5 MYTHS of MICROFINANCE
1. Women lead the microfinance industry from top to bottom.
Reality Check: Despite the fact that 70% to 90% of microfinance clients are women, females make up only 30% to 40% of the senior management and governance positions at the banks and organizations that disperse these kinds of loans, according to a study conducted by Women Advancing Microfinance International in late 2005. In some cases the number of women in high-level leadership positions is declining, according to Women’s World Banking, which saw a 15% drop in women in senior management in their network between 2003 to 2007.
2. Microfinance is the best way to empower all poor women.
Reality Check: Microfinance is not for everybody. It is not effective when individuals are under too much stress from living in the midst of extreme crisis or conflict, when they are under repressive regimes where corruption and inflation is rampant, or when they suffer from mental or physical health issues that prevent them from working. Microfinance is most successful when it is coupled with proper support services, such as health insurance and financial literacy training—and without those kinds of assistance, inexperienced borrowers can end up in a “poverty trap.” They become stuck in a cycle of debt because they take out very high interest loans and then something unexpectedly comes up—a health emergency, a funeral—that only puts them further into debt.
3. Women who become more economically autonomous face more domestic abuse from angry and controlling spouses.
Reality Check: Although there have been several documented cases of women experiencing increased violence in their homes after receiving a loan, more often the opposite is true. The bulk of evidence suggests that women’s participation in microfinance leads to an overall decrease in domestic violence in their household as the strains of poverty are lifted. Participation in microfinance programs can also give women the means to escape from abusive relationships or reduce abuse in their relationships. Working Women’s Forum found that 40.9% of its members who had experienced domestic violence were able to put an end to the abuse themselves after receiving a microloan, while 28.7% were able to call upon other women to help them end the violence through group action.
4. Microfinance reaches the poorest of the poor.
Reality Check: Microfinance is only reaching the poorest of the economically active poor. The industry is still struggling to figure out how to reach those who have even less. Estimates suggest that only 8% to 14% of the market demand for loans is being met. That means that of the proposed 400 to 600 million people who could use microcredit, only about 60 to 90 million have even remote access to it. The market is far from being adequately supplied, but the good news is that this sector is experiencing exponential growth.
5. With a microloan, women can easily continue to grow their enterprises into small and medium-sized businesses.
Reality Check: Significant barriers still exist that prevent women from creating potentially bigger, more profitable enterprises. Microloans typically have a low financial return, which can result in a “glass ceiling.” Due to lack of collateral or cultural constraints, women are often not eligible for larger, more flexible financing—and when they do receive it, the loans are often smaller than those men get. In addition, lack of access to skills development and training can hinder their confidence to expand their businesses. This is particularly unfortunate because small to medium-sized businesses can be enormous engines for the growth of local and regional economies. They also create jobs for other women who may not have a desire to become entrepreneurs themselves.