In order for people to participate in and develop an economy, there has to be financing that lays the groundwork for innovation and entrepreneurship. Without this, poor people in developing countries are forced to spend all their time getting food, water and shelter; an entire life devoted simply to staying alive. Microfinance programs have been commended for their ability to raise people out of poverty while stimulating the economy and calming civil unrest. Basher finds three strong positive effects associated with the microfinance program run by the Grameen Bank in Bangladesh: a decrease in the relative preference for male children, higher participation in non-economic events such as elections and spillover effects due to individual empowerment (2007).

In Bangaldesh, there is a strong preference for male children because, in the Bangaldeshi culture, male offspring are responsible for supporting parents in their old age. Since females have been empowered and now have the ability to be their parents’ old age caretaker, we see an attitudinal change in families toward the desired gender of their child. Basher has also demonstrated that the Grameen Bank has had a direct effect on reducing fertility rates (2007). Luci and Thevanon studied the link between economic growth and fertility and found a J-shaped correlation between the two. This means that as a country develops, its fertility rate decreases (2010). Therefore, the Grameen Bank’s work seems to directly contribute to development in Bangladesh.

When rural women receive their loans from the Grameen Bank, they get to do activities that women generally do not do in Bangladesh. More specifically, these women have financial dealings with field officers, participate in group meetings and visit Grameen offices. This strengthens their self-confidence and encourages them to participate in non-economic events. Basher’s experiments revealed a positive correlation between duration of association with the Bank and likelihood that a person will vote in the national election (2007). This indicates that, generally speaking, getting financing from the Bank takes participants from being passive loan recipients to empowered, aware individuals who play an active role in their communities.

In the pre-1990 era of the Grameen Bank’s activity in Bangladesh, social attitudes toward women’s participation in the program were very negative – 81.1% of respondents faced objection from friends, family or the community at large when they discussed their plans to participate in the Bank’s program. Making money was an untraditional role for women in the country at that time. As more and more women joined the program, social attitudes started to change; it became more normative for women to participate in the economy. In the 1995-99 survey asking respondents the same question, only 6.25% faced any objection to them participating in the program (Basher, 2007). This indicates that the Grameen Bank’s activity in rural Bangladesh has helped modernize that society’s view on women’s roles in the face of longstanding values and custom. These broad spillover effects have empowered women and have created a more tolerant environment, which is an ideal breeding ground for progressive policymaking, economic growth and peace.

Although effective at helping the poor get on their feet, microlending programs could be used in more creative ways that would further development goals. For example, perhaps microfinanciers could partner with nonprofits to provide business training and advice that would result in loan recipients using their credit in more profitable ways. Right now, recipients are simply given loans without much direction on how to use the money. If there were advisors that helped these informal sector workers tailor their output to the demands of the local or global economy, this may cause a snowball effect and result in more exponential growth – providing jobs and stability. In addition, microlending could be linked to constructing houses, providing drinking water, sanitation and health services (Onyuma and Shem, 2005). By investing in locals to confront the huge tasks that governments have failed to do or NGOs aren’t able to do, infrastructural needs can be met while providing jobs for the people who need the infrastructure.

References:

Basher, Md Abul. “Empowerment of microcredit participants and its spillover effects: evidence from the Grameen Bank of Bangladesh.” The Journal of Developing Areas 40.2 (2007): 173-183.

Onyuma, Samuel O., and Alfred Ouma Shem. “Myths of microfinance as a panacea for poverty eradication and women empowerment.” Savings and Development (2005): 199-222.