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Women and Repayment in Microfinance

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Microfinance is a banking service provided to low-income or unemployed individuals and groups who have limited access to financial resources. One of its main features is a loan given without security. “Its goal is to provide impoverished people with an opportunity to become self-sufficient and it is most common in Developing countries such as Indonesia, Uganda, Serbia.” (Investopedia, 2019) Microfinance institutions focus on helping the women population in particular for example, in Uganda, banks encourage women to engage in projects such as agriculture and opening small restaurants. Microfinance plays a big part in women empowerment as it promotes stability and prosperity for their families. Female clients present 85% of the poorest microfinance clients reached (Ilo.org, 2019). The main reason women seem to be targeted more than men is because women borrowers register higher repayment rates. “Women borrowers at the Grameen Bank have repayment rates that have been 97 percent year after year.” (

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A journal written on ‘women and repayment in microfinance’ analyses gender differences with respect to microfinance repayments rates using a global perspective. It covered 350 Microfinance Institutions (MFI’s) in 70 countries. It found that many women clients were associated with low credit loss provisions and lower write-offs than men. This confirmed that women are a better credit risk for MFI’s. On one hand, a number of studies found that women continuously outdo men when it comes to repayment. For example, Armendariaz and Morduch (2005) reported that the Grameen bank initially had men as customers too. However, the bank decided to switch their focus more on women due to repayment problems from male customers. Empirical evidence Hossain (1988) from Bangladesh showed that 81% of women encountered no repayment problems compared to 74% of men. However, there are studies that found no significant relationship between gender and repayment. For example, BRI (a reputable MFI in Indonesia) has never specifically focused on women and still receives a good amount of repayment rates over the past years (Aghion and Morduch, 2005). This makes us think that perhaps the women repayment rates may not be as definite as they are rendered to be. An advantage of the reports is that they were worked out by a third party and they cover a wide range of organisational features as well as social indicators. However, the different inflation rates in the 70 counties make comparisons difficult and less accurate.

A number of theories have been put up explaining the gender differences with repayment rates. Based on experiences in villages in Bangladesh, Todd (1996) argues that since men can more easily access credit, women are more cautious in their investment strategies in order to ensure continued access to credit and therefore show better repayment records . Conversely, one may argue that on average, women are poorer than their male peers and may therefore find it more difficult in repaying. Another argument put forward was that women tend to be easily influenced by the interventions of loan managers Goetz and Gupta (1996). Also, women are believed to be more sensitive in matters relating to reputation and honour hence making them more likely to pay their debts on time (Ilo.org, 2019). Female clients tend to stay closer to home rather than going to work (like men do) making it easy for the MFI to inspect and follow them up; making it safer for MFIs. However, some theories (Kabeer, 2001) point out that some women borrowers do not have control over their finance due to the men in their household. This could have a negative impact on their repayment rates.

Morduch (1999) argues that “one of the primary reasons for the success of microfinance is the targeting of women.” This is because the higher repayment rates enhance the MFI’s efficiency. However, the financial performance of the MFI is more than just repayment for example, it has recently been demonstrated how MFI’s have to cut their operating costs to be able to focus on poor clients (Mersland and Strom, 2010). Thus, the financial efficiency of lending to women is not fully known as it can be argued that serving women is costlier for reasons such as; women borrow less, they tend to be less educate and may require additional services from the MFI’S such as training. However, there is evidence that women receive smaller loans and pay higher interest which therefore compensates for the higher operating costs for the MFI’s.

Another explanation as to why women play a better role concerns risk aversion and competitive incentives. Studies show that women tend to be more risk averse than men when making financial decisions. This is because women are more conservative in their investment strategies and therefore have better repayment records. Moreover, women are also less opportunistic in their financial decisions and more likely to engage in cooperative behaviour. An explanation for this is that women’s child bearing responsibilities forces them to be more prudent. Because women are more risk verse, they are less likely to ask for big loans that they may not be able to repay .

Some financial managers believe that women are unable to become successful entrepreneurs because they lack leadership, autonomy, experience and the ability to make business decisions. This makes it riskier for them to be successful in their start-ups and manage to repay the loans compared to lending to men. But “literature on discrimination is scarce as it demands specific data.”  Regarding income, focus on women may be associated with different interest rates charged. On the one hand, MFIs with greater focus on women may be more concerned with development impact and may therefore charge lower interest rates.

On the other hand, it is also possible that increased transaction and monitoring costs will be transferred onto the clients, resulting in higher interest rates. Additionally, because women are more credit controlled, MFIs might use their bargaining power and charge higher interest rates to keep them on the safe side. Overall, the effect that focusing on women has on an MFI’s income is unclear.

In conclusion, majority of academic literature show that lending to women is a safer option. However, all the studies were carried out in Developing countries and not the Developed making it not representative and applicable to the general population. Furthermore, “evaluating the creditworthiness of a borrower has always been a challenge for the MFI’s due to the fact that their clients lack a formal credit history.” Moreover, all the studies and theories were made years ago so is it still safer to lend to women at this day and age? Finally, not all studies were backed by empirical evidence hence making them unreliable.      

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