Pakistani Society is highly patriarchal which is attributed to the age-old traditions of a subordinate role of women. Women constitute approximately half of the population in Pakistan. Gender relations in the country are based on two basic perceptions. First being the impression that woman are subordinate to men, and secondly that a man’s honor depends upon the women of his family. Thus it is women duty to uphold the family honor. The disparities between men and women prevails in health, education, employment, income opportunities, control over assets and participation in the political process that make women less empowered as compared to men.
There are many complicated aspects contributing to the submissive role played by the Pakistani women in the society, leading to a conservative society and to a vicious cycle of poverty under-nutrition and low level of education amongst Pakistani women. In order to ensure that women do not humiliate their families, society puts a limit on women’s mobility and restricts her activities. For these reasons women live under purdah. Therefore women spend most of their lives within the boundaries of their homes. In many parts of the country other than in Islamabad, Karachi, Lahore and some other rich cities, it is considered shameless if women’s mobility is not restricted.
Moreover in Pakistan, working women poses a threat to male self-esteem and identity. Therefore women are mostly engaged in multiple home-based economic activities such as cooking, laundry, agricultural duties etc. and pays them very low wage. Not only are these tasks physically tough and demanding but they have robed girls of the opportunity to study.
However, due to recent concern and emphasis on removing gender inequality and improving women empowerment as Millennium Developmental Goal, some efforts at social and official reform have been made to increase practical literacy of women, giving them more access to employment opportunities at all levels in the economy and promoting awareness of women’s roles and status. The empowerment of women is one of the main issues in the development process for all the developing countries in the world.
According to UNDP’s Human Development Report, Gender Equality Measure (GEM) for South Asia shows the lowest value (0.235) among all the regions of the world. Furthermore, as per Gender development Index (GDI), Pakistan has been noted the poorest (0.179) among South Asian Countries where the average index is 0.226 (MHHDC, 2005). According to UNDP report of 2007-08, the HDI for Pakistan is 0.551, which ranks Pakistan on 136 out of 177 countries.
Elements of the social, economic and political participation of women
The low health status of women in Pakistan is the result of women’s lower social, economic, and cultural position.
Women do not play any major role is making social and political policies, however they are equally affected by them as the male members of the society are. Women’s elimination from decision-making bodies deprives them of the opportunity to raise their concerns or advance their perspective. The male-dominated governance structure creates gender inequalities which lead to the social and economic deprivation of women.
Women’s exclusion from politics stem from the social and political discourses, political structures and institutions and the socio-cultural and functional constraints that put limits on women’s individual and collective agency. Patriarchy as a system of male domination shapes women’s relationship in politics. When the gender role ideology intersects with economic, social and political systems of a particular society; women continue to be defined as private across countries which resulted in their exclusion from politics.
Male domination of politics, political parties and culture of formal political structures is another factor that hinders women’s social, economic and political participation. Often male dominated political parties have a male perspective on issues of national importance that disillusions women as their perspective is often ignored and not reflected in the politics of their parties. Also women are usually not elected at the position of power within party structures because of gender biases of male leadership.
The gender status quo is maintained through low resource allocation to women’s human development by the state, society and the family. This is reflected in the social indicators which reflect varying degrees of gender disparities in education, health, employment, ownership of productive resources and politics in all countries. Additionally gender is mediated through class, caste and ethnicity that structure access to resources and opportunities. The socio-cultural dependence of women is one of the key detrimental factors to their political participation.
Sources and the extent of women deprivation and exploitation
In Pakistan, there is a huge diversity in the status of women across different classes and regions. Gender is one of the main ideologies of Pakistani society. An artificial divide between production and reproduction, has given women the reproductive roles as mothers and wives at home and men are given the productive role as breadwinners which eventually leads to a lower investment in women. Thus, low investment in women’s human capital, along with the beliefs of purdah, negative social biases, and cultural practices lays the foundation for gender discrimination and inconsistencies in all aspects of life.
Moreover early marriages of girls, excessive childbearing, high level of illiteracy and nutritional deficiencies negatively affect women’s health. Gender biasness in the health service delivery system ranging from lack of female service providers, ignorance of women’s essential and reproductive health needs further aggravates women’s health status.
Women are officially authorized to own property from their families, however very few women have access and control over resources. Mostly women in Pakistan lack ownership of useful property or assets. Similarly, formal financial institutions do not cater to women’s credit needs. Commercial banks pay no attention to women clients due to their defined views on women’s creditworthiness because of their dependency on men for physical collateral, high transaction cost of small loans.  The Agriculture Development Bank of Pakistan and First Women’s Bank Limited and now Khushali Bank are the only banks who have credit programs that cater to women. Other sources of credit to women include informal sources such as nongovernment organizations, friends, relatives, and moneylenders and microfinance institutions.
Women in Pakistan are facing various forms of violence. Domestic violence is fairly widespread across all classes. Due to this fear and sense of being inferior, imposed by the traditional thoughts of a male dominated society, women are suffering immensely and this issue needs our utmost attention.
An overview of the microfinance constitutions and microfinance lending
Microfinance was started in the 60’s and 70’s, when organizations such as ACCION International Opportunity and Grameen Bank started to grant small loans (less than 100 dollars) to microentrepreneurs, mostly women, backed by a group guarantee, thus overcoming the collateral that was the main reason for the lack of attention paid by commercial banking to the low-income segments of the population. Microfinance has experienced considerable growth ever since. Mohammad Yunus was the first and the foremost person to introduce the concept of microcredit with the help of Grameen Bank into an ever more important instrument in the struggle against poverty.
Inspired by the Nobel Peace Prize winning Grameen Bank in Bangladesh, there has been a growth of microfinance institutions in developing countries; Pakistan is no exception. Growth and diversity in its microfinance sector have been encouraged by the microfinance Ordinance 2001, which resulted in the establishment of the First Microfinance Bank in Pakistan. Before the promulgation of the microfinance ordinance, the main providers of microfinance services in Pakistan were NGOs and government-sponsored rural support programs.
Gaining access to finance in Pakistan has an important potential for considerable advances in the economy. Credit to the private sector is equal to 29% of gross domestic product (GDP), individuals and SMEs prefer to rely on retained earnings to finance their working capital, investment, housing financing, and other financial needs. Of the total population, 14% have access to formal finance, and about 40% have no financial access to formal or informal financial systems altogether. However, access to financial services remains quite limited in Pakistan. The predominant share of the financial system, the banking sector, is mostly focused on large enterprise lending, with an increasing interest in consumer financing and neglects SMEs, rural areas, microfinance, and the poor. SMEs comprise of almost 90% of all the enterprises in Pakistan, they employ 80% of the non-agricultural labor force and their share in the annual GDP is 40%, approximately. This innate feature of an SME makes it essential that there should be a system through which it support in business including technical up gradation, marketing, and human resource training & development.
The beginning of microfinance sector in Pakistan has its roots in the rural development project. The Agha Khan Rural Support Program’s development model is used all over Pakistan. Along with poverty alleviation, microfinance in Pakistan has been seen as an important instrument for gender empowerment. Microfinance in particular has proven to be an effective tool for poverty easing and creation of employment prospects. The GOP has formulated comprehensive Microfinance Sector Development Programme with the assistance of Asian Development Bank to broaden the microfinance sector. This will be attained through the creation of conductive policy environment, developing appropriate financial infrastructure, promoting and strengthening microfinance institutes, developing linkages with NGOs and community organizations, investing in building social capital, mitigating risks of poor households and institutional development. The Government of Pakistan (GOP) and various rural support programs in the country feel that by providing credit to women, which is used for income generation and consumption, the social and economic status of women in the household and at the community level can be improved.
Currently, the network of microfinance providers is 1,343 branches with about Rs 15 billion portfolio. Among microfinance providers, Khushali Bank alone provides coverage in 86 districts. The three microfinance entities, namely, National Rural Support Program (NRSP), Khushali Bank, and Kashf Foundation accounted for approximately 70% of the sector’s active clients. However, there are two main challenges faced by the microfinance institutions of Pakistan. The first challenge for microfinance is for service providers to become profitable so that service provision to poor people can grow on a sustainable basis. A study of South Asian MFIs done in 2005 showed that only 42% of microcredit borrowers in Pakistan received services from profitable MFIs which is the lowest percentage in South Asia (Microfinance Information Exchange, Consultative Group to Assist the Poor, and the World Bank (2006). Most microfinance providers rely on a combination of donor/noncommercial funding, and cannot claim commercial viability, with the exception of the recently formed Microfinance Banks (MFBs). The second challenge is that microfinance is almost exclusively focused on loans, while other financial services, savings, transfers/remittances, and insurance are often more in demand by poorer households.
Gender norms of microfinance institutions and microfinance lending
Microfinance programs are known to empower the poor men and women. In these programs, the relationship between the provider and the client is inherently empowering. As a result, microfinance has become a vital element of many donor agencies’, poverty alleviation, and community development strategies. Micro-finance programs are not only known for giving both men and women credit and access to savings, they also reach people all over the world and bring them together in organized gropus. They play a significant role to promote gender equality and to empower women. By enabling women to earn income, these programs have the potential to increase the welfare of women and their families and hence empower them.
Microfinance in Pakistan has been seen as an important instrument for gender empowerment. The Government of Pakistan (GOP) and various rural support programs in the country feel that by providing credit to women which is used for income generation and consumption, the social and economic status of can be improved. As a result, microfinance has gained immense popularity for poverty alleviation, women empowerment and community development strategies. However, capturing and measuring ’empowerment’ and emancipation is a particularly difficult task.
Within the group of NGOs identified Kashf Foundation and ASASAH were appropriate for this study. Moreover, it should also be noted that Khushali Bank does not have a gender-specific program in rural areas but works with a third party retail organization, Family Planning Association of Pakistan (FPAP), to give loans to poor women in urban slums of Lahore therefore khushali bank clients were strategically left out.
Kashf Foundation, a non-profit NGO based MFI, started its operations in Lahore District in 1996. Kashf started with the mission to `provide quality and cost effective microfinance services to low income households, especially women, in order to enhance their economic role and decision making capacity.’  Kashf provides four types of loan products: Firstly, the basic loan product is the general loan; secondly, it has an emergency loan which is confirmed only if the credit committee takes responsibility for repayment; thirdly, there is the home improvement loan for old and reliable clients; and fourthly, Kashf has introduced a business loan for the missing middle market. The most popular one is the general loan, which has to be repaid over a period of 12 months at an interest rate of 20%.
Kashf’s solidarity group lending model is a Grameen Bank replication with some adaptations. At the first, the branch officers find women in the local area who want to establish a center. The center is sub divided into five groups and each group has a leader. Together, these seven women form the credit committee and are responsible for maintaining credit discipline in the center.
ASASAH is a non-governmental and non-profit organization established in 2003 with a mission to provide quality health and social services to underserved communities. One of the core objectives outlined by ASASAH is the empowerment of women. The organization has launched its microcredit program, as part of its commitment to work towards the training of women as agents of socioeconomic development. It sees a huge opportunity to fill the present gap in the microfinance industry by developing an innovative model that brings creates a sustainable and cost effective financial services institution serving the bottom of the pyramid.
Keywords and definitions
Microfinance: offers a broad range of financial services to low-income clients, including consumers and the self-employed. These services include housing loans, savings, health insurance and remittance transfers to help them grow very small businesses. The local MFI might also offer microfinance plus activities such as entrepreneurial and life skills training, advice on topics such as health and nutrition, sanitation, improving living conditions, and the importance of educating children.
Microcredit: refers to the loans and credit needs of the poor people, especially farmers and small-scale entrepreneurs who cannot get access to normal bank loans and enables them to become self-employed.
Empowerment: is a process of awareness and capacity-building leading to greater participation, greater decision-making power and control over one’s life and other processes.
Economic Empowerment: Women’s access to savings and credit gives them a greater economic role in decision-making by giving them the power to decide the utilization of credit. When women can make decisions regarding credit and savings, they will optimize their own and the household’s welfare.
Social and Political Empowerment: is a blend of women’s increased control over income resulting from access to microfinance with improved women’s expertise, mobility, and education status.
Women’s status: Women’s position relative to that of men in a society.
Grameen Bank: is a microfinance organization and community development bank started in Bangladesh that makes small loans (known as microcredit) to the poor without requiring collateral.
This study aims to look at and measure the status of women in selected semi urban areas in the outskirts of Lahore city. Furthermore we will determine the factors related to the empowerment of women. Lastly we will assess the role of microfinance lending upon women empowerment in Pakistan.
In order to achieve this objective, the study seeks to understand how microfinance opens up economic opportunities for women and their families, increases earnings and reduces their vulnerability, and brings about potential changes in women’s social and economic roles that ultimately can lead to greater empowerment of women. The study also seeks to determine different pathways through which such social and economic transformations are more effectively (or less effectively) managed and point out negative consequences that may be faced.
Chapter 2 Literature Review
To understand the impact of microfinance on women empowerment we look at two sets of literature; women’s empowerment and microfinance institutions. In the first set of literature we review how microfinance institutions work and in the second set of literature we review what is understood as empowerment for women and how far microfinance institutions are successful in empowering women.
2.1 Informal credit markets in developing countries
Informal credit markets are those which are not regulated or monitored by the banking authorities and these account for much of business credit in developing countries. Despite the development of formal financial markets, and the propagation of micro-credit institutions, informal lenders continue to play a key role in the provision of credit to rural households in most developing countries. This is so because the process of establishing and maintaining a network of rural financial institutions is expensive, and managing their operations is difficult especially in the absence of proper training, monitoring, and incentive structures. The informal sector has commonly been viewed as unregistered sources of credit, such as money lenders, pawnbrokers and traders, along with rationing services and credit associations (ROSCAs), accumulating savings and credit associations (ASCRAs) and deposit takers. Moreover, formal providers are those that are subject to banking laws of the country of operation, those which provide retail services to the customers and engage in financial intermediation. According to the World Bank, the conventional provider categories of ‘informal’ and ‘formal’ have been complicated by the arrival of microfinance institutions (MFIs) that may be regarded as ‘semi-formal’ (World Bank, 1997).
Capital is an important element in the development of any project. Kurwijila and Due (1991:91) state that the main hurdle to micro-enterprise development is lack of capital. When the poor lack access to the standard sources of credit, they are exploited by loan sharks and other illegal market operators. Following this reason, it is recommended that increasing state efforts are required to eliminate informal finance, while enhancing the availability of state-sanctioned financial intermediaries, especially microfinance programs devoted to poverty alleviation.
Savings are an important determinant of wellbeing at both the individual and national levels. For individuals, savings may be motivated by investment opportunities, the desire to smooth consumption keeping unpredictable incomes in mind, or the need to accumulate resources for large purchases. Households in low-income countries have a variety of mechanisms available for saving. These mechanisms range from formal institutions such as banks and credit unions to less formal mechanisms such as holding cash, asset accumulation, and participation in rotating-savings-and-credit-associations (ROSCAs).
It is important to highlight the distinction between formal and informal institutions for several reasons. Informal finance mechanisms are quite prevalent in low-income countries. The advantage of informal mechanisms such as ROSCAs is the ability to overcome some of the information and enforcement problems that often lead to the absence of formal markets. Since savings groups are usually localized, agents on both sides of transactions often know each other personally. This helps in overcoming the informational problems such as adverse selection, moral hazard, monitoring, and verification. Further, participants in informal savings committees share a common social bond (for example, they tend to form among friends, family, neighbors, and coworkers) which provides incentives against voluntary default.
However, such institution is more vulnerable to local economic shocks affecting all group members. The formal sector is better on these grounds, and provides some additional advantages over the informal sector, both for the individual and the economy. For depositors, government insurance reduces the default risk of banking. A further distinction between the formal and informal sectors is that effective monetary policy typically relies on central bank or government control over the banking system. A large informal financial sector may compromise this ability.
Limited access to various sources of credit is seen to harm women more as compared to men. This is due to the specific credit needs of women as “their business requires smaller amounts of capital than are customarily lent, and repayment and collateral requirements must be fairly flexible.” (Reichmann, 1989:135). Also, it is a legal requirement of many countries, asking women to get their husbands signed approval in order to obtain the loan. Lycette and White (1989:24) cite evidence from Peru that women borrowers usually receive smaller amounts of loans than men from the banks. However, there has been an ongoing debate that women are active in commerce and production activities which require less credit and therefore it is acceptable to provide them with smaller amounts of loan. For these reasons, it is not clear whether discrimination exists, preventing women from obtaining large loans or that women deliberately chooses to borrow less than their males.
2.2 Credit information, credit availability and access
Poor women face much inconveniency and problems in acquiring financial services along with the standard barriers that lower income people have to face when dealing with financial institutions. Illiteracy is a key feature that hampers both women and men’s capacity to complete application forms necessary to be filled in order to apply for loan. It is also a known fact that female is more illiterate as compared to male in most countries all over the world.
Another drawback faced by women is that they lack the collateral which is required by the formal lending institutions to give out the loans. As already mentioned most of these institutions require the male head of household to sign the contract which makes it difficult for the female headed households to apply for the loan at the first place. On the whole, women especially in developing countries are unaware of their rights to apply for financial services.
In most developing countries, both men and women lack the confidence to engage in private enterprise and take loans from the banks for business purposes. The structure of the formal credit system is usually very hierarchical and it may appear less user friendly to small women entrepreneurs. Low-income women are mostly less educated and therefore are not used to dealing with formal procedures. Since banks are perceived to be powerful institutions therefore many women may not have the courage to approach them.
Despite the above listed difficulties, gaining access to finances can facilitate women to enhance their skills and eventually develop their own independent businesses. Women can boost their skills by accessing technology, raw materials and market information, thereby improving their economic roles. Improving women’s economic position contributes to building their confidence, and ultimately improving their social and political role as well.
2.3 Microfinance products and services for deprived and vulnerable
As most of the formal sectors banking institutions are unable to reach rural populations, microfinance programs are seen as a potential solution for overcome the gap between the supply and demand for rural finance. These Microfinance institutions are committed to serving customers that have been excluded from the formal banking sector and claim to work with the ‘poorest of the poor’.
Many MFIs permit people to access useful lump sums through loans. The currently most popular product (that offered by Grameen Bank and copied by many other MFIs) allows borrowers to repay the loan in small and frequent installments. The participation of the poor is thus made possible by the key feature of lending – tiny, often weekly, repayments (Matin and Sinha, 1998; Todd, 1996). Such an organization system allows borrower to repay out of existing income thereby allowing the borrower to invest the loan and utilize it the way that best fulfills their needs of the moment. For some borrowers these loans are directly invested in productive enterprises where the returns on additional investment is sometimes enough to make the regular repayments.
Microcredit is seen as a way to improve the income an employment opportunities of poor who can be self employed in many ways (Hulme and Mosley, 1996; Yunus, 1983; World Bank, 1994). The main aim is to provide the household with capital and encourage them to involve in income generating activities, thereby increasing their income and consumption. In Bangladesh, there are more than 750 organizations that are working in rural areas to provide credit and non-credit services to the target population, mainly women from landless households (World Bank, 1996). Grameen Bank and Bangladesh Rural Advancement Committee (BRAC) are the two main programmes. Grameen Bank is known for its innovative group-based lending programme. BRAC is famous for providing informal primary education and innovative health programmes to the poor. It lays emphasis more on human capital development such as literacy, skill-promoting training and awareness programmes.
Inspired by the Grameen Bank in Bangladesh there has been a rapidly increasing growth of microfinance institutions in Pakistan and as well as in other developing countries. Growth and diversity in its microfinance sector have been encouraged by the microfinance Ordinance 2001, which resulted in the establishment of the First Microfinance Bank in Pakistan. Table 1 below summarizes the nature of different microfinance institutions operating in the Punjab province of Pakistan, the year in which they were operationalized and the concentration of operations in rural or urban settings.
It is clear from the table that most of the NGO based institutions have a gender specific solidarity group approach to microcredit, where they are catering mainly to female clients. Most of the microfinance institutions working in Punjab province, except for the rural support programs, are either specialized institutions or have a specialized window for microcredit. Except for ASASAH, most of the institutions have been in business for quite long to warrant an impact evaluation. For this study we are interested in specialized institutions using a group solidarity model with a women specific focus. Thus, the province of Punjab was an obvious choice with well recognized and established NGO-based microfinance institution (MFI). Given the time and resources available for the study, we have limited our attention to the Lahore district of Punjab, which is the hub of urban microfinance activity in Pakistan, accounting for more than half of the total borrowers in the province.
2.4 Community participation and group lending experience in microfinance
Grameen Bank is famous for introducing and expanding its relationships with its customers in a unique relationship which is without utilizing legal contracts of requiring collateral, Grameen bank assigns borrowers to “solidarity groups” of five members. Each group is than responsible for the debts of the other four, and in case any group members defaults on her loan, the others must repay the defaulted loan or lose eligibility for further loans from Grameen Bank. This compulsory interdependence is seen to powerfully encourage trust and mutual aid within the solidarity group (Hung, 1997:15).
The group-based lending is very attractive to women in low income societies. Very few women in Pakistan and Bangladesh work in the wage labor market. Therefore their productive inefficiency is associated with the lack of women’s labor market participation which motivates them to become self employed by borrowing capital.
Group lending schemes have an informal advantage over outside lenders. Often obtaining information about each member of a group by an outside lender is costly and subject to misinterpretation, therefore group members can monitor each other with relative ease as well as train and help the other low-productive members. In Pakistan, social custom restricts direct contact between potential female borrowers and male outside lenders. In the case of a credit program, it is easier for women, when in the company of larger group to interact with the male coordinator. Therefore, informational advantages of group lending are thus greater for the women as compared to men. Moreover, adverse shocks may have an effect on the ability to repay loans and decrease income and consumption. There is evidence that women are more prone to adverse shocks, related to pregnancy, illness associated with child bearing, and care giving to other household members who fall ill, making them riskier for poorly informed outside lenders (Rashid and Townsend 1993).
2.5 Microfinance experience and gender empowerment
Some aspects of poverty are owed to the inequality between women and men, therefore it is important to understand and interpret the meaning of the term ‘gender’. Women and men have different responsibilities in a given culture or location. Gender refers to the social roles of women and men, and is not to be confused with the biologically determined sexes of male and female. Gender is hence a relational concept that analyses women’s social roles in relation to the roles of men and vice versa. Gender roles are subject to perceptions and expectations which arise from factors like class, ethnicity, age and religion.
Research done by UNDP, U
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