Microfinance — an approach to poverty based on providing small loans and other financial services to poor people, primarily women — has inspired extensive press coverage, a Nobel Peace Prize for founder Muhammad Yunus and reams of research in the decades that followed the launch of Grameen Bank in 1976.

Much of the research on microfinance focuses on factors associated with the efficient delivery of loans and their effect on borrowers — in other words, on the financial and economic aspects of the microfinance movement.

But by ignoring microfinance’s cultural aspects — including the influence of patriarchal attitudes on lending practices — the ability to make loans to the women whom microfinance was originally intended to serve can be seriously restricted, says Wharton management professor Tyler Wry.

Using data on more than 1,800 microfinance institutions (MFIs) in 168 countries compiled by the Microfinance Information Exchange, Wry and Eric Yanfei Zhao from the University of Alberta School of Business look at policies advocated by the United Nations, World Bank and other development agencies that are intended to build stable infrastructures for microfinance institutions. “We found that countries that do have more liberalized markets, including increased flow of capital and thus the ability to make more loans, also [can] support a lot more microfinance activity, which is good,” Wry says. “But we also found that these same factors that would make a country attractive to MFIs also made it less likely that they would lend to women.”

He and Zhao present preliminary findings in a working paper titled, “Culture, Economics, and Cross-National Variation in the Founding and Social Outreach of Microfinance Organizations.”

In their paper, the authors argue that “gender inequality is an important consideration for understanding the … focus of MFIs. Our results indicate that a business-friendly economic climate has the potential to undermine” microfinance’s goal of empowering women, and that this effect is “amplified in patriarchal countries where the need for lending to women is greatest.”

Indeed, the higher degree of patriarchy there is, the more barriers there are to women participating in the economy, the authors suggest, describing patriarchy as belief systems that emphasize women’s domestic roles, devalue their education and forbid the inheritance of property “which could be used as loan collateral.”

Patriarchy can also reverberate down through the MFIs themselves: Because up to 70% of loans are made to women, access to female employees in MFIs is key. Female loan officers “provide role models for the women in lending groups and offer a tangible example of women’s empowerment,” the researchers write. In addition, “it is easier for women loan officers to interact with women clients [since] they can easily visit homes to collect installments.” Furthermore, “same gender relationships facilitate open dialog about financial questions and problems in the home.”

Yet in patriarchal countries, investment in women’s education is lacking, the authors add. This situation — along with roadblocks that prevent women from getting training in such important areas as law, accounting and finance — results in most of the loan officer jobs going to men. “Given the difficulties associated with making loans to women absent female loan officers, inequities in professional training may also create a barrier to lending to women in patriarchal countries,” the researchers write.

‘A Lot More MFIs Doing a Lot Less Good’

The irony in this discussion, as the authors note, concerns how difficult it can be to reconcile the goals of microfinance. “While increased foreign investment, low taxes and supportive regulations may create a [positive] environment for MFIs in some regards,” this mainly applies to those MFIs that “emphasize financial sustainability over social outreach,” the authors write. In other words, while foreign investors may say they want to promote better lifestyles for women and families, they also expect positive financial returns. And yet the motivation for lending to women is to “create social benefits by serving a population that is excluded from traditional financial channels precisely because it isn’t profitable to serve them.”

Indeed, studies have shown that MFIs that focus on lending to women “are less likely to be financially self-sustainable and more reliant on government subsidies than their commercially oriented counterparts.” Consequently, such MFIs “are not likely to be attractive investment targets,” according to the paper.

As Wry notes, “women tend to be really poor clients. That was the reason microfinance was attracted to them in the first place, so that women could access normal channels of lending.” But when financial capital comes in, with its emphasis on generating returns on loan repayments, women tend to be “pushed away from the microfinance market,” he adds.

“The bottom line is that if you take steps to promote entrepreneurial activity, it has a counterproductive effect in countries where you most need MFIs to reach out with loans to women,” Wry says. His research, he adds, “shows that if you only look at the economic side of this, you can start to make decisions that have unforeseen consequences…. If we agree that microfinance should help impoverished women break out of cycles of despair, it’s important to talk about what is going on when we implement economic policies that the World Bank and others support. [These policies] do have some good consequences, but they also might have some downsides in terms of outreach to women.”

The scholarly evaluation of microfinance on the micro level shows, for example, that women borrowers are more likely “to generate financial returns, invest these in their families and repay loans than their male counterparts.” But at the macro level, “the potential to deliver these benefits depends on the prevalence of microfinance organizations within a country and the degree to which they focus on women’s lending — areas where current studies offer limited insight,” the authors write.

They suggest that “economic and cultural factors are important for understanding both the emergence of MFIs and their commitment to women’s lending, but that they affect these outcomes differently.” They note, in particular, that “a supportive economic environment will lead to higher MFI founding rates because it provides fertile conditions for business creation.” At the same time, however, they anticipate that “high levels of patriarchy will suppress both MFI foundings and women’s lending because factors associated with gender inequality may limit access to resources such as financial capital, employees and customers.”

The authors also predict that a business-friendly economic climate will help offset some of the resource constraints that patriarchy creates for MFI foundings, but will “amplify the suppression of women’s lending by creating financial inducements to lend to less-poor male clients.”

Patriarchy, Wry says, really changes the outcome when you look at both the economic and cultural factors. “You need to consider both sides of the equation. Patriarchy may be changing the nature of microfinance in many countries. You are seeing an accelerated drift away from serving women. A lot more MFIs are doing a lot less good.”

People like to think of capital as “neutral,” Wry notes. “But if you want to make money in microfinance, that will have some pretty dramatic effects. You see over time that Grameen Bank was a hybrid organization. It was new and novel, but the mission was very much on the social side. What we are seeing now in the whole sector is that MFIs are still hybrids, but the order in which the two parts are mixed has been flipped. When it started, it was financial tools being used for social good. Now it has increasingly become a social mission used as a way to generate money. Organizations fall between these poles. This minimizes the benefits to women unless you have a country where women don’t comprise a disproportionate share of the poor.”

But of course in many countries, women tend to be the poorest segment of the population, a status that is further solidified by the existence of patriarchal attitudes. Wry and Zhao at one point cite a widely used definition of patriarchy as “a shared belief system where male domination serves as a model for structuring individual identities, interpersonal relationships and large scale institutional arrangements.”

Wry says their paper is the first to offer a large-scale sociological analysis. “Many papers look at single countries or single cases. They have interesting things to say, but they don’t look at the broad patterns. We are trying to move the debate to a higher level.” Interdisciplinary dialog is important, he notes, “particularly in opening up debate among scholars who bring different, but complementary, tools to the table.” 

Beyond this, he adds, “I think there needs to be some sober thought about what — as a field — we think microfinance should be doing. So much of the debate gets bogged down in platitudes about sustainability and win-win scenarios when business insights and acumen are applied to the social sector. Yes, it is true that doing this can have some positive effects; we are seeing this with the growing prevalence of MFIs globally. However, these platitudes gloss a fundamental tension — namely that there are limits to what business can do in the social sector, and it may be that you cannot, and should not, be trying to make money by delivering social goods.”

There are “many people and problems that you can’t make money off of, and this is where governments and public policy need to enter and assert their voice,” Wry states. “The aim shouldn’t be to temper innovation or enterprise, but to offer subsidy and stability. This is basically what Yunus says, and I think he’s bang on.”