Review the articles, “Women and Financialization: Microcredit, Institutional Investors, and MFIs,” by Girón (2015), and “Microcredit: From Hope to Scepticism to Modest Hope,” by Berlage and Jasrotia (2015), which are required reading for this week. Respon

20180405044438microcredit__from_hope_to_scepticism_to_modest_hope8 20180405044439women_and_financialization__microcredit__institutional_investors__and_mfis8
 

Review the articles, “

Women and Financialization: Microcredit, Institutional Investors, and MFIs

,” by Girón (2015), and “

Microcredit: From Hope to Scepticism to Modest Hope

,” by Berlage and Jasrotia (2015), which are required reading for this week. Respond to the following:

• Define microloans and determine how microloans can be utilized effectively to promote growth and development in a country?
• Specifically, what strategy would you propose to raise the effectiveness of microloans?

Minimum 250 words

Minimum 2 sources in APA format

 

Enterprise Development and Microfinance Vol. 26 No. 1 March 2015

Lodewijk Berlage (lodewijk.berlage@kuleuven.be) was a professor at KU Leuven, Belgium;
Namrata Vasudeo Jasrotia (namrata5@rediffmail.com) is a professor at XIDAS, Jabalpur, India.

Copyright © Practical Action Publishing, 2015, www.practicalactionpublishing.org
http://dx.doi.org/10.3362/1755-1986.2015.007, ISSN: 1755-1978 (print) 1755-1986 (online)

Microcredit: from hope to scepticism to
modest hope
LODEWIJK BERLAGE and NAMRATA VASUDEO
JASROTIA

After its introduction in the late 1980s and its fast expansion thereafter modern microfi-
nance, and specifically microcredit, raised the hope that it could combine access to (semi-)
formal credit for the poor with financial sustainability of the new microfinance institu-
tions, and that it would contribute to increased micro-entrepreneurial activity, consumer
welfare, and the empowerment of women. More recently scepticism about the operation of
microfinance institutions and their impact has arisen. Based on the literature, we discuss
the possibility of combining outreach to the poor with financial sustainability, microfinance
crises, and the findings of recent impact studies. Our conclusion is that microfinance is not
a panacea for development, but that it is a tool poor households can use in their fight for
survival.

Keywords: microcredit, outreach, financial sustainability, microcredit crisis, impact

Modern microfinance, and more specifically microcredit, was one of the most
remarkable innovations in development practice of the end of the 20th century.
Before 1980 in most low-income countries, banks and other formal financial insti-
tutions were hardly present in rural areas and they were not interested in providing
small loans to poor people or accepting their small savings. Small loans and savings
are administratively cumbersome and thus costly; moreover the recovery of small
loans was deemed problematic due to the lack of collateral. In many countries public
authorities had tried to remedy the problem by providing subsidized credit targeted
at poor households. But a fairly common view was that this policy had failed as
locally powerful persons had appropriated the subsidized credit and quite frequently
were refusing to repay their loans without being sanctioned. Frequently repayment
rates were as low as 40 per cent or even less (see references in Armendáriz de Aghion
and Morduch, 2005). In the absence of access to credit from formal financial institu-
tions and of personal savings, poor people who needed credit to cope with negative
income shocks or to run small businesses had to request loans from relatives and
friends or from local moneylenders. Loans from relatives and friends are commonly
small; those from local moneylenders are costly with monthly interest rates of up to
10 per cent or even more.

Modern microcredit had its origins in the 1980s when in different parts of the
world new initiatives were taken to provide small loans to people without access

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March 2015 Enterprise Development and Microfinance Vol. 26 No. 1

to formal credit institutions. The best known of these was the Grameen Bank in
Bangladesh which after some preceding experimentation by its founder, Muhammad
Yunus, was formally set up as a bank in 1983 by a government ordinance. Elsewhere
in the world other microfinance initiatives were developed. In India the Mysore
Resettlement and Development Agency (MYRADA) started in 1987 with the
promotion of Credit Management Groups, precursors of the Self Help Groups, a
typically Indian vehicle for microcredit (Harper, 2002).

Since those first initiatives, microfinance institutions (MFIs) have proliferated all
over the world. Many microcredit initiatives were set up by NGOs as part of their
development activities. In time a number of these NGOs created separate entities
for their financial operations in the form of banks or, more commonly, non-bank
financial institutions. A number of these new institutions expanded their lending
quite rapidly. Frequently the change in legal status combined with the rise in
lending was linked with a gradual shift in objectives, from the pursuit of social goals
to that of profit. Some observers deplored this shift (see e.g. for India, Fisher and
Sriram, 2002).

Meanwhile microfinance became a hype. The first Microfinance Summit in 1997
set an objective of reaching 100 million households by 2005. At the 2006 Summit
this objective was raised to reaching 175 million households and getting 100 million
households out of poverty by 2015 (see www.microcreditsummit.org). How can the
microcredit hype be explained? The core explanation was the hope for a win–win
situation. On the one hand modern microcredit aimed at providing financial access
(‘inclusion’) for poor people who previously had been excluded from formal credit.
In this way poor borrowers would be able to start up or expand microfirms and this
would contribute to an increase in their households’ income and consumption. On
the other hand microcredit would be provided by financially sustainable institu-
tions; that is, institutions that would be able to cover at least their operational costs,
but ultimately their full costs. Financial sustainability of the microcredit providers
required the introduction of innovations including, among others, joint liability
groups, strict repayment schedules, MFI agents visiting the debtors in their villages,
and the promise of new and eventually higher loans if debts were served.

In addition it was hoped that microfinance would contribute to economic growth
and poverty alleviation. For donors of development assistance these were very
attractive propositions as microfinance offered a channel to promote development
combined with the creation of sustainable financial institutions that would make
assistance superfluous.

But gradually doubts have arisen on whether microfinance was the panacea for
development it had been heralded to be. Some doubts were raised early on, for
example by Hulme and Mosley (1996) and Morduch (1999). Symptomatic of more
recent criticism are book titles such as What’s Wrong with Microfinance? (edited by
Dichter and Harper, 2007) and Why Doesn’t Microfinance Work? The Destructive Rise
of Local Neoliberalism (Bateman, 2010).

Scepticism has gone in different directions. We discuss three of them here. First
there were doubts on whether outreach to the poor could really be combined with
financial sustainability of MFIs. The suspicion was that financial sustainability was

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Enterprise Development and Microfinance Vol. 26 No. 1 March 2015

possible only if subsidies were provided on a continuous basis or if not-so-poor
borrowers were accepted as clients. In this view, instead of a win–win situation there
was a trade-off between outreach to the poor and financial sustainability. A second
line of doubt is linked to the occurrence of microcredit crises. Most prominent was the
2010 crisis in Andhra Pradesh, the heartland of Indian microfinance, which resulted
from borrowers’ complaints about the coercive loan recovery practices of MFI agents
and group peers, of over-indebtedness of many borrowers, and of the allegedly high
cost of microcredit. A third line of doubt concerns the impact of microcredit. Recent
impact studies have raised doubts on the effects of microcredit on the welfare of the
borrowers, on microenterprise activity, and on the empowerment of women, and
hence on the capacity of microcredit to lift poor borrowers out of poverty.

In the following three sections we discuss each of these three topics. Our discussion
is based on a selective review of the literature; we do not pretend to be exhaustive
(which would be impossible in the framework of a short paper). Rather we select
studies in order to provide a broad picture of the results achieved and the problems
met by modern microfinance. Our discussion leads to the conclusion, formulated in
the final section, that microfinance is not the hoped-for panacea for development
and that its growth may present dangers both for its clients and for the sector as a
whole, but that nevertheless it can be a useful tool the world’s poor can use in their
fight for survival.

Outreach and financial sustainability

The major attraction of modern microfinance was the prospect that poor people
would be offered access to loans (and savings products) provided by formal or
semi-formal financially sustainable institutions. Financial sustainability can be
defined in terms of current operations: a financial institution is operationally
sustainable if its revenues are sufficient to cover its operating costs plus the costs
of default. An institution that is not operationally sustainable will need a never-
ending stream of grants or soft loans in order to survive. Full financial sustainability
covers operational sustainability plus independence from grants or subsidized credit
as sources of funds. Financial sustainability is not strictly necessary for an MFI’s
survival provided it has access to governments’ and aid donors’ grants or soft loans.
But as governments and donors can at any time stop their assistance, financial
sustainability is a reasonable objective.

The initial providers of microcredit focused on the provision of loans to formerly
non-bankable poor households. As microcredit expanded, increasingly MFIs were
set up as for-profit institutions independent from the initial providers, quite often
NGOs. Such MFIs stressed profits based on financial sustainability even if this
made it necessary to accept not-so-poor borrowers as customers. The rise of rapidly
growing for-profit MFIs in many countries suggests that this approach was increas-
ingly dominating the microcredit movement.

Are outreach to the poor and financial sustainability compatible? Or conversely,
is there a trade-off between outreach and financial sustainability? The microcredit
movement started from the premise that the answer to the latter question was

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March 2015 Enterprise Development and Microfinance Vol. 26 No. 1

negative, without empirical underpinning. Empirical studies on the existence of
a trade-off are based on data sets of MFIs in a number of different countries. Early
studies used data on a limited number of MFIs whereas more recent studies use large
data sets. Examples of the former were Mosley and Hulme (1998) and Morduch
(1999). On the basis of data for 13 MFIs Mosley and Hulme concluded that more
financially sustainable institutions had a stronger impact on recipients’ income
than less financially sustainable ones. Morduch (1999) found that most of the 72
microfinance programmes in his database had crossed the operational sustainability
threshold, but ‘many fewer’ were financially sustainable. The better performers on
financial sustainability in his sample were broad-based programmes that served a
wide range of clients. The few programmes that focused on ‘high-end’ clients did
not perform better than the other programmes. Morduch also remarked that his
study was based on rather big MFIs and that the many MFIs not in his data set were
probably performing worse in terms of financial sustainability.

Empirical studies went into a higher gear in 2007 with a paper by Cull et al.
(2007). This paper systematically analysed data for 124 MFIs in 49 countries. A
basic finding was that the relation between average loan size (standing for outreach
to the poor) and profitability was not statistically significant; that is, institutions
concentrating on poorer clients were not necessarily less profitable. But the authors
qualified this finding by other observations: for example, larger and older MFIs did
worse on outreach than smaller and younger ones, which suggests ‘mission drift’.

Later studies are based on databases of hundreds of MFIs, most but not all sourced
from the Microsoft Information Exchange (known as MIX Market). They come to
a range of conclusions, going from a negative link between outreach and profit-
ability (e.g. Hermes et al., 2011) to absence of a link (e.g. Mersland and Strøm, 2010;
Quayes, 2011), and even the existence of a positive relation (e.g. Gutiérrez-Nieto et
al., 2009; Louis et al., 2013).

Moreover we should keep in mind that the studies we mentioned are based
on relatively big MFIs. Apart from them there are many more small MFIs. Casual
observation suggests that many of these smaller MFIs are hardly capable of covering
their operational costs and have to struggle for survival.

The evidence found in the literature suggests that lasting dependency of MFIs on
subsidized credit is not strictly necessary in order to reach poor borrowers. But many
MFIs remain dependent on financial assistance. Financial sustainability of MFIs does
not come automatically. MFIs pursuing both outreach and financial sustainability
need to establish an institutional and operational framework that contributes to a
positive balance of revenues and costs.

Micro-credit crises: a case study of Andhra Pradesh, India

In a number of countries microcredit institutions have been confronted with
crisis situations. Usually these followed years of rapid growth of the sector, with
steep increases in the number of clients and loans. Unwanted by-products of such
expansions were the rising indebtedness of MFIs’ clients linked with multiple loans,
a public outcry over alleged misdemeanours of MFI agents, and complaints about the

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Enterprise Development and Microfinance Vol. 26 No. 1 March 2015

allegedly high cost of loans. Microcredit crises were observed in Morocco (starting in
2007), Andhra Pradesh, India (first in Krishna district in 2006, and then on a larger
scale in 2010), and in Nicaragua (the movement for non-payment, no pago, starting
in 2011). In Bangladesh in 2007–08 a crisis was averted by the concentrated action
of the big MFIs (see Chen and Rutherford, 2013). In this section we concentrate on
the crisis in Andhra Pradesh (AP), the heartland of Indian microfinance. We first
describe the events leading to the crisis and the measures taken by the state and
the union authorities. Subsequently we discuss some of the issues raised during the
crisis.

The 2010 microcredit crisis in Andhra Pradesh
In India during the second half of the 1980s a number of NGOs started promoting
the creation of Self Help Groups (SHGs), consisting of 10 to 15 members, with the
objective of stimulating the economic activities of the members, among others, by
mutual savings and credit operations. SHGs could raise their lending by obtaining
loans from formal financial institutions. A crucial step was the introduction in 1992
by the National Bank for Agriculture and Rural Development (NABARD) of the Self
Help Group Bank Linkage Programme by which NABARD would refinance bank
loans to SHGs. This programme expanded quickly and was highly successful in
raising outreach to otherwise unreached people.

Separately from the SHG movement a number of MFIs were set up, usually by
consolidating the microfinance operations of NGOs in separate institutions such
as non-banking financial companies (NBFCs) which increasingly acted as for-profit
organizations. Many of these MFIs were using the joint-liability group model for
their lending. During the first decade of the present century a number of for-profit
MFIs expanded their operations very quickly, mainly financed by bank loans. The
frontrunner of this expansion was the South Indian state of Andhra Pradesh. In this
state the rapid growth was interrupted by a local crisis in Krishna District in 2006
when the District Collector shut a number of leading MFIs’ offices in the district
and instructed MFI borrowers not to repay their loans. This crisis was resolved with
support from the central bank, the Reserve Bank of India, and the growth of the
sector resumed with increased vigour. A symptom of this evolution was that in the
summer of 2010 a major MFI, SKS, went public. The initial public offering took place
at the end of July 2010 and was hailed as a massive financial success.

As early as June 2010, there had been warnings of actual default rates on microloans
being far higher than reported, as defaults were hidden by MFIs replacing older,
non-performing loans with new ones. Arunachalam (2011) notes that, starting in
August 2010, rising default rates and grievances about coercive recovery practices
were already tangible at field level. In late September and October 2010 accounts
of MFI borrowers in Andhra Pradesh committing suicide accumulated. In October
2010, the Chennai-based Centre for Micro Finance noted with alarm that in Andhra
Pradesh ‘the overall rate of indebtedness is extremely high’ (Johnson and Meka,
2010: 19). It reported that 84 per cent of households had two or more loans, while
58 per cent had four or more loans.

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March 2015 Enterprise Development and Microfinance Vol. 26 No. 1

After reports in local newspapers of rapidly increasing violence (Nayar et al.,
2010), the Andhra Pradesh Government on 15 October passed an ordinance to
protect borrowers. As the reason for this ordinance it cited ‘usurious interest rates
and coercive means of recovery resulting in impoverishment and in some cases
leading to suicides’ (Government of Andhra Pradesh, 2010). The ordinance required
MFIs to state their interest rates clearly and register all recovery personnel in each
district they operated in. It forbade the charging of interest in excess of the principal
(a meaninglessly high limit) and the issuing of multiple loans to the same borrower.
Furthermore it specified that MFIs should ‘not deploy any agents for recovery nor
shall use any other coercive action’ (Government of Andhra Pradesh, 2010) and
threatened to imprison the managers in cases of breach.

The MFIs reacted by cutting interest rates, challenging the connection between
microloans and suicides, blaming a few rogue MFIs for abuses, and denouncing the
AP Government’s ordinance as a politically self-serving act to protect its own SHG
programme (Intellecap, 2010). But the crisis was a catastrophe for the microfinance
sector because of the damage to its reputation and the implicit signal it sent out
that borrowers would not be forced to repay their loans at any cost. Microfinance in
India went into protracted decline. In Andhra Pradesh almost all loans were written
off. Elsewhere in India the growth of MFIs came to an abrupt stop; only in 2012 did
MFIs start again to expand their operations.

In the meantime the Reserve Bank of India, India’s central bank, has issued
guidelines for NBFC-MFIs and has set up a licence system. The guidelines include
capital requirements and capping of annual interest rates at 10 to 12 per cent above
the MFI’s borrowing cost. A pending microfinance bill aims to ensure development
and orderly growth of the sector.

Issues raised by the 2010 microcredit crisis in Andhra Pradesh
The Andhra Pradesh microcredit crisis of 2010 and the events surrounding it raised
a number of wider issues. We briefly discuss three of them: excessive borrowing,
coercive loan recovery practices, and allegedly high interest rates. First excessive
borrowing became a problem in an environment where several MFIs were operating
in the same area and where individual MFIs were frantically trying to expand
their lending in order to raise their profits. This resulted in loans being pushed
on borrowers who did not really need them, putting an excessive burden on poor
debtors and delivering some of them back into the arms of local moneylenders.

A second problem was the coercive loan recovery practices on the part of joint
liability group peers and of MFI agents. Joint liability can be interpreted as an
expression of solidarity between group members. But it can also lead to excessive peer
pressure on debtors who are not capable of servicing their debts. MFI agents may easily
be tempted to apply excessive pressure on debtors who are threatening to default as
loan recovery is an important element in the evaluation of their performance. The
line between justified and non-justified coercion is thin and not easy to draw.

A third issue was the allegedly excessive interest rates charged by MFIs. In
many creditor–debtor relations borrowers complain about high interest rates and

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Enterprise Development and Microfinance Vol. 26 No. 1 March 2015

politicians can gain popularity by subscribing to these complaints. Frequently
interest rates charged by MFIs are compared with those applied by banks and
invariably the former are higher than the latter. But MFIs aiming at financial sustain-
ability have to charge interest rates that cover their costs, including the cost of their
funds, and produce a modest profit. In this perspective interest rates between 20
and 30 per cent found in Andhra Pradesh do not seem to be excessive. In two CGAP
papers Rosenberg et al. (2009, 2013) analysed microcredit interest rates applied by
MFIs reporting to the Microfinance Information Exchange (MIX). For South Asia in
2006 they found an average cost of lending, exclusive of profits, of almost 24 per
cent. Moreover interest charges in South Asia were considerably lower than in other
parts of the world. Thus interest rates in the upper 20 per cent range as observed in
AP were probably not excessive. Elsewhere in the world some MFIs, including well
known ones, charge interest rates in excess of 50 per cent, sometimes hidden by
quoting so-called flat rates. It seems quite unlikely that such interest rates can be
justified by costs, unless the MFIs in question are very inefficient.

Impact of microcredit

Microcredit was originally targeted at promoting entrepreneurship, improving
household welfare and reducing poverty, and empowering women. Approximately
30 years have passed since the first modern microcredit initiatives were started.
Meanwhile many new schemes have been initiated. It is therefore natural to analyse
whether modern microcredit has fulfilled the promises it had made. The only way
to find this out is to make careful empirical impact studies. And indeed thousands
of impact studies of microcredit have been made.

The problem with almost all of the impact studies is that they can be criticized
on methodological grounds (see Duvendack et al., 2011, for a thorough analysis of
the methodologies used in evaluation studies). Specific problems are selection and
placement bias. The former refers to the fact that recipients of microcredit may have
unobservable characteristics that explain their performance compared with that of
non-recipients. Placement bias is present if MFIs start up microcredit programmes
in locations where they expect a good performance by recipients; as a result these
locations outperform locations without a microcredit programme. One way to
correct for these biases is to set up real-world experiments in which recipients of
microloans are selected randomly out of a database of candidates for microloans
or locations for new microcredit programmes. After the programme has been
implemented for some time the ‘treatment group’ is compared with a control group
of non-recipients or locations without a microcredit programme. Such experiments
are called randomized controlled trials (RCTs).

The RCT methodology is not perfect. One critique is that findings based on
RCT experiments may be valid within, but not necessarily outside, their own
environment. Another problem is that, when applied to microcredit, the impact
is estimated after a relatively short period of time, usually 1.5 to 2 years after the
start of the programme, as the cooperating MFI is not usually willing to wait a
long time before starting microcredit for the control group. Nevertheless from a

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methodological point of view RCTs are attractive to meet selection and placement
bias. Therefore we concentrate on the findings of the few available evaluation
studies using this methodology.

We consider the findings of four impact studies using randomized placement
(Attanasio et al. (2011) on a credit programme in rural Mongolia; Banerjee et al.
(2013) on a credit programme in slums of Hyderabad, India; Crépon et al. (2011) on
a credit programme in rural Morocco; and Angelucci et al. (2013) on a programme
in North Central Mexico) and two studies based on the random assignment of
microloans, implemented in Bosnia and Herzegovina (Augsburg et al., 2012) and in
the Philippines (Karlan and Zinman, 2011). (All these RCT-based evaluation studies
are surveyed by Banerjee, 2013.) We also include findings of a study of the impact
of a quasi-experiment, the Million Baht Village Fund programme in rural Thailand
(Kaboski and Towsend, 2012). The programme allocated 1 m baht (approximately
US$30,000) to individual villages independently of their population. Therefore
it can be considered as a quasi-experiment. This impact study is also interesting
because households were observed over a period of 11 years, six of them after the
programme had been started.

We discuss the impact of microcredit programmes on access to credit, entrepre-
neurial activity, household welfare, and empowerment of women. We start out with
a fairly general finding: microfinance programmes improve access to credit for their
beneficiaries, both from microcredit and from other providers. So microfinance loans
do not just displace other loans, they add to the total credit flow. For poor households
improved access to credit by itself is important. This was emphasized by Collins et al.
(2009) in their book Portfolios of the Poor. The authors found that for poor households
money management is a part of everyday life as they must make arrangements for
matching day-to-day consumption with an irregular income flow. In addition they
must cope with risks against which they are hardly insured and from time to time
they must find the means to cover lumpy expenditure, for example, for a marriage,
for a festival, or for the purchase of costly consumer durables. To meet these three
challenges they need savings as well as loans. Microfinance may be an important
additional source of borrowing provided it is sufficiently flexible. This was confirmed
by a case study of Grameen II, the Grameen Bank after the 2001 restructuring: the
new borrowing opportunities and savings products proved to be highly successful.

The evidence on the impact of microfinance on other variables is far less clear.
We begin with entrepreneurial activity. Most studies found no significant impact on
business creation. But the Bosnia and the Mongolia (with group lending, not with
individual loans) studies did find a significant positive impact and the Hyderabad
study found a minor impact. As to the expansion of existing businesses the studies
on Bosnia, Morocco, and Mexico found an increase of scale as measured by business
revenues and expenditures. But the study in the Philippines found, if anything, a
negative impact on business activity. In the Hyderabad study investment in durable
assets was found to have increased significantly. Most studies found no positive
impact on profits. The Mongolia study did find a positive impact on profits, but
again only with group lending. The Thailand study found some indications that
business profits increased in response to the microcredit programme.

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Enterprise Development and Microfinance Vol. 26 No. 1 March 2015

We now turn to household welfare. The most obvious indicator is total
consumption expenditure. All six RCT impact studies failed to find an increase in
total consumption expenditure as a result of microcredit. The Thailand study did
find a substantial and statistically significant increase in consumption levels, of the
same order of magnitude as the credit injection or even larger. But this increase was
limited in time, lasting only four years. However the composition of consumption
expenditure was found to have changed. The Hyderabad, Mongolia, and Thailand
studies found an increase in expenditure on consumer durables, including home
improvements. For non-durable consumption no impact was observed, but
expenditure on so-called temptation goods (alcohol, tobacco, meals outside of the
household, etc.) did fall. This may have been due to the fact that households gave
priority to lumpy expenditures on consumer durables.

Household welfare can also be measured by subjective indicators. This was done in
the Mexico and the Philippines studies. The former found generally positive changes,
but the latter found a small overall decrease in subjective well-being. Findings on
the impact of microcredit on education and health were diverse; both for education
and for health two studies found some positive impact. The Bosnia study found that
school attendance of teenagers in marginal households with a low education level
decreased as they had to work substantially more hours in the household business.

Finally four studies did not find an impact on women’s empowerment as measured
by the participation of women in household decision-making. The only exception
was the Mexico study which found that participation of women in financial decisions
slightly increased, but this was from a very high 97.5 per cent initial participation.

The findings as reported here concern average effects of microcredit. For some
subgroups the effects of microcredit were more favourable, for other groups less
so. The Hyderabad and Mexico studies, for instance, found an increase in business
profits of microcredit beneficiaries in the upper tail of the distribution – the best-off
households. The Mexico study found limited evidence that microcredit may have
negative effects on some subgroups, mainly the poorer ones and those without
previous experience of formal credit.

A comparison with findings from survey data is interesting. Probably the most
elaborate impact studies not based on RCT methodology, but on survey data are a
succession of papers by Pitt and Khandker (1998), Khandker (2005), and Khandker
and Samad (2014) on Bangladesh, based, respectively, on one, two, and three surveys
covering the same households, except for drop-outs and additional households
included in the two follow-up surveys. The most recent paper was based on data
for 2,322 households including approximately 800 split-offs of 1,509 households
which were included in the three surveys. Khandker and Samad (2014) find that
microloans for female household members have a statistically significant impact
on household income, but not on household expenditure whereas the opposite
is true for microloans for males. But this finding is not robust with respect to the
estimation methodology. The authors do find a robust positive impact on non-land
financial assets of microloans both to male and female household members. Thus
if robustness is taken into account Khandker and Samad’s findings are not quite
different from those of the RCT impact studies we discussed in this section.

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The above findings are sobering. Microcredit has a positive impact on access to
credit and this is useful for the poor. But the RCT studies suggest that its impact
on entrepreneurship, household welfare, and women’s empowerment is limited or
non-existent. Of course we should keep in mind that the impact of any programme
is dependent on local factors and that most of the findings of RCT impact studies
are based on surveys implemented a relatively short time after the start of the
programmes. Nevertheless it seems safe to conclude that the hopes originally raised
by microfinance were exaggerated. We may refer to a remark made by Hulme and
Mosley in their 1996 synthesis of case studies of MFIs that ‘such schemes are not
the panacea for poverty reduction that has been claimed’ (Hulme and Mosley, 1996,
Vol. 1: 114).

Conclusion

Modern microfinance has been with us for approximately 30 years. In its early days
it did raise high hopes: outreach to the poor combined with financially sustainable
institutions resulting in promotion of microenterprise, improvement of household
welfare, and empowerment of women. Has microfinance, and more specifically
microcredit, fulfilled its promises?

In order to provide an answer to this question in this paper we considered
three issues. First, recent empirical research suggests that it is not impossible to
combine outreach to the poor with MFIs’ financial sustainability. Some research
even suggests that profitability is associated with deeper outreach. But many MFIs
remain dependent on grants or subsidized credit. Second, like the financial sector
at large, the microcredit sector is not immune to crises and their accompanying
excesses. Third, RCT-based impact studies show that microcredit institutions do
improve financial access for their clients. But their impact on entrepreneurial
activity and on household welfare is less clear. Microcredit is certainly not a panacea
for development.

Our findings have implications for the future of microcredit. We list three of them.
First, rather than constantly repeating the mantra of microenterprise promotion,
the microcredit sector should recognize the importance of consumption credit for
poor households. Many microloans are directly or indirectly used for consumption
purposes. Moreover consumption loans are an important component of household
finance, for poor as well as for richer households. Second, measures should be
taken to prevent overindebtedness, coercive loan recovery practices, excessively
high interest rates, and credit bubbles. Self-regulation by MFIs, for example in the
form of codes of conduct, may go some way to assure an orderly development of
the sector. But ultimately some form of regulation by the financial authorities is
needed to supervise MFIs and to prevent credit bubbles and subsequent crises. In
addition a flexible regulation of interest rates and other costs charged by MFIs may
facilitate the acceptance of the relatively high costs MFIs have to charge to assure
their financial sustainability. Third, MFIs should continue to innovate in order to
reduce their costs and to offer credit and savings products adapted to their clients’

MICROCREDIT: HOPE AND SCEPTICISM 73

Enterprise Development and Microfinance Vol. 26 No. 1 March 2015

needs. It is important that regulation of the microcredit sector preserves the scope
of MFIs to do so.

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Alicia Girón is the 2015 James Street Scholar. She is a professor and researcher in the Economic Research Institute at

the National Autonomous University of Mexico (UNAM). This paper is part of the project “Global and Regional
Financial Competition: Post-Crisis Financing Models and Employment, Gender and Migration: Between Austerity and
Uncertainty from the Dirección General de Asuntos de Personal Académico (DGAPA)” of UNAM. She thanks Miguel
Ángel Jiménez, Libertad Figueroa (UNAM), and Andrea Reyes (CONACYT’s scholarship) for their support.

373

©2015, Journal of Economic Issues / Association for Evolutionary Economics

JOURNAL OF ECONOMIC ISSUES
Vol. XLIX No. 2 June 2015
DOI 10.1080/00213624.2015.1042738

Women and Financialization:
Microcredit, Institutional Investors, and MFIs

Alicia Girón

Abstract: My aim in this paper is to show the way in which microfinance acquires
the face of women. While micro-finance institutions (MFIs) act under the flag of
“serving the common good,” there are still the interests of institutional investors
behind them, who are looking to profit through international financial circuits. On
one hand, microfinance is part of financial innovation in the global financial
circuits. On the other hand, women’s bancarization inserts them into the labor
market, hence into the financial circuits. MFIs become part of the shadow financial
system. When debating microcredit’s profitability from a gender perspective, I note
both the financial effectiveness of microcredits and the role of women as highly
profitable economic agents. Is there a relation between financialization and
microcredit? Is microcredit an achievement that will improve the economic,
political, and social environment for women? Why is it that women’s bancarization
has been a priority of international financial organizations? Microcredit with a
woman’s face confirms the suggested hypotheses. Their empowerment through
microcredit is a new way for financial investors to obtain higher profits through
MFIs. The highest interest rates that MFIs charges are an expression of
financialization by institutional investors.

Keywords: financialization, institutional investors, microfinance institutions,
women

JEL Classification Codes: D0, G15, G20, J16, O12

As part of the financialization process, the shadow financial system has emerged
around the world in different ways. It is not only part of the official dialogue within
the macroeconomic field, but also within the microcredit sphere. Micro-finance

Ȗ 374

Alicia Girón

institutions (MFIs) are part of the financial process, especially when it comes to
addressing the poor in developing countries. Most microcredits are given to women
who need to improve their income, and they have been portrayed by the dominant
ideology as a mechanism for women’s empowerment.1 Microcredit with a woman’s
face is one of the most important metamorphoses that has come from the structural
changes in financial and labor-market circuits since the late 1970s. Microcredit not
only empowers women, but also leads them to becoming economically profitable
subjects in microfinance services. At the same time, the profit obtained by MFIs is
part of the financialization in international financial circuits. Many MFIs depend on,
or are part of, big banks.

Small Loans with a Woman’s Face

When focusing on the analysis of microcredit, the high profitability of small loans,
granted by MFIs at an international level, becomes noticeable (Rosenberg et al. 2013).
Reducing poverty and improving the conditions of families are two elements of the
normative discourse that highlights the role of women as economic agents through
the access to funding granted by MFIs (Bateman and Ha-Jong 2012). Therefore,
microcredit is the ideal way to obtain funding for starting small businesses. It is ideal
to such an extent that even in the UN Millennium Development Goals the concepts
of empowerment, women entrepreneurs, and microcredit are used to refer to women
as economic agents. Hence, there is a close relation between empowerment, women
entrepreneurs, and microcredit within the economic sphere of macro-economy,
despite the fact that a great amount of microcredit is not created to generate new
businesses, but to power daily consumption.

There has been a transition, during the last four decades, from regulated to
deregulated financial systems. This change has brought forth the integration of
financial institutions into global circuits. The rapacious quest for profit and stock
price appreciation indicative of “money manager capitalism” (Minsky [1986] 2008)
has drawn money-center banks, giant pension funds, and other institutions into the
microcredit sphere. As the relative importance of state and development banks has
waned, microcredit operations are increasingly subject to the logic and imperatives of
rentier capitalism (Keynes [1936] 1964).

In most Latin American and Asian countries, institutional financial
intermediaries have obtained great profits from MFIs (Girón 2012a). Through
international financial markets, MFIs channeled liquidity toward funding small
subsidiary loans from banking corporations that are classified as “too big to fail, too
big to rescue.” These corporations have been favored by financial regulation from the
state and from international financial agencies, such as the International Monetary

1 Empowerment, from a gender perspective, consists of transforming women into economic agents —
capable beings with “freedom to choose” not only how to use credit, but also to engage in productive
projects as entrepreneurs in administrative, social, and political decision-making position.

ȕWomen and Financialization 375

Fund (IMF), the World Bank, the Bank for International Settlements (BIS 2013),2
and the central banks. According to the latter, the empowerment of women as
entrepreneurs through microcredit is untenable. In a world of “money manager
capitalism,”3 in which Minsky (Wray 2011) discerned the greed of financial
institutions and in which financialization has become the norm, it can hardly be said
that microcredit is the path to empowering women who live in an austere
environment.

Women are candidates for microcredit since it is the simplest way to include
them in both labor markets and financial circuits, by making use of the important
commitment they have to their families and their jobs. Therefore, the need for
women to be income providers to their families brings about the transformation of
societies by breaking traditional gender norms not only in managing money, but also
in combatting gender discrimination both within the family and the workplace.
NGOs, having recently emerged as a shadow of the state, offer credit and
employment, as well as shape the production system in many societies (Karim 2011).
The development of credit systems by NGOs started with the weakening of the state
in the spheres of production and circulation. It was during the 1980s and 1990s that
this model became surprisingly preeminent and influential when it came to making
decisions related to economic policy. Under this pressure, patriarchal society began to
break and the prerogative of development acquired great importance. In the 1960s,
development was transformed into an organic process that aimed to raise the quality
of life in a developing project to combat poverty on a global level. Microcredit, as
referred to in the official discourse, assists this new model in eradicating poverty.
Therefore, MFI regulation demands a new legal structure aimed at regulating credit
relations between creditors and debtors, domestically as well as internationally.

Profit Margins and Microcredit Profitability

Using the World Bank’s data, I analyzed the profitability levels of fifteen MFIs with a
large margin of profit at a global level by regions4 during 2012. I took into account
those MFIs that, as borrowers, are located above 60 percent since, during that year,
they reflect a profit margin above 65 percent (Table 1). However, there is the case of
MEC le Sine with a profit margin of 209 percent. On average, the profit margin of
the main, most profitable MFIs is 75 percent.

2 BIS is located in Basilea, Switzerland.
3 “Money manager capitalism” is defined as the changes that occur in the banking structure and the

return to instability due to a characterization of capitalism based on securitization, globalization,
financialization, deregulation, and liberalization (Tymoigne and Wray 2014, 72).

4 The regions taken into account for this analysis are Latin America and the Caribbean, Southern
Asia, Eastern Asia and the Pacific, Central Asia and Eastern Europe.

Ȗ 376

Alicia Girón

Table 1. Main MFIs by Profit Margin, 2012

Source: Mixmarket (2012).

Notes: ROA: Return on Assets (Net Operating Income, less Taxes)/Assets, average; ROE: Return on Capital (Net
Operating Income, less Taxes)/Capital; Profit Margin: Net Operating Income/ Financial Revenue.

Taking into account the available data, I made a regional analysis according to
the World Bank’s classification.

Latin America and the Caribbean

Latin America and the Caribbean involve seventeen countries,5 of which Mexico
had the highest number of MFIs in this area with a total of sixty in 2012. For Mexico,
this number is equivalent to 16 percent of the total MFIs established within the
region, followed by Peru and Ecuador with 15 and 12 percent of the total, respectively
(Figure 1). The distribution of assets within the region differs. Peru had the highest
amount of assets with 32 percent of the total, followed by Colombia and Mexico with
21 and 12 percent, respectively (Figure 2).

Name Country
Women

borrowers %
Assets

(thousands of $)

ROA

%

ROE

%
Profit

margin %
MEC le Sine Senegal

547,773 23 101 209

Hope Russia Russia 79 449,951 11 11 88
MF Nadejda Russia 79 449,951 11 11 88

Inam Azerbaijan 33 13,415 6.0 6.0 87
Alcaravan Colombia 61 7,573,055 26 43 86

CCC Ecuador 42 3,319,228 10 13 84
Rishenglong China 15 22,994,732 8.0 11 78

Ochir-Undraa OMZ Mongolia 41 4,872,000 6.0 9.0 72
Fundación Paraguaya Paraguay 86 30,510,006 20 76 67

TEDC Iraq

6,589,490 16 16 67
JSJRMCC China

95,782,744 8 12 67

Amalkom Iraq

7,606,743 41 48 67
UCEC-G Chad

3,010,413 7.0 19 66

BTV Vietnam 87 311,757 12 12 66
Guarantee Agency

of Nizhniy Novgorod
Russia 20 17,383,426 5.0 6.0 65

5 For this region and because of the existent MFIs, Mixmarket only takes into account the following
countries: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala,
Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Dominican Republic,
Santa Lucia, Suriname and Trinity, and Tobago.

ȕWomen and Financialization 377

Figure 1. MFIs’ Distribution by Country, Latin America and the Caribbean, 2012

Source: Mixmarket (2012).

Figure 2. MFIs’ Asset Concentration by Country, Latin America and the
Caribbean, 2012

Source: Mixmarket (2012).

Mexico 16%

Peru 15%

Ecuador 12%

Colombia
7%

Brazil 7%

Honduras 6%

Nicaragua 6%

Bolivia 5%

Guatemala 5%

Dominican
Republic 4%

Argentina 3%
Costa Rica 3%

El Salvador 3%
Paraguay 2%

Haiti 1%

Panama 1%

Others 3%

Peru 32%

Colombia 21%Mexico 12%

Bolivia 11%

Ecuador 7%

Chile 4%

Paraguay 4%

Dominican
Republic 2%

El Salvador 1%

Others
6%

! 378

Alicia Girón

Of the fifteen MFIs, whose profit margin in Latin America and the Caribbean
was highest, seven granted more than 50 percent of their credit to women and showed
a profit margin above 50 percent (Table 2). Three of the fifteen MFIs are located in
Colombia, alongside the MFI with the largest profit margin — Alcaravan (this MFI
granted six out of every ten loans to women). Thirteen out of the fifteen main MFIs
granted over 60 percent of their credit to women. The case of FIACG, in Guatemala,
stands out since 100 percent of its loans were granted to women, generating a profit
margin of 34 percent, a ROA of 13 percent, and a return on equity (ROE) of 14
percent. On average, the indicator for the fifteen MFIs is 17 percent ROA and 34
percent ROE. The MFIs with the highest percentage of credit granted to women were
Compartamos Banco and Invirtiendo, both Mexican, with 94 and 93 percent,
respectively.

Table 2. Main MFIs in Latin America and the Caribbean, 2012

Profit Margin

Name Country
Women
borrowers %
Assets

(thousands of $)
ROA

%
Profit

margin %
Alcaravan Colombia 61 7,573,055 26 86

CCC Ecuador 42 3,319,228 10 84
Fundación Paraguaya Paraguay 86 30,510,006 20 67

FUNDEVI Honduras 46 100,802,289 6.0 59
LICU Belize

19,835,918 6.0 55

Invirtiendo Mexico 93 32,012,269 19 52
FOVIDA Peru

2,507,512 11 50

APACOOP Costa Rica 26 4,162,935 7.0 46
Fundación Mundo Mujer Colombia 64 480,471,143 17 45

FUNDESCAT Colombia 56 3,632,513 9.0 43
IPED Guyana Guyana 34 13,959,317 8.0 42

Financia Credit Panamá 2 3,571,088 7.0 41
MCN Haiti 64 24,121,586 17 40

CREDIOESTE Brazil 24 2,830,603 17 38
MUDE Guatemala 91 1,981,227 9.0 37

ROA
Name Country
Women
borrowers %
Assets
(thousands of $)
ROA
%
Profit

margin %
ACCESS Jamaica 57 9,527,859 29 36
Alcaravan Colombia 61 7,573,055 26 86

Fundación Paraguaya Paraguay 86 30,510,006 20 67
Invirtiendo Mexico 93 32,012,269 19 52

Fundación Mundo Mujer Colombia 64 480,471,143 17 45
CEAPE MA Brazil 67 22,912,912 17 33

CREDIOESTE Brazil 24 2,830,603 17 38
MCN Haiti 64 24,121,586 17 40
ASEI El Salvador 83 3,617,474 15 33

Compartamos Banco Mexico 94 1,333,796,296 13 31
FIACG Guatemala 100 3,495,906 13 34

Fundación Adelante Honduras 99 1,460,022 13 22

�Women and Financialization 379

Table 2 continued

Source: Mixmarket (2012).
Notes: ROA: Return on Assets (Net Operating Income, less Taxes)/Assets, average; ROE: Return on Capital (Net
Operating Income, less Taxes)/Capital average; Profit Margin: Net Operating Income/ Financial Revenue.

Southern Asia

Southern Asia comprises seven countries:6 India involved 93 MFIs, the highest
number in this region; Bangladesh 28; Nepal 24; and Pakistan 23. The distribution by
number of institutions is as follows: India 51 percent, Bangladesh 15 percent, Nepal
13 percent, and Pakistan 13 percent. Together, the last three countries represent 41
percent, while the other MFIs are located in Sri Lanka, Afghanistan, and Bhutan
(Figure 3).

In relation to the concentration of assets, India stands out with 45 percent
(4,524 million dollars) of the total for that region. It is followed by Bangladesh with
35 percent (3,513 million dollars). Together, these countries represented 80 percent
of the total assets during 2012 (Figure 4).

6 For this region and because of the existent MFIs, Mixmarket only takes into account the following
countries: Afghanistan, Bangladesh, Bhutan, India, Nepal, Pakistan, and Sri Lanka.

FIACG Guatemala 100 3,495,906 13 34
Fundación Adelante Honduras 99 1,460,022 13 22

ECLOF – DOM Dominican R. 80 6,578,954 13 30
Avanzar Argentina 65 352,080 12 15

Financiera CIA Mexico 82 2,759,949 12 25
ROE

Name Country
Women
borrowers %
Assets

(thousands of $)
ROE

%
Profit

margin %
FUNDESER Nicaragua 50 20,267,041 115 86

Fundación Paraguaya Paraguay 86 30,510,006 76 84
ECLOF – DOM Dominican R. 80 6,578,954 71 67

ACCESS Jamaica 57 9,527,859 44 59
Alcaravan Colombia 61 7,573,055 43 55

Apoyo Económico Mexico 56 103,648,367 39 52
Financiera Edyficar Peru

1,064,706,594 38 20

Santander Microcrédito Brazil 69 11,398,537 36 46
CRAC Los Andes Peru

50,960,794 35 45

MCN Haiti 64 24,121,586 34 43
Fundación Mundo Mujer Colombia 64 480,471,143 33 42

Fundación Alternativa Ecuador 55 18,542,773 32 41
Compartamos Banco Mexico 94 1,333,796,296 31 40

Invirtiendo Mexico 93 32,012,269 30 38
CREDIOESTE Brazil 24 2,830,603 30 37

Ȗ 380

Alicia Girón

Figure 3. MFIs’ Distribution by Country, Southern Asia, 2012

Source: Mixmarket (2012).

Figure 4. MFIs’ Asset Concentration by Country, Southern Asia, 2012

Source: Mixmarket (2012).

India 51%

Bangladesh 15%

Nepal 13%

Pakistan 13%

Sri Lanka 4%

Afghanistan 3%

Bhutan 1%

Afghanistan 2%

Bangladesh 35%

Bhutan 1%

India 45%

Nepal 24%

Pakistan 7% Sri Lanka
8%

Women and Financialization 381

The fifteen MFIs with the highest profit margin in this region had relatively high
percentages of loans granted to women (Table 3). Eight out of the fifteen MFIs
granted the total of their credit to women. The fifteen showed a profit margin above
20 and 60 percent. The case of India stands out since this country had four of the
fifteen MFIs presented in Table 3. These four enterprises also granted 100 percent of
their credit to women. The same table shows that fifteen MFIs with higher ROA
granted more than the 80 percent of their credit to women. In eight of them, the
percentage reaches 100, which also happened among the main MFIs by ROE, since
fourteen out of fifteen MFIs granted more than 80 percent of their credit to women.
Out of these, nine had a credit portfolio dominated by women. These are established
in India, Bangladesh, and Nepal.

Table 3. Main MFIs in Southern Asia, 2012

Profit Margin
Name Country
Women
borrowers %
Assets
(thousands of $)
ROA
%
Profit

margin %
Jagaran MF India 100 8,079,211 10 61

Nilkhantha SACCOS Nepal 100 285,241 7.0 44
VERC Bangladesh 98 13,478,720 9.0 41

ASA Pakistan Pakistan 100 16,190,580 9.0 40
Muthoot India 100 59,924,357 10 38
Bandhan India 100 982,599,687 5.0 34

Muktinath Bikas
Bank Limited

Nepal 100 6,774,990 7.0 33

VYCCU Nepal 24 4,627,715 4.0 33
BDBL Bhutan 38 140,276,781 4.0 33

BMSCCSL Nepal

401,509 6.0 33

TMSS Bangladesh 98 119,083,892 7.0 32

Sarala India 100 7,364,865 6.0 31
RCDS Pakistan 92 7,647,750 8.0 30

Sahara Mahila Nepal 100 503,667 4.0 30
NRSP Pakistan 79 73,671,819 7.0 29

ROA
Name Country
Women
borrowers %
Assets

(thousands $)
ROA

%
Profit

margin %
Muthoot India 100 59,924,357 10 38

Jagaran MF India 100 8,079,211 10 61
ASA Pakistan Pakistan 100 16,190,580 9.0 40

VERC Bangladesh 98 13,478,720 9.0 41
Lak Jaya Sri Lanka 100 3,658,843 8.0 27
RCDS Pakistan 92 7,647,750 8.0 30

Nilkhantha SACCOS Nepal 100 285,241 7.0 44
NRSP Pakistan 79 73,671,819 7.0 29

Muktinath Bikas
Bank Limited
Nepal 100 6,774,990 7.0 33
TMSS Bangladesh 98 119,083,892 7.0 32

� 382

Alicia Girón

Table 3 continued

Source: Mixmarket (2012).
Notes: ROA: Return on Assets (Net Operating Income, less Taxes)/Assets, average; ROE: Return on Capital (Net
Operating Income, less Taxes)/Capital average; Profit Margin: Net Operating Income/ Financial Revenue.

Sarala India 100 7,364,865 6.0 31
RCDS Pakistan 92 7,647,750 8.0 30
Sahara Mahila Nepal 100 503,667 4.0 30
NRSP Pakistan 79 73,671,819 7.0 29
ROA
Name Country
Women
borrowers %
Assets
(thousands $)
ROA
%
Profit
margin %
Muthoot India 100 59,924,357 10 38
Jagaran MF India 100 8,079,211 10 61
ASA Pakistan Pakistan 100 16,190,580 9.0 40
VERC Bangladesh 98 13,478,720 9.0 41
Lak Jaya Sri Lanka 100 3,658,843 8.0 27
RCDS Pakistan 92 7,647,750 8.0 30
Nilkhantha SACCOS Nepal 100 285,241 7.0 44
NRSP Pakistan 79 73,671,819 7.0 29
Muktinath Bikas
Bank Limited
Nepal 100 6,774,990 7.0 33

TMSS Bangladesh 98 119,083,892 7.0 32
Manushi Nepal 100 2,212,828 6.0 24
BRAC Bangladesh 96 788,944,880 6.0 23
GJUS Bangladesh 90 3,375,898 6.0 26
Sarala India 100 7,364,865 6.0 31

BMSCCSL Nepal

401,509 6.0 33
ROE

Name Country
Women
borrowers %
Assets
(thousands of $)
ROE
%
Profit

margin %
Kashf Foundation Pakistan 100 46,058,595 767 7.0

GMF India 100 440,256 130 3.0
Muthoot India 100 59,924,357 93 38
SOLVE Nepal 100 1,133,988 72 20

SKDRDP India 62 446,615,297 70 17
Muktinath Bikas

Bank Limited
Nepal 100 6,774,990 69 33

Manushi Nepal 100 2,212,828 57 24
GMSSS India 100 1,001,582 44 27
DAMEN Pakistan 100 9,336,549 36 17
MMFL India 100 33,565,674 35 25
VERC Bangladesh 98 13,478,720 34 41
TMSS Bangladesh 98 119,083,892 34 32

SKS Foundation, Bangladesh Bangladesh 97 12,717,506 33 15
BURO Bangladesh Bangladesh 87 187,056,662 32 15
Annapurna Mahila

Credit Co-op Society
India 96 7,006,557 32 9.0

�Women and Financialization 383

Eastern Asia and the Pacific

Eastern Asia and the Pacific region comprises ten countries.7 China was the
country with the highest number of established MFIs and a total of forty financial
intermediaries, which is equivalent to 28 percent of the total MFIs within the region
in 2012. By comparison, during the same year, Vietnam was represented by twenty-
four MFIs. In Figure 5, MFIs’ distribution among the countries of that region is
observed. In what refers to the distribution of assets, China had the highest number —
81 percent of the total within the region, followed by Vietnam with the 12 percent
(Figure 6).

Figure 5. MFIs’ Distribution by Country, Eastern Asia and the Pacific, 2012

Source: Mixmarket (2012).

7 For this region, Mixmarket only takes into account the following countries: Cambodia, the
Philippines, Indonesia, Laos, Papua New Guinea, China, Samoa, East Timor, Tongues, and Vietnam.

People’s Republic of
China 28%

Vietnam 24%Philippines 16%

Cambodia 11%

Laos 11%

Indonesia 5%

East Timor 2%

Others 3%

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Figure 6. MFIs’ Asset Concentration by Country, Eastern Asia and the Pacific,
2012

Source: Mixmarket (2012).

Table 4 shows the fifteen MFIs with the highest profit margin within Eastern
Asia and the Pacific. Out of these, eight granted more than 70 percent of their credit
to women. Two cases are worth mentioning: (i) China had six of the fifteen MFIs in
this region, and (i) Vietnam gathered eight out of fifteen. Together, these countries
concentrated fourteen out of fifteen MFIs within their territories, with the largest
margins of profit in the Eastern Asia and the Pacific region. Table 4 also shows the
fifteen MFIs with higher ROA, and in eleven of them, the credit portfolio comprised
70 percent women; among the MFIs with higher ROE, six granted the total of their
credit to women.

Central Asia and Eastern Europe

Central Asia and Eastern Europe comprise twenty-one countries,8 and most of
the region’s MFIs were established in Tajikistan during 2012 (Figure 7). This country

People’s Republic of
China 81%

Vietnam 12%

Cambodia 5%

Philippines 1%

Others 1%

8 For this region and because of the existent MFIs, Mixmarket only takes into account the following
countries: Albania, Armenia, Azerbaijan, Bosnia and Herzegovina, Bulgaria, Georgia, Kazakhstan, Kosovo,
Kirgizstan, Macedonia, Moldavia, Mongolia, Montenegro, Poland, Romania, Russia, Serbia, Tajikistan,
Turkey, Ukraine, and Uzbekistan.

ȕWomen and Financialization 385

concentrated thirty-two of the MFIs, which is equivalent to 17 percent of the total.
However, assets were concentrated in Azerbaijan and Mongolia, representing 21 and
19 percent of the total, respectively (Figure 8). The other countries of this region
showed a number that was below 10 percent.

Table 5 contains the fifteen MFIs with the highest profit margin in Central Asia
and Eastern Europe. Six of these granted more than the 50 percent of their credit to
women and had a profit margin above 53 percent. In terms of ROA, eight of the
main fifteen MFIs granted less than 60 percent of their credit to women and only
three granted more than 80 percent to women. Asian Credit Fund (ACF), established
in Kazakhstan, granted 100 percent of their credit to women, and their ROE
represented a value near 100 percent as well.

In conclusion, the Central Asia and Eastern Europe region granted less credit to
women. South Asia was the region with the highest percentage of credit granted to
women, within which India stands out since, according to the available data about
this country, it had the highest amount of MFIs that granted 100 percent of their
credit to women. In Latin America and the Caribbean region, several countries did
not presented any data, but, under these restrictions Mexico stands out since many of
its MFIs granted a 100 percent of their credit to women in 2012. The MFIs
established in Eastern Asia and the Pacific region granted over 70 percent of their
credit to women.

Table 4. Main MFIs in Eastern Asia and the Pacific, 2012

Profit Margin
Name Country
Women
borrowers %
Assets
(thousands of $)
ROA
%
Profit

margin %
Rishenglong China 15 22,994,732 8.0 78
JSJRMCC China

95,782,744 8.0 67

BTV Vietnam 87 311,757 13 66
Credit & Savings Project-

Women Union
Vietnam 100 427,687 9.0 60

Guangxi Longlin China 29 324,204 3.0 54
IPR Cambodia 41 6,470,428 13 53

Sichuan Xinfu MCC China

185,181,446 5.0 51
Women Economic

Development Fund-HCM
Vietnam 100 2,164,539 7.0 49

ChildFund Hoa Binh Vietnam 100 732,428

47
Dariu Vietnam 100 2,853,812 12 47
SEDA Vietnam 100 1,193,867 9.0 47

HanHua China

119,950,010 9.0 47
PNN Soc Son Vietnam 100 416,644 27 46

CAFPE BR-VT Vietnam 70 1,976,935 10 45
MicroCred-Nanchong China 25 40,561,634 7.0 42

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Table 4 continued

Source: Mixmarket (2012).
Notes: ROA: Return on Assets (Net Operating Income, less Taxes)/Assets, average; ROE: Return on Capital (Net
Operating Income, less Taxes)/Capital average; Profit Margin: Net Operating Income/ Financial Revenue.

MicroCred-Nanchong China 25 40,561,634 7.0 42
ROA

Name Country
Women
borrowers %
Assets
(thousands of $)
ROA
%
Profit

margin %
PNN Soc Son Vietnam 100 416,644 27 46

SCU Luang Prabang Laos 61 271,702 14 40
IPR Cambodia 41 6,470,428 13 53

Dariu Vietnam 100 2,853,812 12 47
BTV Vietnam 87 311,757 12 66

WFDF Laos 100 1,108,359 11 34
ASKI Philippines 73 47,141,013 11 27

M7 DB District Vietnam 100 329,741 10 41
CAFPE BR-VT Vietnam 70 1,976,935 10 45

SEDA Vietnam 100 1,193,867 9.0 47
Credit & Savings Project-

Women Union
Vietnam 100 427,687 9.0 60

M7 Ninh Phuoc Vietnam 100 478,788 9.0 40
M7 DBP City Vietnam 85 663,537 9.0 33

HanHua China

119,950,010 9.0 47
BMT Sanama Indonesia 34 723,738 9.0 31

ROE
Name Country
Women
borrowers %
Assets
(thousands of $)
ROE
%
Profit

margin %
PATRA Hunchun China 100 618,973 138 26

ASKI Philippines 73 47,141,013 65 27
BMT Sanama Indonesia 34 723,738 60 31

Credit & Savings Project-
Women Union

Vietnam 100 427,687 47 60

PNN Soc Son Vietnam 100 416,644 44 46
SCU Luang Prabang Laos 61 271,702 35 40

ASA Philippines Philippines 100 52,853,533 33 11
CARD Bank Philippines 97 100,378,696 32 24
SPBD Tonga Tonga 100 2,128,683 31 20
M7 Uong bi Vietnam 90 1,476,514 30 29
ACLEDA Cambodia

1,908,178,016 30 37

EMI Laos 83 2,892,433 30 11
CEP Vietnam 75 59,345,980 29 40

PRASAC Cambodia 77 251,259,169 28 33
MBK Ventura Indonesia 100 39,360,395 28 14

�Women and Financialization 387

Figure 7. MFIs’ Distribution by Country, Central Asia and Eastern Europe, 2012

Source: Mixmarket (2012).

Figure 8. MFIs’ Asset Concentration by Country, Central Asia and Eastern Europe,
2012

Source: Mixmarket (2012).

Tajikistan 17%

Azerbaijan 14%

Russia 13%

Kazakhstan 7%Kyrgyzstan 6%

Georgia
6%

Armenia
5%

Bosnia and
Herzegovina 5%

Bulgaria 5%

Kosovo 4%

Mongolia 3%

Albania 3%
Uzbekistan 3%

Others 9%

Azerbaijan 21%

Mongolia 19%

Kosovo 7%Georgia
7%

Serbia
6%

Tajikistan
6%

Uzbekistan 4%

Bosnia and
Herzegovina 4%

Kyrgyzstan 4%

Others 22%

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Table 5. Main MFIs in Central Asia and Eastern Europe, 2012

Profit Margin
Name Country
Women
borrowers %
Assets
(thousands of $)
ROA
%
Profit

margin %
Hope Russia Russia 79 449,951 11 88
MF Nadejda Russia 79 449,951 11 88

Inam Azerbaijan 33 13,415 6.0 87
Ochir-Undraa OMZ Mongolia 41 4,872,000 6.0 72

Garantee Agency
of Nizhniy Novgorod

Russia 20 17,383,426 5.0 65

Netcapital Mongolia 50 5,264,205 32 63
Maximum Kazakhstan 0 75,468,120 5.0 63
BID NBFI Mongolia 59 6,925,016 19 61

Transcapital Mongolia

5,752,496 17 60
Ehyoi kuhiston Tajikistan

499,975

60

AREGAK UCO Armenia 76 32,033,555 13 59
Avrasiya-Kredit Azerbaijan 51 2,406,728 18 53
Regional MC Russia

4,911,595 4.0 52

Caucasus Credit Azerbaijan 29 924,499 18 52
Easycred Georgia 47 5,574,113 15 51

ROA
Name Country
Women
borrowers %
Assets
(thousands of $)
ROA
%
Profit

margin %
Netcapital Mongolia 50 5,264,205 32 63

ACF Kazakhstan 100 7,965,149 29 49
BID NBFI Mongolia 59 6,925,016 19 61

Caucasus Credit Azerbaijan 29 924,499 18 52
Avrasiya-Kredit Azerbaijan 51 2,406,728 18 53

MLF ZAR Tajikistan

533,508 17 42
Transcapital Mongolia

5,752,496 17 60

Barakat Uzbekistan 63 266,445 16 47
Easycred Georgia 47 5,574,113 15 51

Salym Finance Kyrgyzstan 49 3,725,717 14 46
Tadbirkor Invest Uzbekistan 88 209,754 13 25
AREGAK UCO Armenia 76 32,033,555 13 59

Mikro ALDI
Bosnia and
Herzegovina

49 2,574,492 12 46

Bereke Kazakhstan 89 8,443,893 12 37
Viator Azerbaijan 39 18,224,113 11 33

ROE
Name Country
Women
borrowers %
Assets
(thousands of $)
ROE
%
Profit

margin %
ACF Kazakhstan 100 7,965,149 410 49

Regional MC Russia

4,911,595 90 52
Bank Eskhata Tajikistan 36 149,691,597 59 31

Netcapital Mongolia 50 5,264,205 56 63
BID NBFI Mongolia 59 6,925,016 54 61

Bank of Baku Azerbaijan

623,308,974 49 41
CREDO Georgia 41 108,659,036 46 27

�Women and Financialization 389

Table 5 continued

Source: Mixmarket (2012).
Notes: ROA: Return on Assets (Net Operating Income, less Taxes)/Assets, average; ROE: Return on Capital (Net
Operating Income, less Taxes)/Capital average; Profit Margin: Net Operating Income/ Financial Revenue.

A Successful Model to Obtain Profits

During August 2010, SKS Microfinance Limited, an enterprise located in Hyderabad,
India, granted small loans to poor women and collected 350 million dollars at an
initial public auctioned. The impressive debut on the stock market seemed to confirm
that microfinance — loaning money to the poor who do not have enough access to
formal loans from banks — might transform into something profitable and sufficiently
attractive for investors. Other MFIs from India would follow the path of SKS and its
rapid profitable growth (Kazmin 2011). In an article, “Microfinance Poor Service:
Tiny Loans are Getting More Expensive,” The Economist referred to the fact that,
during the last several years, small loans have had a very high cost. For 1,500 MFIs
around the world, the interest rates for small loans of 150 dollars or lower had
increased from an average of 30 percent in 2004 to 35 percent in 2011 (Economist
2014).

Criticism of this micro-financing model has increased. Milford Bateman (2010)
points out that microcredit as employment generator, aimed at alleviating poverty,
actually increases risks, although it promotes development from below, empowers the
poor, and increases communal solidarity, all elements of a tenable project. The central
criticism is that microfinance has the opposite effect of reducing poverty since
microcredit does not work when trying to generate a sustainable dignified
environment for a community. The right to water, family, healthcare, and education,
do not get satisfied by microfinance alone. That is, microfinance does not suffice for
creating the infrastructure of services that communities need. The benefits through
microcredit to the poor are few, many communities remain structurally fragile, and
poverty is still increasing. Bateman’s study (2013), in short, questions the
conventional wisdom of the usefulness of microcredit.

The benefits of microcredit have been widely oversold, so that the financing-for-
development discourse on the part of financial institutions has encouraged financial

Bank of Baku Azerbaijan

623,308,974 49 41
CREDO Georgia 41 108,659,036 46 27

Azercredit Azerbaijan 34 65,123,744 45 25
ICA Azerbaijan 37 19,981,806 44 6

MLO HUMO Tajikistan 45 19,409,472 39 29
FINCA-AZE Azerbaijan 32 166,600,000 38 28

LTD MFO Capital Credit Georgia 38 808,896 38 14

LOK Microcredit Foundation
Bosnia and
Herzegovina

33 44,300,676 37 14

FINCA-GEO Georgia 39 59,904,184 35 26
Parabank Azerbaijan 31 133,233,333 35 22

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Alicia Girón

inclusion as the axis of economic development in society. The “bancarization”
imperative implies that society should make an ever-increasing use of financial services
offered by institutions near their location. It is believed that by guaranteeing a higher
financial inclusion, a country will be most prosperous, which does not seem to be the
case, especially when pointing out the cost of loans9 and the high interest for loans
granted to those clients from the bottom of the population’s pyramid. Between 2005
and 2006, the interest rates for personal loans within the microfinance sector in
Mexico fluctuated between 23 and 103 percent on average. At the same time, credit
institutions for consumption charged a 77 percent interest, while the interest on
credit cards of the main banks ranged between 27 and 75 percent, with the average
national level resting at 48 percent (Rosenberg 2007). Beyond the presumed
benevolence of these microfinance institutions, there is an increased charge when it
comes to interest.10

It is worth observing that the development of humanitarian organizations, such
as CARE,11 transformed into MFIs, which defends human dignity and fights poverty.
CARE started in Peru in 1997 with an initial investment of 3.5 million U.S. dollars,
and was later bought by the Bank of Credit for 96 million dollars.

The microfinance industry represents over sixty billion dollars. NGOs serve 35
percent of all clients, while credit unions and rural banks serve only 5.0 percent.
Compartamos,12 which started as an NGO and generated 458 million dollars during a
public auction in 2007, is one of the largest institutions in the western hemisphere,
with 2.2 million active clients. This MFI charged 82 percent for management and
interest during 2008. Nigeria’s Lift Above Poverty Organization (LABO)13 also charges
excessive interest, and grants most of its credit to women.

9 The average interbank interest rate in Mexico was relatively low, almost 8.0 percent in 2008. The
fundamental cause is the administrative, rather than funding cost. Another Mexican group that plays an
important role in the expansion of transparency through financial education is Prodesarrollo, a network of
forty-six subsidiaries of IMFs, NGOs, and banks which, together, served more than 1.3 million low-income
clients during 2007. The network uses financial education campaigns, employer incentives, and consumers
satisfaction evaluations to promote financial education (Centro para la Inclusión Financiera 2009, 32)

10 An example is Te Creemos, with annual average rate of 125 percent (Macfarquhar 2010).
11 CARE receives support from various financial institutions for its pioneering work in microfinance.

For example, Barclays, CARE International, and Plan International (USA), have joined in an initiative to
enhance the quality of life of the poor through widening and developing their access to basic financial
services. The initiative brought together the resources of each organization in Africa, Asia, and South
America (CARE 2014).

12 Compartamos was born as an MFI and later transformed into a bank in Mexico.
13 Lift Above Poverty Organization (LAPO) is an institution that grants microcredit. Its activities

started in 1987 and it registered as a NGO in 1993. In Nigeria, it is related to the Grameen Bank. Its
funding comes mainly from the Evangelischer Entwicklungsdientes (EED) — a German service for the
development of evangelical churches, USAID, and the Grameen Foundation. LAPO is an MFI funded by
the Deutsche Bank and the Calvert Foundation.

ȕWomen and Financialization 391

MFIs’ interest rates vary around the world, generating substantial profits for loan
providing entities. The United States House Committee on Financial Services14 has
been concerned with the substantial profits of these ventures. Rates vary from one
country to another. It is very important to take into account the cases of Nigeria and
Mexico since the credit offers and interest rates MFIs from these countries charge are
very high and above the formal financial systems’ average. An example of the latter
may be the average interest rate charged by microfinance institutions of — at least, in
Mexico — 70 percent or more as compared to the global average of 37 percent (U.S.
Committee on Financial Services 2010).

Institutional Investors and MFIs

One of the questions to be delved into when investigating MFIs and microcredit is:
Where do the funds to finance those who do not meet the credit requirements within
formal financial circuits come from? Banks and institutional investors dominate loans
and their profits exceed 100 percent. Muhammad Yunus himself stated that “we
created microcredit to fight the loan sharks; we didn’t create microcredit to encourage
new loan sharks … Microcredit should be seen as an opportunity to help people get
out of poverty in a business way, but not as an opportunity to make money out of
poor people” (United Nations News Centre 2006).

JP Morgan Chase invested money in CARE to grant loans to those families that
were devastated by the 2004 tsunami in India, Indonesia, Sri Lanka, and Thailand.
The purpose of the project was for MFIs to help families and communities in
rebuilding their infrastructure through entrepreneurial development. At an
institutional level, CARE has supported the creation, development, and strengthening
of many MFIs throughout Latin America, Asia, and Africa. Its goal is to develop and
improve the ability of MFIs to obtain financial and non-financial services, intended to
impact the poor in an effective, long-term, and tenable manner. MFIs provide loans
for machinery and work capital to small and micro-businesses that are frequently
larger and more formal than those groups that receive savings and loan services. One
of these is the Development Entity of Small and Micro Enterprises (known as
EDYFICAR, in Spanish), created by CARE in Peru in 1998. EDYFICAR offers a
variety of financial products, including personal and group loans to the poor.
EDYFICAR has been so successful that it has become a leading microfinance
institution in Peru with a loan portfolio of around $200 million and with 1,170
employees serving over 195,000 clients across thirteen Peruvian regions. The Inter-
American Development Bank ranked this institution ninth among all MFIs in Latin
America.

14 The United States House Committee on Financial Services (referred to as House Banking
Committee) is the committee of the United States House of Representatives that supervises the financial
industry, including values, insurances, banks, and the mortgage industry. The committee also supervises the
Federal Reserve, the Treasury Department, the Securities, the Exchange Commission, and other regulators
of financial services.

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At a global level, and since the lack of access to commercial sources of capital is
still a grave obstacle to the development of many MFIs, CARE helped in the creation
of MicroVest — an investment fund that specializes in gathering and providing capital
to smaller and growing MFIs. MicroVest has invested over eighty million dollars in
thirty-seven MFIs across sixteen countries since it began its operation in 2003.

It is important to mention that as the Multilateral Investment Fund (MIF) of the
Inter-American Development Bank, the Inter-American Investment Corporation
(IIC), the Andean Development Corporation (CAF), and private investors, are
participating in funding the Microfinance Growth Fund (MiGroF),15 a new credit
mechanism for MFIs in Latin America and the Caribbean. Among the main partners
in this initiative is Banamex, a major commercial bank of Mexico, which joined the
MiGroF for Latin America and the Caribbean. This institution would provide 250
million U.S. dollars in loans to medium and long-term MFIs throughout the region,
offering funding in local currencies as well as in U.S. dollars. The Overseas Private
Investment Corporation (OPIC) committed to providing 125 million U.S. dollars.
Banamex, a subsidiary of Citibank, joined MiGroF as investor and partner, but it is
also expected to participate in its corporate governance. When creating this MFI, it
was announced that OPIC, Multilateral Investment Fun (MIF), member of the
Interamerican Development Bank (IDB), and IIC, would work together to launch a
new source of funding for Latin American MFIs, which had had to reduce their
portfolios and credit availability as a consequence of the global financial crisis of
2008. MIF would provide ten million dollars to the new mechanism, IIC would
contribute up to five million dollars, and CAF would give ten million dollars. The
private investor partners of MiGroF, besides Banamex, are the Norwegian
Microfinance Initiative (NMI), ACCION International, and BlueOrchard (Rozas
2012).

MIF and IIC had a very active role in structuring the MiGroF, as well as in
defining its credit strategy. They also engineered the process through which the
management of MiGroF passed on to the Swiss investments’ manager BlueOrchard
Finance A.S. As the president of both the IDB and IIC directory, Luis Alberto
Moreno, put it, “this new source of funding is not only going to help MFIs to recover
the credit availability they had before suffering the effects of the global financial crisis,
but will also help in what refers to the growth of the microenterprise sector, which is
the key for economic growth and a source of employment in many countries of the
region” (BID 2010).

15 The objective of the MiGroF is to supply funds to MFIs, so that they are able to widen their loan
portfolios, and to facilitate a sustained growth of the micro- and small enterprises level. When the U.S.
presidency announced MiGroF in April 2009, during its participation in the Fifth Summit of the Americas,
in the Port of Spain, Trinidad and Tobago, the U.S. government saw this fund as a necessity to close
possible gaps that had resulted from the global financial crisis.

ȕWomen and Financialization 393

Institutional investors, such as pension and hedge funds, have permeated MFIs.
Dutch pension funds like Algemeen Burgerlijk Pensioenfonds (ABP)16 and Pension
Fund for Care and Wellbeing (PGGM)17 invested in Dexia18 in order to channel their
investments through BlueOrchard and Microfinance Investment Managers.19 The
strategy was apparently a very successful one, since there was BlueOrchard — the
second major MFI — on one side, and PGGM that invested forty-one million U.S.
dollars and 12 percent of their assets, on the other. There was also ABP, which
invested forty million U.S. dollars. The total invested by the two pension funds was
20 percent of the total assets of Dexia, a very strong institution with high potential
profitability. But the whole venture began to break in 2010/2011 with the collapse of
the MFIs in Andhra, Pradesh, of which Dexia owned a very important part. It was, in
fact, a drop of 1.85 percent in the MFIs located in Andhra, which had pushed it to
bankruptcy by 2011.

Was the fund excessively exposed in Andhra? Not really. At the beginning of the
crisis, in October 2010, 4.7 percent of the portfolio of Dexia was invested in MFIs
operating in the region. However, a more rational evaluation was needed for a
location of eighty-four million inhabitants and a portfolio of outstanding loans of
around one billion U.S. dollars. Andhra was one of the major markets for MFIs in the
world, attracting extremely high investments, and not only from Dexia. Its portfolio
was reduced, but this still did not decrease the investment of capital by those who
were looking to obtain profits. Investors and holders of mortgage assets or certificates
from European Union countries were still betting on the profitability of MFIs.

The yield of Dexia should be observed in the context of an increasing pressure
on European institutional investors. Insurance companies and banks were hit by
high-risk capital requirements, and microfinance transformed into a higher-risk
activity. Meanwhile, pension funds faced more rigorous stress factors in unclassified
or non-liquid assets, such as microfinance. The most urgent matter of all was the low
yields offered in financial markets, and within the context of pension funds, Dexia
deserved a closer look. In the middle of all this, BlueOrchard looked to reform its two
sibling enterprises, BlueOrchard Finance (bond funds) and BlueOrchard Investments
(private capital).

16 Algemeen Burgerlijk Pensioenfonds (ABP) is a pension fund of government employees and
education in Netherlands. In 2012, ABP had 2.8 million participants and assets worth 362.5 billion dollars.
It is the largest pension fund in this area, and the third on a global level. It was established in 1922.

17 Voor eenn waardevolle toekomst in Dutch, PGGM, manages pension funds amounting to about
153 billion dollars.

18 Dexia makes investments in Greece, but mainly in India, and it was one of the first to fall into
bankruptcy. Dexia got out of the Dexia Group in order to become Belfius (all the non-performing loans
went to this bank).

19 BlueOrchard, also known as Microfinance Investment Managers, boasts as having some of the
most knowledgeable professionals of finance and dedicated entrepreneurs on a global level (see
www.blueorchard.com/our-investment-process).

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It is important to mention that it was major banks that introduced MFIs. That is
how HSBC organized itself as an NGO for productive projects in education and
leadership training. An example of such project is Future First-Investing in Our
Children, which was created in 2006, with an initial investment of ten million dollars
(HSBC through Society to Heal, Aid, Restore and Educate, SHARE; and Sophia
College Ex–Students Association, SCESA, within the Raigad district for economic
activities). A self-help group (SHG)20 program for women was established with the
objective of providing economic independence for women and generating a dignified
household existence.

HSBC created a program to fund MFIs and encourage financial inclusion
through microcredit. There were many cases when major banks, “too big to fail, too
big to rescue,” managed to build a niche for themselves by investing into MFIs. The
Bank of Tokyo-Mitsubishi, for example, is related to MFIs in Pakistan and Santander
in Latin America. The evaluation of microcredit is the percentage of the credit geared
to productive projects. Foundation for International Community Assistance (FINCA)
accepted that around 90 percent of microcredit is used for consumption (Bateman
2011). Thus, most microcredit loans have to be refinanced with new loans since the
budget of many marginalized families already does not allow for repayment of
microcredit, plus interest.

Microcredit loans are made through a joint alliance of NGOs and institutional
investors (Karim 2011). These hybrid entities, however, need to realize profit, while
also helping the poor. To this end, there are arrangements between NGOs and
multinational corporations, resulting in businesses called social business enterprises
(SBEs),21 which implement and export the Grameen model. This model occurred
when the Grameen Bank, the Building Resources Across Communities (BRAC), and
the Association for Social Advancement (ASA)22 emerged as NGOs and have since
become exemplary MFIs, providing financial services to the poor on a global level,
with high profitability (Karim 2011).

MFIs that start as NGOs are an important and constitutive part of the shadow
state. They manage large investments through granting small credits to small
businesses. In Bangladesh alone, there are eighty-six MFIs controlled by NGOs, and
most of their credit is intended for rural women. The privatization of many state
activities are now controlled by NGOs, which constitute a quasi-sovereign state in
themselves and promote economic policies that are consistent with the national plans
for development. NGOs have become determining factors in managing investment
funding.

20 SHG stands for a small voluntary association, preferably of people belonging to the same socio-
economic group. They get together looking to solve common problems through self-help and cooperation.
The SHG encourages it members to have savings held in banks. The members of the group are usually in
their twenties.

21 The Nobel Prize winner, Muhammad Yunus, coined this term to indicate social businesses
combining profit and social provisioning. These businesses are presented as a win-win situation for both
corporations and consumers of microcredit.

22 The largest MFIs are located in Bangladesh: the Grameen Bank, BRAC, ASA.

ȕWomen and Financialization 395

Those behind such NGOs, acting as MFIs and are undoubtedly financial
banking and non-banking investors, as well as pension and hedge-fund investors. It is
not surprising that major banks often act through MFIs, granting funds for specific
objectives or special projects and profiting from marginalized sectors in societies
across the globe. These investors constitute a shadow (or parallel) financial system in
economies globally (Girón 2012b).

Reflection

Nowadays, MFIs have a close relationship with banks and institutional investors. They
are part of structured finance and guarantee profitability from collateral. They are
mildly regulated entities because they began — and many of them remain — as NGOs,
and their objective has transformed into granting loans to those who have no access
to formal funding. Thus, their evaluation will require further discussion. In the
present paper, I only argued that there is a relationship between MFIs, based
microcredit, and that they make profits from loaning money to marginalized people.

References

Bateman, Milford. Why Doesn’t Microfinance Work? The Destructive Rise of Local Neoliberalism. New York, NY:

Zed Books, 2010.
———. “Has the Microfinance Bubble Really Burst?” Oxfam, 2011. Available at www.oxfamblogs.org/fp2p/

has-the-microfinance-bubble-really-burst-guest-blog-by-milford-bateman/. Accessed on July 4, 2014.
———. “La Era de las Microfinanzas: Destruyendo las economías desde abajo.” Economic Research Institute,

UNAM, 2013. Available at www.olafinanciera.unam.mx/new_web/15/pdfs/BatemanOlaFin15 .
Accessed on July 4th, 2014

Bateman, Milford and Chang Ha-Jong. “Microfinance and the Illusion of Development: From Hubris to
Nemesis in Thirty Years.” World Economic Review 1 (September 2012): 13-36.

Banco Interamericano de Desarrollo (BID). “FOMIN, CII e inversionistas lanzan nuevo mecanismo de
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