Borrowing and Women’s Empowerment: Does Type of Credit Matter?

Poor women have complex financial lives. They borrow from a variety of sources. So far, however, research has focussed only on formal borrowing as a source of women’s empowerment. This study examines whether type of borrowing matters to women. We differentiate between ‘easy loans’ – that are easy to access and have flexible conditions – and ‘contracted loans’ – that require a contractual agreement, usually written. We examine whether type of loan matters for one dimension of women’s empowerment – their bargaining power in household decisions. We separately consider women’s role in routine and strategic decisions. Drawing on a household survey from Tamil Nadu, we find that easy loans support women’s bargaining power in household decisions, whereas contracted loans have no impact. Women rely heavily on easy loans because of their flexibility. These loans, however, are usurious and lenders are known to use coercion to elicit compliance. This suggests a niche in the market for institutional providers.