4.1 What is gendered microfinance?

Gendered microfinance is not about providing credit to women.

It is about making microfinance gender-sensitive. This is done by taking into account the needs and constraints of both men and women when designing and delivering finance.

The objective of a gender-sensitive approach is to ensure that the finance provided is just as attractive to women as it is to men. A gender-sensitive approach is inclusive rather than exclusive.

Designing an inclusive microfinance institution means finding the lowest common denominator of the targeted customers. For example if women are not allowed to leave their village for cultural reasons then finance has to be provided in the village so that women are included as potential customers.

Also, it must not be assumed that microfinance institutions that reach many women with credit are gender-sensitive to the needs and constraints of women. What it means is that there are no insurmountable barriers for women to access this credit which for women is often title to land to offer as collateral. However, given the choice women may prefer different credit terms and conditions, different delivery mechanisms and even different financial products (savings products, insurance, etc.).

Being gender-sensitive is recognising that men and women are varied have different needs and priorities which evolve over time. Financial institutions must assess this changing reality and adjust accordingly.

Women-targeted finance programmes are not gender-sensitive since they exclude men. Although these programmes may be justified as a positive measure to bridge the major gender gap, one must consider the possible perverse effects if men have no access to credit, such as hijacking of loans by men, household violence and/or delegation of income responsibilities from men to women. Having credit lines and financial services for women only may distract EC officials and implementers permanently from their responsibility to ensure women are not excluded from any financial programme. This would not be in line with the 1995 Council Resolution which states that positive actions should be temporary.

In view of what has been said above it is recommended that as a general rule the focus of microfinance should be to offer the most appropriate financial services to both men and women in every financial scheme.

Best practices in microfinance are continuously evolving and are area-specific but there is growing experience relating to the issues to be addressed as regards the design of financial products and how they are advertised and delivered. Attention to these issues will ensure gender-sensitive finance by design rather than by accident.

The focus below is on poor women because they generally have more constraints in accessing finance than men due to cultural and other reasons and are therefore the lowest common denominator we seek. However, this is not always the case.

We recognise that women are not a homogenous group and therefore that there is no microfinance recipe which can address the needs of all women. This is why what follows consists of questions based on empirical evidence of what it is important to consider.

4.2 What are the gendered issues to be addressed?

A vast amount of literature was reviewed to write this section since it required identifying what most experts consider as best practice. As a result it did not seem practical to list all the sources. However, a bibliography of the literature covering most comprehensively the issues analysed in this section is available in annex 5. Certain have been selected for further reading.

What follows, however, is not intended to be a review of microfinance and therefore we only cover issues of interest from a gender perspective.

We assume that the intention is to arrive at viable and sustainable financial institutions requiring professional management.

4.2.1 At the identification stage

Access to financial service is increasingly considered a human right and the needs are vast. Identifying potential financial needs should therefore not be difficult. However, gender issues should be an integral part of preparation and addressed from the start of the project cycle.

The two main areas to be analysed at this stage are the potential customers and the existing financial services (formal and informal) the target group has access to. A brief workshop with potential customers (with an equal number of men and women) could be held raising the issues listed below (formulation and implementation phases) to find out their needs and constraints in accessing and using credit and identifying the existing sources of finance and how adapted these are to their needs. One should consider if a separate workshop should be held for men and for women, in which case the second workshop could serve as a validation exercise i.e. how does the second group view the conclusions of the first one? An alternative to a workshop could be a gender-sensitive survey of female and male clients' finance needs.

4.2.2 At the formulation stage

• Loan use and eligibility criteria

  There is much debate as to whether credit should be targeted. In the past credit was often for agricultural inputs and more recently the fashion is income-generating activities. Yet there is fungibility between household and MSE expenditure and a portion of the money does usually end up in consumption (some say up to 50%). This is particularly true of women, who generally are responsible for the everyday needs of food, health and so on.

  Also, certain financial schemes (particularly those using individual methodology) require customers to be operating full time in the MSE to be eligible for loans and/or to be in manufacturing. The loan is for fixed-capital investment rather than working capital. Not only are women rarely able to dedicate all their time to their business venture because of their multiple roles but also, as we have seen above, women tend to concentrate on services and commerce and more often require working capital. Seasonal activities for male and female poor are not unusual.

  Furthermore, as we have seen already, many women-owned MSEs are home-based and some are ambulant and these should therefore not be excluding criteria.

  Since it is desirable to encourage more of the poor, including women, into activities with higher returns and entry barriers, one should not bar them by setting excluding (unintentionally) eligibility criteria and loan use. What really matters is the ability of the customers to repay the loan.

  Finally, it would seem that targeting the use of credit is not justified in terms of sustainability - administering and monitoring loan use is time-consuming and difficult while the repayment rate does not seem affected.

  It is therefore important to ask if the loan use and eligibility criteria meet the credit needs of poor men and women, who may need to utilise their loans for a variety of purposes (consumption and investment) rather than for a specific targeted use?

• Interest rate

  It is generally recognised that a subsidised interest rate tends to benefit few and those who least need it, jeopardising sustainability of financial intermediaries, and that even poor customers are willing and able to pay a cost-covering interest rate.

  Interest rates should be charged so that they cover all costs to secure the sustainability of MFIs (assuming they are efficient) and thus ensure that the service is continuously provided.

  However, in a disadvantaged area (such as one with low population density and widely scattered villages, distant from economic centres, etc.) operational costs may need to be subsidised. In the Dogon region of southern Mali 54 village banks were created servicing more than 11 000 customers, one third of whom are women, and obtaining repayment rates of 98% (1995). Yet they estimate that the supplementary cost related to operating in a disadvantaged area is nearly half the total project budget (Schneider, 1997, IFAD/OECD, p89). Experience will tell us if subsidies are required in special circumstances but in such cases the subsidy should be directed to the institution rather than through the interest rate.

  It is therefore important to ask if the interest rate covers costs and will eventually enable the institution to achieve sustainability?

• Loan size

  Women are generally poorer than men and therefore they tend to be attracted to smaller loan sizes then men. Also, women seem to be more concerned than men about borrowing particularly large amounts. An evaluation report by AXE (Dhonte et al, 1994) for the European Commission mentions a project in Senegal where the number of women borrowers doubled when the minimum loan amount was halved. FINCA in Uganda finds that female customers are happy to start borrowing initially as little as US$50.

  However, one must also take into account that it will take longer for a MFI to achieve sustainability if average loan sizes are smaller (maybe 10 years instead of 5 depending on the volume). Therefore there is a trade-off between small loans, with the ensuing increased loan volume and thus time required to reach sustainability, and larger loans.

  Certain MFIs have a 'repeat' loan system whereby access to future loans is guaranteed if previous loans have been paid on time, as well as a graduation system whereby on-time repayment will secure the borrower a larger loan than the previous one.

  It is therefore important to ask if the loan sizes, repeat loan and loan graduation systems are appropriate for both poor people seeking credit at low levels and the MFI aiming to achieve sustainability?

• Loan duration

  Loan duration can be as important as size in reflecting the customers' type of business. Manufacturers - often mainly men - will want longer loan terms because the amount invested is larger and the return on this investment will take time. On the other hand many poor customers, particularly women, tend to be in trading and may want shorter loan terms.

  It is therefore important to ask if loan duration reflects the type of business of poor men and women?

• Loan collateral and confidentiality

  In certain countries women are treated as minors. For example, according to a 1990 survey, in the Gambia women were not allowed to own land and had no inheritance rights. In Swaziland a married women required the endorsement of her husband to borrow (Interregional Training Seminar, 1990, MIM, IFAD, INSTRAW). In Zimbabwe there is a MFI that requires women borrowers to get an endorsement from their husbands (Internet).

  In Nigeria there are three recognised inheritance laws. According to statutory law a wife inherits half of the whole estate if there are no children, while under Islamic law the widow will get only one quarter of her husband's estate, but customary law says that a wife cannot inherit but can stay in her husband's family by agreeing to be inherited by one of his kinsmen. Courts have expressed the view that there is nothing wrong with the custom (Kant, 1995, Femconsult).

  Some FINCA borrowers in Uganda indicated that to maintain control over their savings and loans they did not inform their partners that they were borrowing and saving (Olney and Binns, 1997, RIO).

  As we have seen above, women do not always have ownership of assets such as land to provide as security and they may lose part or all of the assets they have accumulated through their activities owing to inheritance laws and/or customs. Some customers also want to keep their financial transactions from their partners' knowledge. Where relevant these issues need to be taken into consideration when credit products are being designed.

  Grameen Bank has taken a strong stance on these issues by not requiring collateral and giving housing loans to women on condition they are owners of the land. Other schemes accept as security assets generally owned by women such as jewellery and other valuables.

  It is therefore important to ask if financial intermediaries set conditions that women and men can fulfil in terms of collateral and that ensure confidentiality in respect of customers partners and relatives?

• Approval time

  Women more often than men face temporary crises or setbacks needing rapid access to credit. There may be a business opportunity that is limited in time. It is therefore considered best practice that small loans should be approved in no more than one week.

  Grameen Bank has found that emergency loans approved in 24 hours are very popular with the poor.

  It is therefore important to ask if management can approve loans in a time-frame that meets the needs of both men and women?

• Repayment terms

  Women's business ventures are generally less profitable than those of men and this, when combined with diversion of some of the loan to consumption, increases the risk of women being unable to face their debt-servicing obligations. Also, the loan amount should bear some relationship to amounts the borrower is used to handling and also to earning capacity before the loan so that the borrower has a chance of repayment even if the business fails (Havers, 1996). Regular and relatively frequent repayment cycles (weekly, fortnightly) and ease of repayment reduces this risk. Although the cash flow generation of customers also needs to be taken in consideration for the purpose of defining realistic repayment terms, some MFIs have experienced better repayment of loans for agriculture when regular repayments were required given that even the poor generally have other regular sources of income.

  Grameen Bank for example encourages activities that will generate income no more than two weeks after disbursement so that repayments start shortly after disbursement.

  As the average loan size of borrowers grows, they will want longer (monthly?) loan repayments to match their experience in handling the loan and their business activity.

  It is therefore important to ask if repayment terms are suited to the needs of customers i.e. frequent and regular repayments, convenience of collection, and flexibility for larger loans and more experienced customers?

• Savings

  As regards savings products women and men have similar needs. They require liquid savings, with easy access to them, and want to be sure they are safe and offer a positive return. However, a GTZ researcher has worked in a CGAP working group indicated that women may sometimes prefer contractual savings instruments so that they cannot be forced by their families to take their savings out.

  It is therefore important to ask if the range of savings products meets the needs of both men and women?

• Forced savings

  Some MFIs require regular savings to accustom future borrowers to be financially disciplined and to serve as collateral. Only once a percentage of the loan is saved is the loan granted. While an accepted practice in principle, experience in the case of credit unions, for example, indicates that women benefited little because the level of savings required was too high (Women and Credit Unions, 1991).

  There seems to be growing dissatisfaction among customers regarding difficulties in withdrawing forced savings. This is particularly true for women who need rapid access to their savings when facing temporary crises or setbacks.

  It is therefore important to ask if the level of forced savings required will not exclude many of the targeted customers and whether it is reasonably easy to withdraw savings?

• Other financial products

  Trials are taking place to deliver other financial products to the poor. Some found in a recent publication are described below (Johnson and Rogaly, 1997, Oxfam, Action Aid, pp 29 &30).

  Hire-purchase for the poor: Action Aid devised this scheme in Bangladesh to overcome the fear of very poor people of taking out loans - for example US$125 loan to buy a rickshaw. Action Aid purchases rickshaws and rents them out to a group. If later they want to purchase the rickshaws part of the hiring fee serves as down-payment and they take a smaller loan for the outstanding amount.

  With-profit endowment policy: Agents visit low-income households in Orissa to offer a fixed regular savings policy which, when the policy matures, returns the savings with a profit. Life assurance is included in the contract.

  Life assurance: Since 1988 Delta Life Insurance has been offering cheap basic life assurance for rural people organised in groups. Savings are collected weekly by an agent who can also extend loans on a group basis. Experience suggests there is high demand for such a service.

  Investment from savings: In Ghana and Mozambique market women pay collection agents to come around and collect their surplus funds - once a day or once a week. The agent will return part or all of their savings for further investment (DFID).

Microfinance is about innovation and flexibility and there are many possibilities for project development - health insurance, pension plans, etc.

It is therefore important to ask if it is intended to provide specific products which will address gender differences in the context of needs for financial services?

4.2.3 At the implementation stage

How financial products are delivered also needs to be gender sensitive if it is to be inclusive.

• Group formation

  Group formation is the centre of the main microfinance methodology yet in mixed groups women tend to be excluded from decision making-positions such as chairperson, treasurer and even secretary.

  Also, many MFIs request that group members be of similar status to avoid control and abuse of certain members by others. In certain areas of Uganda women prefer both women-only groups and members of the same age because tradition makes it difficult to pressure men and older women to fulfil their repayment obligations (Olney and Binns, 1997, RIO).

  It is therefore important to ask if both men and women have equal opportunity to take decision-making positions in a group and if the group's formation rules take into account local traditions?

• Outreach

  Poor women have to balance multiple roles. They are mothers, economic producers and community workers. This means that they have limited free time to travel to a financial institution and to take part in procedures to access credit. The travel cost may also be a barrier for the poor. Furthermore, the free time they have available to seek credit needs to coincide with the operating hours of the intermediary. Women Finance Trust of Zambia found that they had to go to their customers with mobile units for these reasons.

  In certain areas cultural or religious rules mean that women have limited mobility, they may not be allowed to leave their village, maybe even their home. Delivery will need to take this into account.

  In areas where women congregate in certain places like markets, this may be an opportune place to carry out financial transactions demanding little time from women.

  Finally, it is important that the place selected to deliver financial products is considered safe by women.

  It is therefore important to ask if the intermediary is accessible in terms of location, convenience and safety, as well as opening hours and transport cost, by both men and women?

• Attitude of finance officers

  Poor people in general and women in particular are still often considered as unbankable by credit officers. In Kenya, Barclays Bank runs special credit lines for both Jua Kali (small-scale street producers) and successful business women. Each branch received an allocation of these lines but while the Jua Kali facility has been fully utilised that for business women has not in certain branches, apparently because for certain credit officers the women were just never good enough. It has to be noted that the Jua Kali credit line has been so successful thanks to a government effort to educate the people as to the economic contribution of Jua Kali and therefore the need to support them, and this has yielded changed attitudes.

  Also, for cultural reasons some women feel uncomfortable having to deal with male finance officers. It may even be unacceptable that they relate to non-family males. Grameen Bank in Muslim Bangladesh has 94% female customers while most officers are men, showing that much can be achieved where there is a will.

  Nevertheless in certain cases there may be a need to have women officers and in all cases officers should be gender-trained to respect both men and women as serious customers.

  It is therefore important to ask if the finance officers are acceptable culturally (are female customers comfortable, and allowed to do business, with male credit officers and would women officers be accepted by male customers) and professionally (are women and poor people treated with respect)?

• Customer literacy level

  In Palestine the number of educated women is rising as men are now seeking educated women as spouses to help them generate income. Families are therefore investing in the education of girls. However in developing countries women, as we have seen above, generally have a lower level of literacy than men. It is therefore important to minimise paper work and have credit officers helping illiterate clients complete forms. Kenya Women Finance Trust runs training courses using a combination of lectures, drama, role playing and discussions to overcome literacy barriers.

  It is therefore important to ask if application forms and finance officers are intellectually sensitive to the needs related to the literacy level of male and female customers?

• Lending method

  Group lending is the main lending method used today by MFIs for good reasons. However, it should not close the door to other alternatives. In certain areas women and men would favour individual lending to group lending. ADEMI in the Dominican Republic started with group lending but in 1987 decided to lend on an individual basis and does not exclude or target professionals or women. Yet by 1994 ADEMI had arrears of only 5% and losses of 1% (1994), 44% of borrowers were women (June 1995) and 47% of loans went to 6 219 customers with loans averaging US$414. Professionally managed, fulfilling customers' needs and with a mixed portfolio (as to customer profile and sector of activity) ADEMI is financially sustainable lending on an individual basis to both men and women.

  It is therefore important to ask if the lending method (group versus individual lending) is acceptable to customers and continues to be reconsidered throughout the life of the intermediary?

• Advertising financial products

  Women are not always aware of the financial products available to them. This is because sometimes they are only advertised through men's organisations and where men rather than women tend to congregate. Possible places also to consider could be the market (when women go there), child health clinics and women's organisations.

  It is therefore important to ask if the channels selected to advertise financial services will reach both women and men?

4.2.4 At the evaluation stage

Evaluating microfinance can be done at different levels.

• Institutional performance

  One level is concerned with analysing how the intermediary is performing. There is growing agreement on how to do this and usually it is the only aspect of microfinance that is analysed systematically. The main purpose here is to assess whether the MFI is moving towards sustainability according to the pre-agreed plan. Donors are also interested in the target group and therefore the MFI should collect data broken down by gender but the evaluation cost should be borne by donors.

• Customer satisfaction

  Another aspect that can be analysed is how finance products, and the way they are advertised and delivered, respond to what the customer wants. This should be a continuous process (maybe once a year?) and MFIs should be encouraged to assess how their services can be more gender sensitive.

• Socio-economic impact

  Finally, an area that is rarely analysed is the socio-economic impact of microfinance, including gender issues. AXE reports this weakness in credit and savings projects co-financed by the EC with NGOs (Dhonte, et al 1994, p17). IRAM also notes this vacuum in rural credit and savings projects funded by the EC (Gentil, draft 1997, p37).

  This is probably because impact evaluation is complicated, time-consuming and costly. In recognition of this USAID is testing with NGOs, in Africa too, impact assessment based on proxies. Initial results are expected towards the end of 1998.

  In April of 1997 a virtual (internet) meeting by the CGAP working group on impact assessment took place. David Hulme in his paper (1997) describes the five common impact assessment methods, their comparative strengths and weaknesses, and the conditions in which these key methods are appropriate or not. He concludes that the definition of a set of standards for impact assessment is now desirable and feasible.

  The selection of one or a combination of methods will depend on the objective of the impact assessment and the time and funding available. However, we would like to draw attention to one of these CGAP papers presented by Linda Mayoux entitled 'Impact assessment and women's empowerment in microfinance programmes: issues for a participatory action and learning approach'.

  If MFIs are to be sustainable they do not have the time to carry out impact assessment. They do not have the expertise either. Impact studies should be funded and organised by donors and coordination between donors should be sought as a priority. It would be useful if donors could coordinate on methodologies and if summaries of impact assessment were made available on a web site together with the methodology used.

  However, the impact evaluation proposed should be discussed and agreed with the MFI. One MFI in Zambia reported that repayment rates fell after an evaluation because customers associated this exercise with grants.

4.3 The need for training

There is much debate on whether microfinance should follow a minimalist approach (finance only) or a credit plus approach (offering training or education of one sort or another). Even minimalists do a little initial training either to inform customers of their responsibilities as borrowers or as part of their screening process, but this cannot equate to training but rather to securing high levels of repayments.

Additional training for MSEs is costly, rarely effective and needs to be at least partially grant-funded according to the literature reviewed. GEMINI defines the training dilemma as a trade-off between offering a tailored service to MSEs where the cost of providing the service dwarfs the return to the microenterpreneur and offering a standardised assistance package with is less costly but of little immediate application to the individual enterpreneur. Only a few MFIs, says GEMINI, overcame this dilemma by using a large pre-existing network working with MSEs, referred to as "piggybacking" such as the Bangladesh Rural Advancement Committee (BRAC) and ACCION affiliates such as ACTUAR in Bogota, Colombia. Since these networks are not common GEMINI promises forthcoming briefs on alternative strategies (GEMINI, 1995, USAID).

However, as a general rule training should be run separately (i.e. in a different institution altogether) from the financial institution since training requires continued grants while MFIs should seek sustainability, to focus the attention of MFI management and staff on their business and to avoid associating the MFI with donors, which could send the message to customers that loans do not need repaying, thus endangering sustainability.

It follows that receiving finance should not be conditional on training but demand-led. However, MFIs should be aware of available relevant training to which they can refer customers.

Training or technical assistance is clearly necessary but more research seems required into cost-effective tools. Some worth analysing are described below.

BRAC and ACCION affiliates such as ACTUAR using piggybacking (see above).

Tototo Home Industries in Kenya developed an innovative training approach with rural women groups (collaboration between an anthropologist, MBA programme specialist and non-formal trainer) with, apparently, the income of participants increasing substantially but it is unclear if this is true in real terms and how costs were covered (Kane, 1991).

K-MAP in Kenya identifies successful private companies to coach SMEs, thus apparently reducing substantially the number of business failures. KWFT also finds this approach successful.

Grameen Bank has run some interesting programmes such as rural women generating income from the provision of cellular phone telecommunications (Schneider, 1997, IFAD/OECD, p 113).

As we have seen above, marketing is the major constraint poor women entrepreneurs face. To achieve immediate and tangible results one approach is probably backward integration (Japanese style) on a case-by-case basis. It involves identifying locally based successful companies and encouraging them to subcontract to groups of MSEs. In Uganda for example one family produces 10% of GDP and is active in a wide variety of sectors. Mutually beneficial links can probably be developed (Some ideas can be found in Kagami, 1995).

USAID has recently decided to focus its efforts in Kenya by supporting one sector and the cost-effectiveness of this approach is worth analysing.

It would also be interesting to follow the progress of Country Services in Zambia, which provides micro-credit, has developed on-the-job training and offers fully backward integrated service (from project design to the market, with even its own outlets).

4.4 Institutional Aspects

While rules and laws are easier to change than customs, these changes are an important part of the process to ensure more equity between men and women and in society.

As part of promoting microfinance and with donor coordination, attempts should be made to change discriminatory laws such as on ownership of land and assets (in general and in case of inheritance, separation and divorce) and the need for women to get the endorsement of a man to open a bank account and take out a loan.

Donors should also seek to remove the barriers to microfinance development while encouraging regulation of informal MFIs, particularly for those on-lending voluntary savings.

A campaign to enhance the image of small entrepreneurs including women and their right to respect would probably be useful.

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