WHAT IS MICRO FINANCE
Micro finance basically targeted the low income people and women to get some benefit from it. This micro finance loan is provided to low income clients which include self employed also generally the financial services include both savings and credits although there some MF organizations which provides the payment and insurance services, and addition to this some micro finance organization provide intermediary services. So the function of micro finance organization include both financial intermediary as will as social intermediary usually micro finance institution gives Small loans for unemployed women to start their work
And also gives loan in which the group is guarantor also provide longer loan on the bases of pre payment performance.
some MFI provides some social services like skill training, literacy training and enterprise development services, , these are not generally included in the definition of MF. MF institutions can be in the form of .micro finance clients are the low income people in both urban and rural areas..
MF providers and important source of financial intermediation Moneylenders, pawnbrokers, and rotating savings and credit associations are informal and illegal sources so that will be prohibited.so micro finance means provide loan to the poor families and poor unemployed women to engage them in a productive activities and grow their business
These are baisically those poor people who can not access to formal financial institutions
the concept of MF is now becoming broad. Because the poor people can not afford the grater risk so that's why a diverse range of financial instruments is needed. according to Ledgerwood (1999) generally include savings and credit but can also include other financial services such as insurance and
Schreiner and Colombet (2001, p.339) he defines micro finance that through you can access to the small loan and neglect the banks Another definition given by the World Bank about micro finance that is “small loans that help poor people who wish to start or expand their small businesses but are not able to get banks to lend to them”. In other words micro finance is the supply of loans saving and other basic financial services to poor. People living in poverty need a diverse range of financial instruments to run their businesses build assets stabilize consumption and shield themselves against risks. . Micro finance is as a part of development finance rural or urban targeted towards specific groups of people male or female falling in the lower bracket of society
According to Otero MF, according to Otero (1999, p.8) is “the provision of financial services to low-income poor and very poor self-employed people”. These financial services.” Therefore, microfinance involves the provision of financial services such as savings, loans and insurance to poor people living in both urban and rural settings who are unable to obtain such services from the formal financial sector
HOW MICRO-FINANCE WORKS?
The very beificial product which is used by micro finance is micro credit loan which consist of usually less than $150 so this loan is enough for a poor entrepreneurs to start or expand small business and can earn some profit through which they can avail better food, housing, health care and education for entire families, as we know that all poor entrepreneurs, need a place to save their money and easily avail the benefit to insurance for their household and health, so that's why MFIs try to meet these needs and to improve the live of these poor people..
The global repayment rate for micro credit loans is higher than 95 percent, which allows MFIs to re-lend these funds to even more clients. By giving the world's poor a hand up, not a handout, microfinance can help break the cycle of poverty in as little as a single generation.
THE BACKGROUND HISTORY
The concept of micro finance is started for the first time in Bangladesh in 1960s and micro finance is very popular and very successful. The GOVT of Bangladesh has set aside 18 billion taka for micro finance. In which the GOVT earn 10 billion taka from interest saving and insurance products.
So from the above history we can conclude that Modern micro finance was started in Bangladesh in the early seventies and Muhammad Yunus, an economics professor at the University of Chittagong for the first time start their research project on micro finance providing small loan to the poor people Bangladesh.. That experiment driven by a strong sense of developmental Idealism developed into what is now the world's most famous microfinance institution, The Grameen Bank and institutions that replicate its pioneering methodology worldwide.
IMPACT OF MICROFINANCE ON WOMEN UNEMPLOYMENT
So the question arises that either micro finance impact the unemployed women and why poor women is target by micro finance.
So their are many reasons that why women are the primary target of micro finance so if we look at macro level so 70 percent of the world's poor are women. So the ratr of unemployment of women is very in the world as compare to the men unemployment rate men.
Targeting women has also proved to be a successful, efficient economic development tool. Research performed by the United Nations Development Program (UNDP) and the World Bank, among others, indicates that gender inequalities inhibit overall economic growth and development. A recent World Bank report confirms that societies that discriminate on the basis of gender pay the cost of greater poverty, slower economic growth, weaker governance, and a lower living standard for all people.
DETAILS ABOUT MICROFINANCE
The formal financial institution need high collateral for receiving so that's why the poor people can not afford the loan due to high collaterals and traditional banking are not more interested in giving small loan to the poor so that's why micro finance is very successful for issuing small loan to poor.
MFI provides loans and help the poor people through many shapes like credit unions, commercial banks and, non-governmental organizations (NGOs). Many microfinance institutions (MFIs) use social collateral in the form of peer groups to ensure loan repayment. Borrowers take out loan in groups of five to eight individuals. If a borrower defaults on her loan, the entire group typically is penalized and sometimes barred altogether from taking further loans. This peer pressure encourages borrowers to be very selective about their peer group members and to repay loans in full and on time, resulting in the higher than 95 percent repayment rates industry-wide.
The loan which is provided by the micro finance institutions are shorter than commercial loans, usually six months to one year with payments plus interest, due weekly. Shorter loan cycles and weekly payments help the borrowers stay current and not become overwhelmed by large payments. in rural areas, is more expensive as compare to urban area because running a bank branch that provides large loans to economically secure borrowers in a metropolitan area. As a result, MFIs must charge interest rates that might sound high the average global rate is about 35 percent annually, to cover their costs. For a financial institution to scale and remain sustainable, at a bare minimum it has to cover its costs. In the example below, a large bank (big lender) can charge anything over 14 percent to recoup its costs, whereas the MFI has to charge a rate of at least 31 percent to cover its costs.
When MFIs are required to charge a pre-determined interest rate, which is usually much below the cost that the MFI incurs, MFIs are often forced to go out of business. As a result, those who the MFI would have served are left without access to any financial services at all this type of regulation often is a disservice to the very people it's meant to protect.
One should note that although MFIs may charge rates of 30 to 70% to cover their costs. These interest rates are still significantly lower than the 300 percent to 3,000 percent annual rates that many borrowers were previously paying to money lenders; and are typical of the local credit card interest rates.
WOMEN PLAY IMPORTANT ROLE IN MICRO-FINANCE
Women play an important role in micro-finance and women can also get benefit from it. But still there is a challenge to develop this industry for women like micro financial institutions to make easy funding the loan for women.and also promotes gender policies of micro-finance programs for men and women. And the access to micro-finance services (credit, savings, insurance and pensions) is still highly unequal between men and women. Considerable advances were made in the 1990s in the design of NGO-managed programs and poverty-targeted banks to increase women's access to small loans and savings facilities.
The objective of of micro-finance is to reduce poverty and decrease the unemployment rate in th country specially of the women unemployment because women are generally the poorest in the poverty group. In the rural areas, for example, women do not have equal access to education. However, micro finance provides women with the opportunity to lift them out of poverty.
Women are more likely to use services in a way, which will promote family well being. They are more reliable borrowers in that they tend to return anything they have borrowed, and are less likely to try to cheat. They tend to be more careful with the resources they have, using money more wisely, and are more likely to save. Moreover, they are generally supportive creatures, especially in a group, which is good for the overall morale of the poor to lift themselves out of poverty.
CHAPTER - 3
Kabeer, quoted in Mosedale (2003, p.2) states that there is a need that the women should empower because there are so much forces by which the socity put pressure on women through norms, beliefs, customs and values and on the baises of these values societies differentiate between women and men”. And further says that empowerment refers to the “process by which those who have been denied the ability to make strategic life choices acquire such an ability”,
(Kabeer, 1999, p.437).according to kabeer micro finance institutions do not help directly but can help the women indirectly like through giving them training and awareness to resist the existing those norms, and values which is disadvantage for women in relation to men..
Murduch and Hashemi (2003, p.4) says that if the access of women to micro finance institution become easy then women can empower and will feel more confident. And will take part more confidently in community decisions and will resist of gender .inequities
Johnson (2004, p.5) states that as we know that women is key participants in MF. Johnson further says that micro finance does not lead you directly towards empowerment; Johnson says there are some negative impacts of the micro finance loan to the women like in increased the workloads of the home and in increase, domestic violence. but the positive impact also there like women is more efficient and careful than men since women are available more likely than in the home.men, attend meetings, and be manageable by field Staff and take repayment more seriously.
Osmani (1998) explain that how Grameen Bank give loan to the women clients. This bank start this project to increase the income of women to spend money on their choice and fulfill the needs and wants of their family and himself and make a good planning for the family.
Micro finance institutions in Bangladesh felt the need that women's enhanced contribution to the household (2004, p.6).
Goetz and Sengupta's study of 275 loans in large-scale credit programmes in Bangladesh (106 BRAC; Grameen Bank 53; TMSS 39 and RD-12 (55) through this study they found that 17.8% women have full control over the loan which they have get from FMIs and this study also shows that 21.7% had no control . A survey has been conducted study in which they have taken 26 women in Bangladesh through this study they have found that nearly 68% of women use their loans by husband and son (Basnet 1995).
Rogaly (1996:106). Rogaly analyzed that Women have less credit risks than their male relatives. He further says that you can easily locate the women as compare to men because mostly the women work in and the women are more careful in the repayment of the loan both in terms of the social network and training opportunities.
Evidence shows that the people who get benefit from micro finance is mostly the poor family and/or most disadvantaged by ethnic group and/or who are abused within the household.
“Khandker (1998) shows from their study and estimate that if MFIs give every 100 taka as loan to the woman so this can change consumption increases by 18 taka and also effect the poverty by a falls rate of around 15% and ultra-poverty by 25% for households..
(Kabeer, 20011; Rahman 19992). They both shows from their study that the poor women can not appreciate the micro credit loan.
The effect of giving loan to the women and becoming empower is controversial in the study like one opinion is that credit programs positively contribute to female empowerment.
And the second opinion is that credit programs do little to alter gender relations in favor of females but in fact may contribute to reinforcing existing gender imbalances....
Amin et al's (199411) this man conduct a survey in 36 villages in Bangladesh and this survey show that the membership in BRAC have positively affect the woman's decision and the control over resources This is reinforced by Naved (199412)
Hashemi et al (199613 he says that the women through this program women helping their family and contributing factor towards her empowerment.
A claim also made by White (199214)...The focus of those skeptical about the empowering effect of micro credit has been on the issue of women's control over loans. Goetz et al (199615).
Hulme and Mosley (1996, p.128) they also make some point of view and they says that “naivety of the belief that every loan made to a woman contributes to the strengthening of the economic and social position of women”.
So by earring some money the women can improve their position in the society as will as in the family.
Murduch and Hashemi (2003), according to Murduch and Hashemi they survey in Nepal and they both found from their study that 68 members of the micro finance is were making their decisions by himself and on doing the business of property by buying and selling, earring money through this and planning their family, and their daughter to school which indicated that women involved in microfinance projects, had increased self-confidence and had an improved status in the community (ibid.).
Mosedale (2003, p.1) states that if we want to see people empowered it means we currently see them as being disempowered, disadvantaged by the way power relations shape their choices, opportunities and well-being. She states that empowerment cannot be bestowed by a third party but must be claimed by those seeking empowerment through an ongoing process of reflection, analysis and action (2003).
Bhuiya (2004, p.383) analyzed that found that the violence has increased by men against women when women start MF the reason is that all women are not ready to accept the change in the position of the women in the house so that,s why the men show their eagerness and violence and this violence decrease over time.
Jeffery Sachs (2005) in a visit to a BRAC project was amazed to find that women he spoke to had only one or two children, when he was expecting them to have five or six as he had become accustomed to for Bangladeshi women. When he asked those with no or one child how many children they'd like to have, the majority replied two. He calls this a “demonstration of a change of outlook” (2005, p.14). He refers to a new spirit of women's rights, independence and empowerment among clients, showing the positive empowerment effects the project has had on the women (ibid.).
Hulme and Mosley (1996) says MF projects can minimize the isolation of women and further says that if husband come together and invest the money in a good place then the benefit will be more as compare to separation.