due to the microcredit. A slightly smaller proportion reported an improvement in child nutrition.
Related to the disadvantages or dark side of the microcredit, surprisingly, the main disadvantage seemed to be the amount of time involved making the microcredit payments. Payments are weekly and creditors have to make deposits with an MFI accountant; this requires the majority of respondents to make a lengthy journey (17.9 percent of respondents complained about this issue). Furthermore, respondents complained about other issues: too much responsibility (15.4), child neglect resulting from issues involving the loan (6.6), illness due to stress (6.3), problems with sentimental partners (3.1), problems with family (2.3), and problems related to the debt (1.7). The aforementioned are the most common issues raised. It is surprising that in the interviews, neither focus group members nor survey respondents complained about the high interest rates they pay (above 100 percent annually). They are not even are aware that this is a significant issue as their level of financial understanding and general educational level are very low.
Another hidden problem was that in many cases respondents could not definitively declare the source of loan repayments. A majority of the respondents (77.8 percent) said that their micro-firm itself generated funds sufficient for repayments, but the remaining respondents (24.2 percent) had to use other different sources of income to be able to meet credit obligations. For example their wages as employees or their partner’s wages. This occurred because their micro-firm could not produce annual returns above 100 percent to cover their loan payment. This particular group of respondents will ultimately experience worse economic conditions, as they are in effect working only for the MFI’s.
When questioned about the main use of the credit, 75.8 percent said their own microfirm was the beneficiary, 14.5 percent said that they had invested in their business or a family business and the rest was devoted to home improvements, household consumption, etc.
It is of particular interest that only 43.0 percent preferred a “Grameen-model” group credit instead of individual loans. In face-to-face interviews and focus groups respondents complained about the group model, indicating dissatisfaction with the requirement to take responsibility for the payments of other group members or, conversely, the significant pressure to which they were subjected when unable to make a weekly payment themselves.
Regarding the quality of the MFI’s services, in general respondents reported receiving a good service: 25.4 percent considered it excellent, 59.7 percent good and 13.9 regular. There were no complaints about the very high interest rates (above 100 percent annually).
Giving microcredit to the poor is a good business in Mexico, the sector is profitable and enjoys excellent growth. As a result of the success of the Compartamos Bank, the more for-profit MFIs will appear in the market, making research and regulation a priority for government regulators.
This study presents evidence that supports the findings of
The most significant issue uncovered by this study is the lack of financial culture and poor level of general education exhibited by creditors. For example, the sample proved to be unaware of the high interest rates that they are paying.
Another critical point is the control that sentimental partners and other family males exert over the women; almost half of the sample recognized a degree of male control in the decision-making process. This reflects the fact that the MFIs in the region follow the Grameen-model in only granting microcredit to women.
Although the sample recognized a positive effect in terms of the growth of their micro-company, the main benefit is reserved for the MFI due to the high interest rates; a smaller portion of the sample recognized benefits in family income, child nutrition, etc. Furthermore, 23 percent of the sample had to use personal income to meet microcredit repayments. The cash flow generated by their micro-firm was not enough to cover the microcredit payments.
Almost all the sample recognized a regular to excellent service from the MFI. However half the respondents complained about the group model (they preferred individual microcredits). They said that peer responsibility for the payments of cocreditors generated significant stress and ill-feeling. Respondents also complained about time lost due to the requirement to attend weekly meetings and make weekly payments. These points and the lack of complaints about the high interest rates demonstrates the lack of financial culture, resulting in a total lack of requests for better services (phone payments, lower interest rates, etc.).
Finally, to a lesser degree, evidence of marital problems and child neglect is apparent.
A big future challenge for the sector is finding the best way to adapt methodologies developed in other countries to our own culture. As
Another challenge for MFIs and regulators is the need to constantly monitor results in the field in order to improve their programs.
In conclusion, microcredit will certainly generate economic progress and social empowerment for women, but also create additional responsibility, marital problems and child neglect, which in the medium term foster petty crime, antisocial behavior, gangs, and drug trafficking. To address the negative side, we suggest several areas that policy-makers should address. Women should not be required to take sole responsibility for the credit, but her sentimental partner or family should be required to act as bank guarantors. The government should regulate the maximum rate that MFI’s can charge and foster competition in the sector to reduce interest rates. Credits for a woman with children should be granted only with the guardian of the children as co-signatory, and credit-monitoring clauses should be included that stipulate the requirement for children to achieve minimum grades. Furthermore, the government should create special programs to provide counseling for borrowers who are single mothers and have little or no family support.
Finally, it is very important understand the economics of microfinance and the reason why interest rates in Mexico are so high, and develop an adequate regulatory framework for MFI’s that fosters competition in the sector and reduces interest rates. These are some of the future challenges that must be a priority for regulators in Mexico.
This survey is totally anonymous and confidential. DO NOT write down your name. All the results will be announced only in a statistical way. The only goal of this survey is to improve credit conditions in the country.
Your micro-firm is: □ Newly created (19.4%) □ Existed before the granting of microcredit (73.8%) If the micro-firm already exists please write down the age in years: _____________ (Average: 5.8 years) So far, how many microcredits have you requested for your micro-firm? _________ (Average: 4.1) How many years have passed since you obtained your first microcredit? _________ (Average: 2.4 years) The decision to apply for a microcredit was made by: □ Myself (56.7%) □ My family (13.1%) □ My partner (19.9%) □ All of the preceding (6.6%) □ Others (1.1%) The decision how to use the credit was made by: □ Myself (55.6%) □ My family (12.8%) □ My partner (20.2%) □ All of the preceding (6.6%) □ Others (1.1%) Microcredit repayments are the responsibility of: □ Myself (54.7%) □ My family (11.4%) □ My partner (20.8%) □ All of the preceding (8.3%) □ Others (2.0%) The money to make the microcredit repayments comes from: □ The micro-firm (77.8%) □ My own salary (6.3%) □ My partner’s salary (6.8%) □ Sale of Goods (1.1%) □ Others (4.8%) What have you used the microcredit loan for? □ My own micro-firm (75.8%) □ Family’s micro-firm (14.5%) □ House or improvements (3.1%) □ Consumption (1.7%) □ Others (1.1%) What benefits have you derived from the credit granted? □ Micro-firm growth (81.8%) □ Increase of family income (24.8%) □ Better relationship with your partner (4.0%) □ Improved child nutrition (13.7%) □ Better relationship with your community (2.8%) □ Others (0.9%) How has your micro-firm grown since you received the microcredit? □ A lot of growth (22.2%) □Regular growth (64.7%) □ A small amount of growth (4.6%) □ Zero growth (2.0%) □ The firm has become smaller (0.3%) What have been the principal disadvantages of the microcredit? (You can choose more than one) □ Time required to make weekly payments (17.9%) □ Excessive responsibility (15.4%) □ Over-indebtedness (1.7%) □ Illness due to stress (6.3%) □ Problems with my partner (3.1%) □ Child neglect (6.6%) □ Problems with my family (parents, siblings, cousins, brothers in law, laws, etc.) (2.3%) □ Nothing (48.4%) □ Others (2.8%) How has the credit affected the relationship with your partner? □ It hasn’t been affected (59.0%) □ It’s better (23.6%) □ It’s worse (1.1%) □ I have no partner (2.3%) In general, has the use of microcredits helped you to manage your micro-firm better? □ Yes (72.6%) □ No (2.8%) Which of the following options have you improved because of microcredits received? □ Better money management (39%) □ Better organization of my payment obligations (25.9%) □ Micro-firm productivity (38.5%) □ The relationship with my family (9.4%) □ The relationship with my partner (4%) □ The relationship with group members (10.3%) □ Others (3.4%) Would you prefer an individual credit? □ Yes (46.4%) □ No (43.0%) Why?____________________________________________________________ How do you consider your MFI services? □ Excellent (25.1%) □ Good (59.5%) □ Regular (12.8%) □ Bad (0.3%) □ Lousy (0.3%) Your MFI advisor is a: □ Man (58.4%) □ Woman (37.0%) Approximate monthly micro-firm income is between: □ $1 - $2,000 (32.3%) □ $2,001 - $4,000 (36.5%) □ $4,001 - $8,000 (16%) □ $8,001 - $15,000 (5.1%) □ more than $15,000 (0.3%) Approximate other monthly non-micro-firm income (personal salary, partner’s salary, others): □ $1 - $2,000 (28.2%) □ $2,001 - $4,000 (35.6%) □ $4,001 - $8,000 (17.9%) □ $8,001 - $15,000 (3.1%) □ more than $15,000 (1.4%) How old are you: □ 18 - 25 (13.4%) □ 26 - 35 (32.5%) □ 36 - 45 (33.0%) □ 46 - 55 (10.5%) □ 56 - 65 (4.6%) □ more than 65 (0.3%) What is your marital status? □ Single (9.1%) □ Married (65.5%) □ Divorced (3.4%) □ Widowed (2.3%) □ Cohabiting (13.1%) At this moment, is your partner (husband, boyfriend, etc.) living with you? □ Yes (74.1%) □ No (10.5%) How many family members are involved in the family micro-firm?_ (Average: 1.7 members) How many people are living under the same roof?___ (Average: 4.9 people) Municipality _________ State _________
For comparison purpose, in this study we use the june 2017 exchange rate peso dollar of $18.11