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The “Women-Only” Approach Versus the “Family Empowerment Approach”: Egypt as a Case-Study

March 7th, 2011

The access to basic financial services that Islamic Microfinance offers empowers Muslim women in giving them a new dimension in life and feeling of self-worth. However, while this ability of Microfinance to provide rural women with micro-loans in gender-segregated societies is laudable, working with Muslim women in particular raises the issue of interfering with social, cultural and religious codes. The Qur’an encourages men and women to play their respective roles in society, by ensuring the economic and social wellbeing of the family: “Men shall have a share of that which they have earned, and women a share of which they have earned” (Qur’an, VI, 32).

Hence, the “women-only” approach typical of conventional microfinance is not always followed by Islamic Microfinance Institutions (IMFIs) that try to adhere to Islamic principles and values while providing customers with loans. IMFIs overcome this problem by shifting their focus from “women empowerment” to “family empowerment”, which is also promoted by the Qur’an. While this kind of an approach might be met by criticism, it must be understood that it is a very culture-specific approach that mostly caters to male-dominated societies.

The “women-only” approach does weaken the institution of the family by sending both the male and the female out to work, giving them both the feeling of being the breadwinner for their family. But besides this, this approach is also prone to many risks posed by traditional male-dominated societies. In these societies, the funds provided to women for investment in their enterprises are often usurped by the male members of the family, while the women consequently end up carrying the burden of repayment and of their business independently.

In a Muslim country like Egypt, which was the first MENA country to sign the UN Convention on the Elimination of All Forms of Discrimination against Women (CEDAW), Microfinance has had a great impact on women’s empowerment in the country. In 2008, a national survey carried out by Planet Finance (NGO) evaluated the impact of microcredit as well as the perception of this impact: “During the focus group discussions, women unanimously stated that the loan had had a positive effect in terms of their image in their communities; they are also more self-confident and their children appreciate what they do. Their projects have allowed them to have a better life in general (“National Impact Survey” 86)”. Despite being a male-dominated Muslim society, Islamic Microfinance accentuates women empowerment.

47 percent of Egypt’s microentrepreneurs are women; 88 percent of these women operate home-based businesses and only 28 percent operate non home-based businesses. Despite these circumstances wherein women are allowed to realize their entrepreneurial skills and abilities out of their home, 45 percent of women have noticed a positive change in their life, in terms of education and economic possibilities, whereas 86 percent of women have experienced a positive impact in terms of personal autonomy (V. COSTA – H. MAKHLOUF – P. MAZAUD).

Sources:

Costa, Valentina. Makhlouf, Hala. Mazaud, Perrine. “Women’s Empowerment through Islamic Microfinance in Egypt”. MESCI 2009-2010.

The Role of the Rural Development Scheme (RDS) in the Development of Women Entrepreneurship Under Islamic Microfinance

March 7th, 2011

Looking at the RDS as a case study in the development of women entrepreneurship in Bangladesh by means of Islamic Microfinance, we can analyze the role of the burgeoning industry in poverty alleviation, and women empowerment in particular. The RDS is a provider of Microfinance services in Bangladesh, following the rules set by the Islamic Shari’ah. The RDS caters to the investment needs of the agriculture and rural sector; its target market segment include destitute women and distressed people. The RDS is an investment project that conforms to social responsibility fort he downtrodden in the rural areas as its prime priority. It uses depositors’ funds in interest-free ways in rural areas where downtrodden people are susceptible to interest-based groups.

90 per cent of the RDS’ customers are women; the project is currently being operated in about 2200 villages in 45 districts through 21 branches, with a recovery rate of approximately 99.7 per cent.

The cardinal principle of the Scheme is the ‘Group Approach’, Allah loves those ‘who conduct their affairs by mutual consultation’ (Al-Quran 42:38). For all decision-making activities, this mutual consultation is given high priority. The scheme works with each member of the group guaranteeing other members’ investments, and once the investment is approved, the investment (along with a percentage of the profit earned by the business) needs to be paid back by the client in 45 equal weekly installments.

This model has worked really well in terms of the scheme serving as a great source of empowerment for its women customers (who are also the majority of its borrowers). Since the establishment of the RDS, there has been a positive impact on women’s income, decision-making skills, and in reducing overall gender disparity in Bangladesh. Moreover, the group approach adopted by the RDS works really well with women because women in general find it easier to identify with organizations that essentially reflect feminine qualities such as relationships, interdependence and cooperation. An article written by Mahmood Ahmed on the RDS also points out that that scheme has seen a really high repayment rate because women are more likely to repay loans than men, owing to their “mother-hood” skills that they have developed while looking after their husbands, children, and families at home. This hypothesis particularly applies to the women and culture of Bangladesh.

RDS is therefore one out of the many Islamic Microfinance models that has proven successful in alleviating poverty and empowering women by means of granting them interest-free loans.

Legitimacy of Islamic Microfinance as a Viable and Feasible Alternative to Conventional Microfinance

March 7th, 2011

Why is there a need for Islamic Microfinance?

We know that the prime motive of every government and every country’s Finance Minister is to account for a sound and stable financial system in the economy, and try to alleviate poverty. However, factually speaking, there is no evidence of a system that has succeeded in the above-mentioned attempts. With the emergence, instant success, and exponential growth of the Microfinance industry, Microfinance has been claimed to be the mechanism that has the potential to eradicate global poverty. This claim obviously comes with its share of criticism and debate; how does Microfinance aim to defeat poverty, if it charges its high-risk, poor customers, excessive rates of interest that in some cases soar as high as 60%? The industry is getting carried away by its potential to generate profits; there is an increasing number of MFIs that have started operating under the business objectives of the commercial world, with profits and expansion being their main aim. MFIs have started to go public, when the only beneficiaries of this industry, as stated by Mohamed Yunus, should be the poor population it was initially created for. Of course, other social benefits such as justice and equality, and a proper distribution of income and wealth, remain just as unattainable and untouched with the industry moving farther away from its actual goals.

Looking at Different Countries as Case-Studies of a Global Need for Islamic Microfinance

In such a global situation, Islamic Microfinance could be the savior that the Microfinance industry needs to remind it of its original motivations. Like Muhammad Yunus pointed out, the Microfinance industry was created to protect the poor from loan sharks, not create more loan sharks. Looking at the global Microfinance industry, and the cost of borrowing money, the countries that are most shocking are Nigeria and Mexico (NYTimes). The demand in these countries for micro loans is very expansive. In this classic case of an excess demand being met by a high price, these countries charge their poor excessive rates of interest.

In Mexico, the average rate of interest for a micro loan is 70 percent, compared to a global average of about 37 percent (NYTimes). Uzbekistan also boasts a whopping 80 percent average in interest rates per annum, with Uganda, Kenya and Ghana following at approximately 55 percent, 55 percent and 50 percent (respectively) (CGAP).

In such a situation, where the global average itself is at 35 percent, would it help to have an industry serving the same purpose of providing the poor with basic financial access, WITHOUT charging interest? Islamic Microfinance is definitely an alternative to the problem of high rates of interest; although Islamic Microfinance does not mean that money is lent absolutely free cost (since the industry needs to make its profits in accordance with the Islamic Shar’iah), its compliance with Islamic rules and the Islamic goal of an Economic System with values such as justice and equality, the industry is obviously bounded by moral values that hinder it from getting carried away or trying to make profits at the expense of the poor.

Sources:

Rosenberg, Richard. Kneiding, Christoph. 2008. “Variations in Microcredit Interest Rates” Brief Note. Washington, D.C.: CGAP, June.

<http://www.responsability.com/domains/responsability_ch/data/free_docs/1_0807_CGAP_Variations_in_Microcredit_Interest_Rates_2.pdf>

MacFarquhar, Neil. “Banks Making Big Profits From Tiny Loans”. NYTimes. April 13 2010.

<http://www.nytimes.com/2010/04/14/world/14microfinance.html?_r=1

What Does It Mean For Women To Be “Empowered” And Does Empowerment Compromise The Viability of Microfinance Institutions Worldwide?

March 3rd, 2011

Microfinance has had a positive impact on the status of women globally. What does it mean for women to be “empowered”?

According to the State of the Microcredit Summit Campaign 2001 Report, 14.2 million of the world’s poorest women how have access to financial services through bank, Microfinance Institutions (MFIs), NGOs, and other such institutions. These women belong to the 74 percent of the approximately 20 million of the world’s poorest people that are now being catered to by MFIs. This means that most of these women have access to the ‘loan’ they need to start or invest in their own enterprise; also, most of these women have great repayment records despite the financial problems they run into on a regular basis. So then, is it a good idea to lend money to the poor, and more specifically to poor women? What does this money do for them in terms of their ‘empowerment’?

The word empowerment is difficult to define precisely; yet, it is easy to pin-point an example of empowerment when we see one:

Snapshots of Empowerment:

  • Nury, an illiterate Trust Bank client at AGAPE in Colombia, formerly too shy to speak to strangers, became the treasurer for her Trust Bank.
  • A group of widows in Bali received loans from WKP to start simple projects raising pigs. Over time, they grew in confidence and solidarity and expanded to form a pig-feed cooperative that became the major supplier for their village.
  • Hanufa, a member of CODEC in Bangladesh, defends her rights against an illegal divorce but ultimately decides that she is better off on her own. “I can walk on my own shoes now.”

A lot of different terms have been associated with empowerment: self-reliance, self-respect, self-enabling to reach potential, development of self-worth, and so forth. Empowerment is definitely the goal of many MFIs worldwide; these institutions help women that have previously experienced little or no power, make choices that impact their lives forever. By providing these women with basic financial services, and a loan to become an entrepreneur, they have a tremendous impact on this empowerment process.

Even though MFIs with a strong focus on empowerment have been criticized to have lose their operational viability and sustainability in the process, this has been proved wrong by many MFIs with the same women-empowerment focus. Working Women’s Forum (WWF) in India, for example, is fully financially sustainable and offers a range of nonfinancial services, including organizing women in the informal sector to achieve better wages and working conditions. WWF also empowers poor women through its institutional structure by training them to act as health promoters and credit officers in their neighborhoods. Therefore, MFIs with a strong focus on empowerment maintain very high levels of operational and financial sustainability, suggesting that a great deal can be done to enhance women’s empowerment even within the constraints of financial sustainability.

Cultural Significance of Islamic Microfinance and its Empowerment of Women in Muslim Countries

February 11th, 2011

When examined from an Islamic perspective, the Microfinance industry highlights certain objectives such as social justice, equitable distribution of income and wealth, and promoting economic development. An Islamic Microfinance Institution (IMFI) needs to ensure the accomplishment of these objectives, while building an inclusive financial system that gives due consideration to the cultural factors associated with the industry.

To successfully reach that goal, the current Islamic Microfinance industry needs to diversify its product range and design; an innovative range of Shari’a (Islamic Law) compliant products and services would prove be a resort for financial access to a much larger proportion of Islamic Microfinance costumers worldwide.

To satisfy the above-mentioned objectives, many IMFIs have been trying to adopt an approach that targets “family empowerment” as their goal. This is in line with the teachings of the Qur’an, which promotes men and women to play their respective roles in ensuring the financial and social well-being of the family.

Adopting a “family empowerment” approach rather than a strictly women-focused one avoids cultural issues that could arise in male-dominated Muslim societies. This allows the Microfinance industry to continue empowering women, while adhering to specific cultural norms. For instance: in Egypt, women make 47% of the Micro-entrepreneurs , who have been able to make profits of approximately USD 73, on an average.

Despite the fact that in a Muslim country like Egypt, where women operate 88% of the home-based businesses, and only 28% of external/commercial businesses, 45% of women have noticed a positive change in their lives, from education to economic possibilities, since participating in a microfinance program.

Interview with Matt Bannick, Managing Partner at the Omidyar Network (Part Two)

February 10th, 2011

Last week, I posted the first half of my conversation with Matt Bannick, Managing Partner for the Omidyar Network, which so far has invested over $330 million in both for-profit and non-profit organizations designed to help elicit positive social change. In the first part, I focused particularly on what he called “flexible capital,” wherein the Omidyar Network can invest in nonprofit or for-profit organizations, primarily on the basis of which strategy is likely to have the most successful outcome.

This week, I want to focus on some of the organizations Mr. Bannick and the ON have been excited to give grants to, namely D.Light, a project out of Stanford, and the Bridge Academy International schools set up in Nairobi. Said Mr. Bannick:

D.Light is a solar lantern company. The problem they’re trying to address is that in many parts of Africa and India, people in the rural areas have no light in the evenings. And what they use typically is kerosene. And the problem with kerosense is that it creates noxious fumes, so it’s a health hazard. It’s also expensive and it obviously has a pretty high carbon footprint. D.Light has developed a solar lantern that’s down to eight dollars. And the solar lantern, you charge it for six hours and it gives you six hours of light. So all of a sudden, you don’t have to buy kerosene, you’re healthier, and you can read and get a better education, and it can transform the life of a household. So that’s one company that we’ve invested in, and I think they’ve now sold more than a million units worldwide.

There’s another example in Nairobi in a chain of schools called Bridge Academy International, and what they’ve been able to do is to get the cost of creating a fabulous education (and by the way, as background, in Kenya, everyone is entitled to schooling, but in reality the teachers don’t show up. And to show up frequently they expect bribes, and so the system fundamentally doesn’t function. And so Bridge Academy has come in, they’ve developed a very low-cost model where they can provide a fabulous education to children in the slums of Nairobi for $4 a month. It’s truly exceptional. They’re now bringing even on their first schools and their hope and their desire is to build out thousands of schools across Africa that could deliver very high-quality education at very low cost to the poor.

I do wonder a bit about the discrepancy between the eight dollar cost to manufacture the solar lamps and the thirty dollar pricetag mentioned on the D.Light website for an American to buy a light and give it to an impoverished person in East Timor, but profit or not, it’s clear that solar-powered lights can be incredibly helpful. And maybe, as Mr. Bannick explained in Part One, using for-profit organizations can effect quicker change, as having a margin of profit can add more fuel to growth and allow for the quicker spread of disruptive technology. In impoverished nations, there does continue to be the spectre of abuse that can occur when labor is cheap and desperate, but when money is given to people concerned with doing good first, then making profit (more as a means of sustaining growth than an end in itself) second, it can still have massive positive impact.

Read the full interview below for more on what kinds of entrepreneurs the Omidyar Network tends to invest in, for the breakdown of international vs. local and male vs. female entrepreneurs, and for his analysis of the nonpayment movement. And immediately below are some of the organizations he mentions.

  • D.Light: low-cost, Stanford-based solar-powered light manufacturer.
  • Bridge International Academies: Low-cost, high-quality education for underprivileged African children.
  • Endeavor Global: An organization fostering high-impact entrepreneurship.
  • Omidyar Network: A philanthropic organization that gives to both nonprofit and socially conscious for-profit organizations.

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KW: What’s an organization that you’ve invested in that has been for-profit that you’ve been most excited about?

MB: Well, since you’re at Stanford now, I’ll use a Stanford example. Have you heard of the “Design for Extreme Affordability” program at Stanford?

KW: I actually have, yeah.

MB: Have you heard of D. Light?

KW: The name sounds familiar.

MB: So D.Light is a solar lantern company. The problem they’re trying to address is that in many parts of Africa and India, people in the rural areas have no light in the evenings. And what they use typically is kerosene. And the problem with kerosense is that it creates noxious fumes, so it’s a health hazard. It’s also expensive and it obviously has a pretty high carbon footprint. D.Light has developed a solar lantern that’s down to eight dollars. And the solar lantern, you charge it for six hours and it gives you six hours of light. So all of a sudden, you don’t have to buy kerosene, you’re healthier, and you can read and get a better education, and it can transform the life of a household. So that’s one company that we’ve invested in, and I think they’ve now sold more than a million units worldwide.

There’s another example in Nairobi in a chain of schools called Bridge Academy International, and what they’ve been able to do is to get the cost of creating a fabulous education (and by the way, as background, in Kenya, everyone is entitled to schooling, but in reality the teachers don’t show up. And to show up frequently they expect bribes, and so the system fundamentally doesn’t function. And so Bridge Academy has come in, they’ve developed a very low-cost model where they can provide a fabulous education to children in the slums of Nairobi for $4 a month. It’s truly exceptional. They’re now bringing even on their first schools and their hope and their desire is to build out thousands of schools across Africa that could deliver very high-quality education at very low cost to the poor.

KW: OK. Now, this class is for International Women’s Health, so I have to ask this question, which is, what’s the breakdown been of entrepreneurs who have been male versus female?

MB: Oh gosh. I think it varies. I’d have to go through. I mean, there have been terrific entrepreneurs, both male and female. Many of our organizations we support do have a gender focus on women. So for example there’s an organization in Seattle called Landessa that works on rural property rights, and they have a whole area that focuses on women and land, women and property rights. The schools in Nairobi, one of the exciting things about them is that about fifty percent of the kids attending those schools are girls, and that may not sound remarkable until you realize that in most places, when school becomes expensive, the families send boys first, and then if they have money left over they send girls. So one of the positive impacts here is that you’re able to actually to get the cost down to a point to where the girls can go to school. And there are implications of educating girls—they tend to marry later, and they tend ot have fewer children. And their children tend to be healthier and better educated. So there’s huge returns, and you probably studied this in the women’s health class, there are huge returns on educating girls. So we have a bit of a bias toward those organizations, those companies that disproportionately benefit women and girls.

KW: Backing up and talking a little bit more about the entrepreneurs that you tend to invest in, what do you use to identifiy which entrepreneurs are going to succeed? Do you have any sort of bias toward people who are working in their own countries, or people who are going to other countries?

MB: Yeah, you really want people with local knowledge, and sometimes, like in the case of Bridge Academy, they’re Americans but they’ve been in Nairobi for some time, and they have been successful entrepreneurs. [We look at] the caliber of the entrepreneur, their reputation, their track record, their knowledge of the market, they’re looking to serve, then you look at the quality of the idea, the market size, the competitive environment. You know, many of the same things that you would tick through when you’re looking at an investment for [a company] would be the exact same criteria that we’d be looking at as well.

Now the added dimension for us is that we’re looking for investments that will create opportunity for hundreds of thousands. Whereas the objective at [an investment firm] would be, OK, well what is the return on investment?, we absolutely would look at return on investment, but we also look at social impact and we’d be willing to have a little lower return on investment in exchange for a higher social impact.

KW: That’s awesome. I did want to ask whether the non-payment movement that’s been affecting a few different countries has been affecting you guys at all.

MB: So we’re not directly invested in MFI’s [Micro-Finance Institutions] in [any of the affected regions], but we are invested in funds that are invested in MFI’s in India, so yeah, I think the whole sector has been affected by the challenges in [that region], and unfortunately I think that microfinance institutions should have done a better job in the areas of consumer protection and in the area of establishing effective credit bureaus to guard against over indebtedness. I also hope that people recognize that microfinance is delivering tremendous value to the poor, and we need to figure out how to strengthen the industry, rather than do things that inhibit people who don’t have the means from receiving credit.

KW: The final question that I have is how do you think you can foster a more entrepreneurial spirit in the third world, and as a follow-up, do you think that it should be encouraged.

MB: Well absolutely. I think that entrepreneurship is key to ideas, to job creation, to economic development, and I think people inherently want to make a better life for themselves and their families. Entrepreneurship, in addition to helping societies progress economically, also gives people hope, and also taps their creative spirit, and I think it’s absolutely essential that societies support entrepreneurship. One of the organizations that you might take a look at is a group called Endeavor Global, and I’m on the board there. Endeavor is very much focused on fostering entrepreneurship in the developing world, and they have a lot of good facts and figures on their website that you can check out. But I think that it’s absolutely critical.

KW: Thank you so much, I really appreciate the time that you took for this, and I hope that you’re getting as much satisfaction out of the work that you’re doing as you should be.

MB: It’s fabulous, and who I am, and the work I do, and the values I want to pass onto the kids are all the same thing, which makes it very gratifying.