Microfinance and gender equality in developing countries

In the average developing country, an increase of 15% in the percentage of women who access microfinance could reduce gender inequality by 50%, as measured by the Gender Inequality Index. This finding is based on a study that was published in Applied Economics Letters. The study also revealed that cultural factors can affect this relationship.

Gender Equality is the equality of rights, responsibilities, and opportunities for women, men, and girls, as well as boys. This does not mean that men and women are the same. It means that both men and women have their own needs, priorities, and interests.

While there have been significant advances in the UN’s Millennium Development Goals towards gender equality, women and girls still face discrimination and violence throughout the world.

In 1990, for instance, only 74 girls per 100 boys were enrolled at primary schools in southern Asia. In 2012, the ratios of enrolment remained unchanged.

In sub-Saharan Africa and Oceania, as well as in Western Asia, girls also face obstacles to enrolling in primary and secondary schools. Inequalities in education lead to a lack of skills and limited employment opportunities. In Northern Africa, for example, women only hold one out of five paid jobs within the non-agricultural industry.

Microfinance, gender inequality, and microfinance

Mohammad Yunus is credited with the popularity of microfinance. He began lending money to poor women living in Jobra village, Bangladesh, in the 1970s when he was a professor at Chittagong University. He was awarded the Nobel Peace Prize in 2006 for his pioneering concepts of microfinance and the establishment of the Grameen Bank.

Since then, many countries have introduced various types of microfinance programs.

Mohammad Yunus developed microfinance through his experiments with lending to women in Bangladesh. Eric Thayer/Reuters

Microfinance, as a general term, is the provision of small loans for the very poor in conjunction with other financial services like saving facilities, training services, health services and networking. It allows people to start their own businesses and earn extra income.

In the last 30 years, microfinance has proven to be a powerful tool for development that can provide a large number of poor people, especially women, with tailored, sustainable financial services that improve their lives.

According to The Microcredit Summit 2015 Campaign Report, 3 098 microfinance organizations had served over 211 million clients by 2013. Of these, 114 million lived in extreme poverty. Women made up 82.6% of these clients in extreme poverty, which is over 94 million.

Microfinance is a concept that allows poor women to generate income and become financially independent. This increases their power in the home and within society. Microfinance can reduce gender inequality through this channel, according to economists.

However, microeconomic research at the country level from communities in developing countries supports, while contradicting. A macroeconomic perspective, which pulls together information from multiple countries, could provide a more conclusive picture.

Around the World: Evidence

The study examines trends and patterns in microfinance and gender inequality by analyzing data from 64 developing nations between 2003 and 2014.

Two popular indicators are used to measure gender inequality: the Gender Development Related Index and the Gender Inequality Index. These composite indices are based on differences in health and education, as well as living standards, economic status, and empowerment.

This is because the key variable in our analysis, a gendered indicator for microfinance use, is the percentage of female clients compared to the population at large. This measure was constructed using data on microfinance from MIX Market, a microfinance auditing firm.

In sub-Saharan Africa and Oceania, as well as in Western Asia and Western Asia, girls face obstacles to both primary and secondary education. Siegfried Modola/Reuters

We found that there is a negative correlation between the participation of women in microfinance and gender inequality. We found that the gender gap could decrease if women increased their participation. In the average developing country, an increase in microfinance by around 15% leads to a reduction in gender inequality of about 50%.

We also discovered that the cultural differences that govern relationships between men and women can influence this relationship. For example, pressure on women to take on cooking and rearing responsibilities within the home could potentially limit their ability to adopt employment opportunities through microfinance-generated investments fully.

Another of our findings is that religion may not play a significant role in explaining how microfinance interacts with gender inequality. Instead, national conservatism and microfinance firms’ adoption of culturally appropriate local practices potentially do. Some firms recognize the challenges of women in certain communities working outside the home. They help them establish small businesses, often bringing resources from across the household.

Policy implications

The news of more microcredits in developing countries is good for women. It’s logical to assume that since gender inequality is measured by a composite index of health, income, and education indicators, women will have greater access to income and education.

In light of these positive results, governments and international organizations in developing nations should continue promoting microcredit institutions for indirect empowerment of women. They must also remember that microfinance doesn’t automatically empower women.

The cultural and country-specific factors are key in determining the interaction between microfinance and gender inequality. These factors should also be taken into account when assessing microcredit’s impact in developing countries.