Analysis and News

Women and Microfinance

BY GEOCAP's Contributor: Saumya Poddar

Women’s rights have been a popular topic of conversation over the last century. There have been huge strides in not only raising awareness about the opportunity loss to the economy by excluding women, but also in breaking some of the barriers that stood in their way. One step towards the goal of equality is being taken by microfinance institutions that are trying to provide financial opportunities to increase the  inclusion of women in the economy.  

Microfinance institutions provide financial services to sections of society who are excluded from the traditional channels, which directly or indirectly includes women in many parts of the world. New microfinance firms not only generate employment amongst women but also empowers them. It stimulates entrepreneurship and productivity from resources that were being underutilised. A study conducted in Pakistan in 2019 found that “access to microfinance has  a significant impact on the poverty reduction and empowerment and social status of women.”  It also concluded that increasing women participation will “ultimately bring in prosperity in the family.”

Over 3,300 microfinance institutions reached 133 million clients with a microloan in 2006. 93 million of the clients were among the poorest when they took their first loan. 85 percent of these poorest clients were women.”

There are various reasons why women are excluded from the economy. One of them being the rules and laws in countries that restrict women from participating. Other restraints come in the form of family pressures or obligations like running the household or taking care of the children. This loss of productivity actually causes a net income loss to families  as well as the economy.

The advantages of microfinance and the inclusion of women in the economy are widely accepted. However, a microloan given to a woman can turn out to be a bane.

Even though enterprising women might lend a hand in earning for the house, men may not engage in household work which implies that, to succeed, women have to work much harder than their male counterparts . The lack of support from their families makes it difficult for women to reach their full potential in their professional lives.

There are also direct negative implications from microfinance firms lending to women. Women falling into debt traps associated with high interest rates and the high recovery rates expected by lenders.

Access to loans specifically for women has caused a growing demand for dowry and increased domestic violence. Men see women focused microloans as a new source for dowries. Increased domestic violence comes from the microloans being perceived as the husband failing to provide for the family . In other cases, the violence stems from the husband forcing his wife to take on a loan as disposable income for him which she might not be able to repay.

Thus, the outcomes of the MFI women relationships are situational and no one can tell whether a loan being given will improve the dynamics of the family or worsen the situation. Like any developing industry, the microfinancing industry will evolve, hopefully into a beacon of light for ambitious women who do not have many opportunities to achieve their dreams and prosper independently, invest in their children's education and health, and their communities.

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