In the three decades since Muhammad Yunus came up with the idea of microloans for women to start businesses as a way of combating poverty in the world's poorest societies, it has attracted widespread support, and even earned Yunus and his Grameen Bank a Nobel Peace Prize in 2006.

There are now roughly 2,000 microfinance institutions around the globe, and, as of 2009, the last time a complete survey was attempted, an estimated 74 million borrowers had $38 billion of the tiny loans outstanding.

But microlending is becoming a victim of its own success. The big money that now flows into this niche has tended to transform microloans into more of a business enterprise than a social one—which, a recent study shows, shifts the focus away from the poor in general and women in particular.

"A lot more money is doing a lot less good," says Tyler Wry, an assistant professor of management at the University of Pennsylvania's Wharton School of Business, who conducted the study with Eric Yanfei Zhao, a doctoral fellow at the University of Alberta School of Business in Canada. They analyzed data from 1,800 microfinance institutions in 121 developing countries.

"There has been a strong pattern over time in many countries of these microloans moving away from targeting the poor, and from focusing on women," Wry says. This is problematic, because, he says, microfinance's original goal of lending to poor women is based on sound principles: women in impoverished societies are generally the most destitute of all, and giving them loans to start small businesses yields a substantial gain in family income and better outcomes for children.

Ironically, the more that developing countries try to create a business-friendly economic climate, the more challenging it can be for microfinance to maintain an emphasis on empowering women, the study shows. Patriarchy is a contributing factor, too.

The dynamic often plays out like so: A country becomes more open to foreign investment. This increases the funding that goes into microfinance, but also leads to more for-profit institutions and greater pressure to earn a return. Loans begin to creep up in size, and more of them go to borrowers who are not quite as risky as the very poorest are. "The extremely impoverished are being increasingly ignored," Wry says.

This dynamic works against women, based on what the study found. Zhao says the number of for-profit microfinance startups has exceeded the number of not-for-profit ones since 2005, and that the average loan size at the for-profits is nearly double that of the not-for-profits.

The trend toward for-profits and their larger loans corresponds with a tendency for money to flow to male borrowers for projects that don't benefit the neediest families—a pattern more pronounced in patriarchal societies, where outreach to women is all the more important.

Overall, 59 percent of borrowers at for-profits are women, versus 67 percent at not-for-profits, the study shows.

"Economic freedom significantly reduces lending to women," Zhao says.

The lesson for lenders is that they need to develop more effective strategies to contend with patriarchy and avoid drifting away from their mission, the two university researchers say.

One of the challenges is outreach to women. As lenders shift to a for-profit model, they tend not to hire women employees, particularly as loan officers, Zhao says. In societies where women are not supposed to be in contact with any men outside the family, it can be nigh impossible for a male employee of a microlender to approach a female, whether to discuss the opportunity to get a loan or to collect a loan payment.

Countries characterized by strong religious fundamentalism or patriarchy in the home and in the professional arena are among those with fewer microloans going to women, the study shows. Examples include India, Bangladesh and many spots in the Middle East. Zhao says women in these countries tend to have subordinate roles in the family.

Even so, Jonathan Morduch, a professor of public policy and economics at New York University who also studies microfinance, is reluctant to draw conclusions about factors like the gender of the loan officer.He agrees that in Bangladesh, for example, loan officers at microfinance institutions are "largely male" while customers are "largely female." But he questions how much of an impact that has on lending there.

"Would there be more outreach with more female loan officers? Maybe, but I don't know of any evidence on that," says Morduch, who is also managing director of the Financial Access Initiative, a consortium of researchers focused on financial inclusion.Morduch's own research on the impact of microlending going for-profit indicates that "regulation pushes commercial players away from women." But not so for nonprofits.

He says one way to encourage more lending to women would be "judicious use" of a subsidy or cross-subsidy approach, to prop up the less profitable lending—a perspective similar to that of Wry and Zhao's.

Joshua Cramer Montes, a spokesman for Pro Mujer, a nonprofit that has been providing microloans to women in Latin America for decades, says almost all of its borrowers are female, so it has not suffered from mission creep. "It would be difficult," he says, "given that our organization's name means 'for women!'"

Montes says it is true, however, that microlenders can feel pressure to shift loans to men and to offer larger loans, which are more cost effective to service. "Even not-for-profits can get sidetracked, when they have to try to raise money," he says.

Microlending has attracted controversy in other areas, too. In December 2010, the prime minister of Bangladesh, Sheik Hasina Wazed, denounced microlenders in that country—a cradle of the microlending movement—for allegedly "sucking blood from the poor in the name of poverty elimination." There has also been criticism in India, where there was a rash of suicides over lender repayment demands, and in Nicaragua and Bolivia, where there were even calls for borrowers to refuse to repay their loans.

"People had assumed that this would inherently be a 'win-win' thing, and under certain conditions that can hold true, but in many situations it cannot," Wry says. "The bloom is definitely off the microfinance loans."

Wry, who aims to elevate the analysis of microfinance by looking beyond a single country or case and focusing on more than just the economic impact for the borrowers, says he hopes microfinance institutions will rethink the mechanics of how they do business, particularly when it comes to trying to profit on the loans.

His conclusion: "There has to be a subsidy and charitable approach to microlending, and that has been marginalized, which can be dangerous. It's great if you can fund borrowers where the market and the social conditions pull together, but you can't lose sight of the situations where they don't."


Dave Lindorff is a freelancer. He is based in Philadelphia.

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