Since the 2010 microfinance crisis in Andhra Pradesh, India has turned the industry up-side down. One thing is sure: microfinance institutions (MFIs) that survive the crisis will have to make drastic changes to their methods to survive financially, and those changes will alter the institutions’ social effects.

One of the unexpected findings of my research on women’s control of microloans in Andhra Pradesh and Mahashtra this past summer was that the crisis may cause MFIs to shift away from a majority female client base to a more gender-balanced portfolio. The reasons for this shift unveil some of the lesser-known dynamics of MFIs with regard to women

The shift away from targeting women mirrors a shift away from the group-lending model originally developed by Grameen Bank. Whereas before the crisis it was thought that lending to groups of women was safer—the idea being that peer pressure acts as a sub-stitute for collateral—afterward, as the Andhra Pradesh government’s call for client de-fault spread, that same security has turned to poison.
“It’s like a plague,” explained the chief of one of BASIX’s larger units in Maharashtra. “As soon as one member of the group catches wind that they can default on repayment and the government will support them, they will encourage other members of the group to follow. Soon the whole district refuses to repay.”

Indeed, one can map the spread of the default epidemic from Andhra Pradesh to the border towns in Maharashtra. As a result, many MFIs are switching tactics and begin-ning to favor lending to individuals.

This increased preference for individual lending is intimately linked to an increased pref-erence for male clients, although it may not be immediately obvious why this should be the case. If, as many MFIs around the world argue, the rationale for lending to women is that they are a more secure and socially responsible investment than men, then it does not follow that with the breakdown in security of group lending MFIs should shy away from female clients. The crisis is actually bringing to the surface a long-understood but underemphasized fact about microfinance vis-à-vis women: they are the favored clients of MFIs not necessarily because they invest loans more responsibly, but because they are more docile.

When I asked a BASIX field manager why MFIs prefer lending to women, he replied without hesitation, “Women don’t stand up to you the way that men do. They are always at home, and they are easier to form into groups.”

In fact, most women never touch the money that is lent in their name; they hand it over to their husbands. And now the Indian MFI crisis is removing women further from the microfinance equation.

Those of us who care deeply about microfinance as a means of empowering women will doubtless be disappointed by this change of direction. But the move toward a more gen-der-balanced portfolio may actually be a good thing for female clients. The practice of aggressively lending to women, when many lack the social authority to retain control over their loans, is often more harmful than beneficial. Research done in Bangladesh since 1996, most notably by Anne Marie Goetz and Rina Sen Gupta and later by Aminur Rahman, indicates that the majority of women with access to microcredit are not nearly involved enough in the handling of microloans to achieve any sort of “empowerment.” On the contrary, Rahman’s research shows that many women suffer from an increase in domestic violence following their first loan due to ensuing power struggles in the home.

My research shows that the same tension exists in India. There, as in Bangladesh, women are caught between the loan officer, who holds her accountable for timely re-payment, and her husband, who, despite not having his name on the loan paperwork, is actually the one controlling the loan. Only 26 percent of women in my two-month study of 90 women decided themselves that they wanted to take the loan. For such women, it may be a relief that MFIs are beginning to consider giving individual loans directly to male clients.

This does not mean that microfinance should stop targeting women altogether. On the contrary, many women are benefiting significantly from access to credit. Eighteen per-cent of the women in my study had full control over their loans and ran their own mi-croenterprises, and 49 percent said that they wanted to be the one to take the loan even if they were only partially in control of its use after disbursal. These are the women the MFIs should continue to support.

For the 26 percent that want nothing to do with microfinance, a convergence of many more supportive efforts, mostly outside the scope of a typical MFI, will be required to achieve any kind of empowerment—and premature access to loans without this support may have the opposite effect. The best outcome for women at this stage may be for commercial MFIs to shift to a more gender-balanced portfolio, targeting only those women with a reasonable chance of using the loan themselves, while leaving financial empowerment of the most oppressed to those institutions willing to dedicate the re-sources to holistic support.

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