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«Credit and Self-Employment Nidhiya Menon, Brandeis University Yana van der Meulen Rodgers, Rutgers University Version: May 9, 2011 Draft Chapter for ...»

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The income that mothers earn impacts their children’s well-being in different ways than the income that fathers earn, given women’s tendency to allocate a greater portion of household budgets on children’s educational, health, and nutritional needs. Raising women’s control over income can contribute not only to greater expenditures on food, but also to expenditures on foods with improved nutritional content. More broadly, increased income involves changes in norms and attitudes that influence the economic decisions and nutrition-related behaviors of mothers and fathers. Central to the social context in which mothers and fathers operate is bargaining power, and an important change that comes with more productive employment for women is increased empowerment and autonomy. Women’s earnings can strengthen their bargaining power within the household by improving their fallback position, which can then facilitate decision-making that improves child health outcomes by, for example, moving households away from adherence to less useful traditional practices. Greater autonomy for women and a shift in intra-household power dynamics toward the mother can have many useful consequences including greater utilization of antenatal care and vaccination programs for their children, as well as improved feeding practices.

A growing body of work has substantiated the relationship between women’s control over financial resources, greater expenditures on children, and improved child health.18 For example, in Cote d'Ivoire, raising the share of household cash income controlled by the wife leads to a positive and statistically significant increase in the household budget share allocated toward food, and a decrease in the share allocated toward adult-oriented items - even after controlling for household characteristics. In particular, doubling the share of household cash income controlled by wives caused a 1.9 percent increase in the budget share of food for the household, and decreases of 25 percent and 15 percent in the budget shares allocated toward alcohol and cigarettes.19 Raising household income is associated with higher child survival rates and with declines in children’s nutritional deprivation. However, because women are more likely to spend money on food items with high nutritional content than men, these improvements are greater if the income is controlled by the mother. Evidence from Brazil indicates that the marginal effect of additional income in the hands of women on child survival is twenty times as large as that of additional income in the hands of the father, while the marginal effects on child wasting and stunting differ by factors of eight and four, respectively.20 Similar conclusions were also made for the case of Bangladesh, where credit allocated to women through the Grameen Bank and similar microfinance programs had stronger positive effects on children’s nutritional status as measured by arm circumference and height-for age, as compared to credit allocated to men (Pitt et al. 2003). Moreover, research in Duflo (2003) on the expansion of South Africa’s pension program to the black population indicated that this large cash transfer resulted in improvements in weight-for-height of all girls and in height-for-age of younger girls. These effects were attributed entirely to the pensions received by women and not by men.

Enabling greater ownership of assets can have important repercussions for selfemployment in general as shown in Do and Iyer (2008), however, improving women’s control over assets such as land can have especially powerful consequences. The availability of collateral facilitates additional borrowing, which in turn gives households the capital required to finance home-based self-employment work. As noted above, such work is often the province of women in developing country households. This additional income in the hands of women members has different effects on household and child outcomes as compared to male-controlled resources.

Additional evidence that supports this conclusion is provided in Allendorf (2007), which finds that children are less likely to be underweight if their mothers own land. This relationship is attributed to the additional resources that women’s ownership of land brings, and is not solely due to the empowering effect of land ownership. Thinking about the joint implications of these earlier studies, an interesting question is thus whether land titles registered in the names of both husbands and wives show stronger positive impacts on child human capital indicators, as compared with titles registered in the name of husbands only.

The beneficial impact of endowing women with more control over resources via selfemployment has implications on demographic behavior such as fertility and contraception as well. Amin et al. (1995) documents that women loan recipients of Bangladesh’s Grameen, BRAC, and BRDB programs were more likely to use contraceptives, have fewer children, report an increase in the desire for no more children, and be more empowered (as measured by physical mobility, authority and aspiration). Schuler and Hashemi (1994) find that participation in Grameen and BRAC programs has positive effects on empowerment as measured by economic security, political and legal awareness, and freedom from violence within the family. Focusing only on demographic behavior such as contraception and fertility, Pitt et al. (1999) use data from Grameen, BRAC, and BRDB to show that with a more rigorous control for heterogeneity bias, women’s participation in group-based credit programs has no effect on contraception or fertility.





Alternatively, male participation does reduce fertility and increase contraceptive use, although the latter effect is small in magnitude.

Hence a large body of developing country literature indicates that additional income controlled by men and women can contribute to improved own and child well-being, although the effects are not always indisputable. In the same vein, mothers’ market-based work could reduce the quantity or quality of time spent caring for children, with potentially adverse effects on child health. Absence from children while working in the labor market could reduce the ability of mothers to engage in care practices that influence child development and health.

Mothers may have less time to breastfeed, prepare nutritious foods, engage in preventive healthseeking practices, or take children to public services that improve child well-being.

Self-employment, however, may help to mitigate this tradeoff between increased income and reduced time for child care if the self-employment conditions are compatible with child rearing. In such cases, women engage in market-based work with their children present, although the pressures associated with this generally low-pay work, often on a piece-rate basis, may not allow mothers to have much high-quality interaction with their children. Work within or close to the home should be, in principle, more compatible with child care, but the actual benefits to children may be tempered by the informality of such work and the lack of flexibility in the work requirements. Women may not find their work compatible with child care if it is inconvenient or unsafe to bring their children with them, or if their work involves pressure to complete a quota within a certain amount of time. In countries where the agricultural sector still provides a large source of employment, women may bring their children with them to the field while they are farming. In this case, farm work may be more compatible with the continuation of breastfeeding compared to other types of work where mothers are separated from their infants. Finally, mothers’ direct time spent with children may not vary much with the type of labor market activity if they live in a household in which other family members, especially older siblings and grandparents, can care for young children.21 The empirical evidence on the compatibility of self-employment with healthy child care practices is mixed. For example, Chutikul’s (1986) study of rural Thailand found that mother’s work in the informal sector had a positive impact on children’s nutritional status, while mother’s work in the formal sector had a negative impact. The compatibility of child care with informalsector work served as the main explanation for these effects.22 In contrast, Glick and Sahn (1998) found that in urban Guinea, maternal working hours in self-employment and in wageemployment had negative effects of equal size on children’s height-for-age, even after controlling for the mother’s earnings brought in by her employment. The feasibility of combining employment with child care in self-employment was not strong enough to counteract the negative impact of maternal hours in market work. As another example, among low-income urban households in Chile, maternal employment had a net positive effect on infants’ weight (Vial et al. 1989). However, this effect operated mostly through the additional income that mothers earned at work, rather than the type of work. Distance to work and type of employment did not serve as determining factors.

V. Conclusion and Challenges for Research Household enterprises tend to rely on family labor, which contributes to the tendency for individual ventures to remain small in scale. Thus, policies that support the operations of household enterprises and help them to expand their sales can transform them into stronger engines for job creation. By providing the means for initiating entrepreneurship, or for increasing the scale of existing enterprises, improving access to credit can serve as the impetus to greater financial independence.

However, assessments of the impact of credit programs are fraught with endogeneity problems. These problems embody primarily two types – self selection and non-random program placement.23 Self-selection occurs when unmeasured individual-specific factors influence selection into the program and the outcome being studied. For example, it is possible that the most able women, or those who have prior experience with self-employment, are the first to join microfinance programs. Since ability is unmeasured, the researcher cannot control for its effects explicitly. Without such control, some part of the measured impact of credit will pick up the fact that the woman is able or very motivated, leading to misleading inferences on the true impact of loans. Pitt and Khandker (1998) controlled for such self-selection using a quasi-experimental framework. However, more recent evaluations have tried to randomize access to loans, thus inducing exogenous variations in which types of women receive a loan. Randomization is useful in that we can be confident that selection is not at work. But the results of a randomized study are particular only to that experiment, limiting its implications for wider policy analysis.24 The second endogeneity problem deals with selection not at the individual level, but at the regional level. Non-random program placement implies that credit programs are not allocated exogenously to regions. For example, it is possible that the most vulnerable villages in Bangladesh were the first to receive a microfinance program because the need for credit was the highest in such areas. Alternatively, altruistic governments might choose to first locate public programs in the poorest districts. Not controlling for such motivations can also lead to misleading inferences on the impact of credit and programs. A structural solution would be the use of fixed effects models, but these models need the strong assumption that the endogeneity is time invariant.25 On the other hand, randomly allocating regions to receive programs would help to circumvent this problem. But, as noted already, the broader implications of such randomization are limited in scope and remain constrained to the study at hand. In evaluating the impact of credit on self-employment or other outcomes, the challenge for the researcher is to think clearly about what the main aim of her work is, and then, ideally, construct a combination of structural and experimental methods that build-on the strengths of each.

Having outlined the challenges for research in understanding the effect of credit access, we conclude by outlining best practices in this area. In particular, greater support for business owners to acquire training in accounting and management procedures would serve as useful mechanisms for enhancing the productivity of household businesses and for expanding their capacity to generate wage-based employment. Subsidies and targeted tax incentives can also assist small business owners in purchasing new profit-enhancing technologies. Public-sector assistance to women entrepreneurs in marketing and selling their products can provide a valuable function in cases when women business owners face obstacles in accessing business networks.

The Kenya Women’s Finance Trust (KWFT) constitutes a good example along these lines.

KWFT is the largest women-only financial organization in Africa, providing loans and knowhow to entrepreneurs on different facets of their business.26 It started thirty years ago in response to a growing recognition that women entrepreneurs had little to no access to financial assets as compared to the rest of the population.

Another good model is the Women Workers Employment and Entrepreneurship Development (WEED) program in the Philippines, which provides skills training, entrepreneurship development, and credit assistance to women who are underemployed, homebased, and/or employed in the informal sector.27 Programs such as WEED can facilitate a switch from low-paid work to work that yields greater returns. This program proved to be a particularly valuable component of the policy response by the Philippines’ government to the global financial crisis of 2009, which led to a reduction in self-employment opportunities for women.28 This setback for women arose because the economic crisis reduced demand for the small-scale products and services that women produce and sell, thus reinforcing the need for strengthening the social safety net for individuals who may slip through the cracks during times of crisis.



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