Global Conference on Business and Finance Proceedings Volume 7 Number 1

2012

CAPITALIZING WOMENS HUMAN RESOURCES THROUGH MICROENTERPRISE DEVELOPMENT IN RURAL AREAS: ROLE OF MICROFINANCE
Poornima Gayangani Wasana Jayawardana, Ritsumeikan Asia Pacific University ABSTRACT Microfinance is closely associated with microenterprises due to its ability to eliminate one of the greatest obstacles of access to capital. However, its effectiveness in microenterprise development remains questionable. This study attempts to shed some light on this by assessing the role of the largest microfinance provider in Sri Lanka in microenterprise development among rural women, with a qualitative case study. The study reveals that mishandling of loans has largely limited the program effectiveness in promoting female microenterprises. This is mainly due to the lack of proper monitoring even with the availability of other supporting services. Thus, field officers role in effective monitoring of credit disbursement and utilization is essential for actively promoting microenterprises among these rural women through the program. INTRODUCTION Microenterprise development through microfinance has been emerged as a major strategy for integrating women into the overall economic development process in many developing countries. Microenterprises mainly focus on developing and utilizing the entrepreneurial skills and potential of rural women below the poverty line (Kaushik & Rengarajan, 2010). Microfinance programs have been recognized as an effective mechanism for bringing equal opportunity for women by providing capital through repayment technologies. Thus, microenterprises are generally perceived as very small businesses owned by the self employed poor that usually do not have access to the commercial banking sector and use microfinance (Leon & Schreiner, 2001; Jones, 2004). Despite the wide recognition given to the microfinance in promoting microenterprises, studies have offered contradictory findings on its effectiveness. This study seeks to provide an insight into this issue by assessing the role of Samurdhi program in Sri Lanka in promoting microenterprises among rural women in the country. Samurdhi or prosperity in local language is the largest microfinance provider in Sri Lanka. It was launched in 1995 by the government as a poverty alleviation program with total country coverage, where a large percentage of poor families as members of Samurdhi Banking Societies (SBSs) that facilitate community based lending. The program consisted of three main components of provision of consumption grants, provision of savings and credit facilities that provides microfinance services, and community development programs. These three components are operated as integrated support activities. The Samurdhi program has extensive coverage in rural areas, and the majority of the program participants are women (Gant et al, 2002). The main objective of the program is to ensure beneficiary participation in the production process by increasing access to resources for self employment. This study was conducted in Ihala Koswaththa village with a population of approximately 2500 in 2010. The village is situated in Kurunegala District of North Western Province in Sri Lanka. The study relies on the female microfinance clients of the study village to reflect and assess to what extent access to
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microfinance services through the Samurdhi program has contributed to develop microenterprises among them. LITERATURE REVIEW There is no single definition of microenterprise as it varies depending on the context. Munoz (2010) comprehensively defines microenterprise as: A very small enterprise that is typically owner operated and participated by marginalized segments that sell a product or service through entrepreneurial methodologies and utilizing diverse organizational forms. It operates under flexible arrangements and locations to manage entry barriers and capital constraints, in order to respond to market trends and customer requirements to achieve profitability and business growth. (p.3) Microenterprise development projects are primarily designed to serve four objectives of poverty reduction, empowerment of women, employment generation, and enterprise development as an end in itself. Most projects combine first two or three as their explicit objectives (Jalal, 1997). Access to finance has been a major obstacle faced by microenterprises along with lack of support, market access and geographic constraints, lack of infrastructure, growth and expansion challenges, lack of market intelligence, poor business expertise, and lack of management skills. Hence, successful microenterprise development requires both financial and nonfinancial services (Goldmark, 2001). In this context, microfinance has been identified as an effective mechanism in providing financial services on a sustainable basis to poor who are outside the scope of financial markets by providing needed opportunity for starting up or expanding microenterprises. In addition to the financial services, microfinance often includes social intermediation and thus considered as the most effectual means for promoting female entrepreneurship (Ledgerwood, 2001; Churchill & Frankiewicz, 2006; Fayolle, 2007). The basic theory in microfinance assumes that increasing womens access to financial services empowers them by putting capital in their hands, enabling them to increase their income through microenterprises and contribute financially to their households and communities. This economic empowerment is expected to produce increased self esteem, respect, and other forms of empowerment for microfinance women beneficiaries (Cheston & Kuhn, 2002, Mayoux, 2002). METHODOLOGY The study is qualitative in nature and data were gathered conducting fieldwork in Ihala Koswaththa village during September 2007 and 2010, through in depth interviews with individual Samurdhi program beneficiaries, small groups, Samurdhi field officers, village officer, and informal interviews, and observations made by visiting beneficiary households, weekly Samurdhi group meetings and monthly meetings of Samurdhi societies during the fieldwork. The respondents were selected through purposive sampling by selecting information rich cases on the basis of theoretical saturation (Guest et al, 2006), and interviews of Samurdhi microfinance clients were conducted with the married middle aged poor women who are also Samurdhi consumption grant recipients in the village.

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FINDINGS AND DISCUSSIONS The Samurdhi program has been primarily targeting women in Ihala Koswaththa for providing loans for microenterprises. According to the Samurdhi field officers, female recipients of Samurdhi in Ihala Koswaththa have been actively participating in the program and related activities. Figure 1: Samurdhi Microenterprise Development Approach through Microfinance

Source: Compiled by the Author

Based on the group lending methodology, the program has encouraged women to form groups of five members having some already established connection and mutual understanding. The borrowers from groups guarantee one anothers loan repayments. The Samurdhi field staff highlighted that they assess the feasibility of the projects, and conduct field checks before approving group members loan applications. Furthermore, they monitor the progress and grant loan money at different stages of the projects. The village women who already owned microenterprises or had plans for undertaking income generating activities had obtained loans referring to those activities. In addition to the loan facilities, the program had provided various credit plus services including entrepreneurial skills training development of women in the village. The training component had assisted women to acquire new skills and identify avenues for starting microenterprises so that they were able to apply for loans. The program initially grants small loans for women and gradually encourages them to obtain larger loans through the expansion of their microenterprises. Microfinance though Samurdhi program has also provided insurance facilities for these women in the event of project failures due to various reasons such as death and natural disasters. The importance of providing nonfinancial services along with the loans has been highlighted for effective development of microenterprises through microfinance. The enterprise credit without consumption credit or safety net is considered ineffective in developing entrepreneurship (Jalal, 1997). Although Samurdhi
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program meet these criteria by combining financial services with nonfinancial services and a safety net component, the program role in promoting active entrepreneurship among women in Ihala Koswaththa village has been limited mainly due to the diversion of loan utilization for other purposes. Majority of the women interviewed in Ihala Koswaththa village had obtained loans through the Samurdhi program by indicating in the loan application that the money would be invested in microenterprise. This is consistent with the main objective of the program. However, according to interviews with recipients the loans had often not been used for the stated purposes, but instead for other purposes such as housing, family welfare, and repayment of other loans. Majority of the beneficiaries revealed that it was their initial intention even at the time of making the loan application. There were only few beneficiaries who had plans for investing in microenterprises when applied for the loans, but later had to prioritize their needs and spend the loan money on other purposes. Discussions with the field staff highlighted that women somehow tend to manage their repayments on time without investing credit on microenterprises in the absence of rigorous follow up and monitoring. Given that, all of the women who were interviewed had managed the loan repayments on time, with the income from their existing livelihood activities, with the help of their husbands, or in extreme cases with constant loans from neighbors and moneylenders despite the fact that loan money had not been invested in any income generating activities. The women under the study revealed that, in most cases, the field staff neither visited them before granting the loans nor monitored their progress unless they had been given a considerably large sum of money, giving opportunity for women to deceive the officers and misuse the obtained loans. This has largely contributed to the ineffective use of Samurdhi microfinance services in promoting microenterprises among these women. All of the women interviewed in Ihala Koswaththa possessed different skills, and had received various trainings under the Samurdhi credit plus service that could have been utilized for income generating activities. However, not all of the women had an entrepreneurial spirit or faith in starting or expanding their microenterprises. Women in the village highlighted various reasons behind this such as infrastructure constraints, limited market access, limited access to information, risk averseness, insufficient funds through loans for initiating projects, lack of commitment and discipline in continuation, lack of enabling household environment, and the traditional negative perception towards indebtedness in Sri Lankan society. CONCLUSION The findings highlight the limited capacity of Samurdhi microfinance services in promoting microenterprises among women in the study area largely due to the diversion of loan utilization for other purposes in the absence of proper monitoring, though the necessary nonfinancial supporting services are already in place with the financial services. The field staff role is vital in ensuring close monitoring of credit disbursement and utilization while approving enterprise loans only for viable economic activities. It should be ensured that repayments are made through business revenues enabling the primary objective of the program is satisfied. Along with that, program should adequately upgrade existing credit plus services to deal with the other issues and foster womens confidence in entrepreneurship for actively promoting microenterprises, and thereby capitalizing womens human resources that will ultimately enhance the life and economy of rural society.

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REFERENCES Cheston, S. & Kuhn, L. (2002). Empowering Women through Microfinance, in S. Daley Harris (eds). Pathways Out of Poverty: Innovations in Microfinance for the Poorest Families, Bloomfield, Connecticut: Kumarian Press. Churchill, C., & Frankiewicz, C. (2006). Making Micorfinance Work: Managing for Improved Performance. Geneva: International Labor Office (ILO). Fayolle, A. (2007). Handbook of Research in Entrepreneurship Education: Contextual Perspectives. Edward Elgar Publishing. Gant, R., de Silva, D., Atapattu, A., & Durrant, S. (2002). National Microfinance Study of Sri Lanka: Survey of Practices and Policies. Colombo: AusAID & GTZ. Guest, G., Bunce, A., & Johnson, L. (2006). How Many Interviews are Enough? An Experiment with Data Saturation and Variability. Field Methods, 18(1), 59-82. Goldmark, L. (2001). Microenterprise Development in Latin America: Towards a New Flexibility. Journal of Socioeconomics, 30: 145-149. Jalal, K.F. (1997). Microenterprise Development: Not by Credit Alone. Asian Development Bank (ADB). Jones. S. R. (2004). Legal Guide to Microenterprise Development. American Bar Association. Kaushik, S.K. & Rengarajan, V. (2010). Microfinance and Womens Empowerment. Serials Publications. Ledgerwood, J. (2001). Microfinance Handbook: An Institutional and Financial Perspective. Washington: The World Bank Publications. Mayoux, L. (2002). Womens Empowerment Versus Sustainability? Towards a New Paradigm in Microfinance Programs. In B.Lemire, R.Pearson & G.Campbell, (eds)., Women and Credit: Researching the Past and Refiguring the Future, pp.245-269. New York: Berg Publisher. Munoz, J.M. (2010). Contemporary Microenterprise: Concepts and Cases. Edward Elgar Publishing. Schreiner, M. & Leon, J. (2002). Microfinance for Microenterprise: A Source Book for Donors. Savings and Development 26.

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