A loan to a woman... a direct way to address poverty

by Farhana Haque

Sharifa lives in a small hut at the edge of her elderly parents' courtyard. She is about 36 but looks much older and has been a widow for six years. Her father, who owns only the tiny plot of land which holds his hut and yard, makes baskets; her mother works in the home of rich peasants They are too poor to feed their daughter and her two children. And far too poor to afford a dowry which would enable her to remarry. At first, Sharifa supported herself by working, like her mother, in other homes, sweeping and clay-plastering courtyards and floors, fetching water, grinding spices, and helping with paddy husking. When she worked for a well-to-do family, she was paid a "seer" (less than a kilo) of rice a day worth around Tk 6 ($0.30); when she worked for a relative, she got half a seer. In the best of times, she could feed her family twice a day: rice, salt, and water for breakfast, rice and greens or lentils for dinner; to have meat was rare and usually the greens were gathered in the form of weeds from the edges of paths and paddy fields.

Three years ago, Sharifa considered borrowing a few hundred taka from the "mohajon", the local moneylender, to buy herself a sari and some clothes for her children, but when she discovered that he charged 10 per cent interest a month, she changed her mind. She then made an arrangement through her father with the local merchant to whom he sold his baskets: the merchant gave her credit in the form of materials from which she wove mats, mats she then had to sell back to him. Sharifa spends long hours every day squatting outside her hut weaving - and hoping that now she could earn enough to feed and clothe herself and her children decently. She soon found, however, that she was not much better off than before nor more independent, for not only did the merchant pay her very low prices for her mats, but he also charged 50 per cent interest on the value of the materials he gave her. She was surviving - just - but also facing a spiraling debt which threatened to trap her for the rest of her life.

The women's burden. Sharifa's situation, with variations, is shared by a vast majority of rural women in Bangladesh. Not all are functionally heads of households, though widowhood, divorce, desertion, and the migration of men to cities in search of work have left millions of women as the sole or chief breadwinners for their families - and the numbers are growing. Not all are landless, unable to grow some of their own food, although at least 30 million rural people in the nation are. Not all are in debt to local merchants, moneylenders, or relatives, but most either must borrow from the informal credit market at exorbitant rates of interest or go without. And only a small minority have tried to set themselves up in some kind of income generating business.

However, all women in rural Bangladesh live in a male-dominated, purdah society which severely restricts the opportunities and options open to them for gainful employment and some measure of self-reliance. They all face, to a greater or lesser extent, social pressures not to work at anything but accepted household tasks; to do any other work is to risk being shunned or mocked by one's neighbours. It is no accident that in 1984 only 7 per cent of the national rural labour force were women. Even when a woman, out of desire or desperation, seeks some form of income-producing employment, her choice is very limited, partly because the village economy may offer little scope but largely because of the demands of purdah. Under purdah, women rarely should have contact with men outside their family or with the society outside their bari, or household. If they must earn, they should work at home or, like Sharifa and her mother, in the homes of richer neighbours. Discouraged by training and custom from working in the fields or outside the bari, they have traditionally found employment in the tedious, time-consuming process of parboiling, drying, and husking rice in dhekis or wooden mortar and pestles operated by foot". And even this form of work is decreasing sharply through the introduction of mechanized rice mills. According to a 1983 World Bank report, "between 1.4 million and 2 million women have already been replaced by rural rice mills, [while] annually another 400,000 women are being displaced with the construction of 700 new rice mills each year."

The failure of credit. It is in this general context that institutional rural credit for women in Bangladesh has operated - or, more accurately, has largely failed to operate. The various loan schemes launched by several commercial banks and the Bangladesh Krishi Bank, for example, have been only marginally successful both from the point of view of

An women in rural Bangladesh live in a male-dominated society that limits their chances to work and earn financial viability in effectively reaching the most needy groups among the rural poor, particularly women. They have generally been plagued by the problems which so often hamper or undermine institutional rural credit programmes in developing countries. Management costs are high because regulations or habit may require as much paperwork for small loans as for large and because large staffs are needed to serve a widely dispersed clientele. When artificially low interest rates are charged as an inducement to borrow, they may fail to cover the cost of the loan. Default rates are also high.

Too often, better-off borrowers familiar with formal banking monopolize the loans; this is especially likely when the criteria established for credit require collateral and thus eliminate as poor risks those most in need. The very poor, and particularly women, normally lack banking experience; ignorant or suspicious of formal "outside" institutions and their complicated regulations, they are reluctant to become involved in what they do not understand. If the bank branch is operated, as it usually is, by men or if it is outside their para, or neighbourhood, women are doubly hesitant. The result is that few of the country's rural credit programmes have directly benefited women - with one notable exception.

A glimmer of hope. That exception is the Grameen Bank. A good deal has been written about this innovative project started in 1976 by Dr Muhammed Yunus, a professor of Economics at the University of Chittagong, as an experiment in a single village and with a handful of borrowers. From that modest beginning, the Grameen Bank has expanded, with the financial support of the government and the International Fund for Agricultural Development (IFAD), so that it is new a fully fledged bank whose almost 300 branches cover over 5 000 villages and gives loans to more than 200 000 desperately poor, functionally landless people - and with plans to reach close to a million borrowers by the end of 1989. The participation of women has grown dramatically over the years - from 30 per cent in 1980 to 69 per cent in 1986. In one district, over 85 percent of the loan recipients are women.

The number of women getting credit from the Grameen Bank is no accident but the result of a deliberate and sustained effort on the part of Dr Yunus and the Bank staff to reach this hitherto neglected segment of the rural destitute. Women in poor families, says Yunus, "live at the mercy of their men. They have all the obligations in the world but no rights, no security, no access to any activity that brings economic reward. They are treated as liabilities. But once a woman becomes an earning member of her family, her status in the family undergoes a positive change. She is less dependent on her husband and she is able to invest more in her children. They get clothes to wear or they start going to school. While acknowledging the strength of the socal forces which have kept rural Bangladesh women out of the marketplace, cut off from meaningful credit and dependent on men, Yunus believes that "a loan to a woman is the most effective kind of loan because you know that it goes directly to the children and the household. And that's the most direct way to address this problem of poverty."

The loans disbursed through the Grameen Bank are for any income generating activity, for they are designed to help borrowers become more economically self-sufficient, to allow them to substitute for the traditional vicious circle of "low income, low savings, low investment, low income" an expanding cycle of ´´low income, credit, investment, more income, more investment, more income." Any enterprise that seems to have a reasonable chance of success is acceptable, and women have chosen dozens of different activities.

The most popular by far are ventures involving livestock - raising milk cows, goats, and poultry - which account for a full 60 per cent of all loans to women. Almost a quarter of the credit taken by women goes toward setting themselves up in the business of paddy or pulse husking through the purchase of husking machines or raw materials. A wide variety of manufactures and trade make up the rest: handloom weaving; training. Not surprisingly, since they are generally landless and by custom discouraged from working in the fields, very few women use their loans for agricultural activities.

The difference credit can make. Sharifa is a typical example. Two years ago she bought a cow with her first loan. By the end of the year, she had paid off the loan and also owned a cow and a calf. She took out a second loan and bought another cow which by the end of the year also produced a calf. And sometime next year, the first calf will probably have its own calf. From having nothing, Sharifa now has an asset of four (soon five) cattle as well as being able to provide milk for her family - an enormous change. She has also used some of her credit to buy materials for her mats and is now no longer dependent on the merchant or trapped by his high interest rates. She has begun to sell her mats to others at going market prices, thus significantly increasing her income.

Momena Bewa is another Grameen Bank client. She lost her husband in the 1974 famine that swept through northwestern Bangladesh and since then has wandered from village to village doing whatever jobs she can find to keep herself and her two children alive. In the village of Chilmari she and some of her friends heard a young woman explaining the Grameen Bank system to an informal tailoring; making mats, rice products, fish nets, and an assortment of cane and bamboo items; trading in paddy, rice or flour; setting up home grocery or stationery shops; peddling saris, housewares, bangles, and other goods. Any activity will do as long as it shows a reasonable chance of success and requires no long, specialized gathering of local women and decided to join. She used her first loan of Tk 875 ($35) to buy housewares and set herself up as a door-to-door peddler. With the profits, she not only paid off the loan in 31 weeks but also was able to make a down payment on a family hut. She then took out a second loan for twice the amount and used it to expand her inventory of housewares. She has now promised her daughter in marriage, without the customary, dowry, to the son of a respected local family and has been elected the leader of a group of enterprising women like herself.

The way it works. The young woman who introduced Momena and her friends to the Grameen Bank was one of hundreds of bank workers who go from village to village in areas where the Bank has established branches. Travel is often difficult, along muddy paths or through waterlogged fields passable only on foot or perhaps by bicycle. These workers are putting into practice one of the Bank's central mottoes: "Bring the bank to the people, not the people to the bank." These workers, bath men and women, are given an intensive six month training course and then sent out into the countryside to inform the people about the Bank and to form groups of five men or five women, unrelated but with similar interest and attitudes, which will become the core of the credit programme. The criterion for group membership, and thus eligibility for loans, is ownership of less than half an acre of cultivated land or assets less than the value of one acre. Since a family of six needs at least three acres to maintain itself at subsistence level, these criteria exclude all but the most destitute.

Once the bank worker was satisfied that all five members understood and accepted what the Bank expects of them and what they must expect of themselves, the women became eligible for their first loans. No collateral was required. The maximum allowed is Tk 5 000, with the average for women being about half of that. (The average for men is a bit higher.)

Repayment is by 52 weekly instalments at 16 per cent interest, the going market rate. Initially, Momena and one other woman received credit; after six weeks, since their repayments were on schedule, two more members became eligible and six weeks later the fifth. A person can borrow again only after at least three-quarters of the previous loan has been repaid - and if the repayment record of the group is satisfactory. Thus each group member has a personal stake in the success of all the others; peer pressure encourages prompt repayment and a careful watch on each others' ventures.

When a member receives credit, she must immediately pay five per cent of the loan amount into a Group Fund against which members can draw, in emergencies, on terms decided by the group. These contributions to the Group Fund are not refundable to anyone who leaves the group, a regulation which has caused some grumbling. Each member is also expected to pay at least one taka a week into the Fund, and this becomes a refundable personal savings account. Finally, a sum equal to 25 per cent of the interest on each loan must be paid into an Emergency Fund which is used to cover defaults caused by accidents, illness, or other unavoidable events. Thus while Sharifa, Momena and their fellows pay an 'official" interest rate of 16 per cent, the effective interest charged is closer to 25 per cent. This is still significantly lower than the going rates in the informal credit market, plus which it includes the creation of group and individual savings which local moneylenders never provide - and the repayment record is almost perfect. Even with the accelerating expansion in the numbers of the Hank's borrowers, the default rate on loans after one year is about three per cent and even less after two years, technically the term of the credit. And women, in general, have an even better repayment record than men.

The repayment system is clearly one of the major reasons why the Grameen Bank has been able to avoid the poor recovery rates which have hurt so many rural credit programmes in Bangladesh and other developing countries, for each weekly payment is small enough so that it does not create the hardship imposed by the more traditional six-month or annual payments. Other factors come into play as well: the initial screening and discussions with prospective group members, reinforced by ongoing peer pressure and support; the close, effective supervision by bank workers bath before and after the loans are made; and the nature of the activities for which the credit is used. Weekly repayments, along with the regular savings feature, train members in the habit of regular payment, while the two Funds given them a valuable sense of security, as well as an essential pride in the knowledge that they are themselves contributing to the financial success of the programme.

More than credit. Once groups like Sharifa's and Momena's are established, they join with several others in the village to form Centres. Each Centre then elects a Centre Chief who conducts the Centre's weekly meetings, makes recommendations on loans to the bank worker, and generally assists whenever needed. It is at these weekly meetings, attended by the bank worker and mandatory for all members, that loans are made and repayments and savings collected. It is also here that various potential credit ventures and the progress of ongoing enterprises are discussed; experiences are shared and suggestions for improvements (including Bank operations) are made. The women find these meetings extremely valuable, for they provide an opportunity to exchange ideas, to re-enforce and expand each other's efforts, and to become directly involved in planning their own futures. These discussions, too, play an essential role in keeping the Bank flexible and responsive to the expressed interests and needs of the people it serves.

The Centre meetings also serve a broader, more intangible but no less important purpose - that of encouraging an expanded individual and collective social consciousness. Over the years of the Bank's existence, this dimension has gradually taken a clearer, more structured form. Each group as it is being formed is introduced to a social programme called "Sixteen Decisions", 16 statements which stress, along with the importance of discipline, hard work and group solidarity, a code of conduct designed to improve their living conditions and those of their community. Members are urged to grow vegetables and fruit in home gardens, to use latrines and safe drinking water, to keep their houses clean and to invest in home improvements, to keep their families small and healthy, to refuse to give or receive marriage dowries for their children and to send their children - all of them, not just the boys -- to school. Although members are not technically required to follow this code to be eligible for loans, in practice most of the bank workers expect everyone to make a serious effort to observe them. It was with support of her group, and the influence they were beginning to exert on other villagers, for example, that made it possible to Momena to dispense with the dowry (which customarily runs between Tk 2 000 and 7 000) she would normally have had to pay to her future son-in-law's family.

Tangible results. But it is the credit which the women receive which has made the most direct and tangible change in their lives. Sometimes loans, wisely used, not only improve a family's standard of living but can also create an effective husband-and-wife partnership. For instance, Shankari and her husband Bharendra are both weavers, and together with a hired assistant they produce between 20 and 25 saris a week which Bharendra sells at the local market. They own a four-room hut and eat three meals a day. Their son and daughter are attending school. However, six years ago their lives were quite different. Each worked as a day labourer: Bharendra with a village blacksmith, Shankari helping weavers prepare their yarns. She earned from three to five taka a day, he not much more. They could afford only two slim meals a day, frequently only one. In 1980, the husband joined the Grameen Bank and took out a Tk 1 000 loan which he invested in tools to start up his own blacksmith shop. A year later, Shankari also joined and used her first loan of Tk 1 500 to buy equipment for preparing yarn in her own home. Even after paying her weekly loan instalments, she was earning more than twice what she had as a day labourer. Although Bharendra's blacksmith venture was earning him income, they decided to joint forces and with gradually larger and larger loans bought three looms costing Tk 3 500 each, built a separate room to house them and hired a helper to run the third loom.0

Nesatun Begum is another example. The mother of three children, her husband and son worked in the home of rich peasants until she joined the Bank in 1981. She started a business of buying and selling rice and flour with a Tk 2 000 loan. Now her husband and son buy the rice and flour from the market (and engage in casual day labour), while she sells the goods to neighbours from her home. Within a year, she had paid off the loan and made a Tk 5 000 net profit which she saved; she has invested subsequent loans in expanding her trade. The family now eats more regularly and better, and has visibly increased its assets: two rooms added to the one-room thatched hut, more hens and ducks, a cow, and a small but growing savings account.

The bulk of the Bank credit goes to such individual enterprises (96 per cent in 1986), but since 1982, when collective loans were first allowed, some loans have been given for joint ventures, most of them to men and over half to improve irrigation for crop production. But some women's groups - or even sometimes an entire Centre - have taken funds to start such activities as paddy husking, weaving, and pottery making. In 1985, just under 4 per cent of all loans to women were for collective efforts. Although some have been reasonably successful, a number have encountered problems of organization, fair sharing of work and profits, and timely loan repayment.

Much more is needed. A recent survey of the impact of the Grameen Bank indicates that by all measures - incidence of gainful employment, level of income, accumulation of working capital, level of indebtedness to local moneylenders and general standard of living - women who have taken out loans are, in general, significantly better off than those who have not.1 None have become wealthy or even, by most standards, comfortably secure, but the number living in absolute poverty has been notably reduced. In the villages surveyed, approximately a third of the Grameen Bank members had incomes which compelled them to live in extreme poverty, against almost twice that number among those who were not members.

The Grameen Bank has shown that rural credit can be effectively delivered to women and can help them make a meaningful improvement in their economic and social conditions. Although it is not a panacea for all the ills of poverty and despair, it can supply a means for women to become more self-reliant and self-confident, better able to provide for themselves and their families, better prepared to take an active hand in shaping their future. But it should be remembered that, for all its innovative approaches and rapid expansion, the Grameen Bank is able to serve only a tiny handful of all the country's women. Tens of millions still face the dark prospect of a life described with stark eloquence by one woman in the Rangpur district: "Today there is no food, no clothes. Because of the lack of things, women have lost their value. We have no worth left. What we need, we cannot have. What we want, we cannot get. There is nothing for us to live for."