Microfinance: Empowering Female Entrepreneurs

A financial inclusion program alone cannot lead to significant economic development for women. Microfinance can help them overcome poverty, but it is not enough to fight poverty.

Among other things, “help them help themselves” is an idea long discussed and explored regarding the global poverty agenda, a quote from John F Kennedy’s inaugural address. Microfinance, a financial service that provides access to those without it, was therefore hailed as revolutionary in 1983 when it was introduced. The final step to alleviating poverty is to help people help themselves.

Many positive effects microfinance can still accomplish been tainted by criticism from various outlets in the years that followed. The story does not end with those who profit from vulnerable individuals – indeed, there is no smoke without fire.

As well as spurring economic activity within a community, microfinance can challenge the status quo. This is particularly affected by women in developing economies since they face even more significant barriers to accessing financial services than their husbands and fathers. Microfinance products, ranging from micro-loans to micro-insurance, can change the lives of 80% of the poorest clients of microfinance institutions, according to the State of the Microcredit Summit Campaign Report 2012.

The Ripple Effect

When individuals in poverty-stricken communities don’t have access to bank accounts, they must work in informal jobs that provide little security and few rights. The lack of access to financial services also severely restricts the opportunities available to people in these communities for starting and growing a business. Many people cannot escape poverty with these restrictions and an informal savings vehicle.

Besides living in a low-income society, these scenarios are also influenced by cultural nuances and governmental regulations that affect women.

Fince CEO and founder Rupert Scofield told World Finance: “We work in many countries where cultural norms deny women the right to work or work for themselves.” This huge waste of human resources is the core mission of Finca. Women with enterprising ideas can start their own businesses with the resources we provide.”

A paper by Linda M Scott, Oxford University Professor of Entrepreneurship and Innovation, argues that women’s entrepreneurship is supported in developed nations as part of the effort to promote growth. However, international dialogue on poverty alleviation is primarily focused on developing countries.

There is a cumulative effect of women’s entrepreneurship in a community, in part because of the cumulative effect. According to Scofield, microcredit schemes, for example, are almost exclusively targeted at women, as the money is invested in goods and services that improve the wellbeing of families, in goods conducive to economic development. Supporting women’s entrepreneurship has become a preferred method for economic development because men’s income does not have the same ripple effect in a community.

A bidirectional relationship has been observed between women’s empowerment and economic development, since access to the former is a necessary component of the latter. As these issues relate to healthcare, education, income opportunities, and social rights – and vice versa – political participation is also an issue.

“Developing countries can play a major role in reducing inequality between men and women, but continuing discrimination against women can hinder development, as Amartya Sen argues forcefully.” The empowerment of women can accelerate development.”

Internationally, gender inequality has increasingly been recognized as a cause, rather than an outcome, of poverty and as such should be addressed. As Scott wrote: “Gaining the benefits’ of inclusion is a purposefully positive way to spin ‘avoiding the damage’ caused by inequality.”

Education, Education, Education

As women receive their own income, their dependency on their husbands is reduced, and their bargaining power increases, helping to reduce gender inequality in developing nations.

Scofield says that a woman’s income independent of her husband is the most powerful tool for empowerment in the developing world. “It completely changes the dynamics of a family when women have their own resources and do not have to beg for money from their husbands. As a result, the wife and children recognize her as a valuable family member. Sadly, before this transition, women are often disrespected and treated no better than animals.”

Similarly, empowerment in this way has a cumulative effect. As more women are empowered, their peers are more likely to follow. In addition, women-owned and women-operated businesses generally employ other women, so there is a ripple effect. As one successful woman social entrepreneur put it, when women run their own businesses, there is no glass ceiling problem.”

This translates into more opportunities for their daughters, particularly in education, which is crucial to ending poverty. A speech by then-President of the World Bank James Wolfensohn at the UN World Conference on Women in 1995 stressed the importance of education for girls in all aspects of development:

• Lowering child and maternal mortality rates
• Increasing educational attainment by daughters and sons
• Increasing productivity
• Improving the environment

Together, these can mean faster economic growth and the important, broader distribution of the fruits of development.”

According to Wolfensohn, women will be more prominent in society due to more education for girls. Consequently, communities’ ways of resolving problems and making decisions may be transformed.

Obstacles to overcome

It is clear that women’s empowerment is essential for economic development, and microfinance can be used to unlock this door, but the system has a snag. The power of microfinance can be limited if it is not accompanied by education. Microfinance can support women’s empowerment – and, in turn, more education for girls.

It is rare for women in eastern and southern Africa, for example, to continue their education beyond their primary school years. Despite this, eliminating the barriers to obtaining credit often proves futile due to the necessity of education and financial services. When women living in extreme poverty lack business training and financial literacy, they can’t understand the caveats of loans they take out and cannot manage their finances. This can lead to spiraling credit.

Further, even with access to capital, proficiency in financial products, and the creative drive and drive to create success from scratch, conditions can limit what these women can accomplish. Women selling fruit might not be able to make jam or chutney if their circumstances prevent them from doing so, as discussed in Scott’s paper.

In remote areas, many homes have makeshift stoves, which make it difficult to control the heat, and ingredients to add variety to the food are challenging to find. There is also the possibility that sterilizing jars will not be possible. Indeed, there may not even be a supply of jars, to begin with.

It is not uncommon for the poor to receive micro-loans even when investment opportunities are limited. In Bangladesh, women frequently use their loans to pay for their husbands’ overseas travel. Many send remittances but don’t return home. Although these payments may be helpful, they do little to create sustainable incomes or empower women, so there is no ripple effect within a community.

Alternative systems can be more effective even in remote areas with few investment opportunities. For example, women can make money through Avon, Jita, and Living Goods. Aside from enabling women to earn a sustainable income, this business model also offers training and logistical assistance to female entrepreneurs.

The Battle for Equality

Microfinance helped 10 million Bangladeshis escape poverty between 1990 and 2008. Microfinance institutions have lent money to 211 million people worldwide as of December 2013, more than half of whom are women.

As a springboard to entrepreneurship, delivering education to children and providing insurance in case of natural disasters, microfinance can transform lives and communities. Still, it is not enough on its own. People need financial training, realistic opportunities, and support to invest capital successfully. For poverty alleviation, financial products alone are only part of a much larger package, as Scott and others argue.

Despite this, microfinance can provide women in poverty with the impetus they need to challenge the status quo and make something more of their lives than they were previously able to. Their actions create a ripple effect that alleviates poverty for others. With greater access to education, healthcare, and employment opportunities for their children, this cumulative effect expands further, resulting in greater opportunities for their own families and themselves.

As a result of such a transition, women in developing states may no longer face discrimination or violence against them. In such a future, the potential of women is unleashed, and the community benefits as a whole. In many studies, it has been shown that long-term economic development is only possible with equality.

A person living in poverty must equip himself with the right weapons and tools to conquer poverty successfully.

Governments, international organizations, and private institutions must therefore do more than promote financial inclusion; they must also provide education and opportunities for maximizing microfinance’s benefits.

Developing economies are complex, multifaceted phenomena, which is why all citizens must contribute to the success of these endeavors, including women.