The Role of Microfinance in
achieving Millennium Development Goals 3 and 5
Nynke Smit
February 2007
Supervisor: dr. ir. Dirk Bezemer
The Role of Microfinance in
achieving Millennium Development Goals 3 and 5
Abstract
Table of Contents Abstract... 2 Preface ... 5 Introduction ... 6 Outline...7 1 Background information... 8
1.1 Millennium Development Goals ...8
1.1.1 MDG 3: Promote gender equality and empower women ...8
1.1.2 MDG 5: Improve maternal health... 10
1.1.3 Critical review of MDG 3 and MDG 5 ... 11
1.2 Microfinance... 11
1.2.1 Emergence of microfinance and current situation ... 11
1.2.2 Impact of Microfinance ... 13
1.3 Women... 14
1.3.1 Women and Microfinance ... 14
1.4 Conclusion ... 15
2 Literature overview ... 16
2.1 Literature... 16
2.2 Microfinance and MDG 3 and MDG 5 ... 18
2.3 Conclusion ... 19 3 Methodology ... 20 3.1 Framework... 20 3.1.1 Hypotheses ... 20 3.2 Methodology ... 21 3.2.1 Dependent variables: ... 22 3.2.2 Microfinance: ... 22 3.2.3 Control variables: ... 24 3.3 Conclusion ... 26 4 Data ... 27 4.1 Data collection... 27 4.1.1 Dependent variables ... 27 4.1.2 Microfinance...27 4.1.3 Control variables ... 28 4.1.4 Sampling ...28 4.2 Data Exploration ... 29 4.3 Data Analysis ... 31
4.3.1 Analyses from the general models (using poorbor)... 31
4.3.2 Analyses from women models (using poorwom) ... 34
4.3.3 Sample size comparison ... 37
4.3.4 Introducing the access to formal banks variable into the model ... 38
4.4 Conclusion ... 39
5 Conclusions, limitations and appraisal ... 40
5.1 Conclusions... 40 5.2 Limitations ... 41 5.3 Appraisal ... 41 References... 42 Websites ... 45 Appendices ... 46
Appendix 1: Millennium Development Goals and Indicators... 46
Appendix 2: Control variables per dependent variable ... 49
Appendix 3: Borrowers per country... 50
Appendix 4.1: Average loan per borrower per country- general ... 51
Appendix 4.2: Average loan per country - women ... 52
Appendix 5: Descriptive Statistics... 53
Appendix 6: Regressions with only microfinance variables ... 54
Appendix 7.1: General model primary- girl’s to boys ratio in primary education ... 55
Appendix 7.4: General model - women to men parity index, as ratio of literacy rates, aged 15-24... 58
Appendix 7.5: General model - share of women in wage employment in the non-agricultural sector ... 59
Appendix 7.6: General model - percentage of births attended by skilled health personnel... 60
Appendix 7.7: General model - maternal mortality ratio ... 61
Appendix 8.1: Women model - girl’s to boys ratio in primary education... 62
Appendix 8.2: Women model - girl’s to boys ratio in secondary education ... 63
Appendix 8.3: Women model - girl’s to boys ratio in tertiary education ... 64
Appendix 8.4: Women model - women to men parity index, as ratio of literacy rates, aged 15-24 ... 65
Appendix 8.5: Women model – the share of women in wage employment in the non-agricultural sector... 66
Appendix 8.6: Women model – percentage of births attended by skilled health personnel ... 67
Appendix 8.7: Women model – maternal mortality ratio ... 68
Appendix 9.1: Sample size comparison within the models ... 69
Appendix 9.2: Sample size comparison - general model with women model sample size ... 70
Appendix 10.1: General model including demobr ... 71
Preface
When deciding on what topic to focus on for my master thesis, my interest ran from economics of sports to finance to management. After visiting China, I realized that I wanted to focus on development economics. Shortly afterwards my attention was drawn by microfinance, a popular poverty tool. The link with the Millennium Development Goals was easily made. However, the way this topic needed to be approached was less than easy.
After spending extensive time on reading into the subject, I could no longer postpone the statistical part: an analysis of the data available. It took some effort, but I am proud to present my thesis. While writing this thesis I decided to help as a volunteer in a microfinance project in the Philippines. This was a very valuable experience. I believe in the opportunities that microfinance can create for the poor people of this world and I hope I can contribute to this in the future.
There are several people that I would like to thank for making this research possible. First of all, my supervisor professor Dirk Bezemer, who kept me on the topic and gave valuable new insights and feedback. My thesis buddies – Andrea, Bianca, Chris, Nicole and Judith – thanks for all your support! And of course my family and all my other friends for their constant support and encouragement!
Introduction
In 2006 Muhammad Yunus, founder of the Grameen bank, was awarded the Noble Peace Prize for his efforts to try and establish peace by reducing poverty through microfinance. Even though people usually relate microfinance to economic development, its true potential seems to be larger than just creating economic prosperity for its users. Microfinance can battle poverty on multiple fronts.
While staying in Manila, I met Eveline, a women with three children who tried hard to receive a loan provided by the local government. Her business was running relatively well, but to be able to provide her children with the appropriate education she needed additional income. She expected the loan to enable her to expand her business and earn the necessary money. This example shows the impact microfinance can have on poor people’s lives.
During the Millennium Summit in September 2000 the United Nations launched the Millennium Development Goals (MDGs) to battle poverty and induce progress. These goals target the extreme poverty and inequality that are prevalent in the world. Eight specific goals were set.
1 Eradicate extreme poverty and hunger 2 Achieve universal primary education
3 Promote gender equality and empower women 4 Reduce child mortality
5 Improve maternal health
6 Combat HIV/Aids, malaria and other diseases 7 Ensure environmental sustainability
8 Develop a global partnership for development
One of the tools used in the development process is microfinance. Microfinance is the provision of financial services, mainly small credits, to poor people. The Microcredit Summit stated that in 2005 over 100 million poor people should be provided with microfinance and by 2015 that number should have increased to 175 million people. These poor people receive credit for either self-employment or financial and business services. It enables them to start as a small entrepreneur and generate an income.
In the last decade microfinance has gained increasingly more attention from development organizations, donors and the public. Organizations have witnessed the success stories in mainly South East Asia and Latin America and are now trying to replicate these models. These organizations believe that microfinance is a tool to cure poverty. Most of the credit provided by microfinance organizations is extended to women. Even though women have always been a target group for the majority of the microfinance institutions, gender equality is not one of the main targets for the donor organizations. These days donors emphasize financial sustainability, implying that there are no specific women targeting strategies implemented. This focus on financial sustainability might imply that the contribution of microfinance towards poverty reduction and women’s empowerment is less than expected.
Does the provision of microfinance have a significant positive impact on attaining the Millennium Development Goals 3 and 5?
To design an appropriate framework for answering this question, it is necessary to first review existing literature on microfinance, (poor) women and the millennium development goals. The literature review will lead to several hypotheses with regard to the influence microfinance has on the MDGs. To test this hypothesis empirical data will be used to come to a valid conclusion.
Outline
1 Background information
Microfinance refers to the provision of financial services to low-income clients, including the self-employed (Ledgerwood, 2000). Therefore a microfinance institution is an organization that provides financial services targeted at the poor1. In this study, the provision of microfinance is related to the battle against poverty. To
what extent is microfinance capable of helping poor people? The current framework through which the UN tries to battle poverty is the Millennium Development Goals. This framework was introduced by the UN in 2000; 8 goals, 18 targets and 48 indicators to measure progress towards the MDGs were adopted by a consensus of experts from the UN Secretariat and IMF, OECD and the World Bank (appendix 1)2. Apart from being poor, the
majority of the clientele of microfinance institutions are women. To measure the impact of these financial services on the society at large it is necessary to establish whether or not there is a relationship between the provision of financial services to the poor and the MDG goals that target women. Looking at the MDGs especially goal 3, promote gender equality and empower women, and goal 5, improve maternal health, focus on women. The other goals are not gender specific and progress for women is not specifically monitored. One major assumption that is made is that the people borrowing from microfinance institutions are poor. The definition of poor people and poverty is not straightforward. Multiple definitions are used throughout the literature. To define poor people the UN has several categories. One of the hard definitions of poor people is people living on less than $1 a day. They consider everybody who does not have an average income of $1 or more a day to be extremely poor. They have a similar poverty line with regard to $2 a day. However, microfinance institutions do not use this in deciding whether or not to give someone credit. To them poor people are people who are not capable or only barely capable of meeting the basic necessities in life. When the term poor people is used throughout this paper, it refers to those people who are deprived of their basic needs. In the data analysis, poor people refers to those people living on less than $2 a day.3Microfinance is not only
extended to the extremely poor, $1 a day, but to people living on less than $2 a day as well. Therefore it is better to use this measure. Furthermore, poor people are in general not serviced to by formal banks, mainly because they lack collateral. It is likely that when people have the possibility to make use of these formal banks, they will do so. Therefore it can be expected that all people making use of microfinance are incapable of doing business with the formal banks and can therefore be described as poor.
In the following paragraph goal 3 (MDG 3) and goal 5 (MDG 5) will be discussed. Afterwards both microfinance and women will be described thoroughly as well.
1.1 Millennium Development Goals
In contrast with earlier attempts to battle poverty, the MDGs are straightforward, time-bound and quantitative targets for action. Each goal consists of several targets and in accordance several indicators to measure the quantitative targets. The eight goals are mutually reinforcing. Progress towards achieving one goal is likely to affect progress towards achieving one of the other goals. It is possible to start a discussion on whether or not the MDGs are actually the right way of tackling poverty and whether or not the indicators that are used are correct. It will be stated that both the MDGs and its indicators are subject to much debate, however it is chosen not to debate their controversy and take them as given. Still the two MDGs of interest will be shortly discussed.
1.1.1 MDG 3: Promote gender equality and empower women
The related target for this goal is: Eliminate gender disparity in primary and secondary education, preferably by 2005, and in all levels of education no later than 2015. This target is measured with the following indicators:
9 Ratio of girls to boys in primary, secondary and tertiary education 10 Ratio of literate women to men, 15-24 years old
1 www.yearofthemicrocredit.org 2 www.yearofthemicrocredit.org
3 The $2 a day was established in the past, currently this would imply $2.15 a day. In the calculations the $2.15
Greater economic and physical security 11 Share of women in wage employment in the non-agricultural sector
12 Proportion of seats held by women in national parliament
Unifem defines empowerment as: “gaining the ability to generate choices and exercise bargaining power”, and as “developing a sense of self-worth a belief in one’s ability to secure desired changes, and the right to control one’s life” (Unifem, 2000). Empowerment is about change, choice and power (Cheston and Kuhn, 2002). Gender equity refers to equality of choice and opportunity for both men and women.
Figure 1: Gender equality and its links to poverty
Dimensions Gender differentiated barriers Potential interventions of Poverty
Source: Gender Equality & The Millennium Development Goals, The World Bank, Gender and Development Group, April 4 2003 p.8
In 2001 the World Bank reported that societies that experience a high gender inequality face higher levels of poverty, slower economic growth, weak systems of governance and a lower standard of living. Both gender equality and women’s empowerment will have a large and positive impact on national, community and household economies. Gender equality is not only important as a goal itself, it is also important in achieving the other MDGs. In Gender Equality and the Millennium Development Goals it is stated that there are strong linkages between gender equality and the MDGs. Gender equality is beneficial towards attaining and implementing all the MDGs. Figure 1 is an overview of the different areas where gender inequality persists. Therefore gender equality should be implemented and integrated into MDG policies and interventions. Reaching MDG 3 and MDG 5 will mainly contribute to opportunity, capacity and empowerment (World Bank, 2003). Worldwide only four countries (Denmark, Finland, Norway and Sweden), have achieved equality in secondary school enrolment, at least 30 percent of seats in parliaments or legislatures held by women and women represent approximately 50 percent of paid employment in non-agricultural activities. In the industrial Opportunity
Capacity
Security
Empowerment
o Gender differences in the impact of economic downturn
o Unequal access to labor markets o Unequal access to productive
assets
o Pay discrimination
o Unequal access to education o Unequal access to health o Limited access to water & energy
leading to women’s time poverty
o Vulnerability to economic risk o Vulnerability to natural disasters o Vulnerability to civil and
domestic violence
o Vulnerability to environment risks
o Institutions not accessible to poor women and men o Lack of voice in local and
national politics
o Limited voice in community decision-making
o Promoting economic growth o Equal access to labor markets o Access to productive assets o Reducing women’s travel and
time burdens
o Access to education o Access to health
o Access to water & energy
o Helping poor women and men manage risk
o Manage economic crisis and natural disasters
o Protection from civil and domestic violence Improved economic conditions Enhanced human capital and quality of life Increased political participation and gender
l
o Making institutions more responsive to poor women and men
o Removing barriers to political participation for women and men o Empowering women and men to
countries, women on average earn 77 percent of what men do, in developing countries this is 73 percent (The World Bank, 2003). Even though almost every country still needs to put effort into achieving gender equality, most needs to be done in the developing countries. In February 2006, a warning signal was released by the World Bank that with the current investments towards this MDG goal, it will not be met. Without adequate financial and political support over six million girls will miss the opportunity to go to school by the year 2015. Of these girls the majority will be from Sub Saharan Africa, 3.8 million. Especially gender equality at the secondary education level is a problem. More parity at the primary level has been achieved, however this is partly due to the drop out of boys, instead of an increase in girls’ enrolment4. There has been an increase in the
number of women having a seat in the parliament throughout the world. However, worldwide women still only hold 16 percent of the parliamentary seats (Chen et al, 2005).
1.1.2 MDG 5: Improve maternal health
To attain this goal, target 6 has been set: Reduce by three quarters, between 1990 and 2015, the maternal mortality ratio. This is measured by:
16 Maternal mortality ratio
17 Proportion of births attended by skilled health personnel
There are three measures of maternal mortality, the maternal mortality ratio, the maternal mortality rate and the lifetime risk of maternal death. The most commonly used and also the indicator for this MDG is the maternal mortality ratio. This is the number of maternal deaths during a given time period per 100,000 live births during the same period (AbouZahr & Wardlaw, 2000). Maternal mortality is the annual number of deaths of women from pregnancy-related causes, when pregnant or within 42 days of termination of pregnancy, per 100,000 live births (UNICEF). As part of the millennium development goals the member countries of the UN have agreed to reduce maternal mortality by three quarters by 2015.
The estimated number of maternal deaths in 2000 for the world was 529,000. Africa with 251,000 and Asia with 253,000 accounted for the majority of these deaths. This implies that in terms of the maternal mortality ratio (MMR), the world figure is estimated to be 400 deaths per 100,000 live births (AbouZahr & Wardlaw, 2000). The ratios differ largely around the world. From 20 out of 100,000 live births in the developed regions to 920 out of 100,000 live births in Sub-Saharan Africa.
The large difference between the health services received when giving birth between the developed and the developing world can be illustrated by the following numbers; The risk of a North American woman dying during her life from complications related to pregnancy or the birth of her child is 1 in 3700, the same risk for an African women is 1 in 16. This implies that childbirth often causes the death of the mother, something that could be prevented with better guidance throughout the pregnancy and skilled health personnel. The percentage of births attended by skilled health staff is the percentage of deliveries attended by personnel trained to give the necessary supervision and care to women during pregnancy, labor, and the postpartum period. This personnel also advices women how to conduct deliveries on their own and how to care for the newborns. Currently, only 58 percent of women in developing countries have assistance of a trained midwife or doctor when they deliver. Furthermore only 40 percent of births is done in a hospital or health center. The women that die due to their pregnancy or childbirth are relatively young women who are in the prime of their life. Often they leave other children behind. These motherless children are 3-10 times more likely to die within two years than children with both parents still alive. Reducing the maternal mortality ratio would therefore bring both social and economic gains (World Bank, 2003).
1.1.3 Critical review of MDG 3 and MDG 5
What makes the MDGs attractive is their concreteness. They are set goals with indicators that measure their progress and seem to be easy to review and assess. The indicators for MDG 3 appears to be a good measure to determine progress in empowerment of women. It encompasses education, employment and political decision-making. However, there are some issues that have to be considered. Taking these ratios for education as a measure does not show whether the girls that enrolled actually completed the relevant education or not. Furthermore, an increase in the ratio could be due to an increase in girls enrolment, but as mentioned could also be due to an decrease in boys’ enrolment5. With regard to the political decision-making, the number of
parliamentary seats is the highest political decision-making power present. Before the effects of empowerment reach that high, some time will have past. Furthermore it only changes at election times. Therefore the measure
Like with MDG 3, MDG 5 faces some issues that need to be considered. With regard to the maternal mortality there is a problem with the actual death rate due to pregnancy. It is difficult to distinguish between deaths that are caused by pregnancy or due to other reasons. Often maternal deaths are attributed to other causes, this leads to underestimation of the number of maternal deaths. Attaran (2005) states that the health goals for 2015 seem quantitative, however for most of them, their quantification is far from perfect. The trends that the health goals to are either immeasurable or were not measured properly from the 1990 baseline year onward. It is those poor countries where the maternal mortality problem is most severe that the data about deaths and births are least available. It is impossible to directly measure the maternal mortality ratio, therefore they have to be estimated. However, this results in large confidence limits around the estimates, and these estimates are hence not very suitable for assessing trends over time or for making comparisons between countries.
Furthermore there are difficulties with the term "skilled health personnel" it includes only those who are properly trained and who have the appropriate equipment and drugs. It is difficult to standardize the definition of “skilled” among countries, because there is a difference in training received by health personnel6.
Even though there are some serious concerns with regard to both MDG 3 and MDG 5 and the measurement of their indicators, they will remain the focus of this study.
1.2 Microfinance
Microfinance is the financial system that deals with micro operations: microcredit, savings, insurance, transfer services and other financial products targeted at low-income clients7. Microcredit is a small loan supplied to a
small entrepreneur. Often the organizations that offer microcredit, have a wider range of services focusing on more than just financial support. The main objective of the majority of the microfinance institutions is to provide financial services to the poor and at the same time reduce poverty. Evidence (Littlefield et al, 2001) has shown that there are strong potential synergies between microfinance and the provision of basic social services for clients. Microfinance is popular because it is believed that it can reach the poor, it can offer financial sustainability, it can build on traditional systems, it can contribute to strengthening and expanding formal financial systems and it can offer better financial products due to experimentation and innovation (Ledgerwood, 2000).
1.2.1 Emergence of microfinance and current situation
The emergence of microfinance organizations can be explained by the lack of financial services towards the poor and the extremely poor people over the last decades. Yunus Grameen realized that with only a few dollars he could help multiple women in becoming entrepreneurs. Hence he was the founder for the Grameen Bank and services for the poor were created; microfinance.
5 www.worldbank.org
The field of microfinance has grown since the 1980s, early success stories encouraged donors to actively support microfinance activities. The perception that supplying credit can alleviate poverty and help in multiple other areas explains the emergence of the microfinance industry in the last decade. Among the several development programs that currently exist the unique feature of the microfinance programs is that it can deliver social benefits on an ongoing permanent basis and on a long scale (Littlefield et al, 2003). Microfinance services are mainly supplied through non-governmental organizations, credit unions, microfinance banks and commercial banks. The government often used to be a supplier as well, but in most countries it has now taken on the role of facilitator. Even though opinions on whether a government should act as a provider or a facilitator differ, the majority believes the government should fulfill the role of facilitator (Ledgerwood, 2000).
An issue with microfinance is the information and data available. In this study data is used from the Microfinance Information Exchange (MIX). The MIX refers to itself as the global information exchange for the microfinance industry and strives to facilitate the exchange and investments flows, promote transparency and improve reporting standards in the microfinance industry. It is an online database containing information of hundreds of microfinance institutions. Furthermore, it publishes the MicroBanking Bulletin, an microfinance institutions benchmarking publication8.
Even though the website has only been online for a limited number of years it has become an important source of information for microfinance research. In several studies9 references have been made to the MIX. They have
either mentioned its existence or used data drawn from the MIX website. Honahan (2004) refers in his article to the MIX as “the largest cross-country database which does include a considerable amount of financial and operating information, is that assembled by the Microfinance Information Exchange with a summary published in MicroBanking Bulletin”. According to Tulchin (2003) there are three excellent online microfinance comparative measurement platforms; Microfinance Gateway, the Mix Market, and Planet Finance. These can promote new measurement tools and provide data-collection forums. Currently, the MIX is the only one providing detailed information on microfinance institutions.
There is no exact data on the number of microfinance institutions that currently exist. Often microfinance institutions organizations do not supply any information with regard to their activities. The MIX tries to reduce this lack of data with the MIX online database. In this database institutions can present themselves and share data. At the MIX website 81810 different microfinance institutions have created a profile and provide information
on their organization. Some organizations are very transparent and provide all the information possible, while others are only capable of sharing little to no information.
The typical microcredit recipient can be described as a self-employed, low-income entrepreneur living in an urban or rural area. Often the credit is supplied to groups who together carry the burden to repay the loans. The group-lending schemes create peer pressure within the group to repay the loans. Furthermore they are a source for accumulating knowledge and education through group discussions. Using data from the MIX an estimate is made on the number of active borrowers. Only part of the microfinance institutions are therefore included in this calculation. However, it can be expected that the most professional, and assumable largest, institutions are sharing their information on the MIX. To determine the number of active borrowers the number of active borrowers for all institutions was added. For 2004 the numbers added up to over 26.7 million borrowers.11 The actual number of borrowers is of course higher than the calculated number.
The majority of the clients of microfinance organizations are women. The reasoning behind this is that women are apparently more trustworthy clients, since their repayment rates are higher. In paragraph 1.3 the position of women will be further discussed.
8 www.mixmarket.org
9 Examples are Tucker and Miles (2004), Gallordo et al (2005), Balkenhol (2005) and Copestake (2003) 10 On December 29rd 2006
11 This was done for the year 2004, and only for institutions where microfinance represents over 91% of their
1.2.2 Impact of Microfinance
Access to microcredit enables the poor to increase their household incomes, build assets and reduce the vulnerability in their everyday existence. It also translates into better nutrition and improved health outcomes (Littlefield et al, 2003). Microfinance can have an impact on either the individual level, the household level or the macro economic level. Impact of microfinance activities usually can be distinguished in three broad categories; either economic, socio-political or cultural, or personal and psychological (Ledgerwood, 2000). Results from research performed by Shahidur R. Khandker (2005) confirm this, it shows that microfinance programs raise per capita consumption on both non food as household assets for the poor. This might enable them to lift themselves out of poverty. Within a household both non-participants as participants benefit from microfinance. Programs have spill over effects in local economies which increase the welfare in these local villages.
Mark Schneider (2003) discusses whether microfinance projects are the best way to help the poor. With a cost effectiveness analysis (CEA) he measures whether or not microfinance is the best option for the poor. He concludes that both BancoSol and Grameen Bank can be considered to be worth while. The repeated use of both microfinance organizations by customers implies that they improve the well-being of their poor customers. The CEA results suggest that BancoSol and Grameen Bank manage to be more effective than the best other development project. The fact that these models of microfinance were capable of combining high levels of outreach with high repayment rates was the main reason for many replica models worldwide. Ahlin and Jiang (2005) examined the long run effects of microfinance on development and conclude that microfinance reduces poverty in most cases and thus indeed brings development. However not all believe in the sustainable effects that microfinance can have on poverty. Khandakar and Danopoulos (2004) claim that the lack of microfinance has not caused poverty in the Third world institutions and therefore microfinance does not have the ability to contribute to sustainable poverty alleviation.
Microfinance is not the perfect solution to poverty in developing countries, as every development strategy, there are several negative aspects. One issue is the fact that microfinance is not for every one. Entrepreneurial skills are necessary to run a successful microenterprise, obviously not everyone has these. Furthermore, not all potential customers are equally able to take on debt. Even though this affects all levels of poverty, it is assumed that they will have the greatest effect on the very poorest. They are most likely to face difficulties to be successful with the help of microfinance. However, there is no evidence that an inverse relationship exists between a client’s level of poverty and their entrepreneurial ability(Morduch et al, 2002). Some people face problems that will never allow them to develop entrepreneurial skills. Those who form a minority, the sick, mentally ill et cetera, or those living below the poverty line are usually not good candidates for microfinance. This group of people would be better served with direct basic assistance (Morduch et al, 2002). Unlike other transfer schemes, benefiting from microcredit requires not only an individual’s own entrepreneurial skills but also a favorable local market (Khandker, 2003).
Often microfinance organizations face non-supportive policy frameworks and physical, social and economic challenges. Even if there is a supportive framework, a big problem for microfinance institutions is the fact that they never reach a point where they can cover their operating costs and are therefore often faced with liquidity problems. In the ideal situation microfinance organizations should become commercially viable as well as induce social development. This is the double bottom line of microfinance and is what microfinance organizations strive to achieve (Tulchin 2003). When microfinance institutions manage to be successful, replication of these successful models has proven to be difficult (Ledgerwood, 2000).
the basic necessities in life, like food, shelter and sanitation. It is therefore necessary that these social services are being taken care of, before microfinance could be successfully applied to them (Skarlatos, 2004).
1.3 Women
Women are the majority of the poor and women and children experience the harshest circumstances of living among the poor. They are more likely to be poor and malnourished and often lack basic life necessities such as medical services, clean water and sanitation. These living conditions mostly prevail in female-headed households. The women in these households have usually less education, lower incomes and a higher fertility. To illustrate the current situation, the 2007 EFA Report revealed that there are 781 million adult illiterates and two thirds of these are women.
Women have a lower earning potential than men have. Often women are paid less for similar tasks and in most societies they are barred from higher-paying occupations. This increases the likelihood that women perform employment in illegal low-productivity jobs. Since women in poor conditions need additional income, their children are often forced to work and do not receive basic education. Therefore the future generation will still bear the poverty burden and its hard to lift themselves out of the harsh living conditions (Todaro, 2002). 1.3.1 Women and Microfinance
Since the mid 1980s women have received special attention from microfinance institutions and since the mid 1990s it is seen as a key strategy to simultaneously address both poverty reduction and women’s empowerment (Mayoux, 2002). There are several rationales for targeting women for microfinance services. It is believed that it benefits towards gender empowerment, gender equality and gender-related improvement. Access to financial services for women is also a human rights issue, microfinance is seen as a way to lift women out of poverty and it is believed that therefore they should have the right to access these financial services. The main reason for most financial institutions to provide credit to women is that they have good repayment records and are often willing to cooperate . Women attend more group meetings, are more reliable and more disciplined. (Cheston and Kuhn, 2002). In some countries women are also less mobile, so there is less of a chance that they will take the money and run (Boros et al, 2002).
Women tend to make a greater contribution to family welfare than man do. Women feel more responsible to spend the money they earn on their own and their family’s development than men do. Women spend their generated income on (better) nutrition, healthcare and education for their children. Pitt et al (2003) examined the effects of additional resources on child health outcomes, by gender of child. A comparison was made between resources supplied to and controlled by women and resources supplied to men. They found that women’s credit has a significant impact on the health of children. The effects are larger for daughters then for sons. Credit supplied to men showed no significant results. Skarlatos(2004) mentions in her study that Fideg12
(2001) showed that women in Nicaragua place more importance on health sustainability and education of their families then man do.
Barriers
Women are often excluded from the formal sector savings and credit programs. Even if they are successful entrepreneurs, women have more difficulties getting credit than men do. Sometimes they even need their husband’s signature before receiving credit (Mayoux, 2002). Female illiteracy rates are higher than men’s in most countries. Financial language symbols and concepts are found to be especially confusing for illiterate people. In line with the illiteracy rates, women are also more likely to be low-educated and are therefore less exposed to dealing with official people and formal procedures (Boros et al, 2002). Women have fewer alternative borrowing possibilities compared to man. This increases the dynamic incentives. Implying that they incorporate the future possibility of borrowing into their current behavior (Brouwer and Dijkema, 2002).
12 Agurto Vilchez, S. and Guido, A. (2001). Mujeres: pilares fundamentals de la Economia nicaraguense,
Women can face cultural barriers that prohibit them from leaving the house and make it difficult to access financial services. If they do manage to leave the house, the location of the microfinance organization might be too distant. Their traditional roles may also make it harder for them to work outside from their home, implying the business needs to be operable from their home. Women encounter time-conflicts between work and the household. In her attempt to strive for family welfare, she faces both her domestic duties as well as her economic burden, in trying to earn money by starting her own business. She caries both the economic as the domestic burden (Skarlatos, 2004). Furthermore, household maintenance and risk reduction seem to have an large impact on their business strategies. Profits are invested in their families rather than in expanding their business. (Ledgerwood, 2000)
Besides the actual existing barriers, women also face a psychological barrier, they can have the perception that they are not entitled to start their own business or they do not have the right to participate in certain activities. With all the barriers in place, this might well be the hardest to break. Women have to believe in their own opportunities and ability to succeed to be able to change their position within their communities and society at large. Empowering women at an individual level might create a base for a larger change, at community or society level. It is therefore necessary for women to use their personal and social network to increase their well-being and self-esteem and gain respect by others (Mayoux, 2000).
Numbers
The current numbers on microcredit confirm the tendency of supplying credit to women. A 2001 survey by the Special Unit on Microfinance of the United Nations Capital Development Fund of 29 microfinance institutions showed that approximately 60 percent of these institutions’ clients were women. Six of 29 the microfinance institutions focused solely on women. In the remaining 23 programs, 52 percent of their clients were women (Rani, 2001). In Nicaragua 66 percent of credit went to women, 84% of these women used this money for business enterprises (Skarlatos, 2004). With data extracted from the MIX it was possible to make a comparison between the number of active woman borrowers in 2004 and the total number of active borrowers in 2004. The 418 institutions that provided the necessary information in total had almost 25.3 million active borrowers of which 19.4 million were woman. This is approximately 76.7 percent, implying that indeed the majority of the clients of microfinance institutions are women.
1.4 Conclusion
The MDGs are tools to used to reduced poverty. At the current pace the it is unlikely that the MDGs will be met. The UN believes that microfinance can help in achieving the MDGs. The majority of the borrowers from microfinance institutions are women. Therefore it is likely that microfinance will perform best in the MDGs that target specially at women; these are MDG 3 and MDG 5. MDG 3 aims at empowering women and MDG 5 wants to improve maternal health. Even though the indicators for these goals are subject too debate, they are accepted as measures to assess progress towards the MDGs.
The discussion with regard to microfinance highlights the controversial role that it has within developing programs. Overall experts agree that microfinance can have a positive impact on poor people’s lives. It can decrease poverty and vulnerability of poor people, but can cause problems within the households as well. Even thought women are the main target group they still face numerous barriers that make it more difficult to engage in microfinance activities. However, the numbers show that regardless of these barriers, microfinance institutions are capable of reaching out to women and supplying them with financial services. Women are the majority of the poor and it is proven that they have better repayment records. They are also more responsible with spending family income than man are. Whether or not this improves the situation for women is still subject to debate.
2 Literature overview
In the previous chapter the impact of microfinance was already discussed. Now, an overview of studies that look at the impact of microfinance on women will be given. At interest is whether or not microfinance can contribute to gender equity and maternal health. Hence the literature on the social impact of microfinance is part of the literature overview. Afterwards how this impact is expected from microfinance towards attaining MDG 3 and MDG 5 will be described.
2.1 Literature
Research on microfinance has increased and improved in the last years. Initially, studies were faced with problems revolving the comparison of the microfinance users and the non-microfinance users. It is hard to establish whether or not the comparison group has similar characteristics to the group making use of microfinance in the initial phase; there is a selection bias. Time has past since the start of microfinance research and it is now possible to make over time comparisons.
A first study on the economic the impact of microfinance on women taking into account selection bias was done by Khandker and Pitt in 1998. Their results shows that every additional “taka” lend to a women adds an additional 0.18 taka to annual household expenditures, compared to 0.11 for each taka lend to a men. In 2005 Khandker was capable of updating the initial study, since more data had become available. Again the positive results for women were shown. For each additional 100 taka of credit, women could generate an increase in annual household expenditures by over 20 taka; a over 20 percent income from borrowing. Remarkably, male borrowing showed no return at all. Since Khandker now had data over time, stemming from 1991/1992 and 1998/1999, it was possible to make over time comparisons. Both at the participant level and the aggregate he examined the effects of microfinance on poverty. Poverty rates had declined over time and according to Khandker 40 percent of the entire reduction of moderate poverty in rural Bangladesh could be attributed to microfinance.
With regard to empowerment, providing financial services to woman can aide in the process of empowering women by improving their economic position in society. Mayoux (2001) believes the impact microfinance has on women’s empowerment to be threefold. According to her empowerment can be divided into economic empowerment, increased well-being, and social and political empowerment. Economic empowerment implies that due to the access to financial services they are given greater economic role in decision making, since they can now make decisions with regard to credit and savings. Increased well-being means that the due to this increased decision making, woman are capable of strengthening their say in the economic decision made within the household. Enhancing their social and political position is said to be another positive effect from microfinance.
The literature on the topic of empowerment and microfinance seems to support the impact that Mayoux attributes to microfinance. Cheston and Kuhn (2002) believe that microfinance programs have the ability and the power to transfer current power relations and empower the poor people, both men and women. The relationship between the provider of the services and the client is already empowering, therefore it does not matter if a minimalist approach or an integrated approach is used. The fact that someone takes them serious and provides them with a loan in itself is already empowering. Cheston and Kuhn conclude that microfinance has the potential to impact on women’s empowerment. Although it is not always empowering for all women, most women do experience some degree of empowerment. In some cases credit may be the only input needed to start empowerment for women. In Nepal 68% of women in the Women’s Empowerment Program experienced an increase in the decision-making role in areas traditionally dominated by the husband.
that the effects of men’s credit were neutral or sometimes negative towards women’s empowerment, including physical mobility, access to savings and economic resources and power in the household.
Skarlatos (2004) refers to a study done by Sanders and Deugd13 (2002) confirming the possible increased
well-being for women and children on account of microfinance. In the study 86 – 95% of women reported that microcredit had a positive influence on their business operations. However no significant positive impact on the decision-making abilities of women was detected. Even though the women did feel there was a positive impact on their self-esteem as well as their ability to create and support new activities. Overall women have a positive perception of microcredit in Nicaragua.
MkNelly and Dunford (1998) find that women joining a credit program are likely to be more confident that they would be able to provide their child with good nutrition, prevent their child from getting illnesses and earn more money the coming year. These women did not have more confidence with regard to whether or not they would be able to provide their children with the right education. They did, however, feel that they had more say in their children’s education. The program also seemed to have positively contributed towards women’s participation in the community and helping contacts with family and friends. The participants were more likely to be part of a community group other than their family, have been able to help a friend with his/her work, have offered health and or nutritional advice to others and have offered business advice to other people. Although Mayoux claims that microfinance has a threefold impact on empowerment, she simultaneously realizes that it does not necessarily imply empowerment. It is possible that men use their wife as an intermediary for getting money from the bank. They might use women to just cash the money and give it to them. The husbands might spend it on trivial things, while the women are still responsible for paying back the loan. Sometimes it is the woman’s decision to spend it on their men and thereby only contributing to enhancing his position and deteriorating her own. She might be spending less on household expenditures, because she has to pay interest and repay the loan. Then there is the danger of too much competition in an area where microfinance institutions are located. If a high percentage of women in the region starts to lend money and participate in activities to generate money, chances are that the women all start to participate in the same sort activities and thereby competing with each other and driving down prices for their goods (Mayoux, 2001). Ahmed et al (2001) states that microfinance can distort power relations and create stress. Even if women are capable of generating extra income from their activities, the men in the household might still be the ones that decides what happens with this income. Receiving microcredit can distort the relations within the family and generate increased tensions among family members or others within a community. Poverty can lead to emotional stress, mental health problems such as anxiety and depression. It is not clear whether or not microfinance can relieve this stress or might even increases it due to worries over repayment loans or changed situations.
Furthermore, Hanak (2000) argues that with regard to the realization of social development objectives severe shortcomings are present. Interviews with clients and fieldworkers of two microfinance organization in Uganda revealed that microcredit programs cannot meet the expectations they raise on poverty alleviation, achieving gender equality and creating jobs . Many clients experience an enhancement of the unequal gender relations. Even though there are some potentially negative consequences for women, overall the effects that are confirmed in the studies do seem to positively contribute towards women’s empowerment. The question is whether this form of empowerment will contribute towards gender equity and improvement of maternal health, especially with regard to the indicators for MDG 3 and MDG 5.
In the early study of Pitt and Khandker (1998), they found that credit supplied to women has a significant positive influence on the schooling of their children. There is a positive impact on both boys and girls schooling. Though the impact for boys is higher than for girls. New self-employment could make women keep their daughters at home to take over the household work instead of sending them to school. Boys are considered to
13 Sanders, A. and Deugd, M. (2002). Estudio sobre la sostenibilidad, Alcance e Impacto del Fondo de
be a poor substitute for the women’s time and therefore its more likely that girls are chosen to stay home. Cheston and Kuhn (2002) showed the example of the increase in the decision making power of women in Nepal, this increase decision making power was also with regard to girl’s schooling. Skarlatos (2004) with referring to Sanders and Deugd (2002) mentions that women in the study reported that they had experienced an 28-30% increase in the standard of living of their children with regard to education, nutrition and health. With regard to maternal health, the study by Steel et al (1998) is interesting. In an analysis of a typical women’s credit program performed in Bangladesh it is concluded that there is a selectivity of members. The women that join credit programs are often better educated, married to a better-educated man, have worked for cash, had a relatively high freedom of movement before joining the credit groups and have received threats from their husband that he might take another wife. Its is also more likely that members used contraceptives before they joined the credit groups. Therefore the initial position for women within the program is already better than the position of those who did not join a credit program. However, despite these initial differences the research shows that women have higher aspirations for their daughters’ education and delayed marriage than the women that do not participate in the credit groups. These changes are more or less on a micro level, looking at the impact at a macro level it is concluded there is an increase in overall contraceptive use in the credit program villages. Pitt, Khandker and Cartwright (2003) find that women who use microfinance increases the likelihood of initiating discussion on birth control use and methods with her husband. Husbands are also more likely to discuss the topic of birth control use and children’s education. However, credit extended to men had a negative effect on the odds that the women would discuss birth control use and methods. As mentioned Cheston and Kuhn (2002) stated that in Nepal women in the microfinance program enjoyed more decision making with regard to family planning.
However, Mayoux (2001) concludes that women’s empowerment is not an automatic outcome of the microfinance programs. Women’s empowerment needs to be an integral part of policies and integrated with other empowerment programs. According to her only then is it possible for microfinance to contribute to women’s empowerment. Perhaps, to reach out to women a specific strategy is necessary to reach these women. To make micro finance more empowering for women, the focus might need to be on gender equity in the whole micro finance process. Currently this is mainly done through changes in collateral requirements for women, reduction in loan sizes and more flexibility, and group formation to decrease administrative costs and increase women’s social capital.
Most studies so far seem to confirm the possible positive effects of microfinance. It can contribute to women’s empowerment and in turn improve gender equity and maternal health. However, it is impossible to say how many women relatively benefit from microfinance and relatively how many women face deteriorating circumstances due to credit received. As mentioned before it is also questioned whether or not the poorest of the poorest are reached with the current micro finance programs. The poorest of the poorest segment mainly consists out of women, without reaching out and helping this part of the world population it will be hard to see microfinance as the solution to helping out poor women. Currently, there is an emphasis on financial sustainability of microfinance organizations, this has adverse effects on the empowerment of women. When an microfinance organization strives to be self sustainable it is almost impossible to offer additional services to women or to contribute to empowerment strategies.
2.2 Microfinance and MDG 3 and MDG 5
The case studies covered in the literature overview seem to confirm the idea that microfinance is capable of positively contributing towards gender equality and improved maternal health. Hence it is possible to relate the effects of microfinance towards achieving the MDGs.
share their knowledge with other women and slowly change the attitudes towards certain subjects like fertility, education and increase their decision making capabilities. Furthermore, in households where children are working, microfinance can generate additional income for the family, which in turn makes it no longer necessary for the children to continue their work and parents might be able to send them to off to school instead. The empowerment of women can also create higher aspirations for their children and therefore these women might want to provide them with education. Women especially want their daughters to have a better standard of living and are inclined to give them more education. These effects of microfinance are likely to improve the girl to boy ratio in education; primary, secondary and tertiary education.
These higher aspirations might not only be towards their children, women are also likely to educate themselves. Not only do they gain knowledge by attending the group-lending process, these lending groups might also induce the women to educate themselves and work on their writing and reading skills. Depending on their choice of business, working in their own business might shift the women out of the agricultural sector into the non-agricultural sector. This would imply an increase in the literacy rate of women as well as an increase in the share of women working in the non-agricultural sector.
To reduce the maternal mortality ratio and increase the percentage of births attended by skilled personnel there is a need for women’s education on the topic of childbirth. Hence visiting skilled health personnel and giving birth at an hospital are key in reducing the maternal mortality ratio. To achieve this both more skilled personnel and hospitals are needed, as well as awareness among women that are pregnant. Women need to know that they need to visit a midwife or doctor. To help women through labor and anticipate problems, the presence of skilled health personnel is key. To be able to afford the necessary health care, women need additional income. Hence microfinance can contribute to both the accumulation of knowledge with regards to child labor as towards increasing the monetary resources to be able to afford the required medical help.
Eventually the empowerment of women throughout the poor share of the population will most likely reach into all parts of society, increasing the power women have and making it easier to gain access to parliament seats. The fact that women already improve their decision-making on a family or community level is already a step towards a society where it is easier for women to get a seat in the parliament.
2.3 Conclusion
In general researchers agree that microfinance can have positive effects. However, some believe this impact to be solely economic, while others are certain that it has social and sociopolitical impacts as well. They believe that it does not only increase the income of poor people, but also changes relationships within the household and within communities. Therefore, on the one hand many believe microfinance to be the solution to reducing poverty, whereas others are skeptical about its impact on poverty. From the case studies it can be assumed that microfinance can be capable of positively contributing towards achieving the MDGs.
Furthermore, there seems to be a difference in the impact of microfinance when provided to men and when provided to women. The effects of microfinance towards men to do not seem to contribute towards attaining a better position for women or children. This in contrast to the positive effects microfinance towards women seems to generate. Both the women herself as her family seem to profit from the possibility of participating in microfinance. Hence, differences in the effects of microfinance towards women or towards men and women should be taken into account.
With the increase in income as well as the accumulation of knowledge through microfinance women are capable of improving their position in society. They can increase their decision making power, ensure their children have a better future, educate themselves and improve their health situation. To see whether these positive results are also visible on a country level it is necessary to create a framework to work with. This will be done in the following chapter.
3 Methodology
3.1 Framework
Research so far has mainly focused on specific factors rather than looking at the overall position of women within society. Most studies emphasize women at an individual or household level. However, here the emphasis is on the results at a macro level. As mentioned before, the focus will be on the impact of microfinance on several specific indicators to determine whether or not microfinance has a positive influence on trying to attain the MDGs. The main question that needs to be answered is:
Does the provision of microfinance have a significant positive impact on attaining the Millennium Development Goals 3 and 5?
In answering this question comparisons are drawn between countries to see if there is an impact on the performance of women in nations where microfinance institutions are present to a certain degree. Most studies show that the effects of microfinance are especially positive when targeted at women. Therefore it is expected that by just considering the female borrowers in a country the results might differ significantly from including both men and female borrowers. To account for this there will be a model focused on both men and women and a model just focusing on female borrowers. There are numerous ways to offer microfinance and the effects of each can be different, however this study does not aim to establish which program works best. It tries to determine if there is a general positive effect from engaging in microfinance activities regardless of what form of microfinance is used. Most studies so far have looked at the situation of a group of people making use of microfinance and compared their situation with people not making use of microfinance. In this study a comparison is made to which degree people within countries make use of microfinance.
3.1.1 Hypotheses
With the literature discussed in the previous chapter, it is now possible to state hypotheses addressing the relationship between microfinance and MDG 3 and MDG 5. It is expected that microfinance can improve the position of women with regard to gender equity and maternal health. The respective indicators of these MDGs seem appropriate to measure the impact microfinance might for have. Therefore the significance of the microfinance can be linked to the indicators of the MDGS.
MDG 3
Research has shown that women who make use of microcredit are more aware of the possibilities of their daughters and want them to enjoy as much education as possible. Furthermore, if business is doing well, both parents will be inclined to send their children to school instead of the children helping out and earning money. They would like their children to have a better life than they have had. “An educated girl is also the best guarantor that her children attend school – thereby ending the intergenerational transmission of poverty” (Vandermoortele, 2002). Therefore the ratio of girls to boys attending school will increase the more microfinance is present among the poor. This leads to the first hypothesis:
H1: Microfinance has a positive impact on the ratio of girls to boys in primary, secondary and tertiary education
Not only does microfinance affect the education of the daughters, the women themselves often want to enjoy a certain level of education as well, being able to write and read is often one of their wishes. Therefore it is likely that literacy is higher among poor people using microfinance than among those poor people who do not.
H2: Microfinance has a positive impact on the ratio of girls to boys with regard to literacy
Apart from educating themselves, women also evolve their businesses. The percentage of women not working in the agricultural sector will increase compared to the women that are working in the agricultural sector. The reason for this is twofold; women who used to work in agriculture might now work in their own business and women who did not work before might now work in their own non-agriculture business.
The indicator of the proportion of seats held by women in national parliament is not used, since there is only a limited timeframe, too little time has passed since the implementation of microfinance for it to have an impact on the indicator. It takes years of progress on gender equity and numerous other areas, before any sustainable progress can be seen. Furthermore, countries can be in between elections, hence potential progress is perhaps not yet reflected in the current numbers. Therefore this indicator is not taken into the analyses.
MDG5
In the analysis by Steele et al (1998) it is concluded there is an increase in overall contraceptive use in the credit program villages. This implies that women are more aware of their reproductive health when they make use of microfinance. Being more aware of their reproductive health makes it likely that these women are more inclined towards making use of skilled personnel at birth
H4: Microfinance has a positive impact on the percentage of skilled health personnel at birth.
As mentioned before, women like to educate themselves, maternal health likely to be one of the topics of discussion within microfinance groups. Sharing knowledge on this topic makes women more aware of the problems they face when giving birth, and less afraid to ask for help when facing maternal problems, in turn decreasing the maternal mortality rate. “Basic education empowers a young woman and enhances her self-confidence, an educated mother is likely to marry later, space her pregnancies and seek medical care for her child and herself”. (Black & White, 2004).
H5: Microfinance has a positive impact on the maternal mortality ratio.
These five hypotheses will be tested in two different models. One model will focus on microfinance used by men and women and the second model will focus solely on women. Confirming any of the above hypotheses in one of the two models would imply that microfinance is beneficial towards attaining the MDGs. To be able to draw any reliable conclusions a model needs to be designed to test the stated hypotheses. This is described in the following paragraph.
The five hypotheses will be used to determine whether or not microfinance has a positive effect in attaining MDG 3 and MDG 5. To tackle these hypotheses a model needs to be build. Therefore the following paragraph will introduce the methodology that is used to be able to determine whether the hypotheses should be rejected or accepted.
3.2 Methodology
To determine whether or not microfinance has an impact on either MDG 3 or MDG 5, a cross-sectional study will be performed. It is expected that in countries with a higher penetration of microfinance, the results with regard to the performance of MDG 3 and MDG 5 are better as well. With a quantitative method the countrywide impact on of women, women’s empowerment and maternal health, will be analyzed. To analyze the relationship between the MDG indicators and microfinance variables a linear equation is made:
YGI,i = C + βjMji+ βi Xn + ε
YGIi is the value of an indicator “I” for a specific MDG “G” in country i. Mij are the values of the microfinance
variables “M” for country “i” and Xn refers to the n control variables for the respective indicator I.
Furthermore, C is the constant and ε the error term.
It is assumed that microfinance will have a positive effect on achieving MDG 3 and 5. This implies that according to the hypotheses, the coefficient βj will be positive for the indicators for MDG 3 and the births
attended by skilled health personnel indicator for MDG 5. The coefficient βj for the maternal mortality ratio is
expected to be negative. An improvement in the maternal mortality ratio, is a decrease in its value. With regard to the βi coefficient it is expected to be either positive or negative depending on the respective control
variable.
The computation of the different variables used in the estimation models will now be discussed and explained. 3.2.1 Dependent variables:
To test the hypotheses the MDG indicators are used as the dependent variables in the estimation model. Therefore the following variables are computed:
Y3 = dependent variables for goal 3
Y3.1 = primary = Ratio of girls to boys in primary education
Y3.2 = seconda = Ratio of girls to boys in secondary education
Y3.3 = tertiary = Ratio of girls to boys in tertiary education
Y3.4 = literacy = Women to men parity index as ratio of literacy rates, aged 15-24
Y3.5 = nonagri = Women wage employment in agricultural sector as percentage of total
non-agricultural employees
Y5 = dependent variables for goal 5
Y5.1 = skilled = Percentage of births attended by skilled personnel
Y5.2 = maternal = Maternal mortality ratio
3.2.2 Microfinance: M1 = microfinance variable
M1.1 = mfi2 = The size of the loan relative to the income of the poor
M1.2 = poorbor = The percentage of poor people using microcredit
M1.3 = interact = A combination of both the size of the loan as the percentage of people using microcredit.
M1.4 = poorwom = The percentage of poor women using microcredit
M1.5 = interactw = A combination of both the size of the loan as the percentage of women using microcredit.
the effects of the loans. Therefore an interaction between the two variables is introduced. Hence, the model will not only include a microfinance variable on the loan size and the percentage of poor people using the loans, but an interaction variable as well. The following is an explanation on how these microfinance variables were derived:
For each country providing sufficient information on the number of borrowers the percentage of people using the loan was calculated, see appendix 2:
X = percentage of population borrowing N = number of borrowers
P = Population
X = N / P (1.0)
The percentage of the total population borrowing is not representative as a measure for microfinance; it does not mention the size of the loan nor the number of poor people using it. However, the impact of microfinance does not depend on its outreach to the entire population, but on its outreach to the poor people. Microfinance targets poor people, the assumption was made that all borrowers receiving microfinance loans can be described as poor people14.
The number of (female) borrowers
In order to draw comparisons between different countries it is necessary to determine the percentage of poor people that use microfinance for every country.
Percentage of poor people using loans (Ppl) = number of borrowers in a country (N) / number of poor people
living in a country (Pp)
Ppl = N/ Pp (2.0)
With regard to women this would imply the following :
Percentage of poor women using loans (Pwl) = number of women borrowers in a country (Nw) / number of poor
women living in a country (Pw)
Pwl = Nw / Pw (2.1)
For the number of poor people using microfinance per country, the total number of borrowers of microfinance institutions in each country is taken.15 However, the total number of poor people in a country needs to be
determined as well. This number is computed by multiplying the percentage of poor people (headcount ratio of population living on less than $ 2 a day) by the total population.
The number of poor people living in a country (Pp)= poverty headcount ratio $2 (h) * total population (P)
Pp = h * P (3.0)
The number of poor women living in a country (Pw) = poverty headcount ratio $2 (h) * (total population (P) *
percentage of women in a population (f) )
Pw = h * (P * f) (3.1)
14 As mentioned in the first chapter; headcount ratio on population below $2 a day is the percentages of the
population living on less than $2.15 a day at 1993 international prices. $2 was chosen because it has the most data available compared to other poverty measures.
The size of the loan
The second dimension of microfinance is the size of the loan. Data from every institution in a certain country, that provided both the numbers of borrowers as it gross loan portfolio, was added. The total amount of outstanding gross loan portfolios within the country was divided by the total number of borrowers and the result is the average loan size per borrowing inhabitant. The average loan size is an absolute number. To be able to make worldwide comparisons it is necessary to use a relative number. One possible measure for this could be to divide the loan size by the GDP per capita. However, since the loans are provided to the poor people, it is best to determine the income per poor person. This was done by using the poverty gap ratio in each country to derive the income of the poorest part of the population. This data is a relative measure for the impact a loan has on an poor individual. Therefore, for each country the following calculations were made: Relative size of loan per poor person (Lcp) = Loan per poor person in $ (Lp) / average income poor person in $
(Ipc)
L = Lp / Ipc (4.0)
L = (Lc / N) / ((100 – g) /100 * $2.15 * 365)
Loan per poor person in $ (Lp) = gross loan portfolio country (Lc) / total number of borrowers (N)
Lp = Lc/ N (4.1)
Average income poor person in $ (Ipc) = (100 - poverty gap ratio (g) 16 )/ 100 * $2.15 * 365
Ipc = (100 – g) /100 * $2.15 * 365 (4.2)
Interaction variable
So far the calculations have determined the two different dimensions of microfinance; the relative size of a loan a poor person receives and the percentage of poor people using microfinance. However spillover effects are expected and therefore interaction variables are used as well.
Interaction variable (V) = Percentage of poor people using loans (Ppl) * Relative size of loan per poor person
(Lcp)
V = Ppl * Lcp (5.0)
Interaction variable regarding women (Vw) = Percentage of poor women using loans (Pw) * Relative size of loan
per poor person (Lcp)
Vw = Pwl * Lcp (5.1)
3.2.3 Control variables:
To ensure that the variance in YGI,i is a result of Mji it is necessary to exclude other factors that might have an
impact. Therefore several control variables, X,n are needed. These control variables are expected to contribute
to the variance in the value of the dependent variables. Some control variables are included in both the models with regard to MDG 3 and the models with regard to MDG 5. Other control variables are just included in regressions with one of the respective dependent variables in appendix 2 an overview is given of the control variables per dependent variable.
16 Poverty Gap is the mean shortfall from the poverty line (counting the non poor as having zero shortfall),
