The Impact of Finance on Gender and Poverty Reduction - Coursework Example

The Impact of Finance on Gender and Poverty Reduction Table of Contents Introduction 3 Microfinance and Poverty Reduction 4 Self-Help Groups 4 The Grameen Model 5 Village Banking 6 Credit Unions 7 Rotating Savings and Credit Associations (ROSCAs) 8 Reasons Why There Are More Women in Microfinance Customers 8 The Latent Capacity of Women Involved In Micro Financing 8 Facilitation of Education, Vocational Skills, and Training 9 Women’s Low Business Performance 9 Inability or Unwillingness of the Formal Finance Institutions to Provide Finance Services to the Urban and Rural Poor 10 Women’s Reduced Participation in Decision–Making and Control over Resources 10 Impacts of Microfinance 11 Impacts on Individuals 11 Acquisition of Self-Employment 11 Acquisition of Education, Skills, and Training 11 Enhanced Economic Empowerment 12 Impacts on Households 12 Increased Ownership of Assets 12 Increased Household Income 13 Reduced Migration 13 Impact on the Macro-Level 13 Improved Family Welfare 13 Improved Socio-Economic Background 14 Conclusion 14 Bibliography 16 The Impact of Finance on Gender and Poverty Reduction Introduction Microfinance in the contemporary society can be termed as a collection of strategies that offer an option of financial inclusion to the people living under the poverty line. The microfinance services involve inclusion of the poor and the low-income earners in the microenterprise and livelihood activities (Tavanti, 2012, p. 697). Tavanti adds that poverty as a multidimensional domain encompasses an individual’s health, social, economic, education, capacity, and security. It is arguable that advances made by the finance sector depend on the supposition that the poor have capabilities to establish and implement activities that generate income. In addition, those who live under the poverty line have inadequate access to proper savings, insurance, and credit facilities (Allen and Panetta, 2010, p. 1). Tavati (2012, p.697) argues that most of the people are incognizant of the diversity, limits and the institutions engaged in the sector of microfinance. Moreover, many microfinance institutions (MFIs) share the significance of creating the sense of social worth in the efforts to alleviate poverty, enhance women empowerment, promote livelihoods, and facilitate community development. Nevertheless, the microfinance sector is a rapidly growing movement of diversified organizations (Reed and Reed, 2010, p. 111). It involves the innovative and nontraditional monetary services. Essentially, the services of microfinance include credits, micro-insurance, micro saving, and micro-remittances. Such services have the meaning of raising livelihoods of the poor by significantly increasing their access to improved savings, credit, and microfinance facilities. Microfinance and Poverty Reduction Self-Help Groups Among the poor people, the aim is not lending credits but rather improvement in the saving opportunities. The strategies of microfinance are proving to be significant tools in the fight against poverty. Even though, numerous advances about the millennium development goals have been made, poverty remains the world’s ethical issue among the developing nations. Exceeding approximately 3 billion individuals globally survives daily on a lesser amount below $2.50. Additionally, in the recent past, fuel, food and the observed economic predicaments have dealt a blow to the achievements of millennium development goals (Tavati, 2012, p.698). The principles and values that underlie the ideology of SHeGs remain established on an understanding that poverty is not a mere lack of physical resources (Mansuri, 2010, p. 141). Rather it is a continued practice of “disempowering” “and demeaning” the people. Poverty reduction strategy needs a synchronized strength to provide economic opportunities besides enhancing the capacities of the affected individuals. It has the meaning of empowering the poor through the increase of capital levels needed for productive, political, and social advances in the setting of the economic advancement. For instance, the idea of self-help groups (SHeGs) aims at mobilizing the micro-deposits to support business establishments and small entrepreneurs (Sivachithappa, 2008, p. 35). This strategy involves groups of 15-20 individuals from poor households within the same village to come together and enhance their opportunities in accessing the micro finances. It is achievable by the members relying on their collections and the ability to share resources (Bera, 2011, p. 107). The members have the saving culture mainly on what they can easily afford on a regular basis. The accumulated savings remains subsequently reinvested in the members’ entrepreneurial needs (Tavati, 2012, p.700). In case of a need or an emergency, the savings find use in sorting the individual members out of the problem. The process of empowerment therefore focuses on the community as a whole and aims to raise people’s consciousness to the social, political, and economic influences. In this strategy, the people involved become the subjects of the community empowerment process as opposed to beneficiaries to external loans (Das and Boruah, 2009). The Grameen Model The model aims at reaching the clients especially women ailing from low-income households across the densely populated regions within urban and rural areas. Selecting the client base relies on means tests that are realistic in ensuring outreach to the extremely poor people who are engaging in the micro-enterprise activities that generate income. The model is reliant on the group’s peer pressure in which individuals receive loans mainly if in groups of between four and seven. The group members guarantee the repayment of the loan, and the subsequent access to the loan is reliant on the repayment status by the members of the group (Addae-Korankye, 2012, p.142). In this context, social capital involves the characteristics of trust, social organization, networks, and norms that can improve the competence of a community by augmenting synchronized efforts. Social relations are viewable as the main sources of social capital that is structural social capital and cognitive social capital. Structural social capital remains embedded in sharing of information, collective action and the process of making decisions via established duties, social networks, and the other social structures. Such duties remain complemented by procedures, rules and precedents. Cognitive ideology is rooted in shared norms, trusts, values, beliefs and attitudes (Hossain, 2013, p.14). The Grameen model operates on the principles that, the poor individuals do not build poverty. Rather, it remains shaped by dogmatic institutions that surround the people. Firstly, it is imperative to find the means and strategies to change the policies and the culture of institutions to influence the people’s livelihoods in a more positive manner. Secondly, the model believes that the problem posed by poverty can never remain solved by charity. Apparently, charity creates the dependency syndrome. Therefore, to fight the poverty menace the inner creativity and energies of the people should be maximally utilized (Hossain, 2013, p.15). The third principle is based on the argument that, poor people have an equal ability like any other individual in the society. The people’s under-utilized capacities need optimal exploitation to achieve an appealing level of poverty reduction. Fourthly, the system of Grameen model does not follow the method of traditional banking based on the construct that people who have, get more credits. Finally, the model assumes that, it is more critical to lend to women as opposed to men since the former bring more returns to the individual families (Hossain, 2013, p.15). Village Banking Village banks relates to community-managed savings and credit institutions meant to provide admittance to financial facilities to the populations in the rural areas. The village banks help the communities to form self-help groups through which members can accumulate savings. In this context, membership of village banks fall in a range of 30 to 50 individuals that are often women. The criterion for membership has the basis of self-selection, and the bank is financeable by the mobilization of internal funds and loans from the microfinance institution (Adddae-Korankye, 2012, p.142). For example, the Fundacion Integral Campesina (FINCA) with the basis of Costa Rica applies the innovative model of banking to create financially sustainable solidarity groups. These small companies and enterprises permit the people to access shares and generate capital for business models and credits that are sustainable among the poor (Felipe, Jones, and Xavier, 2011, p. 316). Credit Unions The model involves exclusive self-help financial entities that are member-driven. It comprises specific organizations or groups that enter into a consensus to accumulate their money and offer loans at reasonable interest rates to each other. Membership in this model have a basis of a common bond, for instance, employees working in the same job, members of labor unions, members of a church, and social fraternities. The membership is open to the individuals belonging to a group irrespective of color, creed, religion or race. The aim of the model is not and members govern and its functions by having a democratic duty of electing the executive and the representatives (Adddae-Korankye, 2012, p.143). In this particular concept, the people who can start businesses but lack the funds enter into the credit unions through their capability to make savings. The basic synergy of the credit union is to facilitate micro-loans to people that are not members to establish and grow their businesses. According to the model, the established groups and credit unions share costs result in gaining access to financial facilities that otherwise would not be achievable. The individuals then continue to make savings in the credit unions and can access larger loans (Brien and Harun, 2013, p.235). Rotating Savings and Credit Associations (ROSCAs) The ROSCAs remains formed when groups of people agree to make cyclical regular contributions to a joint fund that subsequently acts as lump sum to individuals of the group in form of a cycle. The members of the fund are commonly neighbors or friends and the group provides a perfect platform of interaction. They also remain famous as merry-go-rounds (Adddae-Korankye, 2012, p.143). Hossein (2013, 87) confirms that informal banks offer a faster access to funds and credit systems for individuals, especially women who have been left out in the formal micro banking schemes. This model of micro financing is common among the poor because it functions efficiently by providing low defaults, transactions and requires minimal formalities. Reasons Why There Are More Women in Microfinance Customers The Latent Capacity of Women Involved In Micro Financing Poor people throughout the world have remained excluded from the formal system of accessing finances. The exclusion has a wide range, which is from partial to full in developed and developing countries respectively. Therefore, the situation of poverty relies on a vital development challenge explaining why the issue is of great concern both at the international and local spheres. Cognizant of poverty as a widespread challenge led to eradication of hunger and poverty as the first MDG. Microfinance has been recognized as a strategy to eject the poor individuals out of the poverty cycle by provision of financial capital to the poor to allow them create generate income for sustainable livelihoods (Conroy, 2015). Furthermore, the latent ability of women involvement in entrepreneurship demonstrates significant enhancement through the access of microfinance facilities. Additionally, micro-finance is viewable as an effective instrument used to improve the women’s status as well as a viable preference to reduce poverty (Idris and Agbim, 2015, p.123). Idris and Agbim (2015, p.123) argue that the welfare of the overall household is prospectively higher when micro-finance credits is made accessible to women as opposed to men. Concerning this, promotion of micro-enterprises and small businesses for women has remained focused on since they augment family welfare. Facilitation of Education, Vocational Skills, and Training Micro-lending activities have been widely used in the promotion of vocational skills and training in women. The social institutions for a long time have excluded women from accessing and developing their skills. The situation remains a possibility due to degenerating cultures that do not have the worth of women at hand. In this regard, micro-lending institutions have identified women as the target group in execution of their duties. Providing vocational skills and trainings empowers women and allows them to have a hands-on skill that can enable raise their livelihoods and respective families (Idris and Agbim, 2015, p.123). Provision of vocational skills and training to women creates an avenue for self-employment, enhance empowerment, and improves the income of women hence alleviating poverty. Further, micro-finance has a greater implication for the economic empowerment of women, training, self-employment and acquisition of skills. Women’s Low Business Performance Even though women entrepreneurs play a big role in economic expansion of their individual families and respective countries, it is observable that they have low business enactment as compared to the male entrepreneurs. The situation is caused by factors in the micro-finance sector, which include, lack of savings, minimal access to credits, low levels of training and education as well as the social capital. In this regard, the microfinance institutions have focus to reach more women compared to men (Idris and Agbim, 2015, p.123). Inability or Unwillingness of the Formal Finance Institutions to Provide Finance Services to the Urban and Rural Poor Coupled with the government’s unsustainability and sponsored financial schemes, the rural and the urban poor are neglect from the system of formal financing (Kohn, 2012). Mainstream of urban and rural poor population are inherently women who lack skills and training that would enable them to acquire self-employment or a formal employment. In addition, the private-sector-led micro-financial institutions have identified the need to develop a strategy for the inclusion of the rural and the urban poor. Through this strategy, more women than men are targetable since they are more vulnerable to poverty (Idris and Agbim, 2015, p.123). Women’s Reduced Participation in Decision–Making and Control over Resources At the domestic level, women hold a dual responsibility for the household and farm work. The participation of women in decision-making regarding household income is increasing but they remains heard complaining over the males’ expenditures (Mersland and Eggen, 2008). More men than women spend a lot of money in the consumption of alcohol, gambling and tobacco. Accountability of compassionate for the elderly and children remains mostly accomplished by women in the family than men. Concerning this, women need to have a greater influence in the household decision-making process to aid them handle the multiple roles left for them. Therefore, women are the major target of the micro-financing institutions to provide skills and training to increase their income levels (Dineen and Le, 2015, p.25). Impacts of Microfinance Impacts on Individuals Acquisition of Self-Employment Self-employment is a situation where people operate as individual entrepreneurs. Addressing rural poverty is not fully achievable without promotion of self-employment. The women entrepreneurs have a fair share of constraints for addressing and subsequent implementation of specific needs effected. The efforts of micro-finance help the women to be at par with their male counter-parts. Entrepreneurship presents an economic and employment autonomy, this makes the entrepreneurs more effective in responding to the economic and social exclusion dimensions (Idris and Agbim, 2015, p.128). Self-employment remains enhanced by micro-finance institutions through provision of funds to establish and run the enterprises and small businesses. Acquisition of Education, Skills, and Training Each society needs education to be relevant, execute its duties properly, and to fulfill the social obligation. Education adds directly to the advancement of a society because of its relevance to the wellbeing and freedom of the community members. Further, there is a direct influence on the social and the economic productivity hence important in poverty reduction. Basic education contributes to the reduction of poverty through increased productivity of the poor decreasing fertility and enhancing health. Further, it equips the people with skills needed for their participation in the society and economy (Idris and Agbim, 2015, p.128). Micro-finance institutions aim at individual and societal development, thus they provide access to credit facilities for the people to advance their skills, training and education (Barr, 2005, p. 273). In addition, gaining an education leads to reduced poverty levels that finally improve the people’s education status. Enhanced Economic Empowerment The process of empowerment results in a gain of control over the decisions that concern the individuals. It is also viewable as an economic safety of oneself. Empowerment of individuals and their involvement in the society is achievable through linking them to institutions to develop further their education, political and economic perspectives. Through the enhancement of people’s financial capital, they can decide for themselves on matters that affect them directly (Idris and Agbim, 2015, p.131). Empowerment helps women to organize themselves and increase their self-reliance. This asserts their autonomous right to make decisions and to control over resources hence eliminating their own subordination (Basargekar, 2009, p.106). Impacts on Households Increased Ownership of Assets The individuals who participate in micro-finance programs increase their enterprise income, household assets, household income, as well as an increased level of the general house welfare. The participants of micro-finance programs have a profound access to credit facilities usable in creating self-employment. Profits made from these activities finds use in purchasing assets for the households. Microfinance institutions offer an opportunity to the participants to upgrade their homes from those of dilapidated sate to a favorable state of better environment, health and economic status (Al-mamun, Adaikalam, and Mazumder, 2013, p.24). Increased Household Income Involvement in micro-finance activities increases household income.Increased income on the other hand, facilitates a rise in household expenditure on nutrition, food, investment, and education. When more people can access good amounts of income, the living standards increase, the participants then tend to take part in investments for the matters of financial security (Berg, 2010, p. 75). Moreover, there is an increased consumption of quality food by the individual households. This enhances the nutritional status of the people thus improved livelihoods (Al-mamun, Adaikalam, and Mazumder, 2013, p.24). Reduced Migration High income as well as higher employment levels because of involvement in micro-finance intervention leads to low levels of population migration. The notion is explainable further that, the people move to various urban towns and cities in search of greener pastures. When micro-finance comes in to assist the poor individuals to establish their business and become their own bosses, the trend of migrating remains greatly reduced. The phenomenon mostly observed in people who have acquired education, have skill and training, and want to seek employment to generate an income (Al-mamun, Adaikalam, and Mazumder, 2013, p.24). Impact on the Macro-Level Improved Family Welfare It is argued by Basargekar (2009, p.106) that microfinance programs are presumed to assist the poor people in the access to credit. Women’s access to financial credit allows savings opportunities aid them to take a bigger role in the household decision-process (Mohd, 2012, p. 130). Further, they will be able to optimize their own welfare and that of their families. Investment in the women’s activities enhances job opportunities, increasing the household income (Alam et al., 2014, p. 161). Further access to credit facilities by women enables them to increase expenditure on their children and to prevent household leakages through unproductive activities (Khan and Rahaman, 2007). Improved Socio-Economic Background Participation in the micro-finance activities improves the socio-economic status of communities and the state at large. When more people can access finances and invest in varied development activities, they raise the means of sustaining their livelihood and in return contribute to the nation’s growing economy (Luyirika, 2010, p. 3). The people can participate from a wider range of the social and economic perspectives leading to diversified views on the daily activities that drive personal and economic development. When people come together, they can break the existence of individual isolation and relate positively to the outside world (Basargekar, 2009, p.108). Conclusion In creating a wider base of micro financing, micro-finance institutions have developed various models, these include formation of self-help groups, credit unions, and village banking platforms. Such institutions have additionally enhanced use of Grameen’s model of banking in the distribution of social capital. In addition, it is relatable to ascertain that more women than men are involved in the micro-finance programs because of their latent ability, the need for education, vocational skills and training. In addition, the observed unwillingness of the formal financial institutions from providing credit to the rural and urban poor and reduced participation of women in decision-making both in the private and the public spheres. When people are actively involved in the lending program activities, more people gain access to self-employment, advance their education, skills and training, and have increased economic empowerment. Further, there are increased household assets, income, reduced migration, improved family welfare and above all enhanced socio-economic status in the private and the public domains. Bibliography Adddae-Korankye, A. 2012. Microfinance: A tool for poverty reduction in developing countries. Journal of Business and Retail management Research, 7(1). Ghana: Accra. p.142. Alam, M., Ullah, R., Mirza, A. I., Saleem, W., Elahi, M., & Sultan, H. (2014). Impact of Microcredit Scheme on Socio-economic Status of Farmers (A case study of PRSP in District Gujranwala). South Asian Studies Vol. 29, No. 1, January – July 2014, pp. 161-169 Allen, H., & Panetta, D. (2010). Savings Groups: What Are They?. Washington DC: SEEP Network. Web. April 11, 2015. Retrieved from http://www.pciglobal.org/downloads/SGsWhatAreThey.pdf Al-mamun, A., Adaikalam, J., and Mazumder, M. N. H. 2013. Measuring the Impact of AmanahIkhtiar Malaysia’s Micro Finance Program on Household Assets in Urban Peninsular Malaysia. International Journal of Economic Perspectives, 7(4). Malaysia.p 24. Barr, Michael S. (2005), “Microfinance and Financial Development”, The John M. Olin Centre for Law & Economics Working Paper Series, University of Michigan Law School, p. 273. Basargeka, P. 2009. Microcredit and a Macro Leap: An impact Analysis of Annapurna Mahilamandal (AMM), an Urban Microfinance Institution in India. Institute of Management Studies and Research. Mumbai: Vidyanaga, Vidyanavihar.p.107. Bera S.K. (2011), “A study of SHG-Microfinance Initiative in Purbo Midnapore District of West Bengal”, Economic Affairs, Vol. 56, No. 2, June, pp. 107-116 Berg, G., 2010. Evaluating the Impacts of Microsaving: The Case of Sewa Bank In India. Journal of Economic Development, 35(1), pp. 75-96. Brien, B., and Harun, H. 2013. SENDFiNGO: An innovative model of financial inclusion in Ghana. Enterprise Development and microfinance, 23(3) Ghana: Practical Action publishing. p.235. Conroy, John D. 2015. The Challenges of Micro financing In Southeast Asia. The Foundation for Development Cooperation. Web. April 11, 2015. Retrieved from http://www.bwtp.org/arcm/mfdm/Web%20Resources/Advanced%20MF%20Resources/the%20challenges%20of%20MF%20in%20southeast%20asia%20(FDC).pdf Das, S. D. K., & Boruah, S. D. 2009. Micro Finance Through Self Help Groups (SHGs): A Tool For Socio-Economic Development of Rural Assam (A Case Study of Lakhimpur and Dhemaji District). Journal of Business Management and e Social Sciences Research, 2. Dineen, K., and Le, Q. V. The impact of an integrated microcredit program on the empowerment of women and gender equality in rural Vietnam. The Journal of Developing Areas, 49(1). USA: Seattle University. p.25. Felipe, P. F., Jones, G. C., and Xavier, A. 2011. Village banking development model: FINCA Costa Rica. Journal of Business Research, 64(3) 316-324. Habaradas, R. B., & Umali, M. A. (2013). The Microfinance Industry in the Philippines: Striving for Financial Inclusion in the Midst of Growth. Hossain, D. M. 2013. Social Capital and Microfinance: The case of Grameen Bank, Bangladesh. Middle East Journal of Business (8)4. Bangladesh: Dhaka. p. 14, 15. Hossein, C. S. 2013. The Politics of resistance: Informal banks in the Caribbean. Rev Black Polit Econ, 2014(41). New York: Springer Science+Business Media. p.87. Idris, A. J., and Agbim, K. C. 2015. Micro-Credit as a Strategy for Poverty Alleviation among Women Entrepreneurs in Nasarawa State, Nigeria. Journal of Business Studies Quarterly, 6(3). Nigeria. Khan Md. Ariffujjaman & Rahaman Md. Anisur (2007), “Impact of microfinance on living standards, empowerment and poverty alleviation of poor people: a case study on microfinance in the Chittagong district of Bangladesh”, Master thesis, Submitted to Umea School of Business Kohn, Doris. 2012. Microfinance 3.0: Reconciling Sustainability with Social Outreach and Responsible Delivery. Web. April 11, 2015. Retrieved from http://www.fgda.org/dati/contentmanager/files/documenti_microfinanza/microfinance-3.0.pdf Ksoll, C. (2013). Impact of village savings and loans associations: Evidence from a cluster randomized trial (No. 56). Rockwool Foundation Research Unit. Kuznets, S. (1950). Shares of Upper Income Groups in Savings. In Shares of Upper Income Groups in Income and Savings (pp. 45-58). NBER. Ledgerwood, J., Earne, J., & Nelson, C. (Eds.). (2013). The new microfinance handbook: A financial market system perspective. World Bank Publications. Luyirika, M. N. (2010). The role of microfinance in the socio-economic development of women in a community: a case study of Mpigi Town Council in Uganda. Mansuri B.B. (2010), “Microfinancing through Self-Help-Groups- a case study of Bank Linkage Programme of NABARD”, APJRBM, Sri Krishna International Research & Educational Consortium, Vol. 1, issue. 3, December, pp. 141-150. Mersland, R. & Eggen, . 2008, You Cannot Save Alone - Financial and Social Mobilization in Savings and Credit Groups, Social Science Research Network, Rochester. Micu, Napoleon P. March 2010. State of the Art of Microfinance: A Narrative. Hanns Scidel Foundation. Web. April 11, 2015. Retrieved from http://www.hss.de/fileadmin/suedostasien/philippines/downloads/100301-State-of-the-Art-of-Microfinance.pdf Mohd. Najmul Islam, (2012), “The microfinance guarantee for financial inclusion: Evidence to support in India”, Indian Journal of Commerce & Management Studies, Volume III Issue 1, Jan., pp. 130-134. Reed, A. M., & Reed, D. (2010). Business and development. IIMB Management Review, 22(3), 111-127. Sivachithappa, K., (2008), “Success story of Poverty Alliviation Through Self-Help Groups”, Kurukshetra, Journal on Rural Development, Ministry of Rural Development, New Delhi, vol. 57 No. 2, December, pp.35-38. Tavati, M. 2012. Before Microfinance: The Social Value of Microsavings in Vincentian Poverty Reduction. Journal of Business Ethics, 2013(112) p.697. Read More