MFIs and Informal Businesses of Women

Abstract

Most Grameen type Micro Finance Institutes (MFIs) vouch to providing for the credit needs of informal businesses being run by poor women. There is ample evidence cited in the form of case-stories of women who have reared successful informal businesses, using microcredit. However there is scant evidence on what are the kinds of informal businesses traditionally being run by poor women, how do they initiate it and whom do they turn to for finance and other were withal. In a year-long study being carried out through a detailed methodology of asking MFI borrowers to keep daily financial diaries, in the town of Ramanagaram, Karnataka, we were able to track the daily cash inflows and outflows of a few women who did informal businesses such as selling bronze vessels, bed sheets, bangles, etc. In doing so, we were able to trace how MFI loans and repayment schedules impact their cash transactions. The evidence we gathered about micro-credit was mixed. Women running these businesses stated that with an MFI that they cannot afford to miss even one weekly instalment; as a result they end up borrowing – at very high costs – from neighbours or others to make the weekly repayment to the MFI. The long repayment duration (one year) of the loan in the MFI also makes them feel that they are indebted for a longer period; whereas they seem to prefer completing the loan cycle in a period of 3-4 months as can be done with finance companies. This goes a lot to say about the need for introducing flexibility in loan products of most Grameen type MFIs.