Impact of Microfinance Programs on Children’s Education

This article highlights the effects particular features of microfinance programs have on childhood education. Using data from a South India household survey, the article examines how microfinance impacts schooling and literacy, how credit enters the household, and who brings it in. Regression results show that, in the case of direct bank-borrower credit delivery, it does not matter whether credit enters the household through the mother or the father. However, large differences occur when mothers obtain credit through women's groups. Analysis indicates that combined financial and social-group intermediation leads to higher educational inputs and outputs, mainly for girls. Individual interviewis with borrowers and interviews with women's groups suggest that changes in underlying allocative rules that are provoked by group membership could be explanatory for the results obtained. Journal of Microf inance Volume 6 Number 2 28 the UN Millennium Development Goals are directly linked to children’s education. They stipulate that by the year 2015, “all boys and girls should complete a full course of primary schooling” and that “the gender disparity in primary and secondary education should preferably be eliminated by 2005, and at all levels by 2015” (IMF, OECD, UN, & World Bank, 2000). In this context, one of the pressing issues for policy makers in the international and national arena is to find effective ways to reach the goals set. It is against this background that we explore the possible role microfinance could play. In the last decade microfinance has been extolled as a panacea for poverty alleviation and increasing human well-being. Over the years, studies have compiled evidence regarding the effect of microfinance schemes on a variety of factors, including household expenditures, household assets, women’s contraceptive use, women’s empowerment, and children’s human capital investment in health and education. Success stories such as those of the Grameen Bank and the Bangladesh Rural Advancement Committee (BRAC) in Bangladesh, the BancoSol in Bolivia, and Bank Raykat Indonesia’s Unit Desa in Indonesia (BRI) have been widely reported on (see, for instance, Chaves & Gonzalez-Vega, 1996; Hashemi & Schuler, 1994; Hulme & Mosley, 1996; Khandker, 1998), and some of the achievements have also been put into perspective (see e.g., Goetz & Sen Gupta, 1996; Mosley, 2001; Navajas, Schreiner, Meyer, Gonzalez-Vega, & Rodriguez-Meza, 2000; Rahman, 1998). Putting all the evidence together, it is clear that there is no clear-cut or definite answer regarding the impact of microfinance schemes. Conclusions might differ because of different methodologies used, because of diverse subjective interpretations given to the same research findings, or because of the particular features of the program one is studying. While studies that focus on the net, and particularly the gross, impact of microfinance programs are Nathalie Holvoet is a lecturer and researcher at the Institute of Development Policy and Management, University of Antwerp. Her fields of interest are organizational and institutional aspects of aid policy and evaluation, and in particular gender and development and microfinance. Email: [email protected]. Impact of Microfinance Programs on Children’s Education Volume 6 Number 2 29 many, there are few studies that compare the impact of slightly diverging credit schemes. These kinds of exercises could, however, provide us with highly relevant information for policy making. They might indicate what particular features of programs are successful, and which modalities should be replicated, and which are redundant or even counterproductive. If the aim of policy is to promote children’s education, then it might be interesting to explore whether it matters for children’s schooling if credit is given in the hands of the mother or the father. Other features of interest could be the particular delivery channel that is used, the quantity of credit, or the type of credit provided. Does consumptive credit produce the same effects as credit whose use is restricted to productive activities? Are schemes that extend higher amounts of credit more effective than those whose credit ceilings are lower? Does channelling of credit through a financial and social intermediary impinge differently on children’s schooling than direct bank-borrower lending? In particular, because girls’ education is high on the agenda, policy relevance may further be sharpened by differentiating between effects on boys and girls. In the present study, we attempt to test the importance of the borrower’s gender and the delivery channel for boys’ and girls’ education. More specifically, firstly, we have compared the impact of direct bank-borrower credit in the hands of mothers and fathers on selected indicators of children’s educational status. Secondly, we have tested whether channelling individual credit to mothers through women’s groups created differential effects as compared to the case where no intermediary was used at all. In doing this, we have used data from our 1998 survey of 300 rural South-Indian households living below the poverty line who received credit in slightly different ways.1 As the validity of impact assessment results are highly influenced by the underlying research methodology, we have devoted considerable attention to research design. We have mainly used quantitative methodologies for the data collection and analysis, while data gathered through qualitative techniques has provided us with interesting insights on possible explanatory factors. Before elaborating on this, we set out a framework that might help us to explore better the relationship between microfinance and children’s education. Microfinance and Intrahousehold Allocation There is a growing body of literature focusing on the determinants of children’s education and that of girls in particular (see, for instance, King & Hill, 1993; World Bank, 2001). While influences seem to be many and their interplay complex, it is commonly understood that the level of investment in children’s education is the result of a number of supply factors and an individual household’s demand for education. While a nation’s human capital efficiency may influence the level and quality of the supply, decisions regarding children’s schooling result predominantly from an implicit cost-benefit analysis made within the household. Costs include direct financial costs, indirect or opportunity costs which result from income foregone, and possibly also nonpecuniary costs that individual parents have to put up with when their choices deviate from the norms regarding children’s, and in particular girls’, schooling. Benefits include returns to the family arising from higher earnings to children that may be partly returned to parents (King & Hill, 1993, pp. 21–34). Which costs and benefits are entered in the calculus, as well as their relative importance, largely depends on the perception of household decision makers. It is further not necessarily so that individual parents exhibit identical preferences, and they may perceive costs and benefits differently. There is for instance evidence from diverse cultural settings about mothers preferring to allocate a higher percentage of the household budget to children’s human capital goods as compared to fathers (Kennedy & Peters, 1992; Mencher, 1988; Phipps & Burton, 1998; Thomas, 1997). These findings are particularly interesting from a policy point of view. If the preferences of one of the parents are closer to those of policy makers, it may be worthwhile investigating routes to increase this person’s leverage in the decisionmaking process. Journal of Microf inance Volume 6 Number 2 30 Impact of Microfinance Programs on Children’s Education Volume 6 Number 2 The possible impact of microfinance on children’s education might be better explored when put against this framework of intrahousehold allocation. Microfinance schemes do not target children directly, but the influence of the scheme goes through the nonneutral intermediary of the household. Credit enters the household and might influence several of the factors that determine children’s education, including the overall financial budget as well as the individual parent’s budget, the time allocation, the individual parent’s degree of participation in household decision making, and the perceptions regarding the importance of children’s education. Besides, it is highly hypothetical that diverging schemes will affect the same factors in the same way. Productive and consumptive credit will probably impinge differently on time allocation and income generation, while credit targeted to one particular parent might in particular influence that parent’s financial and time budget and his/her leverage in decision making. Notwithstanding the policy relevance of exploring the importance of particular features of microfinance programs, comparative empirical studies remain scarce. For instance, impact assessment of gender-specific credit is exceptional. One of the few exceptions is the study of Pitt and Khandker (1998) that explicitly tests whether Grameen Bank and similar group-based lending credit programs have effects on allocative outcomes that are related to the gender of the borrower. They found that credit allocated to mothers had a higher impact on boys’ and girls’ (ages 5–17) schooling than credit to fathers, but differences failed to be statistically significant. While there is a vast literature documenting the importance of a group’s financial and social intermediation for the lowering of transaction costs and the increase in repayment rates (see, for instance, Hoff & Stiglitz, 1990; Hulme & Mosley, 1996; Huppi & Feder, 1990; Sharma & Zeller, 1997), there is no study that has explicitly compared the impact of direct bank-borrower and groupmediated credit on intrahousehold allocative behavior. It is, however, unlikely that group membership would leave intrahousehold behavior unchanged. Originally organized around the fulfilment of a practical gender need, such as the easing of a credit constraint,