Blockchain Technology: Protecting Women From Microloan Abuse
Introduction
The gender gap exists in different aspects of the economy, the labor market, housing market, education, and wealth are only some examples. The financial exclusion of women has also contributed to the gender gap that has developed over time between men and women. Cultural and societal expectations of women have set them as inferior to men, made them feel unworthy or undeserving of financial independence, and even argued that the financial inclusion of women was unnecessary and irrelevant in many geographical regions. In many areas of the world, those thoughts are now outdated, and women are having to live with the aftermath of such ideologies. But, there are still women who face this discrimination because, in the eyes of society, they still hold an “inferior” status relative to men. They are denied the right to work, have their source of income or assets, and have limited access to the financial sector. “The normal way of the flow of money is routed through banking system… [individuals are] financially included with the operation of saving account, current account or loan account with banks;” (Kumar P. , 2019) by not allowing women to access the banking system, women are systemically financially excluded.
Figure 1 : Demirguc-Kunt and Klapper 2012
Figure 1 represents the percentage of populations around the world that have bank accounts, further divided by gender. The graph shows that in developing nations, less than 60% of the population have bank accounts and women own fewer bank accounts than men. That remains the case in “high-income economies” as well. The idea of micro-loans was created to grant marginalized communities in low-income countries better access to loans and the opportunity to become entrepreneurs and better their lives. According to the World Bank, micro-financing businesses later started prioritizing women for a couple of reasons, as discussed in the literature review.
The main research question is: “To what extent can blockchain technology help bring equality and financial inclusion for women around the world?” A study by Christian Hugo Hoffmann discusses the possible impact blockchain technology can have on short-term loans in retail banking. The World Bank and the IMF have been attempting to apply that study to micro-finance loans in the developing world. If there was a technology that guaranteed that women would not be used or exploited for the loans they can get approved for, how would that impact women’s financial inclusion?
Literature Review
Firstly, women were more likely than men to actually use the money as capital expenditure for a start-up business, and hence generate income from it. Secondly, it was found that women were more likely to pay back the loan promptly.
Previous studies on the topic of microfinance repayments can generally be divided into 2 broad categories. The first category for research suggests that successful (or high) repayment of microfinance loans is due to mechanisms embedded into the microfinance loan contract, such as joint liability. Theoretical research such as Stiglitz, 1990; Varian, 1990; Ghatak, 1999 and 2000; and Ghatak and Guinnane, 1999; argue that concerns like moral hazards that are evident in rural areas. The main idea is that when a group of people borrow a loan together, theoretically, peers will want to borrow with someone trustworthy (increase peer screening) and will hold each other accountable for servicing the debt (increase peer monitoring). It is important to note that theory and practice are different. In practice, joint liability could reinforce moral hazard issues since some may choose to “free ride” on a loan that a worthy applicant is interested in which will have negative impacts on microloan repayments. “Thus, it is not surprising to find inconclusive evidence in empirical and experimental studies regarding the impact of joint liability on loan repayment rates.” (Chakravarty, Iqbal, & Shariar, 2013)
The second group of literature focuses on the socio-economic and demographic aspects that influence or shape a borrower’s ability to pay back the microloan. Sharma and Zeller (1997) researched Bangladesh and focused on the familial background of microloan borrowers. They found that borrowers who have a relatively wealthy family are more likely to pay back the microloan. Other research like Bangladesh, Khandker, Khalily, and Khan (2005) focused on the infrastructure of countries and found that higher access to roads and electricity decreased the likelihood of default. There has even been a connection found between the rate of default on microloans and the development of the financial sector in a given country (Ahlin, Lin & Maio, 2011). It is however worth noting that while controlling for loan type and other relevant factors, research as early as 1988 found that women microloan-borrowers have lower default rates and better repayment performance when compared to men. Anecdotal explanations in literature tend to understand why that is the case.
One anecdotal explanation is that women tend to have fewer chances to get microloans, for a variety of different reasons, so women work harder to become better applicants. Once accepted, women put more effort into the success of their investment, and are likely to be more conservative with it (Todd 1996 and Ameen 2004). Other anecdotal explanations, however, argue that it could just be in women’s nature to be more trustworthy biologically and psychologically; a paper by Chakravarty, Iqbal, & Shariar used empirical evidence to argue that this is the case. Since women have biologically evolved to be more trustworthy and more risk averse, it could be nature that is driving the difference in microloan repayments between genders.
According to a study by D’Espallier, Guerin & Mersland, (2011), institutions that have higher proportions of female borrowers also have lower risk levels. Kerstetter argues, however, that higher payment rates do not correlate to better economic and social standing for women. Even though women have better credit risks and are often the target for many microloan institutions, these loans are not guaranteed to help women raise their social standing. Culture and society play a role in enforcing lags and hindering women’s progress. Chowdhury and Mukhopadhaya (2014) argue that “women are still disadvantaged in comparison to men in efficiency, core need fulfillment, and social and economic functioning”. Kar (2018) shadowed micro-loan officers in India and found that even though women were the borrowers of the loan, it was likely men who used the money or ran the business. There has been limited literature on the true socio-economic impact of micro-loans on women, but it can be hypothesized that when men do not allow women to use their micro-loans to build a business and learn important life-long skills in doing so, this hinders the potential of micro-loans in having a substantive impact on a woman’s life.
Some empirical research has also assessed the difference between microfinance participants and non-participants in the intrinsic, instrumental, and collective agency of women. According to Brody et al. 2015, there is little difference between participants and non-participants of microfinance about the intrinsic agency of women, like self-confidence or views about violence against women. According to the same paper, there have been positive impacts on the instrumental agency of women, for example, the ability to access birth control, freedom of movement, and financial decisions. The paper also assessed collective agency and found a positive correlation between micro-finance and collective agency of women, like political connectedness and town meetings.
Microloan-related Violence Against Women
The previous literature discussed above has been to argue that women are better credit risks and that is why they are prioritized by microloan issuers. In addition, women need disproportionate attention and financial support because of the years they have spent being alienated from the financial sector (Kumar, Narain, & Rubbani, 2015). However, a new problem was unveiled men were beginning to force women to take out micro-loans and give the money to the men instead of using it to invest in themselves. Considering the idea that “women are “naturally” better credit risks than men in microcredit” (Chakravarty, Iqbal, & Shahriar, 2013), undermining women’s opportunities to become financially independent and reinforces the gender gap.
There have been reports by the World Bank and the United Nations that discuss the violence against women that has begun by men in their lives to exploit women. There has been a rise in the number of microloans taken out by women and then given to a husband, a father, a brother, or any other male relative. The application of economic research to this topic has produced mixed results. For example, a paper by Yount et al. found microfinance tends to help women’s agency without sacrificing their health. There were non-significant effects on depressive outcomes and forms of IPV and significant effects in different dimensions of agency. Microfinance participants became more confident and their voice and mobility became more noticeable and impactful; intrinsic agency. It also had significant impacts on women’s collective agency, and their ability to group and influence their communities. However, there was no impact on the agency's awareness of women’s rights.
On the other hand, a paper by Alvin Christian found that domestic violence in the context of microfinance loans is significantly prevalent in Bangladesh. “Microfinance participation [is] strongly associated with domestic violence, particularly among higher income and educated women” (Christian, 2015). The paper also finds that this violence is particularly prevalent with mothers and sisters, so it can be categorized as domestic violence.
I believe the reason the results between these two papers were different is because the questions they asked had slightly different approaches. Yount et al. ‘s approach with the questions focused on changes in behavior asking questions like “Has your partner hurt you more since you’ve received the microloan?” this could have had inaccurate results because it assumes no violence before the microloan, which is not a fair and accurate assumption to make. On the other hand, the approach taken by Hoffmann was different and tried to understand the nature of domestic violence patterns in Bangladesh first to create a “base” of violence that does not assume no violence at all. An example question asked, “Were there any disagreements which caused [your] husband to do the following: slapping you or twisting your arm?” (Christian, 2015). Nevertheless, asking specific questions about domestic violence is never easy or entirely accurate because victims could be ashamed, or afraid to get in trouble (fearing for their life).
Recently, there has been discussion about the potential for blockchain technology to help underserved communities in general. According to Zwitter and Boisse-Despiaux, Blockchain is helping redefine ownership and security, and it making it more difficult for money, ownership proof, and intellectual property to be stolen, empowering communities that have constantly been overlooked and underserved.
According to a report released by the Global Blockchain Business Council, blockchain technology can help empower women and girls, especially in the financial sector. Using a project in Mexico as an example, “the Expanding Rural Finance Project … has provided the PFIs with over $123 million US D, which has generated 80,000 loans, 84 percent of which have gone to women” (GBBC, 2021). In this project, they used newly developed blockchain technology called Novi. This system used its payment system called Libra which also used their currency. This system was secure and reliable and made it possible for women to protect the loans that they received and make it impossible for anyone else to access the money. These technologies have the potential to enhance women’s safety and will support the physical and mental well-being of women while giving women the opportunities to strengthen their agency.
Conclusion
All in all, microloans are one way to attempt to help women regain what they have lost over time, especially regarding their attachment to the financial sector and their financial independence. Women have been the main target for microfinance loans in the developing south because they have been disproportionately underserved and they are also better at credit risks than men. However, there has been an increase in the domestic violence faced by women from men, and have been forced to take a loan out and give it all to the man. This has subjected women to domestic violence, increasing credit risk, and stops them from gaining all the positive outcomes from microloans that women can experience. Blockchain technology has great potential in protecting the integrity of microloans received by women. Microloan agencies and issues should start to incorporate blockchain technology into their loans and finance systems, like Novi. However, blockchain is still very new, and “[m]oving forward will require: [w]ell-selected implementation choices, [c]lear ethics guidelines, and [c]ommon monitoring and evaluation frameworks” (Zwitter & Boisse-Despiaux, 2018). Designing apps and financial services that use blockchain is one of the most important and relevant solutions to this problem. But, this should also be accompanied by domestic violence support and protect provided by governments to women, as well as accessible physical and mental health care for victims.
Bibliography
Chakravarty, S., Iqbal, S., & Shariar, A. (2013, December). Are Women “Naturally” Better Credit Risks in Microcredit?
Christian, A. (2015). MICROFINANCE AS A DETERMINANT OF DOMESTIC VIOLENCE IN BANGLADESH: WHO IS AT RISK? IN BANGLADESH: WHO IS AT RISK? Ney York: City University of New York.
Demirguc-Kunt , A., & Klapper, L. (2012, April). World Bank. Retrieved from The Global Findex Database: Measuring FInancial Inclusion: https://deliverypdf.ssrn.com/delivery.php?ID=134094121066113087071074084089104120053087025040030006018015038023001037112054030115103100090080017079037017085078000118020088013090119067109090097100105101009069095008126024018094101081114&EXT=pdf&INDEX=TRUE
GBBC. (2021, January 8). Empowering Women and Girls through Blockchain. Retrieved from medium: https://medium.com/gbbc/empowering-women-and-girls-through-blockchain-c4c210f2521e
Kumar, A., Narain, S., & Rubbani, S. (2015). World Bank Lending for Financial Inclusion : Lessons from Reviews of Select Projects. Retrieved from World Bank Lending for Financial Inclusion : Lessons from Reviews of Select Projects.
Kumar, P. (2019). Financial Inclusion and Micro and Small Enterprises Growth.
Yount, K. M., Cheong, Y. F., Khan, Z., Miedema, S. S., & Naved, R. T. (2021). Women’s participation in microfinance: Effects on Women’s agency,. Elsevier.
Zwitter, A., & Boisse-Despiaux, M. (2018). Blockchain for humanitarian action and development aid. Journal of International Humanitarian Action.
