MICRO-CREDIT NO PANACEA FOR POOR WOMENby Nan Dawkins ScullyMicroenterprise credit is increasingly promoted by the North as a panacea for the South. "World Bank President James Wolfensohn says that credit is "a particularly effective way of reaching women." The U.N. Secretary General calls it "a critical anti-poverty toolfor the poorest, especially women." Even First Lady Hillary Rodham Clinton points to microcredit as a tool that will help poor women "survive globalization." Microenterprise development has, in some circumstances, contributed positively to women's empowerment and helped extremely poor women survive economic crises in the short term. However, donors and advocates consistently over-exaggerate the power of microenterprise credit and related assistance, while ignoring key structural issues that are far more pertinent to the long-term problem of women and poverty i.e., agrarian reform, programs favoring export production (typically male-dominated) over subsistence crops (typically female-dominated), and trade agreements structured in the interests of transnational corporations,. Three popular misconceptions permeate the current rhetoric regarding microenterprise development and encourage its mischaracterization as a panacea: Myth #1: Microcredit programs empower women. Because some credit programs foster group formation and enable women to generate income, they offer potential for both political and economic empowerment. However, since credit by itself cannot overcome patriarchal systems of control at household and community levels, this potential is not always realized. In Who Takes The Credit: Gender, Power, and Control Over Loan Use in Rural Credit Programs in Bangladesh (World Development, 1996), Anne Marie Goetz found that the majority of women borrowers in the programs studied did not control either the loans received or the income generated from their microenterprises. Moreover, recent research suggests that the very non-contractual nature of informal-sector trade can reinforce women's reliance on male family members as enforcers in the marketplace (Peter Gibbons, Structural Adjustment and the Working Poor in Zimbabwe, 1995). Myth #2: Microcredit programs help the poorest of the poor. The reality is that credit programs rarely reach the poorest. One reason for this is that the tiny loans required by the very poorest people are too small to generate significant interest income for lenders and are expensive to deliver, especially in the case of hard-to-reach rur al populations. Microlenders under pressure from donors to become financially self-sustaining in a short period of time are drawn toward less poor borrowers who can take out larger loans. In some cases, microcredit programs that target the poorest exacerbate the very poverty conditions they were designed to address. Some lenders attempt to cover the costs of lending to the poorest by charging usuriously high rates of interest, while forgoing the costly but crucial services necessary to improve the productive capacity of the poorest borrowers. This "efficiency" approach to lending is especially detrimental where there is a weak market for the products microentrepreneurs can produce and sell. According to microlender Jaya Aranachulum (Working Women's Forum, India), the donor-driven emphasis on financial efficiency undermines the potential of credit as a poverty-alleviation tool: "Microcredit will never be the only solution for poverty, especially when it comes with exorbitant interest rates [which] create a debt burden on the poor." Myth #3 The informal-sector is an answer to jobless growth and a refuge from the shock of
structural adjustment.
As unemployment rates continue to rise even in countries where structural adjustment is said to have worked (Argentina, for example), the World Bank increasingly lionizes the informal sector as "the real economy." Yet, only a few microenterprises typically the ones owned by economically better off men and women who can afford to capitalize their businesses ever provide significant and sustainable sources of income. (See for example, K. Meagher, Limits to Labor Absorption, UNRISD Discussion Paper #28).
The current wave of euphoria over microcredit misses the salient question: Since a majority of
people have neither the skills nor the inclination to be entrepreneurs, why are microenterprises
proliferating? It has been clear for decades that the informal sector is a depository for the
victims of the failure of the formal sector. As long as microenterprise development is offered as
a substitute for meaningful social development, for employment that offers real security, for
viable small-farm and enterprise production, and for fundamental changes in the economic
policies prescribed by institutions such as the World Bank and the IMF, it will only impede
progress toward finding real answers to the very real problem of poverty in the South.
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Moreover, the very structural adjustment policies that help create a burgeoning informal sector by destroying small enterprises, farms and formal-sector jobs also undermine the potential for income generation in that sector. The cumulative effect of rising costs, declining demand, and competition from both cheap imports and
increased entrants into the sector leads to shrinking profits in informal-sector trade. In
Zimbabwe for example, women traders in the informal sector experienced significant declines in
income following the implementation of structural adjustment, and new entrants into the sector
reported earning less than they had previously earned in their formal-sector jobs.