Microfinance Effects on Gender and Development Policy


by Zahra Rasouli

Zahra Rasouli is a women right activist and currently student of MSc in Gender, Development and globalization at London School of Economics and Politics. She has also MPP from KDI school of Public Policy and Management in Development Management and Economic Policy in South Korea, where her thesis was about Leading Sectors in Afghanistan Economy. She earned her BA in Politics and International Relations from  The Ewha Women’s University.



This study examines the potential of microfinance on empowerment of poor women, in the long term. Thus, it argues that microfinance does not exclusively lead to empowering poor women. However, it can function as a mechanism to meet some of the practical needs of women, which can help in addressing their strategic needs. This paper aims at arguing, for that purpose to happen the gender structure in the society needs to be considered in the microfinance projects. Furthermore, microfinance does not help to change the asymmetrical gender relation between men and women. Therefore, this analysis discusses the need for further gender intervention in macro-level policy-making processes.


In the recent decades, microfinance has been viewed by many organizations and government agencies as a significant mechanism for women empowerment, particularly economically vulnerable women. Modern microfinance concept traces back to 1970s when one of the first pioneers in modern microfinance history, Mohammad Yunus, launched the modern microfinance institution by establishment of Grammen Bank of Bangladesh.

Today many donors and non-governmental organizations (NGOs) practice the microfinance as a major policy for gender empowerment. This is mainly due to its so called direct impact on poverty mitigation and women vulnerability. According to “Financial self-sustainability paradigm” practiced by many NGOs, “it is assumed that increasing women’s access to micro-finance services will in itself lead to individual economic empowerment, well-being and social and political empowerment” (Mayoux, 2002).

In 1998, the UN General Assembly elected the year 2005 as the International Year of Micro-credit (IYM) aligned with the UN Decade for the Poverty Reduction (1997-2006). “The International Year of Micro-credit aims at raising public awareness regarding micro-credit and microfinance, in addition to promoting innovative partnerships among various development stakeholders such as governments, non-governmental organisations and the private sector.” (UNDP, 2005) The microfinance increased ever since. Micro-credit Summit Campaign (2001) reported that nearly 14.2 million of micro-finance recipients are economically vulnerable women. “These women account for nearly 74 percent of the 19.3 million of the world’s poorest people now being served by microfinance institutions. Most of these women have access to credit to invest in businesses that they own and operate themselves” (Cheston, 2007).Also “a 2001 survey by the Special Unit on Microfinance of the United Nations Capital Development Fund (SUM/UNCDF) of 29 microfinance institutions revealed that approximately 60 percent of these institutions’ clients were women. Six of the 29 focused entirely on women. Among the remaining 23 mixed-sex programs, 52 percent of clients were women” (Deshpanda, 2001). Women have been called by donors; best lenders since majority of them have outstanding repayment accounts. Microfinance decrease poverty assists to mobilize women’s production capacities, and increase their economic productivity by giving them access to the working assets and training. However, some researchers, such as Goetz and Sen Gupta (1996) challenged the effectiveness of the microfinance in women empowerment process. Ebdon (1995) argues that programs like microfinance turn away the interests from other significant empowerment strategy.

This study is to explore, the potential of microfinance on empowerment of poor women by answering the questions: to which extent microfinance can empower, economically vulnerable women? And has the microfinance been successful to address further than the practical needs to the strategic level? Due to complex definition of microfinance and empowerment, this paper will first define the two concepts. Second, based on the two definitions it will try to answer the question of how successful is microfinance in empowering women? It concludes that microfinance on itself doesn’t empower women but can work as a tool. Also this study will provide some suggestions, on how to engender microfinance in order to meet the strategic needs of women in the long term.

Definition of Empowerment:

One of the most articulated grounds for supporting microfinance and targeting women is because microfinance is known to be an effective method for empowering women. However, empowerment and microfinance are difficult vocabulary to define.

Some scholars associated the term empowerment with self-reliance. UNIFEM Progress of World’s Women report (2000), defines the women empowerment as, “gaining the ability to generate choices and exercise bargaining power,” and “developing a sense of self-worth, a belief in one’s ability to secure desired changes, and the right to control one’s life”. Or as Linda Mayoux called it, “a long-term process, not a ‘one-off end-product’ decided at one focus group meeting or assessed in a one-off impact assessment.” But it is rather a “multidimensional and interlinked process of change in power relations. [in where power can be divided to] power within: enabling women to articulate their own aspirations and strategies for change; power to: enabling women to develop the necessary skills and access the necessary resources to achieve their aspirations; power with: enabling women to examine and articulate their collective interests, to organise to achieve them and to link with other women’s and men’s organisations for change; power over: changing the underlying inequalities in power and resources which constrain women’s aspirations and their ability to achieve them.” (Mayoux, 2000) The definition made by Linda Mayoux, is the most useful one for the purpose of this study.

Definition of Microfinance:

Microfinance is often directed toward the rural poor, whom want to set up a small or medium business in informal economy. The term is also usually misunderstood with microcredit. “Microfinance is a broad category of services, which includes microcredit. Microcredit is provision of credit services to poor clients. Although microcredit is one of the aspects of microfinance, conflation of the two terms is endemic in public discourse. Critics often attack microcredit while referring to it indiscriminately as either ‘microcredit’ or ‘microfinance’. Due to the broad range of microfinance services, it is difficult to assess impact, and very few studies have tried to assess its full impact.” (Feigenberg, Field, & Pande, 2010) Elahi and Rahman (2006) define microfinance “as a development approach that provide financial services such as credit, savings, and insurance services as well as social services that become leverage through which group mobilize and vocalize their concerns and aspirations to policy makers, while building self-confidence.” (Elahi& Rahman, 2006) or as Robinson defines microfinance as “small-scale financial services, primarily credits and saving provided to people who engaged in small scale business activities such as farming, fishing and other small enterprises that produce, repair or sell goods.” (Robinson, 2001) The definition made by Elahi& Rahman will be used for the purpose of this essay.

Microfinance and Women Empowerment

Microfinance by itself doesn’t mean women’s empowerment. A series of studies suggest that, especially among very poor people, microfinance is a successful approach to target poverty reduction (See Daley-Harris, 2007). However, “there seems to be an unexamined belief that through microfinance, individuals and small cooperatives can gradually scale up to having stable income without loans or can save or invest enough expendable income to utilize traditional finance services” (Thomas & Sinha, 2009)

In recent years, microfinance became a macro-image crisis in many countries. Microfinance can interpret as “women’s entitlement to financial services, development aid, and equal rights rests primarily on their potential contribution to society rather than on their intrinsic rights as human beings and members of that society.” (Cheston, 2007) In such cases, women’s human rights get ignored and their positions become limited to their economic productivity.

Lack of women’s agency in practicing their rights in traditional societies; resulted to lose of control over the use of the loan by women. Women are used as a reliable tool between lender and the male family member, due to common assumption that women are more trustworthy in repaying the loans. A study done by Harper (1995) shows, out of 31 micro-enterprises loan- takers interviewed, 16 were used by men and women had not been involved in the loan-taking process. Only 7 loans were controlled by women and in an additional 8 cases, women were not aware that the loan had been taken under their names. Or when they have control over the loans, as is largely the case in Africa, “they continue to be overwhelmingly involved in a narrow range of traditionally female activities, i.e. low investment and low return. Micro-finance programmes may accelerate market saturation by increasing the numbers of women competing in the same activities. Very poor women working within the same range of activities may be further disadvantaged, because they do not have the resources or contacts to get access to credit.” (Mayoux, 2000)

In addition, even if microfinance programs led to increase in the revenue of poor women, it will not translate to better wellbeing and material profits for women. Women expenditure in the households is directly related to their gender role in the family as carer and poverty manager. In most of households the income earned by women, is spend for daily bases or pre-determined household’s expenditure. Consequently they, as carer in the family, cut on their own expenses to pay for family needs and loan repayment. In worse cases according to Mayoux (1999) and Rahman (1999), the struggle for taking control on income generated from microfinance and its expenditure in most of the cases lead to family disputes and might cause divorce, abandonment or domestic violence. (See Mayoux (1999), Rahman (1999))

The repayment of the loans taken by women is another cause of discrimination against women. For instance, Laima Karim the author of ‘Microfinance and Its Discontents in Bangladesh’ and an anthropologist at the University of Oregon describe the microfinance for women as a disasters since “microcredit agencies have created what she terms an “economy of shame,” in which the traditional role of women as bearers of “family honor” is used to leverage repayments—a key yardstick of MFIs’ success. (Grameen, for instance, proudly trumpets a loan recovery rate of close to 97 percent). To avoid the public shame of default, many women take out additional loans from different lenders, and quickly find themselves mired in a quicksand of debt.” (Karim, 2011)

The gender discrimination cause by microfinance programs, are sometimes rooted deeper into the structure of microfinance institutions (MFI). While the number of women’s access to financial services increased due to microfinance programs, still in many cases women face disadvantages base on their gender, when it comes to the size of the loans. “Some differences in loan sizes may be a result of women’s greater poverty or the limited capacity of women’s businesses to absorb capital. But they can also indicate broader social discrimination against women which limits the opportunities open to them, raising the question of whether microenterprise development programs should do more to address these issues.” (Mayoux, 2000) Hence, even in the best cases microfinance programs might work as a tool for disempowerment of women, this phenomenon especially can happen in cases that the microfinance programs don’t consider the gender issues exist in the their working environment.

Microfinance programs in order to address the women empowerment issues more successfully, needs to go beyond the daily and practical needs of women to their strategically needs, influences by the gender structure in the societies. Caroline Moser (1989) defines the practical and strategic needs of women as;

“Practical gender needs which are formulated from concrete conditions women experience, in their engendered position within sexual division of labour, and deriving out of this practical gender interest for human survival… [And] strategic gender needs are those needs which are formulate from the analysis of women’s subordination to men, and driving out of this the strategic gender interest identified for an alternative, more equal and satisfactory organization of society than that exists at the present, in term of both the structure and nature of relationship between men and women.”

Microfinance and Women’s Strategically Needs

Swain and Wallentin (2007) argue,“ woman’s practical needs are closely linked to the socially defined gender roles, responsibilities, and social structures, which contribute to a tension between meeting women’s practical needs in the short-term and promoting long-term strategic change…Although increased self-confidence [through microfinance] does not automatically lead to empowerment, it may contribute decisively to a woman’s ability and willingness to challenge the social injustices and discriminatory systems that they face. This implies that as women become financially better-off their self-confidence and bargaining power within the household increases and this indirectly leads to their empowerment.” Microfinance can have significant effect on the process of women empowerment if only the different dimension of women’s strategically needs be consider in the process. According to Mayoux (2000) evidence shows;

“Women spend much of their income on household well-being, including daughter’s education and their own health. Even where women do not direct control incomes, perceptions of their contribution to the household have changed. Increased confidences through interaction with program staff and groups have improved their role in decision making within the household. Some programmes with an explicit feminist empowerment focus on gender awareness and organization have also effectively supported women’s micro-finance groups to challenge unequal property rights, domestic violence, and alcoholism and dowry demands. Local authorities have been brought to provide essential services for women.”

Microfinance needs to be engendered base on the Gender and development (GAD) concept. GAD is represented to cover the failure of Women in Development (WID) and Women and Development (WAD). GAD concentrate on women’s empowerment base on women’s right rather than women’s need (heavily emphasized in WID concept). Under the GAD concept, the development projects are closely related to the role of women and men together and also social aspect of gender. Also GAD understands women subordination in relation to men’s role in the society.

Microfinance and GAP are sharing two concepts of gender and neo-liberalism. Women have been given the equal chance as consumers and individual manufacturers under GAD, also to support neoliberals’ idea. Moreover, according to Kilby and Olivieri (2008) the microfinance practices includes a neo-liberal agenda too; since it is based on individual needs and seek individual’s agency. Also both of them share the gender factor since microfinance has been used in many countries as a tool for targeting women’s poverty.

In order to promote gender equality within microfinance projects three sets of strategies need to be address according to Johnson (1999), “strategies which address women directly with awareness, literacy and related skills development, strategies directed to men in the community in which the project is working in order to affect men’s behaviour towards women within the household and local community, strategies aimed at affecting social norms and legal frameworks which might include for example advocacy work through the media and lobby to change, for example, women’s rights to property.”

Access and management over credits, availability and access to public assets and women agency over their bodies are some of the problems, which are needed to be addressed in microfinance projects; under the first and second categories of strategies pointed out by Johnson. While access to microfinance in most of countries is not a problem, management of the assets and credits called to be serious issues. A study done by Md. Hasan Reza (2002) revealed that in case of Bangladeshi women, the assets, such as land that women purchased from the profit of their enterprise, were most of the time registered under husband’s name. (Reza, 2002) or married women exercised little or no control over their loans and their husband controlled those loans. (See Goetz and Gupta, 1996)Thomas and Sinha (2009) studied 12 NGOs’ multiple support services and programs for poor women in Kolkata, India. And pointed out that in addition to providing microfinance and credit to poor women, other services such as “education or vocational skills training; social capital (support groups) and networking: and advocacy and education around health, nutrition, reproductive rights, and issues of gender equality” is also needed since through these programs” Women learned the business by working together to purchase needed supplies, design the products, monitor the quality, market their products at local fairs, and find new and innovative ways to advance their products.[also] By working together and taking part in supportive group work, women developed leadership skills, self-reliance, and the motivation to improve their and their families’ economic conditions.”(Thomas & Sinha, 2009)

Empowering women through microfinance will not work, if it’s not address on the macro level too. While vocational and skill training helps women to increase their income and economical productivity, on macro level always barriers which limit women’s ability to successfully use the microfinance services. Therefore support from government is needed to protect women’s right and safeguard their property right. For instance, “some who have been influential in organisations promoting the financial self-sustainability approach advocate macro-level changes in the civil code and property laws to give equal inheritance rights, enable married women to hold property and access financial services in their own names.” (Mayoux, 2002)

Finally the voice of women needs to be heard through out of the policy making process. According to Johnson (1999) women’s strategically needs can be address by;

“Ensuring women’s equal participation in all aspects of decision making over scheme policy and ensuring that a gender perspective is incorporated and that men understand why this is happening taking issues that arise in group discussions or experience e.g. domestic violence as a result of repayment pressures, and ensuring that they are systematically raised in other groups and discussions. Such issues if continually treated as isolated incidents fail to render such events as critical gender concerns, such an approach enables the response to an individual event which might respond to the practical needs of a single woman in the group to be converted into a policy to strategically address a concern that affects a larger number of women.”

This paper concludes that microfinance on itself is not synonyms with women empowerment. Empowerment or financial sustainability cannot be expected as an automatic outcome of the microfinance. Also it can’t change the asymmetrical gender relation between men and women, by only providing financial services.

However, microfinance remains a key strategy in empowerment path since it already has the bases for gender empowerment. Therefore a gendered base approach to microfinance can result to women empowerment in long term. A gendered approach can be translated to measures, which address the strategic needs of women, in addition to short term practical needs.

Finally more research and improvement is needed on the settings of micro-finance delivery. And women and gender issues must become one of the main parts of decision making in microfinance process.



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