Women and Informal Credit: Lessons from Moretele, South Africa M
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Journal of International Women's Studies Volume 8 | Issue 4 Article 9 May-2007 Women and Informal Credit: Lessons From Moretele, South Africa M. Kongolo Follow this and additional works at: http://vc.bridgew.edu/jiws Part of the Women's Studies Commons Recommended Citation Kongolo, M. (2007). Women and Informal Credit: Lessons From Moretele, South Africa. Journal of International Women's Studies, 8(4), 121-132. Available at: http://vc.bridgew.edu/jiws/vol8/iss4/9 This item is available as part of Virtual Commons, the open-access institutional repository of Bridgewater State University, Bridgewater, Massachusetts. This journal and its contents may be used for research, teaching and private study purposes. Any substantial or systematic reproduction, re-distribution, re-selling, loan or sub-licensing, systematic supply or distribution in any form to anyone is expressly forbidden. ©2007 Journal of International Women’s Studies. Women and Informal Credit: Lessons From Moretele, South Africa By Kongolo M1 Abstract Informal credit plays an important role in the development of rural and urban areas in South Africa. It is about giving the disadvantaged poor people and women access to needed financial services to increase their earning opportunities, to meet their needs and to deal with emergencies. The findings suggest that informal credit impacts positively on the lives of the majority of women in the study area, to the extent of enabling them to become self-employed through self-chosen economic activities. It has also assisted them both in accumulating resources and protecting them from further lack of incomes in times of stress. Keywords: Informal credit, women development, poverty alleviation, self-employment. Introduction About 80% of women live in South Africa‟s developing areas. Almost 64% of them are farming, providing about 70% of labour. The work of women farmers is essential for food security in South Africa. The majority of these women are unpaid family workers, working at least 14 to17 hours a day, spending about 50% of their time on agricultural and about 25% on domestic related activities. The majority of women in South Africa‟s developing areas still have no access to formal credit, subsidies and inputs (McIntosh & Friedman,1989), and this is a serious obstacle to agricultural and rural development (UNIFEM, 2005). These women produce almost half of food consumed in these areas, while at the same time are excluded from the formal credit system (Hunger Project,1999). As a result, they have turned to informal credit system for assistance. Informal credit provides them with needed financial assistance to pursue their development goals. Various studies by Sun Xifang (2006), Isaksson (2002), and Mauri (2000) bear witness of vitality of informal credit in alleviating large-scale poverty. Informal credit is part of the economy in which financial transactions that take place are not officially regulated or monitored; however, it should not be dismissed as unimportant system (Isaksson, 2000). This study combines the data on informal credit and saving associations to investigate their contributions to social and economic conditions of women in the study area. The main purpose of this study was to document the nature, advantages and disadvantages of the various informal credit used by the participants (women households) who combine agricultural and non-agricultural activities in rural and semi-rural areas, with the view to assess their impact in changing women‟s living conditions. Statement of the problem There is a general understanding that the informal credit system plays a vital role in the lives of the poor who have no access to formal finance in promoting their socio-economic development. A well organized informal credit system can assist the poor and marginalized people to access needed finance (Rutherford, 2001). It also facilitates the process of job creation in which some will become self – employed entrepreneurs while others involved in other related activities (Thomas, 1992). The 1 University of the Western Cape, Department of Economics, Bellville, South Africa Journal of International Women‟s Studies Vol. 8 #4 May 2007 121 main reason for the emergence of informal credit has been the unwillingness of the formal financial sector to service some relatively risky categories of borrowers, namely women other disadvantaged poor group of people. Such a risky situation often stem from the difficulty of obtaining reliable information on the borrowers (Bolnick, 1992). Since women have fewer alternatives for borrowing, they have been more vulnerable but good candidates for informal credit. Informal credits have been especially important for women and households headed by women, who often have difficulty in getting credit (World Bank, 2001). A collage of informal credit and deposit arrangements has increasingly attracted numerous rural and urban poor who combine economic activities with urban occupations in many developing countries (Adams, 1992). A significant literature documenting the relevance of informal credit in developing countries is given by Paulson (2000), Cox and Jiminez (1998), Ravallion and Dearden (1988), Zeller (1994), Lukhele (1990), Moodley (1995) and the World Bank (2001). An impressive example of innovative informal credit is given by the Grameen Bank of Muhammad Yunus, the winning of the 2006 Nobel Peace Prize. In its approach to service the poor, the Grameen Bank has reversed conventional banking practice by removing the need for collateral and created a banking system based on mutual trust, accountability, participation and creativity. It provides credit to the poorest of the poor in rural Bangladesh, without any collateral. At Grameen Bank, credit is a cost effective weapon to fight poverty and it serves as a catalyst in the over all development of socio-economic conditions of the poor who have been kept outside the formal banking orbit on the ground that they are poor and hence not bankable. If financial resources can be made available to the poor people on terms and conditions that are appropriate and reasonable, “these millions of small people with their millions of small pursuits can add up to create the biggest development wonder”. Out of its 6.74 million borrowers in 2006, women are in the majority accounting for 97% (e- Newsletter, 2006). While the 2006 Nobel Peace Prize was given to the Founders of the Grameen Bank for their role in poverty eradication, the Innovative Solutions to Global Poverty (UNITAS) received the 2007 Social Capitalist Award for the second consecutive year in recognition for reducing poverty by accelerating growth of the informal credit industry. Unitas has been transforming the lives of poor people around the world by increasing their access to informal credit products such as loans, savings plans and insurance. It brings life-changing loans and opportunity of increased access to informal credit to poor people in countries such as Kenya, Mexico, Argentine and the Philippines. Using a combination of capital assistance and technical support, Unitas has helped its partners to grow eight times faster than their peers and enabled them to collectively serve an additional 800 000 clients (e- Newsletter, 2006). Ujjivan is another good example of organization that has broken the mold on informal credit in India. Initiated by one woman, Ujjivan makes profit by diversifying her product offerings in the local market. She specifically targets India‟s urban poor women, a chronically underserved group of people, to match both employed and unemployed women‟s actual use of informal credit for their needs. Her approach contrasts the traditional thinking by many that informal credit organizations have almost always targeted the rural poor. In fact, estimates suggest that over 90% of informal credit clients in developing nations are from rural areas. Many believe that the group-collateralized lending methodology wouldn‟t work outside of tight–knit rural communities (e-Newsletter, 2006). Despite the variety of informal credit, all these forms take on some significant features in common: informal financial transactions are partly separated from the formal credit system, the interest rates charged by informal credit are often higher than formal credit system, financial contracts are enforced through some local mechanisms instead of courts, and collateral does not matter (Xifang, 2006). Journal of International Women‟s Studies Vol. 8 #4 May 2007 122 In South Africa, experience has shown that the conventional banks are still reluctant to provide credit to women and other group of poor people without a proof of collateral. Any small loans they are willing to provide will by virtue of their smallness be expensive to appraise and administer (Mosley & Dahal, 1985). The changes in economic development principles have resulted in a clear shift away from interventionist planning towards the neo-classical market-oriented view of the development process and policy (Cook & Kirkpatrick, 1988). For many years, South African financial institutions have expressed their unwillingness to service the needs of the poor in loans, credits and grants as this group constitutes a risky group of people (Zafar, 2001). This decision was also aggravated by the relatively disadvantaged position of women and other disadvantaged people, which obviously restricted the financial institutions‟ activities to those requiring little investment and skills (Robinson, 2005; Todaro & Smith, 2003). The marginality and limited range