Kashf is typical of microfinance institutions in that it lends almost exclusively to women, in groups of twenty-five, who guarantee one another’s debts and meet every two weeks to make their payments and discuss a social issue. Topics include family planning, schooling for girls, or hudood laws used to punish rape victims. The meetings are held in the women’s homes, in rotation, and they create a “women’s space” where they freely discuss their concerns. Many Pakistani women are not supposed to leave the house without their husbands’ permission, but husbands tolerate the insubordination because it is profitable. The women return with cash and investment ideas, and over time they earn incomes that make a significant difference in household living standards. Typically, the women start small, but after they have repaid the first loan in full they can borrow again, a larger amount. This keeps them going to the meetings and exchanging ideas, and it builds the habit of dealing with money and paying debts promptly.
“Now women earn money and so their husbands respect them more,” said Zohra Bibi, a neighbor of Saima who used Kashf loans to buy young calves that she raises and sells when they are grown. “If my husband starts to hit me, I tell him to lay off or next year I won’t get a new loan. And then he sits down and is quiet.”
Kashf is the brainchild of Roshaneh Zafar, a Pakistani woman who sounds more like a banker than an aid worker. Roshaneh grew up in a wealthy, emancipated family of intellectuals who allowed her to study at the Wharton School at the University of Pennsylvania and later earn her MA in development economics at Yale. Many of Roshaneh’s friends in Pakistan and at Wharton wanted to get rich, but she wanted to save the world, and so she joined the World Bank.
“I didn’t want to create wealth for people who were already wealthy,” Roshaneh said. “I thought I would go to the World Bank and make a difference. But it was like screaming against the wind. Everywhere we went, we would tell people to use better hygiene. And they would say: ‘You think we’re stupid? If we had money, we would.’ I wondered what we were doing wrong. We had megamillion-dollar projects, but the money never got down to the villages.”
Then Roshaneh happened to find herself seated at a dinner next to Muhammad Yunus, the ebullient Bangladeshi professor who much later won the 2006 Nobel Peace Prize for pioneering microfinance. Yunus wasn’t famous then, but he was attracting interest in development circles for starting Grameen Bank, which championed loans for poor women. Roshaneh had heard stories of Yunus’s success and quizzed him over dinner. He talked animatedly about Grameen’s work, and it was exactly the kind of pragmatic grassroots effort that she yearned to join. So Roshaneh took a leap of faith: She quit her job at the World Bank and wrote a letter to Yunus telling him that she wanted to become a microfinancier. He promptly sent her an air ticket to Bangladesh. Roshaneh spent ten weeks there, studying the work of Grameen. Then she returned to Lahore and set up the Kashf Foundation that helped Saima.
Roshaneh Zafar, the founder of Kashf with clients in a village (Nicholas D. Kristof)
Kashf means “miracle,” and at first it seemed a miracle would be needed to make it work. Pakistanis told Roshaneh that microfinance was impossible in a conservative Muslim country like Pakistan, that women would never be allowed to borrow. In the summer of 1996, she started combing poor neighborhoods, looking for clients. Roshaneh discovered, to her horror, that women were reluctant to take money. “We went from door to door, attempting to convince women to start a credit relationship with us,” she recalled. Finally, Roshaneh found fifteen women willing to borrow and handed out 4,000 rupees ($65) to each of them.
Roshaneh brought in another dynamic Pakistani woman, Sadaffe Abid, who had studied economics at Mount Holyoke College. Roshaneh and Sadaffe made a striking pair: Well educated, well connected, well dressed, and beautiful, they prowled through poor villages looking to ordinary Pakistanis more like movie stars than anyone’s idea of bankers. And for all their brilliance, Roshaneh and Sadaffe ran into difficulties because they had no intimate knowledge of the poverty they were trying to defeat.
“We only had one hundred clients, and thirty of them were delinquent,” Sadaffe remembers. Relentlessly empirical, focused on refining their business model, Roshaneh dispatched Sadaffe to be branch manager in a poor village. But even that proved difficult. “Nobody would rent to us, because we were an NGO [a nongovernmental organization] and an NGO full of women,” Sadaffe said. Many Pakistanis also believed that no unmarried woman of honor would leave her parents’ home and live on her own, so the Kashf women staff attracted leers and frowns. In later years, Roshaneh had to bend to reality and hire some male branch heads, because it is so difficult to find women willing to relocate to poor villages.
Roshaneh and Sadaffe spent their first few years tweaking the business model. Because delinquent loans were a problem, they began tracking loan payments daily rather than weekly. A loan officer began doing basic checking on a client’s creditworthiness: Does she buy from the local grocery store on credit? Does she pay utility bills? But mostly the model depended on lending to a group of twenty-five women who would all be responsible if any one of them defaulted. That meant that those women did their own screening, for fear of admitting a weak link.
Finally, Kashf had a system in which virtually 100 percent of loans were repaid in full—if not by the borrower, then by other members of the group. Kashf then began expanding rapidly, more than doubling each year since 2000.
Kashf also began offering life insurance and health insurance, as well as home improvement loans. Roshaneh wanted to require that legal title to the home be transferred to the wife before the home improvement loan could be extended, but transfer of title in Pakistan turned out to require 855 steps and five years. So instead, Kashf requires the husband to sign a document pledging that he will never evict his wife, even if he divorces her.
Roshaneh was selected to be one of the early Ashoka Fellows, working with Bill Drayton. That put her in touch with other social entrepreneurs around the globe, building connections and exchanging ideas. By 2009, Kashf had 1,000 employees and 300,000 clients and was aiming for 1 million clients by 2010. Roshaneh cultivated a cadre of skilled female managers, with management training programs and sessions drilling staff in the “seven habits of highly effective people.”
Kashf also started a bank, so that it could accept deposits as well as make loans. People usually think of microfinance in terms of loans, but savings are perhaps even more important. Not all poor people need loans, but all should have access to savings accounts. And if the family savings are in the woman’s name, and thus in her control, that gives her more heft in family decision-making.
An in-house evaluation concluded that by the time the borrowers have taken their third loan, 34 percent have moved above the poverty line in Pakistan. A poll found that 54 percent said their husbands respected them more, and 40 percent said they had fewer fights with their husbands over money. As for the sustainability of the underlying business model, Roshaneh says crisply: “Our return on equity is seven and a half percent.”
While microfinance has been exceptionally successful in parts of Asia, it remains an imperfect solution. Women’s microbusinesses grow more slowly than men’s, according to some studies, presumably because women are supposed to work from home and look after children at the same time—and these constraints also make it difficult for women-run businesses to graduate to a larger scale.
Moreover, microfinance hasn’t worked nearly so well in Africa as it has in Asia. That may be because it is newer there and the models haven’t been adjusted, or because populations are more rural and dispersed, or because the underlying economies are growing more slowly and so investment opportunities are fewer. Poor health and unexpected deaths from AIDS, malaria, and childbirth also create loan delinquencies that undermine the model. And the “micro” refers to the amount of the loan, not to the interest rate: It’s expensive to make small loans, and so borrowers often must pay annual interest rates of 20 or 30 percent—a bargain compa
red to commercial money-lenders, but a level that is horrifying to Americans or Europeans. The interest rate is fine when the money is pumped into a profitable new business, but if the money isn’t invested soundly, then the borrowers become trapped in mounting debts. Then they are worse off than before—and we’ve heard of that happening to women in Kashf’s programs.
“Microfinance is not a panacea,” Roshaneh says. “You need health. You need education. If I were prime minister for a day, I would put all our resources in education.”
Not everybody can walk away from an international financial career like Roshaneh and Sadaffe and start an institution like Kashf. But absolutely anybody can join them in arranging microloans to needy women like Saima—by going to a Web site, www.kiva.org. Kiva is the brainchild of a young tech-savvy American couple, Matt and Jessica Flannery, who visited Uganda and saw the power of microfinance there. They knew that Americans would like to lend if only they knew the recipient, so Matt and Jessica thought: Why can’t a Web site make the connection directly? That’s when they started Kiva. If you go to the Kiva Web site, you see people all over the world who want to borrow to finance small businesses. Those would-be borrowers are vetted by a local on-the-ground microfinance organization.
A donor funds a Kiva account with a credit card, and then browses among the possible borrowers on the site to figure out to whom to lend money; the minimum loan is $25. Our own Kiva portfolio at the moment consists of loans to a pancake saleswoman in Samoa, an Ecuadorian single mother who has turned part of her home into a restaurant, and a woman furniture maker in Paraguay.
One reason microloans are almost always made to women, rather than to men, is that females tend to suffer the most from poverty. Mortality data show that in famines and droughts, it is mostly girls who die, not boys. A remarkable study by an American development economist, Edward Miguel, found that in Tanzania, extreme rainfall patterns—either droughts or flooding—are accompanied by a doubling in the numbers of unproductive old women killed for witchcraft, compared to normal years (other murders do not increase, only those of “witches”). The weather causes crop failures, leading to worsening poverty—and that’s when relatives kill elderly “witches” whom they otherwise would have to feed.
Another reason for making women and girls the focus of antipoverty programs has to do with an impolitic secret of global poverty: Some of the most wretched suffering is caused not just by low incomes, but also by unwise spending—by men. It is not uncommon to stumble across a mother mourning a child who has just died of malaria for want of a $5 mosquito bed net and then find the child’s father at a bar, where he spends $5 each week. Several studies suggest that when women gain control over spending, less family money is devoted to instant gratification and more for education and starting small businesses.
Because men now typically control the purse strings, it appears that the poorest families in the world typically spend approximately ten times as much (20 percent of their income on average) on a combination of alcohol, prostitutes, candy, sugary drinks, and lavish feasts as they do on educating their children. The economists Abhijit Banerjee and Esther Duflo examined spending among the very poor (those who earn less than $1 a day in some countries, less than $2 a day in others) in thirteen nations. They found that these impoverished families spent 4.1 percent of their money on alcohol and tobacco in Papua New Guinea; 5 percent in Udaipur, India; 6 percent in Indonesia; and 8.1 percent in Mexico. In addition, in Udaipur, the median household allocated 10 percent of its annual budget to weddings, funerals, or religious festivals, often involving conspicuous consumption. Ninety percent of South Africans spent money on festivals, as did a majority of people in Pakistan, Ivory Coast, and Indonesia. Roughly 7 percent of the total spending of the poorest people in India’s Maharashtra State went to sugar. Go to little village shops in Africa or Asia, and you’ll see plenty of candy for sale, but rarely vitamins or mosquito nets. There’s no precise data, but in much of the world even some of the poorest young men, both single and married, spend considerable sums on prostitutes.
Among the poor in Udaipur, people seem by any measure to be malnourished. Sixty-five percent of men have a body mass index that makes them underweight by World Health Organization standards. Only 57 percent of adults said they had enough to eat throughout the year, and 55 percent are anemic. Yet, at least in Udaipur, the malnutrition could in most cases be eliminated if families bought less sugar and tobacco.
In contrast to the profligate spending on sugar and alcohol, the most impoverished families on the globe appear to spend about 2 percent of their incomes educating their children, even though that is the most reliable escalator out of poverty. If poor families spent only as much on educating their children as they do on beer and prostitutes, there would be a breakthrough in the prospects of poor countries. Girls, since they are the ones kept home from school now, would be the biggest beneficiaries.
Perhaps it seems culturally insensitive to scold the poor for indulging in festivals, cigarettes, alcohol, or sweets that make life more fun. Yet when resources are scarce, priorities are essential. Many African and Indian men now consider beer indispensable and their daughters’ education a luxury. The service of a prostitute is deemed essential; a condom is a frill. If we’re trying to figure out how to get more girls in school, or how to save more women from dying in childbirth, the simplest solution is to reallocate spending.
One way to do that is to put more money in the hands of women. One early pair of studies found that when women hold assets or gain incomes, family money is more likely to be spent on nutrition, medicine, and housing, and consequently children are healthier.
In Ivory Coast, one study focused on the different crops that men and women grow for their private kitties: men grow coffee, cocoa, and pineapple, and women grow plantains, bananas, coconuts, and vegetables. Some years the “men’s crops” have good harvests and the men are flush with cash; in other years it is the women who prosper. Money is to some extent shared. But even so, Professor Duflo found that when the men’s crops flourish, the household spends more money on alcohol and tobacco. When the women have good crops, the households spend more money on food, particularly beef. Several other studies also suggest that women are more likely than men to invest scarce cash in education and small businesses.
In South Africa, one study examined the impact on child nutrition when the state pension system was extended to blacks after the collapse of apartheid. Suddenly many grandparents received a significant cash infusion (topping out at $3 per day, or twice the local median income). When the pensions went to grandfathers who cared for children, the extra cash had no impact on the children’s height or weight. But when the pension went to a grandmother, there was a major impact. In particular, the granddaughters grew significantly in both height and weight, and such girls became taller and heavier than girls raised by grandfathers. That suggests that if one purpose of cash transfers is to improve the health of children, it’s better to direct the transfers to women than to men.
Half a world away, in Indonesia, a woman continues to control economic assets that she brought into a marriage. A study found that if the wife has brought more resources into the marriage—and thus has more spending money afterward—then her children are healthier than those of families of equal wealth where the assets belong to the man. What matters to the children’s well-being isn’t so much the level of the family’s wealth as whether it is controlled by the mother or by the father. As Duflo says:
When women command greater power, child health and nutrition improves. This suggests that policies seeking to increase women’s welfare in case of divorce or to increase women’s access to the labor market may impact outcomes within the household, in particular child health…. Increasing women’s control over resources, even in the short run, will improve their say within the household, which will increase … child nutrition and health.
One implication is that donor countries should nudge poor countries to adjust their
laws to give more economic power to women. For example, it should be routine for a widow to inherit her husband’s property, rather than for it to go to his brothers. It should be easy for women to hold property and bank accounts, and countries should make it much easier for microfinance institutions to start banks. Women now own just 1 percent of the world’s titled land, according to the UN. That has to change.
To its credit, the U.S. government has pushed for these kinds of legal changes. One of the best American foreign aid programs is the Millennium Challenge effort, and it has nudged recipients to amend legal codes to protect women. For example, Lesotho wanted Millennium Challenge money but did not allow women to buy land or borrow money without a husband’s permission. So the United States pushed Lesotho to change the law, and in its eagerness to get the funding it did so.
It may be politically incorrect to note these kinds of gender differences, but they are obvious to aid workers and national leaders alike. Botswana has been one of the fastest-growing countries in the world for decades, and its former president, Festus Mogae, was widely regarded as one of Africa’s most able leaders. He laughed when we suggested delicately that women in Africa typically work harder and handled money more wisely than men, and he responded:
You couldn’t be more right. Women do work better. Banks were the first to see that and hired more women, and now everybody does. In homes, too, women manage affairs better than men. In the Botswanan civil service, women are taking over. Half of the government sector is now women. The governor of the central bank, the attorney general, the chief of protocol, the director of public prosecution—they are all women…. Women perform better in Africa, much better. We see that in Botswana. And their profiles are different. Deferred consumption is higher among girls, and they buy durables and have higher savings rates. Men are more consumption oriented.
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