Microlending: A Financially Sustainable Solution to Poverty?
In the 1980s and 1990s, philanthropic and government leaders enthusiastically embraced microlending as an innovative solution to poverty. The strategy was deceptively simple: provide small loans to the poor to invest in self employment. This, in turn, would then set individuals onto a path of long term financial sustainability.
The prevailing philosophy of microlending presupposed that removing the barriers between the poor and their access to credit would allow individuals to lift themselves from survival to security. And – ideally – from security to economic growth.
This surge in interest was inspired by microfinance pioneer Muhammad Yunus and the Grameen Bank in Bangladesh (founded in 1976 and supported with Ford Foundation funds from 1981). Microlending advocates argued that anyone, anywhere could overcome a life of poverty if only given an initial boost. Also gaining steam in this moment was neoliberalism, which prioritized private, nongovernmental solutions to social problems.
Ford Foundation leaders would soon discover the limitations of using for-profit methods to solve systemic problems. Microlending experiments in the U.S. would sadly fall short of such ambitious goals.
Promoting Gender Equity
Give a man a fish, he’d eat for a day. Give him a loan to purchase a fishing rod, he’d grow a successful fishing business. Or perhaps we should say, give a woman.
Strikingly, the overwhelming majority of successful microcredit borrowers in the developing world were women. This led some Foundation staffers to explore the potential of how these investments could ameliorate poverty and also empower women in the process.
In this context, program officers and leaders at the Ford Foundation hoped to bring global learnings back to its American headquarters. They began by funding microlending programs for marginalized communities in the United States. Since the 1960s, Ford had developed and supported models of social impact investing — for-profit tools they hoped would stretch the philanthropic dollar. These activities included the program-related investment, community development finance, and, of course, Grameen Bank itself.
“Grameen” translates to “village” — an apt moniker. Grameen Bank’s major innovation was the unique practice of group lending. Potential loanees would create borrowing groups of five unrelated members, accountable to each other. With their “village” as collateral, borrowers would receive small loans to fund their entrepreneurial endeavors. Grameen helped lift tens of thousands out of extreme poverty.
Hoping this model might alleviate poverty in the United States, Ford funds supported three different American nonprofit organizations. Each organization was geographically disparate and had been serving distinct communities with their own microlending experiments. These were: the Good Faith Fund in Pine Bluff, Arkansas; the Lakota Fund on the Pine Ridge Reservation in South Dakota; and the Women’s Self Employment Project in Chicago, Illinois.
This effort was what one Ford consultant called a “reverse technology transfer from the third world.” Development theory since the postwar period had assumed that the “developed” world had the technology, expertise, and resources needed to help lift up the “developing” countries.See, for example, Francis X. Sutton, Tom G. Kessinger, James P. Grant and George Zeidenstein, “Development Ideology: Its Emergence and Decline,” Daedalus, Winter 1989, Vol. 118, No. 1. In the case of microlending, however, the developed world had something to learn from the outside.
A Simple Solution?
Three organizations received Ford Foundation grants and program-related investments in this global expansion of microlending — to mixed success. Each case revealed mistaken assumptions and the limits of solving social issues through individuals, and how “transferable” such programs truly can be. Did each human being possess an entrepreneurial spirit and the necessary business management skills to create financially sustainable self-employment? Was simply paying back a loan a measure of social impact? The metrics of success were unclear.
Logistically, how could organizations effectively reach sprawled-out rural American communities, as in the case of the Good Faith Fund in Arkansas? In Bangladesh, lending groups were made up of unrelated members, but for the Lakota, family ties were fundamental. What combination of borrowers would constitute the “village” necessary for the group lending model? What kind of support programming would broadly serve both the cosmetologist and the daycare owner? The caterer and the tax prep accountant? How could women such as those in Chicago be empowered if given cash and technical assistance — but not childcare?
These, and other challenges, followed each attempt to implement a seemingly simple method in complex and diverse American contexts.
The Shortcomings of For-Profit Tools for Philanthropic Impact
When the Ford Foundation began its support of microlending in the 1980s, agriculture and industry were viable wage-earning opportunities across the developing world. But those sectors could only absorb so much of the unemployed and underemployed. Thus, the focus shifted to developing the informal economy by promoting self-employment.
This is not to say that microcredit was not impactful or that it did not reduce poverty. However, complications arose when for-profit metrics were applied to non-profit ambitions. Banks, after all, were money lending institutions. Microlending programs put philanthropic foundations and nonprofits in the awkward position of acting as debt collectors for the poorest Americans.
A key question was how nonprofit organizations offering microcredit services could function as responsible lending institutions. Such endeavors required appropriate oversight and real financial accountability, without adopting the predatory practices that later came to characterize many corporate microfinance institutions.
Moreover, organizations consistently found that while microfinance had the potential to remove barriers, the problem was rarely simply cashflow. Microloans did not remove the societal barriers of systemic racism, gender-based violence, historic political disenfranchisement, or widening income inequality.
What began as a well-intentioned, energizing endorsement of a new way to combat American poverty proved to be more complicated in practice.
The Promise of Grameen Bank
The Ford Foundation had been funding microcredit programs since 1981, beginning with Grameen Bank in Bangladesh. By 2006, tens of thousands of borrowers had benefitted from the institution. That year, the world celebrated the success of Grameen Bank when its founder was awarded the Nobel Peace Prize for his “efforts to create economic and social development from below.”
Established in 1983, Grameen Bank was the brainchild of economist and Chittagong University professor Muhammad Yunus. After unsuccessfully attempting to launch a lending program for the poor through his university’s bank — because that bank refused to consider impoverished borrowers creditworthy — Yunus took matters into his own hands.
With the assistance of his graduate students, Yunus made a list of forty-two individuals who, together, needed a mere $27. He secured a personal loan from his local bank and distributed the money himself, quickly discovering that the repayment rates from borrowers were remarkably high. “I was shocked. It was nothing for us to talk about millions of dollars in the classroom, but we were ignoring the minuscule capital needs of 42 hardworking, skilled people next door. From my own pocket, I lent $27 to those on my list.” Muhammad Yunus, The Grameen Bank, Scientific American, vol. 281, no. 5, 1999, pp. 114–19
Encouraged by this success, Yunus extended the experiment to several poor villages with the Ford Foundation’s help, consistently achieving positive results. Unfortunately, traditional banks remained unwilling to support these efforts to lend to the poor. Determined, Yunus negotiated with the Bangladeshi government to create a new kind of bank. His would be dedicated to providing small loans to those long excluded from the formal financial system.
Ford’s partnership with Grameen continued with funding for partial loan guarantees, training, project monitoring and evaluation, and even humanitarian aid to the area after major flooding in 1988.
Group Lending: Using Community Liability as Collateral
Grameen was not the only microcredit project operating in the 1980s, but it was certainly one of the most successful. The Bank served 35,000 of Bangladesh’s poorest rural citizens — overwhelmingly women — and boasted a loan repayment rate of 94%, according to a 1984 case study report.
Grameen owed its success in part to its novel approach to two of traditional banking’s major concerns: risk management and collateral. Yunus developed a “group lending” method. Potential borrowers would create borrowing groups of five unrelated members who would receive small individual business loans. Such ventures could include raising chickens, making pottery, or crafting hand-loom textiles. Missed individual repayments at weekly meetings prevented fellow group members from receiving their loans. Timely repayments opened opportunities for larger loans in the future.
Essentially, peer pressure and group liability served as a substitute for the extreme poor’s lack of collateral and credit history which had disqualified them from traditional banking in the past.
It was nothing for us to talk about millions of dollars in the classroom, but we were ignoring the minuscule capital needs of 42 hardworking, skilled people next door.
Muhammad Yunus
The Neoliberalist Context: A Culture of Personal Responsibility
Bolstering this entire project at this time was the swell of neoliberalism in the United States. This was an economic approach that emphasized personal responsibility for one’s own economic success. The theory gives primacy to the power of the individual, regardless of systemic or institutional injustices that surround them.
Previously, from the 1930s to the 1970s, much of the United States’ political economy had been defined by the New Deal. The general understanding was that a robust and generous welfare state was good and necessary.
But by the end of the 1970s — a decade of stagflation and economic turmoil — a growing neoliberal movement found a champion in Ronald Reagan. Reagan had spent his time as California governor “condemning the welfare state for offering handouts to the ‘undeserving’ poor.” Gerstle, G. (2018). The Rise and Fall(?) of America’s Neoliberal Order. Transactions of the Royal Historical Society, 28, 241–264. Reagan limited public assistance — particularly for women of color — through criminalization and work mandates. The racist and misogynist caricature of the “Welfare Queen” proved effective in garnering public support for these cuts. Kohler-Hausman, J. (2017). Getting Tough: Welfare and Imprisonment in 1970s America. Princeton University Press.
Reagan’s vision for America won him the 1980 election in a landslide victory over the unpopular incumbent President Jimmy Carter. His administration proceeded to pass federal policies that slashed tax rates for America’s wealthy, diminished labor power, and gutted public assistance programs like Aid to Families with Dependent Children (AFDC). The once robust and reliable social safety net was rapidly diminishing, replaced by calls for self-sufficiency and an end to government dependency.
It is important to note, however, that with time many neoliberal ideas crossed the aisle. Politicians from both major parties in the 1980s and 1990s supported for-profit solutions to social issues. Thus, microlending programs in particular garnered bipartisan support. Liberals saw the potential for improving the economic status of women and minorities, while conservatives appreciated its focus on self-reliance.
Philanthropic foundations were participants in this tidal shift. Would their support of microlending and other for-profit tools fill the gaps left by slashed government programs?
Muhammad Yunus and Creative Capitalism
For all accounts, Muhammad Yunus was (and remains) an optimistic and ambitious economist who saw the potential to solve social problems through the power of private business. His success with Grameen Bank only emboldened his belief that every human being had an innate entrepreneurial spirit. Should someone remove the barriers to capital, every person had the wherewithal to lift themselves out of poverty.
Yunus’ philosophy was to work creatively within the capitalist system and to make it work for the people historically exploited or excluded from its successes. This, as it happened, coincided with Ford’s earlier work with Program Related Investments (PRIs) in the United States. Ford Foundation program officer Lou Winnick and Taconic Foundation president John Simon created the PRI in 1968 to “stretch” the philanthropic dollar “to do double, triple, or even higher multiple duty.”Lou Winnick, “Program Related Investments: two years later” (Reports 002129), 1970; Ford Foundation records, Catalogued Reports, Rockefeller Archive Center. Even a small return would prove a more successful “investment” than a grant, which is an outright gift, and still achieve social impact. PRIs initially funded businesses and agricultural cooperatives run by people of color.
The Ford Foundation Tries Microlending in the United States
In an effort to take a global approach to poverty — and as part of Ford Foundation president Franklin Thomas’s “one foundation” organizational restructuring — the Ford Foundation formed the global Rural Poverty and Resources (RPR) program in 1982. After several decades prioritizing rural development in Asia, Africa and Latin America, RPR would now target poverty in the United States as well. The program’s mandate was twofold: “to strengthen program activities in developing countries and to begin to build a complementary endeavor in the rural United States.”Review of U.S. Rural Poverty and Resources program, 1986 June. (Reports 010215), Ford Foundation records, Catalogued Reports; Rockefeller Archive Center.
Essentially, the program would try strategies in the United States that had previously been reserved for Ford Foundation programs in developing countries.
The program’s priorities were income-generating projects that would serve the poorest Americans, particularly women and people of color. In the aforementioned case study, RPR staff concluded that one of the most important contributing factors to a successful microcredit program like Grameen was specificity.
Armed with this analysis, RPR program staff began identifying non-profit organizations serving distinct communities in the United States. They provided them with PRI loans with the hope that Yunus’ group-lending model could be replicated in the US.
Could microcredit programs be as successful in the United States as they had been in Bangladesh? If philanthropy couldn’t eliminate the negative side effects of capitalism, could it assist those at the bottom to rise within it?
…to begin to build a complementary endeavor in the rural United States.
1986 Ford Foundation Program ReviewReview of U.S. Rurual Poverty and Resources program, 1986 June (Reports 010215), Ford Foundation records, Catalogued Reports, Rockefeller Archive Center
The Good Faith Fund, Pine Bluff, Arkansas
In 1988, the Ford Foundation’s PRI office made a $2.175m loan to the Arkansas Enterprise Group, with a substantial amount earmarked for the development of the Good Faith Fund in Pine Bluff, Arkansas. At the time, Arkansas was the third-poorest state in the country, with 19% of the population living below the poverty line. The Good Faith Fund would be one of the first attempts at recreating the Grameen Bank model in the United States.
Previous attempts at economic development in Arkansas centered around “smokestack chasing.” This was the practice of luring large industries to the state via tax incentives and benefits, to bring new employment opportunities to its residents. This method only exacerbated ongoing challenges within the rural economy, however. A heterogenous local economy was more vulnerable to market changes during an era of increased outsourcing and globalization.
Additionally, commodity agriculture and industrial plants fostered a regional work culture of production to collect paychecks. It did not encourage the diverse economic conditions that would lead to an abundance of entrepreneurial spirit.
Good Faith Fund is a synthesis of the best ideas from innovative international self-employment programs […] and was supported by a few private foundations which felt that a ‘reverse technology transfer’ from the Third World to the United States had merit. Good Faith Fund began by adopting the minimalist, peer-group approach of the Grameen Bank, but continues to adapt its program as necessary to fit the culture, environment, needs, and constraints of southeastern Arkansas.
Good Faith Fund Case Study, 1992“The Good Faith Fund GGF: a Self-Employment Learning Project agency case study” (Reports 015114), 1992; Ford Foundation records; Catalogued Reports, Rockefeller Archive Center.
“Poor” vs. “Of Lesser Means:” Perceptions of Poverty
In 1988, Good Faith Fund founder Julia Vindasius spent a week in Bangladesh to learn more about Grameen Bank’s operations. She hoped to launch a similar microcredit program for those living in extreme poverty in southeastern Arkansas. (This became a frequent practice; the Ford Foundation funded travel and research for a number of organizations to determine the Grameen model’s applicability and impact). Her insights predicted future challenges of this undertaking, namely the wide cultural difference between Bangladesh’s poor and the United States’.
One of the often-asked questions borrowers had for me was, ‘I thought America was a rich country – why do you need a bank for the poor in America?’… [Grameen borrowers] identify with poverty and know they live in a poor country.
Julia Vindasius, Founder, Good Faith Fund, 1988Thoughts on Grameen Bank: working document: Grameen Bank-Good Faith Fund lessons, Sept. 20 (Reports 011739), 1988; Ford Foundation records; Catalogued Reports; Rockefeller Archive Center.
Vindasius’ observation regarding delicate verbiage around the perception of poverty evinced a growing cultural assumption in the US that to be poor was a personal moral failing:
How well would it go over as a marketing technique to openly advertise the Good Faith Fund as a program for the poor? We tend to use all kinds of euphemisms such as ‘low-income’ or ‘of lesser means’ or ‘welfare recipient…’ We fear that referring to clients as poor people will be an obstacle.
Julia Vindasius, 1988Thoughts on Grameen Bank: working document: Grameen Bank-Good Faith Fund lessons, Sept. 20 (Reports 011739), 1988; Ford Foundation records; Catalogued Reports; Rockefeller Archive Center.
Ford staff frequently praised microcredit’s capacity to combat the poor’s feelings of inadequacy. And yet, they rarely directly addressed the source of those feelings in the broader cultural (and racially-charged) conversation about the “undeserving poor.”
Rural Isolation
Population density was an additional challenge in Arkansas. The state’s 2.3 million residents could not be reached as easily with a program built in a nearly equally-sized country of 88 million. The Good Faith Fund’s target communities were spaced out, not well-organized, and further complicated by “prevalent and unabashed” racism (the racial composition in Good Faith Fund’s target area was 58% white and 41% Black). Staff struggled to deliver the kind of targeted training and assistance required by borrowers attempting to begin a wide variety of microbusinesses. Many had neither the education nor the experience to thrive on their own.
In short, the support needs of the borrowers ballooned administrative costs and stretched staff thin. Low interest rates matched with high overhead meant that microcredit programs were rarely financially sustainable on their own.
Why do you need a bank for the poor in America?
Thoughts on Grameen Bank | Working Document: Grameen Bank – Good Faith Fund Lessons
The Lakota Fund – Pine Ridge Reservation, South Dakota
The Pine Ridge Indian Reservation in South Dakota is characterized by severe isolation and poverty… Almost no income is derived from indigenous business activity.
First Nations Development Institute (08851126), 1988 October 20-1989 November 30; Ford Foundation records; Grants; Rockefeller Archive Center.
In 1989, the American Indian population was 1.5 million, two thirds of whom lived on or adjacent to 260 reservations throughout the US.First Nations Development Institute (08500895), 1985 October 01-1991 September 30; Ford Foundation records, Grants E-G; Rockefeller Archive Center. Further, forty percent of those living on reservations were unemployed. Those who were employed earned less than $7,000 per year.
Around this time, Ford provided a grant to the First Nations Financial Project (later renamed First Nations Development Institute) whose goal was to seek solutions to poverty from within native communities. The Foundation continued its support with a $825,000 PRI loan to the First Nations Development Institute, which had begun its own microcredit program — a revolving loan fund called the Lakota Fund — for the residents of the Pine Ridge Indian Reservation in South Dakota.
Loan servicing programs on reservations had suffered a slew of challenges, including lax loan servicing, inexperienced staff, and poor record keeping. A project evaluator wrote,
One of the most common mistakes in defining the mission of a loan program is confusing credit with welfare. Credit officers are well aware of the serious economic problems on reservations, but they were nearly unanimous in asserting the need to have a hard head to go along with their soft hearts: They were trying to run a credit program, not solve all the problems of poverty.
Evaluation of reservation-based loan programs: report to First Nations Financial Project (Reports 016045), 1988; Ford Foundation records; Catalogued Reports; Rockefeller Archive Center.
Barriers: Alcoholism
In the beginning, the Lakota fund did not engage in group lending. Larger loans performed well, however, smaller loans had dismal repayment rates and many borrowers were in delinquency. During a visit to the Reservation to determine the applicability of a Grameen group-lending model, Ford staff identified one of the most pervasive challenges to LF’s program: rampant alcoholism within the community.
It was speculated that a shift to group lending could utilize peer pressure to “straighten out” those dealing with alcoholism. Otherwise, they were prevented from participating in the program altogether. Clearly, an injection of cash would not remove the symptoms of centuries of inherited trauma, forced removal, and disenfranchisement.
Family Dynamics Clash with Group Lending Rules
A key requirement of the group lending model posed a significant challenge for the Pine Ridge community: members of a borrowing group had to be unrelated. This condition clashed with the Lakota tradition of communal living, where extended families worked together as a unit.Pickering, K., & David W. Mushinski. (2001). Cultural Aspects of Credit Institutions: Transplanting the Grameen Bank Credit Group Structure to the Pine Ridge Indian Reservation. Journal of Economic Issues, 35(2), 459–467. http://www.jstor.org/stable/4227678 For generations, the federal government had pushed policies that promoted nuclear family structures over Indigenous communalism — part of a broader effort to assimilate Native peoples and erode their cultural foundations.
Additionally, these historic abuses from the government made some less trusting of outsiders, especially those outside of one’s family. It was believed that the inclusion of multigenerational family members would strengthen borrowing groups. Elders traditionally instructed younger family members on proper rules of conduct and interpersonal relationships. In 1994, the Lakota Fund altered its rules to allow some family members within the same borrowing group.
Who Will Buy? Market Challenges
The Lakota Fund faced similar challenges to the Good Faith Fund due to isolation and low economic opportunity. Logistics and finding a market proved challenging. How would one obtain materials for a small business? For whom would they provide goods and services within their poor communities? In short, when 40% of one’s neighbors are unemployed, there isn’t much disposable income left to patronize a small business.
Women’s Self Employment Project, Chicago, Illinois
One of the strongest arguments for microcredit was the promise of women’s empowerment. The overwhelming majority of Grameen’s borrowers were women, raising their economic security within their households and subsequently improving nutrition of their children. This was an encouraging development in a country where half of the children were malnourished. In fact, a mother’s participation in Grameen substantially increased the likelihood that her daughter would be enrolled in school.
This pattern of empowerment and uplift buoyed the Foundation’s argument for support of the Women’s Self Employment Project in Chicago.
To Help Urban Women of Color
Ford Foundation staff saw the Women’s Self Employment Project in Chicago (as well as the Women’s Economic Development Corporation in St. Paul, Minnesota) as an opportunity to provide resources to the urban poor, specifically women of color. Operating since 1986, the organization attempted to emulate Grameen by providing micro loans and peer group training under the group lending model.
Much like the Good Faith Fund, Women’s Self Employment Project director Connie Evans spent time in Bangladesh with Muhammad Yunus to understand and attempt to replicate Grameen’s success. Unlike Good Faith Fund and the Lakota Fund, the WSEP aimed to empower women specifically, and only served women whose annual family income was below $15,000.Women’s Self-Employment Project (08901006), 1989 July 01-1991 June 30; Ford Foundation records; Grants; Rockefeller Archive Center
Ford staff had already identified reasons for the substantial increase in the number of poor, female-headed households since the 1970s. These included gender inequality in the workplace as well as an overall wealth inequality and wage stagnation nationwide. Wages simply were not rising at a pace that kept up with inflation, making it increasingly difficult to support a family on a single income.
When combined, stagnant wages, inequality and lack of education created the perfect recipe for more women attempting to support families with low-wage, dead-end jobs.
Women’s Self-Worth and Empowerment
Advocates of supporting microlending to women argued that self-employment would alleviate the shame and inferiority felt by the women on public assistance. But they failed to directly address how that narrative was being reinforced nationwide with caricatures like the “welfare queen.”
While proponents do not argue that self-employment is a high-impact strategy for reducing poverty,[…] [t]hey see dependency and an inadequate sense of self-worth as being important obstacles to these women escaping persistent poverty […]
Ford Foundation Review of the Women’s Self-Employment Project, 1991Women’s Self-Employment Project (08901006), 1989 July 01-1991 June 30; Ford Foundation records; Grants; Rockefeller Archive Center.
An Entrepreneurial Experiment, but at the Expense of the Social Safety Net?
Across the board, microcredit borrowers in the US expressed anxiety over the potential loss of public assistance, should their self-employment schemes not succeed. WSEP staff had to jump through administrative hoops to ensure its borrowers not lose their social benefits while starting on their entrepreneurial path. For one, they obtained federal waivers allowing borrowers to separate business and personal assets in order to not lose eligibility for welfare.
Ford Foundation staff understood at this point that microcredit programs were not sufficient for overall poverty relief. Nevertheless, they admitted that programs like the WSEP could help some women achieve financial independence and get off of welfare. The trick, they felt, was figuring out which ones.
[T]here has been little attention paid to the prerequisite skills, attitudes, and experiences necessary for entrepreneurial success. For instance, [Women’s Economic Development Corporation, Inc] has found that only one out of five women has the potential to become a successful entrepreneur. Unfortunately, most enterprise development programs […] seem to be based on the premise that everyone is capable of operating a successful business. While it is unlikely that practitioners actually believe this, programs are often designed as if it were true.
Ford Foundation Review of the Women’s Self-Employment Project, 1991Women’s Self-Employment Project (08901006), 1989 July 01-1991 June 30; Ford Foundation records; Grants; Rockefeller Archive Center.
A portion of Ford funding for the Women’s Self-Employment Project was devoted to researching the implementation of Grameen’s group lending model. This research would identify the characteristics of borrowers best served by this kind of microlending project. Ford’s Urban Poverty Program staff seemed to have learned from the Rural Poverty and Resources’s previous endeavors with microcredit. They recognized that the central philosophy of the inherent entrepreneurial spirit assumed by its supporters was unfounded in reality.
WEDCO has found that only one out of five women has the potential to become a successful entrepreneur.
Ford Foundation Report, 1991Women’s Self-Employment Project (08901006), 1989 July 01-1991 June 30; Ford Foundation records; Grants; Rockefeller Archive Center
Challenges
Like so many philanthropic endeavors, it is difficult to measure the long-term impact of microfinance programs. In fact, one of the practice’s major criticisms is the tension between quantifiable and qualifiable results. However, we can observe the challenges faced by Ford-funded organizations during their attempts to implement Grameen Bank’s methods in the United States.
When it comes to microfinance, philanthropy, nonprofits, and commercial banking were strange bedfellows with competing motivations and metrics for success. Well-meaning nonprofit staff repeatedly came up against similar challenges, such as borrowers’ lack of education and experience in business, risk aversion, cultural idiosyncrasies, and navigating public assistance eligibility requirements. Not to mention, the administrative complications of reinventing for-profit banking methods from a non-profit perspective.
Perhaps Not Everyone is an Entrepreneur
As time went on, Ford Foundation staff learned that while the Grameen model could be impactful on the lives of some Americans, it was not as financially sustainable as they had hoped. Neither was Grameen Bank, for all its success. Microlending’s limitations — particularly its specificity to each targeted audience and razor-thin margins — were precisely what made broad policy implementation and scalability nearly impossible.
In 1991, Congress authorized the Small Business Administration’s Microloan Program “designed to assist women, low-income, veteran, and minority entrepreneurs and small business owners.” The program offered grants to nonprofit intermediaries much like Good Faith Fund and the Women’s Self-Employment Project. The program is still in operation as of June 2025, but has frequently been on the budgetary chopping block. That is because the Small Business Administration’s Microloan Program falls victim to several of the same criticisms laid out in these case studies: Microlending programs are still expensive and require steep administrative costs. They only seem to make an impact while operating on thin margins, administered by nonprofits, and when borrowers possess innate entrepreneurial skills.
Does the Grameen Model Empower Women?
Grameen’s success with women borrowers assumed that women were empowered as a result, but that was rather begging the question. In actuality, an abundance of scholarship has been written over the last two decades examining this assumption from multiple perspectives (economic, feminist, sociological). The consensus seems to be that microlending programs successfully empower borrowers if the metric for “empowerment” is predicated strictly on employment.
As it turns out, what made Bangladeshi women such loyal and obedient borrowers was in fact gender inequality.KUMAR, L. (2013). Illusion of Women Empowerment in Microfinance: A Case Study. Economic and Political Weekly, 48(15), 70–76. http://www.jstor.org/stable/23527125 Women simply had less mobility than men, due to familial obligations or harassment on the street. As a result, it was far easier for them to attend weekly bank meetings, leading to a more consistent repayment rate. Female borrowers also acted in the best interest of their children more frequently than men did, motivating a continuing participation in the program.
Does Microlending Work?
Microloans did offer an opportunity for women and historically excluded populations to participate in capitalism, however on wildly unequal terms. Keating, C., Rasmussen, C., & Rishi, P. (2010). The Rationality of Empowerment: Microcredit, Accumulation by Dispossession, and the Gendered Economy. Signs, 36(1), 153–176. https://doi.org/10.1086/652911
The Grameen Bank has succeeded relatively easily in Bangladesh, perhaps, because its programs and method of operation have been designed and developed very carefully with consideration of the rural characteristics of the Bangladesh society as well as the special needs of its clientele…
Even then, the Grameen Bank is still not a financially viable institution.
Abu N. M. Wahid. (1994). The Grameen Bank and Poverty Alleviation in Bangladesh: Theory, Evidence and Limitations. The American Journal of Economics and Sociology, 53(1), 1–15.
Lingering questions about financial viability and social impact remain. The Ford Foundation’s experimentation with microfinance in the United States at the end of the 20th century nevertheless provides insight into the nuance and pitfalls of attempting to solve systemic inequality by targeting the individual alone.
Even then, the Grameen Bank is still not a financially viable institution.
Abu N. M. Wahid. (1994). The Grameen Bank and Poverty Alleviation in Bangladesh: Theory, Evidence and Limitations. The American Journal of Economics and Sociology, 53(1), 1–15.
