Written by What is Microfinance?
Microfinance is a financial service that provides small loans, savings accounts, insurance, and other financial products to individuals who typically lack access to traditional banking services. It targets low-income individuals, particularly in rural and underserved areas, who may not have collateral or a credit history to qualify for loans from commercial banks. It has gained attention as a tool for inclusive finance and sustainable development, with initiatives implemented worldwide to expand access to financial services for marginalized and vulnerable populations. The service has the potential to empower individuals, particularly women, by giving them the means to create livelihoods, build assets, and improve their standard of living. Thereby, it aims to alleviate poverty by providing financial resources to support income-generating activities, such as starting or expanding small businesses, purchasing livestock or equipment, or investing in education and healthcare.
How can it be bearer of importance to women?
Its relevant and important for women’s empowerment, especially in rural areas, due to several reasons, such as financial inclusion, economic empowerment, poverty alleviation, social impact, and risk mitigation. An undeniable proof of that is the fact that by 2006 microfinance services had reached over 79 million of the poorest women (Daley-Harris 2007 cited in ILO 2008).
Financial inclusion
Women, particularly in developing countries, often face barriers to accessing formal financial services such as bank accounts, loans, and savings. Microfinance provides them with access to financial resources that they may not otherwise have, empowering them to participate in economic activities and make financial decisions.
Economic empowerment
Microfinance enables women to start or expand small businesses, generate income, and become economically self-sufficient. By providing them with loans, savings accounts, and other financial services, microfinance helps women to invest in income-generating activities, improve their livelihoods and support their families.
Poverty alleviation
Women constitute a significant proportion of the world´s poor population. Microfinance programs specifically targeting women can contribute to poverty alleviation by providing them with the means to lift themselves out of poverty. By investing in women’s economic activities, microfinance helps to create opportunities for income generation and asset accumulation, ultimately improving their living standards.
Women´s Empowerment
Access to financial resources through microfinance can enhance women’s autonomy and decision-making power within their households and communities. As women become financially independent, they gain greater control over household finances, education, healthcare, and other important aspects of their lives. This empowerment can lead to positive social outcomes, such as improved gender equality and women´s rights.
Social impact
Investing in women’s economic empowerment through microfinance can have broader social benefits. Studies have shown that when women have control over household income, they tend to prioritize spending on the well-being of their families. Consequently, microfinance programs targeting women can have ripple effects on community development and poverty reduction.
Risk Mitigation
Women often face greater financial vulnerability due to factors such as lower incomes, limited access to formal employment, and social and cultural constraints. Microfinance can help mitigate these risks by providing women with financial tools to cope with emergencies, smooth consumption and build resilience against economic shocks.
Microfinance in developing countries
Microcredit programs have been implemented in developing countries such as Bangladesh, India, or Cambodia since 1976 and its relevant to understand if and how it’s a beneficial initiative. To answer this concerns, it was conducted a study focused on the development of microfinance programs in Ethiopia and how it changed the lives of who was targeted. Ethiopia is known for being one of the poorest and underdeveloped countries (68.7% of the population, 82,679 thousand people in 2021, is multidimensionally poor while an additional 18.4% is classified as vulnerable to multidimensional poverty, 22,076 thousand people in 2021).
For the past two decades, microfinance institutions have held significant sway as a pivotal development initiative in Ethiopia. The genesis of this movement and its subsequent expansion in the country can be traced back to the enactment of legislation postulated after the 1996 proclamation. This legislative milestone stands as a cornerstone in the inception and evolution of microfinance across this country. Notably, there has been a steady escalation in female engagement within the microfinance sphere. All microfinance enterprises share a unified aspiration towards ameliorating poverty and fostering the economic empowerment of women.
The main aim of the inquiry is to analyse the impact on microfinance programs on women´s economic empowerment. A sample of 346 women that were clients of those initiatives were questioned and examined for a deeper understanding of the debate in question. With the help of tools such as multiple regression and sampled t-test data analysis, was revealed that age, marital status, education level, credit amount, and number of trainings have a significant impact on women’s economic development.
The results of the paired sample t-test unveiled noteworthy disparities in mean values pre- and post-engagement with microfinance services, particularly concerning income, asset accumulation, and savings. Microfinance interventions evince a discernible positive impact on women’s economic empowerment, manifesting through augmented independent income streams, heightened asset portfolios, and increased monthly savings. Furthermore, the investigation underscored the constructive role of microfinance in nurturing women’s entrepreneurial acumen and fostering their exposure to business opportunities.
Despite this article being more focused on the effects of microfinance in developing countries, because of how the impact is noticeable, it’s also important to emphasise the fact that also it has also reached and in a growing scale, developed countries, like Spain, that you can read more about in one of the links in the references focused on the Barcelona case.
Conclusion
Overall, by addressing the unique financial needs and challenges faced by women, microfinance plays a crucial role in promoting women´s economic empowerment, reducing poverty, and advancing gender equality with the help of its programs that promote an inclusive and sustainable development. Also, it has been proven to be beneficial to countries in development, being a fundamental tool for growth, prosperity, and equality of opportunity.
References:
ILO. 2008. “Small change, Big changes: Women and Microfinance”. Geneva, ILO. wcms_091581.pdf (ilo.org)
Leight Lebos, Jessica. 2022. “How microfinance supports livelihoods in developing countries”. Kiva. Consulted in 01/05/2024. https://www.kiva.org/blog/how-microfinance-supports-livelihoods-in-developing-countries
Lorenzo Vidal, Raquel, and Julia Soler Agustí. 2017. “Microcredit in the developed countries: the case of Barcelona”. https://migrant-integration.ec.europa.eu/sites/default/files/2019-10/EWI05-Microcreditinthedevelopedcountries_thecaseofBarcelona.pdf
Mengstie, Belay. 2022. “Impact of microfinance on women’s economic empowerment”. J Innov Entrep 11 (55). https://doi.org/10.1186/s13731-022-00250-3
Raid, Dr. Moodhi, Nisar Ahmad, Dr. Hisham Alhawal, and Dr. Jumah Ahmad Alzyadat. 2023. “Impact of Microfinance on Poverty Alleviation in Developing Countries: The Case of Pakistan”. http://dx.doi.org/10.2139/ssrn.4402017
Laura Casanova
theawarenessnews.com 