Microfinance and Female Group Action in Bangladesh

• Author: Christina Peters
• Date: 01 February 2017
• Published date: 01 February 2017
• DOI: http://doi.org/10.1111/rode.12238

Microfinance and Female Group Action in

Bangladesh

Christina Peters*

Abstract

This paper provides evidence that participation in microfinance programs may increase the likelihood of

female group action against domestic violence and spousal abandonment. Although female empowerment

has been an explicit target of many microfinance programs, the literature remains conflicted regarding

the magnitude and direction of impact. Using multiple estimation methods with data from Bangladesh, I

find that women from villages with microfinance programs are substantially more likely than women

from non-program villages to have taken group action by publicly protesting when they observed a

woman being beaten, abandoned or divorced. Taking advantage of eligibility requirements for program

participation, I further show that women from program villages who are eligible to participate are

substantially more likely than non-eligible women from the same village to have taken group action,

which suggests that these effects are in fact related to the microfinance programs themselves.

1. Introduction

Initial evidence indicated that participation in microfinance programs brought

improved household socioeconomic outcomes in many areas, including reductions

in poverty, better child health outcomes, higher education levels, and an increased

ability to smooth consumption (Husain, 1998; Khandker, 2005; Khandker and

Samad, 2014; Menon, 2006; Pitt et al., 2003; Pitt and Khandker, 1998; Pronyk

et al., 2007). However, randomized evaluations have called into question the

extent of the socioeconomic benefits of microfinance, having found much more

modest (although in several cases still positive) impacts on many of these

outcomes (Angelucci et al., 2015; Attanasio et al., 2015; Augsburg et al., 2015;

Banerjee et al., 2015; Crepon et al., 2015; Tarozzi et al., 2015). In contrast, other

studies continue to find evidence that long-term participation in microfinance both

reduces poverty and increases wealth and consumption (Islam, 2011; Khandker

and Samad, 2013).

Beyond access to credit, some programs also explicitly promote skill

development, informal schooling, health, literacy training, social awareness and the

empowerment of women (Ahmed, 2005; Hashemi et al., 1996; Pitt and Khandker,

2002). In fact, increased female empowerment may subsequently help enhance the

productivity of the loans themselves. For instance, work by De Mel et al. (2009)

argues that while empirical evidence from Sri Lanka shows smaller profit increases

from grants given to female business owners than to male ones, this disparity is

*Peters (Corresponding author): Department of Economics, Metropolitan State University of Denver,

Campus Box 77, PO Box 173362, Denver, CO, 80217-3362, USA. Tel: +1-303-556-3916; E-mail:

cpeter80@msudenver.edu. The author would like to thank A. Mushfiq Mobarak, Randall Kuhn,

anonymous referees and conference participants at the Southern Economic Association and the Western

Economic Association meetings for helpful comments and discussion.

Review of Development Economics, 21(1), 21–42, 2017

DOI:10.1111/rode.12238

©2016 John Wiley & Sons Ltd

lessened in households where women have more control over resources. However,

despite the target of increased empowerment, the evaluation literature has been

unable to satisfactorily determine whether microfinance programs have been

successful in this aim.

This paper provides new evidence that microfinance may enhance female

empowerment through increasing the likelihood of individual group action against

domestic violence and spousal abandonment. Rates of domestic violence are very

high in many areas of Bangladesh (National Institute of Population Research and

Training (NIPORT), 2007), and participation in microfinance holds the potential to

increase empowerment and reduce household violence through several avenues,

including education, the use of credit to generate female-earned income, the ability

of women to provide husbands and households with access to credit, and the

organization of group social capital for collective action (Feigenberg et al., 2013;

Mahmud, 2003; Pronyk et al., 2008; Sanyal, 2009). Using multiple estimation

methods with data from Bangladesh, I find that women from villages with

microfinance programs (i.e. program villages) are substantially more likely than

women from non-program villages to have publicly protested when they observed a

woman being beaten, abandoned, or divorced by her husband.

The prior literature has reached conflicting conclusions regarding the direction

and magnitude of the impact of microfinance participation on female

empowerment. Several papers observe a positive relationship between the variables

(e.g. Angelucci et al., 2015; Hashemi et al., 1996; Pitt et al., 2006; Schuler and

Hashemi, 1994; Zaman, 1999). Within Bangladesh, women who participate in credit

programs claim greater involvement in household decision-making, stronger

relationships with their husbands, and a lower likelihood of being abandoned by

their husbands (Amin and Pebley, 1994; Husain, 1998). Outside of Bangladesh,

evidence from microfinance and commitment savings programs in both Cameroon

and the Philippines shows that enabling women to form lending groups and retain

control over their money leads to subsequent increases in their bargaining power in

the household (Ashraf et al., 2006, 2010; Mayoux, 2001). Randomized controlled

trials in Mexico and South Africa also indicate that microfinance participation leads

to greater decision-making power in the household and decreased instances of

domestic violence (Angelucci et al., 2015; Kar lan and Zinman, 2010; Kim et al.,

2007; Pronyk et al., 2006).

However, other research counteracts this evidence by documenting a more

ambiguous (Ahmed and Chowdhury, 2001; Mahmud, 2003) or even negative

relationship between microfinance and female empowerment (Ahmed, 2005;

Kabeer, 2001). It is possible that peer pressure for repayment or the attempt by

women to assert non-traditional household functions and earn income may actually

increase levels of violence against them or decrease their status in the household

(Angelucci, 2008; Ahmed and Chowdhury, 2001). For instance, Angelucci (2008)

finds that in Mexico, large cash transfers to poor women induce higher rates of

domestic violence on the part of their husbands (although small transfers actually

reduce rates of violence). Furthermore, even though women may be the only ones

eligible to take out loans, it can often be their husbands or families who take

control of the money (Goetz and Sen Gupta, 1994; , 1998).

Moreover, Banerjee et al. (2015), Crepon et al. (2015) and Tarozzi et al. (2015)

conduct randomized evaluations of microfinance programs in India, Morocco and

Ethiopia and do not find any impact of microfinance on female decision-making.

However, the studies acknowledge that context may matter for empowerment

22 Christina Peters

©2016 John Wiley & Sons Ltd