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2.2 DEFINITION OF MICROFINANCE CONCEPTS
It is necessary first to make explicit definitions and
assumptions which much of this paper work is based. These points are based on
mostly on field experience with microfinance program and in particular the work
of MFIs in developing countries rather than in the middle income and industries
countries.
1. What is microfinance?
The term refers to the provision of financial services to
low-income clients; including the self-employed. Financial services generally
include savings and credit. However, some microfinance organizations also
provide insurance and payment services. (UNIFEM, 2001)
In addition to financial intermediation, many MFIs also
provide social intermediation services such as group formation, development of
self confidence, and training in financial literacy and management capabilities
among members of a group. Thus the definition of microfinance often includes
both financial intermediation and social intermediation. Microfinance is not
simply banking, it is a development tool.
Microfinance activities usually involve:
+ Small loans, typically for working capital.
+ Informal appraisal of borrowers and investments.
+ Collateral substitutes, such as group guarantees or compulsory
savings.
+ Access to repeat and larger loans, based on repayment
performance.
+ Streamlined loan disbursement and monitoring.
+ Secure savings products.
MFIs can be nongovernmental organizations (NGOs), savings and
loan cooperatives, credit unions, government banks, commercial banks, or
nonbank financial institutions.
The people who require the micro finance are typically
self-employed, low-income entrepreneurs in both urban and rural areas. Clients
are often traders, street vendors, small farmers, service providers
(hairdressers, rickshaw drivers), and artisans and small producers, such as
blacksmiths and seamstresses. Usually their activities provide them stable
source of income (often from more
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than one activity). Although they are poor, they are generally
not considered to be the "poorest of the poor."(Lidgerwood, 1999)
2. What is economic empowerment?
According to Cheston & Kuhn, (2002); «the economic
empowerment is bringing people on the outside of a decision process into
it» (Rowlands, 1997). It is the ability to obtain an income that enables
participation in economic decision making. Individual become empowered when
they obtain, the right to determine choices in life and to influence the
direction of change, through the ability to gain control over material and non
material resources (Rowlands, 1997).
Batliwala (1994) also sees economic empowerment as a process
of challenging existing power relations and of gaining greater control over the
sources of power or is social force meant to inspire the poor to challenge the
status quo.
According the UNIFEM, economic empowerment is gaining the
ability to generate choices and exercise bargaining power, developing a sense
of self worth, a belief in one's ability to secure desired changes, and the
right to control one's life. Empowerment is about change, choice, and power. It
is a process of change by which individuals or groups with little or no power
and ability to make choices that affect their lives.
Microfinance programs can have tremendous impact on the
empowerment process if their products and services take these structures into
account. In the order for women to be empowered, she needs access to the
material, human, and social resources necessary to make strategic choices in
her life. Not only have women been historically disadvantaged in access to
material resources like credit, property, and money, but they have also been
excluded from social resources like education or knowledge of some
businesses.
Access to resources alone does not automatically translate
into empowerment or equality; however, women must also have the ability to use
the resources to meet their goals. In order for resources to empower women,
they must be too able to use them for a purpose that they choose. Naila Kabeer
uses the term agency to describe the processes of decision making, negotiation,
and manipulation required for women to use resources effectively. Women who
have been excluded from decision making for most of their lives often lack this
since of agency that allows them to
define goals and act affectively to achieve them. Since women's
economic empowerment is the key to socio economic development of the community,
bringing women into the mainstream of national development has been a major
concern of government of Rwanda.
Figure 1: Framework of women's empowerment through
microfinance (Household model)
Women economic
Change in intra-household
Empowerment
increased status of
Bargaining and gender
relation women within household
Income under women's Control increases
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Women decision Increased independent increased household
Women's access to credit
About savings and income income
Credit use
Source: The role of microfinance in economic empowerment of
women in Rwanda, 2009
It has been well documented that an increase in women's
resources results in the well being of the family, especially children (Mayoux,
1997; Kabeer, 2001; Hulme and Mosley, 1997). A more feminist point of view
stresses that an increased access to financial services represent an
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opportunity for greater economic empowerment. Such as
organizations explicitly perceive microfinance as a tool in the fight for the
women's rights and independence. Finally, keeping to up with the objective of
financial viability, an increasing number of microfinance institutions prefer
women members as they believe that they are better and more reliable
borrowers.
Hashemi
et.al (1996), investigated whether women's
access to credit has any impact on their lives, irrespective of who had the
managerial control. Their results suggest that women's access to credit
contributes significantly to magnitude of the economic contributions reported
by women, to the likelihood of an increase in asset holdings in their own
names, to an increase in their exercise of purchasing power, and in their
political and legal awareness as well as in combined economic empowerment
index. Also Kabeer (1999), stresses that women's economic empowerment is about
the process by which those who have been denied the ability to make strategic
life choices acquire such ability. According to her, it is important to
understand economic empowerment as a process and not an instrumentalist for of
advocacy.
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