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The effect of microcredit on poverty
reduction and women empowerment
By
Imane Abdel Fattah Helmy
Research Methodology PaperSubmitted to the Management Department
Faculty of Management TechnologyThe German University in Cairo
Student registration number: 10-4543
Group number: T11Name of Supervisor: Ms. Raghda El-Ebrashi
Date: Thursday January 22nd , 2009
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Table of Contents:
1. Introduction…………………………………………………………………………..1
2. Literature Review.........................................................................................................2 2.1.Overview on poverty…………………………………………………………….2
2.1.1. Background and definitions.
2.1.2. Types of poverty.
2.1.3. Case studies of poverty in developing countries.
2.2. Overview on microcredit………………………………………………………...8
2.2.1. Characteristics of the microcredit programs.
2.2.2. The effect of gender differences on the effectiveness of the
microcredit programs.
2.2.3. A successful model of the microcredit programs: The Grameen
bank. . The effect of microcredit on poverty reduction and women
empowerment………………...………………………………………………....14
2.3.1. The effect of microcredit on poverty reduction.
2.3.2. The effect of microcredit on women empowerment.
2.3.3.Criticism about the microcredit programs.
3. Methodology……………………………………………………………………...…20
4. Conclusion…………………………………………………………………………..23
5. References…………………………………………………………………………...24
6.Appendix……………………………………………………………………….……27
6.1. Appendix 1: The Grameen Bank versus the commercial banks.
6.2. Appendix 2: The questionnaire.
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II
Table of Figures:
Figure 1: Grameen Bank memebership…………………………………..13
Figure 2: Distribution of Grameen Bank members………………………14
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1. Introduction:
The developing countries all over the world suffer from a complex multidimensional
problem which is poverty. Poverty can not be simply described as the low level of
income or low standard of living because it results in other difficulties like illiteracy,
vulnerability to health problems, powerlessness and low productivity (Adjasi and Osei
2007: 449). After decades of economic development, the roots of poverty still exist and
the income gap between rich and poor is critically increasing. For instance, 80 percent
of the world population are living in the developing countries and contribute only by 20
percent to the world income (Hossain 2000: 185). Also, about 1.2 billion persons live
on less than $ 1 a day and more than 2.8 billion people live on less than $ 2 per day
(Todaro and Smith 2006: 193). Consequently, poverty alleviation instruments are
gaining more interest among developing countries and many questions arise regardingthe impact of microcredit on the poverty reduction of its beneficiaries, who account for
10 million households all over the world (Chowdhury el al. 2005: 298-299, Adjasi and
Osei 2007: 449).
This study is exploring the effect of microcredit on poverty reduction and women
empowerment by investigating whether lending the poor collateral-free loans to run
income-generating activities helps in poverty alleviation and increases the bargaining
power of the women. Recently, the microcredit is perceived as a magic tool for poverty
eradication, especially after its great success in Bangladesh that was replicated by
several nations including the developed countries like The United States of America
(Chowdhury el al. 2005: 298-299). Since its first Summit in 1997, the microcredit
became the most popular approach used to eradicate the worldwide poverty and it is
argued that the microcredit empowers women both economically and socially by
increasing their contribution to the income of their family (Elahi and Danopoulos 2004:
643, Schultz et al. 2006: 51). Therefore, the impact of microcredit on poverty
eradication and women empowerment needs further examination.
The remainder of this paper is organized as follows. The next section gives an
overview on poverty measures and types then discusses three case studies of poverty in
the developing countries. This section is followed by describing the features of the
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microcredit programs and discussing the effect of gender differences on the
effectiveness of microcredit then we will represent a successful model of the
microcredit programs which is the Grameen Bank. Afterward, the effect of microcredit
on poverty reduction and women empowerment will be examined before highlighting
some criticism about the microcredit programs. Finally, in the last two sections, the
methodology of the study will be described followed by the conclusion.
2. Literature Review:
2.1. Overview on poverty:
2.1.1. Background and definitions:
"Don't ask me what poverty is because you met it outside my house. Look at the houseand count the number of holes. Look at the utensils and the clothes I am wearing. Look
at everything and write what you see. What you see is poverty."
-Poor man in Kenya
(Quoted in: Todaro and Smith 2006: 7)
According to Todaro and Smith (2006: 54), absolute poverty is the inability to
satisfy the basic needs (such as food, cloths and shelter) due to the lack of the minimum
level of income required by a person to be able to survive. Ullah and Routray (2007:
237-238) agreed with Todaro and Smith (2006) by defining poverty as the inability to
reach a certain level of income because of the lack of adequate ownership and control
over resources.
Consistent with the previous definitions, the poor are individuals with mean per
capita income below the minimum level required for meeting the basic subsistence
(Adjasi and Osei 2007:450, Ullah and Routray 2007: 238). This minimum level of
income is usually measured by $1a day and it is known as the international poverty line
(Todaro and Smith 2006: 202-203). As indicated by Perkins et al. (2006: 207-208), the
poverty line is the possess of a specific amount of taka or pesos or dollars to spend
daily. This poverty line varies from one country to another based on the per capita cost
of its basket of good.
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Siddique (1998:1095) mentioned that the headcount ratio, calculated based on the
number of people below the poverty line, is the most commonly used poverty measure.
In addition, another study by Ullah and Routray (2007: 239-240) revealed that the
poverty gap is one of the best measures of poverty as it shows the distance between the
consumption level and the poverty line. For instance, the greater the distance between
the consumption level of the poor and the poverty line the higher the poverty gap.
On the other hand, Adjasi and Osei (2007: 449-450) argued that poverty has a
complex nature and it can be analyzed from quantitative and qualitative perspectives.
Thus, to reach a fair assessment of the poverty status, multiple factors such as food
consumption, health, education and housing should be examined. Moreover, they
described poverty as the vulnerability to minor shock in the society such as weathershocks, the availability of limited choices, the lack of power and the deprivation from
social rights like the freedom of speech.
Sadeq (2006: 136) indicated that poverty is a multidimensional phenomenon that
should not be restricted to the low level of income as it involves other non-income
factors like poor health, illiteracy rate and lack of access to physical facilities. Perkins
et al. (2006: 207-208 ) agreed with Sadeq (2006) by defining poverty as a
multidimensional phenomenon that goes beyond the GDP per capita and encompass
basic health, education, access to safe drinking water and the ability to resist to natural
disasters and economic downturns.
Sen (1997) developed an approach to measure poverty called "The Capability
approach". This approach is used to measure the well being of the human functionings.
Functionings were defined as the various things that an individual can do or can be.
These functions vary from elementary functions such as adequate education and
nourishment to complex functions like being happy and having self-respect. The set of
functionings is known as capability and it reveals what a person can do while reflecting
his freedom to choose. Hence, this approach defines poverty as the absence of the
capability to function at the minimum level required within the society. Also, it is
worthy to say that Sen's capability approach played a critical role in shaping the
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concept of the human development used nowadays to define poverty (Selim and
Mabughi 2006: 190-192).
2.1.2. Types of poverty:
It has been pointed out by Dao (2004: 500) that 63 percent of the poverty all over
the world is concentrated in rural areas. For instance, Mwenda and Muuka (2004: 144)
stated that 70 percent of the total African population and 80 percent of the poor in the
African continent live in rural areas. In addition, Ghosh (2002: 87) indicated that
poverty affects 22 percent of the rural population versus 12 percent of the urban
population in India. Moreover, Ullah and Routary (2007: 238-239) mentioned that the
total population in Bangladesh was 129.2 million in 2001, of whom 80 percent lives in
rural areas and suffers from poverty and unequal access to land.
One of the main aspects of the rural poverty, as described by Ullah and Routary
(2007: 238), is the unemployment and the underemployment due to the limited job
opportunities available outside the agriculture sector. Also, these opportunities are
growing slowly compared to the growth rate of the demand for them. For instance, Dao
(2004:500) mentioned that two-thirds of the rural poor are employed by the owners of
the lands as small farmers and low paid workers.
Dao (2004: 501-502) stated that the major causes of rural poverty are the low level
of productivity as measured by the value added per worker, the unequal income
distribution due to the concentration of lands ownership in few hands, the
discrimination based on race or gender and the large family size that results in high
dependency rate. Another reason for rural poverty, mentioned by Ghosh (2002: 89), is
neglecting the rural areas and excluding them from the reform plans. For instance, the
basic needs of the rural sector like access to electricity, clean water and communication
are not considered as priorities in the planning process that is usually class biased.
Hossain (2000:189) indicated that rural poverty is caused by limited access to the land
as well as high illiteracy rate and the large dependence on agriculture activities.
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earn their own income and send their children to school. That is why if any country can
not ensure the right of education, freedom and equality for its women, it is more likely
than other countries to suffer from underdevelopment (Zhibin 2008: 29-30).
As Siddique (1998:1097-1099) mentioned, Bangladesh had introduced some
measures in order to fight women poverty and improve the status of women. For
instance, they introduced some measures to encourage the enrolment of girls in schools
and launched quotas to ensure the participation of women in political issues. Also, they
set up legal measures to protect women from violence. In addition, a lot of non-
governmental organizations in Bangladesh applied an integrated development system
that carries out different types of activities regarding women development such as
health, family planning, education and vocational training.
2.1.3. Case studies of poverty in developing countries:
2.1.3.1. Poverty in Bangladesh:
It has been pointed out by Hossain (2000: 189-190) that almost the half of the
population in Bangladesh fall below the poverty line. Moreover, in 1992 the statistics
revealed that 68.3 percent of children under the age of six years suffer from
malnutrition. Also, a major problem in Bangladesh is the rapid population growth
despite the implementation of successful family planning services. Another common
problem in Bangladesh is the inequality of landholding which worsens the problem of
poverty since lands are concentrated among few people while the majority of rural poor
suffer from low wages and low purchasing power.
Zapalska et al. (2007: 85) stated that the per capita income in Bangladesh is $350
which makes Bangladesh one of the poorest nations in this world. Also, the poor in
Bangladesh are characterized by the lack of food and the poor medical services. In
addition, Siddique (1998: 1095) added that the rural poor in Bangladesh suffer from
low income and unemployment while urban poor suffer from malnutrition and diseases.
Consequently, poverty in Bangladesh is a heritage that passes from one generation to
another (Zapalska et al. 2007: 85).
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2.1.3.2. Poverty in Malaysia:
A study by Siwar and Kasim (1997: 1526-1533) showed that the poor in Malaysia
are characterized by a large family size, low education level, low per capita income and
low employment status due to the lack of necessary skills. The study identified some
causes of this poverty like the migration of the rural poor to the urban areas in order to
find better job opportunities and the migration of foreigners, who represent the half of
the poor residing in the urban areas of Sabah.
The solutions implemented by the government of Malaysia in order to fight poverty
were divided into four components: (1) Employment creation, (2) Provision of housing,
(3) Development of growth centers and (4) NADI programs. The government
encouraged the growth of the industrial and service sectors through incentives to createmore job opportunities in these areas. Also, they implemented some projects that aimed
at providing low cost houses with physical facilities to the poor. As for the growth
centers, the government created centers to improve the standard of living of the poor.
Finally, the NADI program intended to provide access to electricity, water and health
care in the poor houses (Siwar and Kasim1997: 1528-1529).
2.1.3.3. Poverty in Ghana:
According to Adjasi and Osei (2007: 450-461), Ghana has been a victim of poverty
and debt problems for a long time. A survey conducted in 1999 revealed that five out of
ten regions in Ghana had more than 40 percent of its population living in poverty. Even
though the decrease in poverty incidence from 51.7 percent between 1991 and 1992 to
39.5 percent in 1998-1999, the level of poverty in Ghana is still high especially in the
rural areas. Moreover, the study showed that the level of poverty is higher in
households where the head is illiterate compared to the households headed by parents
who are educated.
Illiteracy was indentified to be one of the main consequences of poverty in Ghana.
For instance, the results of the study by Adjasi and Osei (2007: 454) showed that 87
percent of the mothers and 70 percent of the fathers are illiterate. As for housing, only
14 percent of the households live in apartments while the remaining percentage live in
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rooms and huts. Moreover, one third of the population relies on the water of rivers and
lakes as their main source of water and 60 percent depends on kerosene as their lighting
source instead of electricity.
2.2. Overview on microcredit:
2.2.1. Characteristics of the microcredit programs:
In the "Microcredit Summit" held in February 1997 in Washington, DC, the
microcredit programs had been defined as programs that lend the poor, mainly women,
small loans in order to enhance self-employment and income generating activities
(Elahi and Danopoulos 2004: 643-645, Zapalska et al. 2007: 86). Furthermore,
Chowdhury el al. (2005: 298) defined microcredit as small collateral-free loans given to
a jointly liable group of borrowers in order to reduce poverty through self-employment.They added that the loans are usually given to the poor through institutions or non-
profit organizations.
There are some common features shared among the microcredit programs. For
instance, the size of the loan is usually small (about US $ 100) and the repayment
period is short (about a year). In addition, the borrowers of money are poor households,
mostly women, who are called micro-entrepreneurs. Also, a common purpose of the
loans is to create self-employment and income-generating activities in the informal
sector (Elahi and Danopoulos 2004: 645, Zapalska et al. 2007: 86).
Elahi and Danopoulos (2004: 646) mentioned that the theory of microcredit is
described as "social consciousness-driven capitalism". This means that the microcredit
programs create capitalist enterprises aiming at maximizing the profit while taking into
consideration the welfare of its customers. This description clearly contradicts with the
Neo-classical production theory that was based on the assumption that individuals run
business while being motivated only by profit-maximization which excluded those who
care about the welfare of human beings. For instance, Hassan and Guerrero (1997:
1494) indicated that the revenue generated by the Grameen Bank is used to raise more
loanable funds as well as training employees and group borrowers to improve their
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and assets ownership. The results of the study revealed that the credit provided to
women affect these behaviors more significantly than the credit provided to men. For
example, a 1 percent increase in the credit provided to women increase the probability
of the enrollment of girl in school by 1.86 percent and the enrollment of boy by 2.4
percent. Hence, the study concluded that the microcredit programs are more effective
when the borrowers are women.
Hassan and Guerrero (1997: 1509-1510) supported the results of Pitt and Khandker
(1998) when he indicated that the annual reports of the Grameen Bank showed that the
projects run by women are more successful than the projects run by men. Also, in 1992
the recovery rate of the loans was 89 percent for men and 97 percent for women.
Moreover, Zhibin (2008: 32) noted from a study of ten Chinese microcredit projectsthat the rate of paying back the loans is higher when all the borrowers are women than
the pay-back rate when borrowers are composed of men and women. Finally, Zapalska
et al. (2007: 86-87) added that women are more successful as borrowers than men
because they have better attitudes toward microcredit and self-employment.
2.2.3. A successful model of the microcredit programs: The Grameen
Bank:
Elahi and Danopoulos (2004: 650) indicated that Yunus was inspired to found the
Grameen Bank when he met a widow mother of two children, Sufiya Khatun, who
symbolized all the injustices that a society could commit against its women. Hussain el
al. (2001: 26) added that Sufiya was weaving bamboo stools that she sells and earns
two cents a day. When Yunus was surprised because of the low income she earns, she
informed him that her moneylender was the buyer of the final products so he is the one
who set the prices that hardy cover the cost of raw materials. At this moment, Yunus
decided to give Sufiya and other 42 villagers small loans to be repaid from the profits
they earn and two years later, in 1976, he established the Grameen Bank.
In 1983, the Grameen Bank was charged to operate as a national bank. It had 75
branches in five districts in Bangladesh and in 1994 it expanded its operation to cover
30000 villages (Hassan and Guerrero 1997: 1489, Mwenda and Muuka 2004: 147).
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Recently, the Grameen Bank model is implemented in 50 countries like Asia, Australia
and Europe. It lent two million people in Bangladesh more than $1 billion and
employed about 14000 staff (Hussain el al. 2001: 27, Hossain 2000: 192, Zapalska et
al. 2007:86).
The fundamental belief of the Grameen Bank is that people do not create poverty
but the institutions and the policies surrounding them result in their poverty. It is not
the lack of skills, ideas and innovations that make the poor people poor because they
may possess some skills that are underutilized (Elahi and Danopoulos 2004: 645,
Hussain el al. 2001: 31). A common notion shared at the Grameen Bank is that the
main problem of poor lies behind the lack of capital given their productive capacity
(Hassan and Guerrero 1997: 1489, Hossain 2000: 192).
The Grameen Bank has rejected the basic methodology of the conventional banks
and developed its own methodology by giving loans to the poor without collateral as
loan security which contradicts with all conventional banks (Hassan and Guerrero
1997: 1489, Elahi and Danopoulos 2004: 645, Hossain 2000: 192). Hassan and
Guerrero (1997: 1504) mentioned that the maximum limit of a loan is US $ 125 to be
repaid in 50 equal installments. Also, the interest rate charged by the bank is 20 percent
which could be higher than the market rate yet it is lower than the rate charged in the
informal markets.
Hussain el al. (2001: 29) pointed out that the poor who meet the screening criteria of
the bank like being landless, not having cash or property can borrow money in forms of
groups of five people. Each member in the group receives his own loan, yet they are
jointly liable for the five loans invested in income generated activities (Hassan and
Guerrero 1997: 1503, Pitt and Khandker 1998: 959, Chowdhury el al. 2005: 300).
Usually, the members of the group come from the same village, know each other and
have similar needs; however, they can not be from one family in order to avoid family
bias (Hassan and Guerrero 1997: 1503, Hussain el al. 2001: 27).
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One of the distinctive features of the Grameen Bank is the accumulation of savings
since the borrowers are required to save one Taka per week in order to constitute the
group fund that can be borrowed by any member in case of illness, emergencies or
social commitment. Moreover, the group fund enable the members to buy a share of the
stock of the bank at the cost of 100 Taka (US $ 2.5) which make the poor become
owners of the bank and take part of the board of directors (Hassan and Guerrero 1997:
1500, Hussain el al. 2001: 27-31, Hossain 2000: 193).
It has been pointed out by Hussain el al. (2001: 27) that the Grameen Bank is
different from the traditional banks that give loans and wait for the return. The
Grameen Bank offers the borrowers business expertise beside money and its vision is
broader than finance as it is the only bank in this world that promotes birth control andclean environment in its lending policy. Hassan and Guerrero (1997: 1512) agreed with
Hussain el al. (2001) as they mentioned that the original purpose of the Grameen Bank
was to offer credit and reduce poverty; however, their founders realized that credit is
not sufficient so they established a welfare program that helps poor in education,
health, housing, family planning and environment protection.
Hassan and Guerrero (1997: 1490-1492) indicated that the charismatic leadership of
Dr Yunus could be one of the critical success factors of the Grameen Bank. Also, the
decentralized administration system of the bank, organized into four independent
levels: head office, zone office, area offices and field branches that coordinate with
each other, has been a key factor in attaining its success. Moreover, the employees of
the Grameen Bank possess the necessary skills since the bank offers them training
sessions and they are highly motivated because their salaries depend on their
performance. Furthermore, Hussain el al. (2001: 27) mentioned that the trust shared
among the members of the Grameen Bank due to their regular interaction is the secret
of its visionary success.
Hossain (2000: 194) mentioned that one of the Grameen Bank employees stated
three reasons that are considered as the secret of the Grameen Bank success. First, the
payment of installments is scheduled on a weekly basis which facilitates the pay back
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of the loans. Second, the bank ensures that loans are used for the purpose they were
borrowed for. For example, the employees physically check if a loan borrowed for the
purpose of building a house resulted in building this house or not. Third, the
commitment of the employees and their punctuality in distributing the loans is reflected
on the borrowers so they paid the installments regularly.
The model of the Grameen Bank is considered as one of the most successful
attempts to increase the involvement of poor women in productive activities (Hassan
and Guerrero 1997: 1509). Consequently, women represent the major customers of the
Grameen Bank (Hassan and Guerrero 1997: 1509, Hussain el al. 2001: 29). As Figure 1
shows, in 1994 the total number of the Grameen Bank members was about two million
members of whom women represented the majority. Also, figure 2 indicates that theparticipation of men in the Grameen Bank has been decreasing over the years while
women participation had steadily increased. For illustration, women membership had
increased from 65 percent in 1985 to 94 percent in 1994 (Hassan and Guerrero 1997:
1489-1510). In addition, recent figures show that 95 percent of the Grameen Bank
customers are women (Hussain el al. 2001: 27).
Figure 1: Grameen Bank membership
Source: (Hassan and Guerrero 1997: 1490)
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Figure 2: Distribution of the Grameen Bank members
Source: (Hassan and Guerrero 1997: 1490)
2.3. The effect of microcredit on poverty reduction and women
empowerment:
2.3.1. The effect of microcredit on poverty reduction:
The Report of the Task Forces on Bangladesh Development Strategies mentioned
three approaches for poverty eradication. The first approach is investing in social
sectors like health and education to improve the standard of living and enhance the
human capabilities. The second one is encouraging growth oriented programs that have
a strong effect on the rural poverty. The third approach is promoting the targeted
income and the employment generating programs to support the vulnerable poor who
were previously excluded from the market based development process (Hossain
2000:190, Siddique 1998: 1098).
The microcredit programs are considered as growth oriented programs that aim at
reducing poverty by empowering the poor and giving them the opportunity to
contribute to the growth of their society through self-employment (Hossain 2000:190-
191). The microcredit programs are recognized all over the world as a key instrument
to alleviate poverty and to create a sustainable human development process.
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Consequently, the international donor community and the non-governmental
organizations were encouraged in the general assembly of the United Nations passed in
1997 to integrate the microcredit programs in their strategies and to adopt policies that
support its development (Hossain 2000:191, Elahi and Danopoulos 2004: 647).
As pointed out by Chowdhury el al. (2005: 299), there are more than 1000 non-
governmental organizations in Bangladesh that run microcredit programs. Moreover,
Zapalska et al. (2007: 89) indicated that the innovative approach of Bangladesh, which
introduced the microcredit programs, has significantly eradicated the poverty of several
families and helped hem get out of the poverty trap. For instance, a study conducted by
Chowdhury el al. ( 2005: 298-303) on a sample of 954 participants of the microcredit
programs in Bangladesh revealed that microcredit is associated with a reduction in thepoverty of the participants especially with the long run participation in the programs.
Hossain (2000: 191-194) stated that the Grameen Bank, which is the biggest micro-
lender in Bangladesh, reduced poverty from 59 percent in 1991-1992 to 53 percent in
1995-1996. Also, more than 160,000 families who borrowed money from the Grameen
Bank were able to built new houses, sent their children to school and improve their
standard of living. Hussain el al. (2001: 32) agreed with Hossain (2000) by mentioning
that the Grameen Bank represents a successful example of a poverty alleviation
initiative that is appreciated by several international organizations. Moreover, it has
been pointed out by Hassan and Guerrero (1997: 1510) that the Grameen Bank had
improved the social life and the self-esteem of the poor beside the enhancement of their
economic conditions.
Siwar and Kasim (1997: 1534) mentioned that the achievements of the Grameen
Bank in Bangladesh and its branches in many countries like Asia and Malaysia indicate
that microcredit is a powerful tool for poverty reduction and the improvement of the
socio-economic conditions of the poor. Consequently, one of the main aims of their
study was to come up with some policy options for an entrepreneurship program that
will be implemented in Malaysia to fight poverty. This program will give interest free
loans to the poor in order to start their own small enterprises. Also, training courses to
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the participants such as project management, marketing and accounting will be
organized. The researchers conducted an empirical study on a sample of 510 persons in
Malaysia and the results showed that 63 percent of the sample will be interested in this
program as a way to reduce their poverty.
Schultz et al. (2006: 62) gave an example of a woman who received microcredit
and invested the loan in income-earning activity so she was able to pull her family out
of poverty. Bakhita, a mother of seven children, got her first credit in 1997 followed by
two other credits and started selling cloths and utensils to women. Before receiving
these loans, she was not able to afford the fees of her children schools so they stopped
going to school and they started to sell water. However, after getting the three loans and
starting her project, Bakhita was able to build a new house and pay the fees of herchildren education who were all enrolled again in schools.
2.3.2. The effect of microcredit on women empowerment:
According to Mahmud (2003: 580-581), women empowerment is a multi-
dimensional notion that can be defined from different perspectives. In the development
process, women empowerment has been viewed as the improvement of women well-
being. This well-being can be absolute like improving the welfare of women with
respect to education, health, nutrition and ownership of assets or relative like improving
the position of women in the household compared to men. In addition, Ackerly (1995:
56) developed an idea about women empowerment. He said that women empowerment
takes place when the woman invests money in a successful business, her husband stop
hitting her, she takes part in family decisions and she sends her kids to school (Osmani
2007: 697).
Kabeer (1999: 436f) refers to empowerment as the different processes that enable
women to be able to choose after being denied from this ability (Mahmud 2003: 584-
585, Schultz el al. 2006: 53). On the other hand, Chen and Mahmud (1995) identified
four dimensions of empowerment: material, cognitive, perceptual and relational. While
material empowerment occurs when women acquire material resources such as land
and assets, cognitive empowerment occurs when women recognize their own skills
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which increase their self-esteem. Also, perceptual empowerment takes place when the
perception of the society toward women changes and this lead to increasing their social
prestige and values. Finally, relational empowerment occurs when the gender
inequality in relationships within the family and the whole society disappears (Mahmud
2003: 585).
Schultz el al. (2006: 53-54) mentioned that women participation in the microcredit
programs improve their material welfare and give them more rights within the
household. Also, microcredit helps women gain some degree of independence by
participating in group meetings and discussions. In addition, Osmani (2007: 698) has
clearly shown that several studies conducted with the aim of measuring the effect of
microcredit on women empowerment found out that microcredit reduced domesticviolence against women, increased women involvement in the decision making
process, improved women self-worth and increased the education of daughters.
Likewise, Mwenda and Muuka (2004: 146) indicated that access to microcredit
increases women empowerment and children education.
Osmani (2007: 696-697) pointed out that microcredit was originally designed to
improve the income earning power of women; however, it was also able to empower
women in a broader sense. For instance, when women contribute to the cash income of
the family, their power within the household increases and their self-esteem raises.
Furthermore, borrowing the loan and running an income-generating activity enable
women to enlarge their social networks and come out of the narrow limits of their
household to the broad society and this increases their self confidence.
Mahmud (2003: 579) mentioned that one of the most noticeable transformations in
the life of women in Bangladesh is the increase in their access to microcredit as a part
of several programs designed by non-governmental organizations to fight poverty. He
added that the effect of these programs was not limited to poverty eradication but it was
expanded to include women empowerment. For instance, Hossain (2000: 196) stated
that the Grameen Bank was able to empower its women borrowers and many of them
become economically independent from their husband. Moreover, Hassan and Guerrero
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(1997: 1510) indicated that the Grameen Bank has a positive and a noteworthy impact
on improving women decision making within the household.
Osmani (2007: 695-702) had empirically tested, using a sample of the Grameen
Bank borrowers, whether women access to microcredit improves their bargaining
power within the household. The study reported that microcredit has a positive effect
on women bargaining power as measured by the value of assets (land and non-land)
that women own as well as their judgment about their ability to support themselves if
left alone. Another study by Mahmud (2003: 589-602) revealed that women
participation in microcredit programs encourages women's self-employment, improves
their welfare and increases their active role in the decision making process.
2.3.3. Criticism about the microcredit programs:
Zhibin (2008: 32) indicated that some critics argued that microcredit negatively
affects women by increasing their workload and mental stress. Similarly, Mahmud
(2003: 582) mentioned that some opponents of the microcredit claimed that the
microcredit programs increase the pressure on women by the family and the financial
organizations to pay the loan installments on time which create a new form of social
burden upon women.
It has been argued that poor are not able to run an activity and generate income as
they lack the necessary business skills. This means that access to credit is not the only
constraint on increasing the income of the poor because still the lack of human capital
and labor productivity can affect the increase in income. Moreover, microcredit has
been accused by replicating an old credit theory developed by Adam Smith (1937) who
said that individuals can self- employ their skills to their best interests if they are given
access to credit. Hence, microcredit did not bring out any innovative theory (Elahi and
Danopoulos 2004: 645-648).
The Grameen Bank has been criticized by charging high interest rate (20 percent)
which is greater than the interest rate charged by the conventional banks (10-15
percent) (Hussain el al. 2001: 32, Hossain 2000: 196). In addition, Hassan and
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Guerrero (1997: 1515-1516) indicated that the Grameen Bank takes funds from donors
then puts them in commercial banks that pay higher interest rates and by this way it is
making profit from granted donations.
A study conducted by Hoque (2004: 22-30), to assess the effect of microcredit on
poverty alleviation using data from one of the biggest microcredit provider in
Bangladesh, which is Bangladesh Rural Advancement Committee, concluded that the
microcredit has a minimal effect on the improvement of the economic conditions of its
participants as well as the eradication of their poverty because the loans are not usually
used in productive activities. In other words, the microcredit programs are criticized by
having an insignificant effect on poverty since the microcredit policies do not ensure
that loans are invested in income earning activities.
From exploring the previous literature review, we found a huge gap in investigating
the impact of combining microcredit with non-financial services, e.g. education, health
care, vocational training, technical courses, on poverty reduction and women
empowerment in Egypt. The credit by itself may be an insufficient tool to reduce
poverty if it is not associated with other social services because poverty is a
multidimensional problem that is not restricted to the level of income but it
encompasses food, shelter, health and education. Consequently, the research question
that this study seeks to answer is: "What is the effect of combining microcredit with
other social services on poverty alleviation and women empowerment in Egypt?".
Hypothesis 1: Combining the microcredit with other social services has a positive
effect on poverty reduction in Egypt.
Hypothesis 2: Combining the microcredit with other social services empowers the
Egyptian women.
In order to obtain a multifaceted view of poverty, we measure poverty reduction by
the raise in the level of income, the reduction in health expenditures, the improvement
of the literacy rate and the housing conditions. As for women empowerment, it is
measured by the increase in the ownership of material assets, self-esteem, social
network and the reduction in the domestic violence against women. The social services
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provided with the microcredit include illiteracy eradication programs, health care,
technical and business training like marketing courses, vocational training and project
management.
3. Methodology:
In order to test the previously mentioned hypotheses, a quantitative method that
combines surveys and interviews will be employed. Since we are aiming at
investigating the impact of providing some social services with the microcredit on
poverty reduction and women empowerment, a survey will be a valid tool to draw
statistical conclusions about this effect using a questionnaire to test the improvements
that took place after receiving the microcredit and the social services. However, due to
the cultural barriers and the high rate of illiteracy among the poor in Egypt, a structuredface-to-face interview is highly needed in order to clarify the purpose of the study and
the meanings of the questions.
The interviewer will introduce the objective of the study and its level of
confidentiality then the questions will be explained to the participants before recording
the answers. Also, the questionnaire of the study will be divided into three sections.
The first section will include the screening criteria and the demographic data like the
level of education, the family size, the martial status and the type of the social services
that the respondent receives. The second section will measure the effect of the
microcredit and social services, if any, on poverty reduction and the third section will
focus on their impact on women empowerment.
The sample of the study will consist of one hundred Egyptian poor who received
small loans and social services from non-governmental organizations and one hundred
poor who received the microcredit from governmental institutions, like Nasser Social
Bank and the Social Fund for Development, without any social services. The second
group of beneficiaries will act as a control group to measure the impact of microcredit
on poverty reduction and women empowerment then it will be compared to the other
group in order to determine the effect of combining microcredit with social services on
poverty alleviation and women empowerment. The sample will include men and
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women, yet it is expected that higher percentage of women will be included since the
majority of the microcredit beneficiaries are women. This target group was chosen to
have precise up-to-date information provided directly from the beneficiaries of the
microcredit instead of relying on data and documents provided by governmental or
non-governmental institutions.
The participation of the two groups in the microcredit programs should be at least
five years since it has been pointed out by Hassan and Guerrero (1997: 1499) that the
beneficiaries of the microcredit programs need about five years to improve their
economic conditions and raise their income above the poverty line. Likewise, women
empowerment is a long-run process that needs time to take root in the society (Osmani
2007: 697). Consequently, in order to measure the impact of combining the microcreditwith social services on poverty alleviation and women empowerment, the participation
of the sample in the programs should be five years or more.
The sample of the study will be chosen from the district of Old Cairo, the area of
Ain El Sira, using the stratified random sampling which is one of the probability
techniques. From the total population in Ain El Sira, which account for twenty
thousand persons, those who took small loans and social services offered by non-
governmental organizations from five years or more are one thousand persons. This
relevant population will be divided into three stratums according to the area where they
live (Blocks, Slums and the area of El Gayara) then one hundred persons will be
randomly selected from each stratum.
As for the control group, it will be chosen from Nasser Social Bank and the Social
Fund for Development using the simple random sampling technique. Each beneficiary,
who is a resident of Old Cairo, will be assigned a unique number than one hundred
numbers will be randomly chosen from the list. We choose the area of Old Cairo as it is
one of the poorest areas in Cairo where several organizations operate in order to
develop the region and improve its economic and social conditions. Also, a sample of
one hundred persons was selected to accurately represent the relevant population.
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During the first two weeks of the research, the questionnaire will be designed then
we will contact two non-governmental organizations in Old Cairo, the Social Fund for
Development and Nasser Social Bank, in the following two weeks, to get the list of
names and the addresses of the target group. The fieldwork of the study will last for
two months since gathering the data will be done through in-home visits to the poor
which is expected to consume more time. Also, it is worthy to note that four employees
from the non-governmental organizations, the Social Fund for Development and Nasser
Social Bank will assist in the fieldwork by offering guidance in the area of Old Cairo.
Afterward, data will be analyzed in two weeks, using the "Statistical Package for the
Social Sciences" software, and during the last two weeks the findings of the study will
be presented and the research will be finalized.
Limitations:
The findings of the study can not be generalized to all the microcredit programs in
Egypt because the sample was limited to one urban area in Cairo and it excluded the
rural areas in other governorates and in Upper Egypt. Moreover, the majority of the
sample consists of illiterate individuals which increase the probability of the response
error due to the incomplete knowledge or the misunderstanding of the questions, even
though the interpretation provided by the interviewer, especially for the questions that
measures the self-esteem, the domestic violence or the social network. Also, the
response bias may increase for some questions regarding the raise in the level of
income, the health expenditures and the material assets ownership because the
participants may provide inaccurate information regarding these matters.
Due to the limited scope of the study, other issues, such as the effect of microcredit
on poverty reduction in the United States of America, the social and the cultural
adjustments of the microcredit model in Egypt and a comparison between the impact of
microcredit on poverty reduction in a developing country like Egypt and a developed
country like the United States of America, were not explored in the current paper.
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4. Conclusion:
In this paper, we examined the impact of the microcredit on poverty reduction and
women empowerment by exploring whether lending the poor small loans to enhance
their self-employment helps in poverty alleviation and increases the bargaining power
of the women. The paper started by identifying the quantitative and the qualitative
measures of poverty followed by the types of poverty such as rural and women poverty.
Afterward, three case studies of poverty in Bangladesh, Ghana and Malaysia were
presented followed by defining the microcredit programs. After exploring the impact of
gender differences on the effectiveness of the microcredit, we found that the projects
run by women are more successful than the projects run by men because targeting
women improves the welfare of the whole family.
After presenting a successful model of the microcredit which is the Grameen Bank,
we highlighted the difference between this bank and the conventional banks then we
explored the impact of the microcredit on poverty reduction and women empowerment.
The findings showed that microcredit significantly eradicates the poverty of its
beneficiaries and helps hem get out of the poverty trap besides improving their social
life. Likewise, women participation in the microcredit programs improve their material
welfare, give them more rights within the household, reduce domestic violence and
increase their involvement in the decision making process. Finally, some criticisms
against the microcredit, like charging high interest rate and increasing the burden on its
beneficiaries to pay the installments, were highlighted.
In our opinion, the findings of the study support the popularity of the microcredit all
over the world by illustrating its positive effect on poverty reduction and women
empowerment. This significant effect is consistent with the replication of the
microcredit programs in several countries with the hope of escaping poverty by
enhancing self-employment and improving the status of women. Furthermore, we think
that the opponents of the microcredit did not provide enough evidence to support their
claims. For instance, the Grameen Bank is not charging a high interest rate as it has
been argued because its interest rate is lower than the rate charged by the commercial
banks and the moneylenders (Hossain 2000: 197).
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Also, the study conducted by Hoque (2004: 22-30) based all its data on the
Bangladesh Rural Advancement Committee, which is one of the microlender in
Bangladesh, to reach its conclusion about the minimal effect of the microcredit on the
economic conditions of its participants. Therefore, the results of this study can not be
generalized to the microcredit programs all over the world because the sample was
selected from one single institution. Moreover, the study did not mention the duration
of the sample participation in the program which is a key factor that may affect the
findings of the research as it has been pointed out by Hassan and Guerrero (1997: 1499)
that it takes the participants about five years to improve their economic conditions and
increase their level of income.
.
5. References:
Adjasi, C.K.D., Osei, K.A. (2007), Poverty profile and correlates of poverty in Ghana.
In: International Journal of Social Economics, vol. 34, No 7, pp. 449-471
Chowdhury, M.J.A., Ghosh, D., Wright, R.E. (2005), The impact of micro-credit on
poverty: evidence from Bangladesh. In: Progress in Development Studies, vol. 5, No
4, pp. 298-309
Dao, M.Q. (2004), Rural poverty in developing countries: an empirical analysis. In:
Journal of Economics Studies, vol. 31, No 6, pp. 500-508
Elahi, K.Q., Danopoulos, C.P. (2004), Microcredit and the Third World: Perspectives
from moral and political philosophy. In: International Journal of Social Economics,
vol. 31, No 7, pp. 643-654
Gosh, B.N. (2002), Allocative inefficiency and rural poverty in India. In: International
Journal of Social Economics, vol. 29, No. 1/2, pp. 87-96
Hassan, M.K., Guerrero, L.R. (1997), The experience of the Grameen Bank of
Bangladesh in community development. In: International Journal of Social
Economics, vol. 24, No 12, pp. 1488-1523
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Hoque, S. (2004), Micro-credit and the Reduction of Poverty in Bangladesh. In: Journal
of Contemporary Asia, vol. 34, No 1, pp. 21-32
Hossain, I. (2000), Micro-Credit and Good Governance: Models of Poverty Alleviation.
In: Southeast Asian Journal of Social Science, vol. 28, No 1, pp. 185-208
Hussain, M.M., Maskooki, K., Gunasekaran, A. (2001), Implications of Grameen
banking system in Europe: prospects and prosperity. In: European Business Review,
vol. 13, No 1, pp. 26-41
Mabughi, N., Selim, T. (2006), Poverty as Social Deprivation: A Survey. In: Review Of
Social Economy, vol. LXIV, No 2, pp. 181-204
Mahmud, S. (2003), Actually how Empowering is Microcredit? In: Development and
Change, vol. 34, No 4, pp. 577-605
Mwenda, K.K., Muuka, G.N. (2004), Towards best practices for micro finance
institutional engagement in African rural areas. In: International Journal of Social
Economics, vol. 31, No 1/2, pp. 143-158
Osmani, L.N.K. (2007), A BREAKTHROUGH IN WOMEN’S BARGAINING
POWER: THE IMPACT OF MICROCREDIT. In: Journal of International
Development, vol. 19, pp. 695-761
Perkins, D.H., Radelet, S., Lindauer, D.L. (2006). Economics of Development, W.W.
Norton & Company, New York
Pitt, M.M., Khandker, S.R. (1998), The Impact of Group-Based Credit Programs onPoor Households in Bangladesh: Does the Gender of Participants Matter? In: Journal
of Political Economy, vol. 106, No 5, pp. 958-996
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Sadeq, A.M. (2002), Waqf , perpetual charity and poverty alleviation. In: International
Journal of Social Economics, vol. 29, No 1/2, pp. 135-151
Schultz, U., Maccawi, A., El-Fatih, T. (2006), The Credit Helps me to Improve my
Business: The Experiences of Two Microcredit Programs in Greater Khartoum. In:
The Ahfad Journal, vol. 23, No 1, pp. 50-65
Siddique, M.A.B. (1998), Gender issues in poverty alleviation: a case study of
Bangladesh. In: International Journal of Social Economics, vol. 25, No 6/7/8,
pp. 1095-1111
Siwar, C., kasim, M.Y. (1997), Urban development and urban poverty in Malaysia. In:International Journal of Social Economics, vol. 24, No 12, pp. 1524-1535
Todaro, M.P., Smith, S.C. (2006). Economic Development, Pearson Education Limited,
the United States of America
Ullah, A.K.M.A., Routray, J.K. (2007), Rural poverty alleviation through NGO
interventions in Bangladesh: how far is the achievement? In: International Journal of
Social Economics, vol. 34, No 4, pp. 237-248
Zapalska, A.M., Brozik, D., Rudd, D. (2007), The success of micro-financing. In:
Problems and Perspectives in Management, vol. 5, No 4, pp. 84-90
Zhibin, L. (2008), Chinese Women and Poverty Alleviation: Reflections and Prospects
for the Future. In: Chinese Sociology and Anthropology, vol. 40, No 4, pp. 27-37
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6. Appendix:
6.1. Appendix 1: The Grameen Bank versus the commercial banks:
Table 1: Advantages and disadvantages of the Grameen Bank and commercial banks
Source: (Hussain el al. 2001: 33)
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Table 2: Differences between Grameen Bank and conventional banks in Bangladesh
Source: (Hussain el al. 2001: 34)
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2- Health expenditure:
Compared to your situation before receiving the microcredit, your monthly health
expenditures are…..?
Higher The same Less
3- Housing conditions:
Your house is made of…?
Wood Wall Straw/mud
Cement Brick Concrete
4-
Literacy:What is your level of education?
Primary Secondary Diploma
University None Others
Section III: Women empowerment:
(N.B. please skip this section if the respondent is a male).
1- Material assets ownership:
a) You share in the income of the family, versus your husband income, is…?
Higher The same Less
b) Do you have any personal savings accumulated for your personal use?
Yes
No
2- Social Network:
a) Do you trust the lending group to which you belong?
Yes
No
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b) When you need consultation or assistance in your project, you usually ask…?
Husband
An employee of the lender institution
None
3- Decision making:
Compared to your situation before receiving the microcredit, your contribution to
the decision making within is the household is…..? (e.g. decision about the
number of children to have, decision about children education)
Higher The same Less
4- Domestic violence:
Are you usually exposed to any type of domestic violence, e.g. physical like
beating, Economic like controlling your money or social like controlling your
relationship and social contacts?
Yes
No
5- Children education:
a) Are your children educated?
Yes
No
If Yes, was it your decision to send them to school?
YesNo
Thank you so much
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