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PROMUJER: Opportunities and Challenges

PROMUJER

Opportunities and challenges in FI

The Seventh Annual Student Forum 2015

Financial Inclusion: A Catalyst for Development

Ekaterina TelekhovaZainab Alwami


Table of Contents

Introduction....................................................................................................................................3

Opportunities..................................................................................................................................4

Challenges........................................................................................................................................6

Conclusion........................................................................................................................................8

Bibliography....................................................................................................................................9


Introduction

Accessing financial services for individual or business reasons can be difficult, especially

if the person has no credit history, does not have home insurance, or does not have an account

with a credible, regulated bank. Being unable to access credit and being financially excluded

from financial services can perpetuate a cycle of poverty. A person may be unable to save up to

start his or her own business, and are therefore stuck working at a low-wage job, typically in

the informal sector. Despite the seeming disparity of people in this situation, there is some

financial hope. A service called Pro Mujer was created with impoverished women in South

American in mind. Pro Mujer offers loans to women working in the informal sector who are in a

financial crisis, but these loans are slightly less traditional than what a bank offers. Clients join

a communal bank made up of about twenty women who work together to ensure that

everybody in the group is able to pay back their loans for the month. If a woman in unable to

pay, the rest of the group will make the payment. Every two weeks, the group meets to discuss

the business loans, business plans, to support each other, and to learn to trust each other.

Currently, Pro Mujer operates over 26,000 communal banks.


OpportunitiesThe opportunities for women receiving loans are tremendous. Financial inclusion provides

many opportunities for clients such as financial education, product range, technology-enhanced

delivery channels, and credit protection (Gardeva & Rhyne, 2011, p. 7). Without financial inclusion

from credible banks, people are forced to borrow from unregulated credit companies from the

informal sector. While there are many benefits to informal credit banking systems, repayment rates

and lending rates are generally higher. Further, there is no formal documentation or records of

clients (Srinivas, n.d.). Therefore, clients do not build a credit history, which can impede them from

borrowing more in the future.

Clients can receive major financial education from financial inclusion from credible banks.

Gardeva and Rhyne (2011) describe financial education as “one of the best ways of empowering the

working poor…to take control over their financial lives” (p. 9). Education protects client from being

taken advantage of, and it prevents over-borrowing because credit lending is regulated. Clients

learn how to manage their loan. Clients will have a lower chance of being unable to manage their

money properly or being unable to pay. Women who participate in the program develop a strategy

with the help of credit officer who determines the amount, which is usually $100. Then, the women

meet every two weeks to participate in capacity-building programs given by Pro Mujer’s credit

officers and make payments toward their loans. If one of the women is unable to pay her loan for

the month, the rest of the group will provide the money. They work as a communal group and rely

heavily on each other. Additionally, financial education means that clients can learn about financial

products and services that are available. Often times, clients do not approach financial institutions

because they do not know what is available (Gardeva & Rhyne, 2011, p. 11).


Another opportunity for financial inclusion is the strengthening of the community’s financial

infrastructure for electronic and mobile banking. These banking methods will reach more people,

especially the previously unbanked and low-income earners (Gardeva & Rhyne, 2011, p. 11). Many

low-wage earners are suspicious of formal banks. However, that is generally due to lack of

knowledge about it. When more services are available, these people become more educated and

more likely to try to take advantage of the services. Although some traditional banks will reject low-

income earners who apply for credit, it allows for organizations like Pro Mujer to take the place of

traditional banks and offer their credit services. The women who have received credit services from

this credible source need a bank account. Therefore, they will have access to electronic and mobile

banking, which will make banking easier and more affordable. Branching costs are higher in rural

areas because of lack of infrastructure such as poor roads and electricity. Mobile banking will

become cheaper for people because they can by-pass these higher costs.

Lastly, people who want to open a small business with the backing of a bank loan become

more financially stable, can expand their business, make more money, and hire other people. When

more people are hired, the more dispensable income they have, which can generate more spending

in other businesses. A stronger economy develops as a result. As people have more income, their

need to have proper banking system increases. A demand for electronic and mobile banking will

also increase. “Nations whose citizens have broader and deeper access to financial services tend to

grow faster and [are] more equal.”


Challenges As we may observe financial inclusions are of great importance for today’s world. Due

to the past activity of microfinance establishments some of the countries of Latin America were

helped to alleviate poverty, but at the same time in countries like Bolivia Pro Mujer hasn’t been

as successful. That brings to our attention some of the challenges that Pro Mujer might face.

Let’s look at some of them.

All around the world microfinance organizations face the problem of observing the

demand for microfinance help. What we mean by that is that it is not right to measure the

demand by the number of people that are in need. It may seem odd first but many poor

people in Latin America and in other countries simply don’t need these loans. The interesting

fact is that the most women participating in the program are not “microenterpreneurs” by

choice. Most of them would rather take any other jobs with wages they could live at if they

only were in their economy.“We should not romanticize the idea of the “poor as

entrepreneurs.” The International Labor Organization uses a more appropriate term for these

people: “own-account workers.”

We believe that the most efficient way to take people out of poverty is to create work

employment opportunities, which is, then result in the economic growth.

Other areas or people’s lives need loans more such as medicine, education, roads, markets,

and other institutions. “Effective local industrial policiesand ‘pro-development’ local financial

institutions are now urgently required in Latin America to build genuinely sustainable and

equitable solidarity-driven local economies from the bottom up.”

Some of the economist see this new concept of microfinance as “ ‘anti-development’

intervention, an intervention that unintentionally, but nevertheless programmatically, weakens

and ultimately destroys a local economic space”. In one of the studies of microcredit it was

PROMUJER: Opportunities and Challengesobserved that these loans that Pro Mujer offers are much more beneficial for women

that live above the poverty line rather than under poverty line. One of the reasons of that is

that

households with more income are determined to take more risks when investing that brings

benefits to the overall population by increasing income flow and employing more people. “Poor

borrowers, on the other hand, tend to take out conservative loans that protect their

subsistence, and rarely invest in new technology, fixed capital, or the hiring of labor”.

Another issue with microloans is that the women who take these loans are entrepreneurs in

actual sense. Everybody knows that being an entrepreneur is not as simple and beautiful as it

first sounds. It requires lots of hard work, passion, determination and of course special skills.

Unfortunately, not all of the Pro Mujer candidates have that because they lack education. Thus

a good number of them don’t succeed and are not able to pay their loans.

The next problem that Pro Mujer may encounter is growing competition for this

loans since almost all women regarding their financial status and background can take loans.

“The reality of microcredit is less attractive than the promise.Even a stalwart proponent of

neoliberal policies like The Economist is beginning to conclude that “the few studies that have

been done suggest that small loans are beneficial, but not dramatically so.


Conclusion

In our research project e have looked at the opportunities and challenges of Pro Mujer

organization. They provide not only financial help but also heath and human services, which

make them stand out from other microfinance organizations. Even though it has it challenges

and barriers we can still consider it as very important help to the majority of Latin American

women.

These women are trapped in a vicious cycle, which is transmitted from one generation to

another, and Pro Mujer helps them to fight it.


Bibliography

1. MICROFINANCE: BROADER ACHIEVEMENTS AND NEW CHALLENGES. (n.d.). Retrieved March 14, 2015, from http://www.redcamif.org/uploads/tx_rtgfiles/27mf-broad3.pdf

2. MICROFINANCE: BROADER ACHIEVEMENTS AND NEW CHALLENGES. (n.d.). Retrieved March 14, 2015, from http://www.networkideas.org/focus/sep2013/Microfinance.pdf

3. Microfinance Misses Its Mark (SSIR). (n.d.). Retrieved March 15, 2015, from http://www.ssireview.org/articles/entry/microfinance_misses_its_mark/

4. Pro MujerCreating Opportunities, Empowering Women. (n.d.). Retrieved March 15, 2015, from http://promujer.org/what-we-do/financial-services/

5. Comparing Formal and Informal Financial Sectors. (n.d.). Retrieved March 15, 2015, from http://www.gdrc.org/icm/formal-informal.html

http://www.gdrc.org/icm/formal-informal.html

http://www.networkideas.org/focus/sep2013/Microfinance.pdf

http://www.redcamif.org/uploads/tx_rtgfiles/27mf-broad3.pdf

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