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Exploring the role of microfinance in women’s empowerment and entrepreneurial development: a qualitative study

• Ambreen Khursheed   ORCID: orcid.org/0000-0003-1497-5848 1  

Future Business Journal volume  8 , Article number:  57 ( 2022 ) Cite this article

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In developing countries, women’s empowerment is a major concern. Several efforts were made to tackle this issue as the aims of poverty reduction and development cannot be achieved without giving attention to women’s empowerment. Over the past decades, microfinance institutions (MFIs) have appeared as crucial tools not only to address the issue of poverty but also particularly to empower women. Resultantly, a huge number of studies focus on the relationships between MFI and women empowerment. However, in the context of rural areas of Pakistan, the research is limited. Therefore, the objective of this study is to investigate the role of MFI in women’s empowerment in Pakistan so that the research will facilitate MFIs and policymakers in strengthening the link between MFIs and women entrepreneurship. We have used a qualitative methodology, using primary data collected through in-depth interviews and a focus group discussion with six female borrowers of Rural Community Development Programs (RCDP). The empirical results provide valuable insights into the efforts made by RCDP to empower women and combat poverty by encouraging women’s entrepreneurship. Hence, this paper not only examines empowerment, which women are attaining from microfinance but also assists MFIs to know about their significance in developing the economy. The paper is significant for MFI practitioners to develop policies for boosting women’s entrepreneurship and to help their existing women clients with efficient training and supervision.

Introduction

Microfinance has a unique ideological demand as compared to charity. It is particularly designed to support poor people. However, it is a long-term process that enables the poor to improve their living standards in an effective manner [ 39 , 41 , 74 ]. In particular, when we talk about microfinance from the perspective of women, the role of benefactors of microfinance seems important in making it a relatively effective resource for poverty alleviation, the stability of economic growth, and women empowerment [ 25 , 39 , 41 ].

The difference between male and female ratios is not considered significant, but in several areas, women are provided less importance and power in comparison with men [ 29 , 37 ]. Women around the world have little control over their assets and have less political power. Further, they do not have a lot of properties to their name [ 58 , 68 , 87 ]. Due to a lack of security saved in the financial sector, women faced several difficulties during the financial crisis period which lasted from 2007 to 2008 [ 52 ]. Similarly, it is crucial to understand the impact of the recent crisis of COVID-19 which affected all businesses badly and also threatened world health security [ 81 ].

However, several researchers have questioned this statement. The classification of all expected benefits and disadvantages of MFIs is still in the initial phase. We are still discovering how to improve the living standards of poor women and their families. This study aims to broaden existing knowledge about the role of MFIs in empowering women in rural Pakistan.

In emerging economies, MFIs and women empowerment is considered to be one of the most effective tools for poverty alleviation by particularly focusing on women [ 62 , 87 ]. Certainly, women are one of the most important parts of society and without their presence, societies cannot improve [ 23 ]. Women empowerment leads to the increased participation of females in the workforce, the capability to decide, and poverty reduction. Thus, an increase in their income will not only prove beneficial for their family but will also have a very positive influence on the economy [ 58 ]. Another study investigated the nonlinear effect of the education level on the ecological footprint by incorporating the variation in the population and income structures and recommended crucial policies regarding education levels and environmental sustainability [ 82 ].

In developing countries, all businesses are male-dominated and females have to suffer from discrimination in most of the phases whether it is their personal life or professional life. However, financial segregation seems complicated for developed nations regardless of the gender factor. Financial stability is a key concern for developing as well as economically challenged countries as these economies do not have a stable financial environment and well-established institutions [ 42 , 43 ]. The presence of poor health facilities, underdeveloped financial industries, illiteracy, and weak infrastructure have raised serious problems for developing nations. To consider the requirements of financially excluded women, MFIs step forward to help those women in establishing new endeavors [ 55 ]. As a result, non-government organizations and government agencies decided to provide subsidized loans for a better lifestyle of people and poverty alleviation. Prior researchers appreciated the initiative of such investments (for example, [ 25 , 60 ]), but disproportion has been observed in these investments from the side of rich landlords or agencies. To tackle this issue, some highly effective alternative social networks, social collaterals, and credit scoring are needed here to approach the poorest women [ 57 ]. Moreover, women in more rigid cultural settings are likely to face a higher risk of domestic violence because economic empowerment intervenes with patriarchy and expedites change in rigidly defined gender roles [ 27 , 28 ]. Therefore, the need to address gender power imbalance and existing gender roles need to be taken into account before making interventions to empower women. It is found that the main body of the related existing literature primarily discussed only those factors that played a key role in the supply side of agriculture finance and microloans. A few past studies have also focused on the demand side of microfinance loans. However, the study of Guirkinger and Boucher [ 21 ] and the study of Ashraf and Ali [ 7 ] have highlighted the possible hurdles of the demand side of microfinance loans faced by smallholders. These obstacles include complex application procedures and complexity in providing loan securities. The seminal work of Garikipati et al. [ 18 ] reveals that the process of providing loans to the poor is uncertain, and is not easily generalized. So, people should be careful to utilize this development tool. However, it is clear that these loans provide financial benefits for poor women in developing new endeavors [ 71 ] and also act as a smart policy to help the poor [ 10 ]. Irrespective of the talk of “gender neutrality,” MFI clients that are women of immobile poor backgrounds have a lower default record as compared to men. MFI start-ups usually have significant and underreported economic effects because the poor women who work within households are not getting the standard pay and have limited start-up funds.

Brière and Szafarz [ 13 ] reported that MFIs have now become a risk-averse thing and it is “financialized,” i.e., MFIs now act as mainstream financial institutions. On the other hand, MFIs are considered a good source of financial support for women in starting new businesses and a tool to eliminate poverty in the country but this fact is not applicable universally because MFIs can also appear as an enigma in providing microfinance access to women. In various literature studies, researchers have focused on savings and credit products MFIs. It has been found that research studies are showing great interest in microfinance. Therefore, we aim to explore how MFI can lead to women’s empowerment and entrepreneurship. Furthermore, we also decided to investigate the possible benefits of microfinance for women from RCDP’s microcredit program.

Problem statement

One of the objectives of microfinance is to enhance women’s empowerment and to generate employment opportunities by promoting self-employment that consequently improves the social well-being of poor people. Most of the existing studies, mainly in economics, have only focused on how MFIs lending helps in poverty alleviation, rather than analyzing its impact on social and financial empowerment and new venture creation by women. The majority of the past studies were quantitative [ 9 , 15 , 17 ], while there were a few qualitative studies applied in various contexts that analyzed the impact of MFIs in enhancing women’s empowerment but still substantial studies are not available which explores specific lived experiences of women borrowers when they avail microloans and how they utilize that loan in starting their businesses. Therefore, this study aims to enhance the understanding of the role of microfinance from the viewpoint of beneficiaries in improving their empowerment and entrepreneurial development.

Significance of the study

Pakistan is a developing country and the majority of its population is living under the poverty line and are mostly unaware of different sources of financial facilities. MFIs particularly focus on such rural areas in which most of the people are un-bankable and marginalized. This study contributes to the extant literature, as it explores the lived experiences of women borrowers regarding empowerment and entrepreneurial development. To get deeper insights into the structural meaning of empowerment analyzed by considering participants’ histories, lived experiences, and social interactions, we used a qualitative approach that relies on in-depth interviews and a focus group under the case study research design. This study provides valuable insights into how MFIs are making women socially and financially empowered. Also, how microfinance helps in women-led ventures’ creation process. To investigate how microfinance is increasing women’s empowerment, we deduced the following sub-objectives.

To explore how women become socially empowered after getting micro-financed.

To figure out how women become financially empowered after getting micro-financed.

To determine how microfinance increases women’s entrepreneurship.

Literature review

• Microfinance

Microfinance programs have been playing a dominant role in poverty alleviation since long ago [ 40 ]. The vision behind the growth of microfinance is to pull the poor toward the entrepreneur side by giving them enough credit to achieve this goal. However, microfinance usually considers one assumption, i.e., the beneficiaries have adequate social capital, human capital, and other required assets for expanding their small-scale businesses. This indicates that the lack of credit is the only prominent hurdle experienced by poor women [ 73 ]. This assumption seems quite complicated because the growth of even a small business requires a lot of competencies, knowledge, expertise, and abilities [ 2 ]. Another major issue is that microfinance faces difficulty to approach the right poor people [ 16 ]. In the light of practical aspects, microfinance refuses the poorest division of people from borrowing money. This violates its role in approaching very poor applicants [ 14 , 83 ]. Furthermore, the poorest household people who are availing the benefits of microfinance still lack the proper technical skills that are necessarily required for business. The background of microfinance shows it is an essential tool to alleviate poverty, it works by receiving donations and lending money to poor people. Microfinance programs disregard the non-income parameters of poverty such as health, security, and education [ 11 ]. The study of Shaw [ 64 ] explains how the poorest households possess limited formal education. Also, poor health and undernutrition play a vital role in limiting the overall productivity of such households. The lack of education results in severe illiteracy which can badly affect the poor and make them unable to properly understand the effective working procedure of loans. Famous examples include Akhuwat, AGAHE Pakistan, AMRDO Foundation, non-bank microfinance companies, and many more.

Measuring empowerment

The study of Malhotra et al. [ 47 ] reports that the identification of empowerment as a primary development tool has been done, but still, institutions such as the World Bank and development agencies haven’t introduced an authentic method for estimating and analyzing the tracking variations in various levels of empowerment. Researchers define empowerment as a dynamic procedure that is complex to measure. The reason behind this is that empowerment is related to social, economic, and political challenges as well [ 63 ]. The spiritual, social, political, and health factors make the complete empowerment measurement procedure and these all factors are interconnected with each other. The term empowerment can also be expressed as a way of independent decision making, identification, and utilization of resources [ 1 ]. The literature reveals that empowerment is a multidimensional concept and it can be assessed under multiple dimensions [ 31 ]. This study primarily focuses on the influential impact of microfinance on women’s empowerment in the context of the financial and social aspects. This is because the financial and social aspects of women’s empowerment help increase the development of both the quality and quantity of existing human resources. These two aspects are proven as critical factors in enhancing the development of a society.

Meaning of women’s empowerment

There is significant diversity in the agendas, emphases, and terminologies used for describing women’s empowerment. Many papers have defined empowerment and its measurement approaches. The most common terms used in the extant diverse approaches use power, choice, control, and the option to describe women’s empowerment [ 72 , 78 ]. However, it is still confusing to say whether the terms “empowerment”,” “gender equality,” “women’s autonomy,” and “women’s status in society” are similar or different concepts. The term women empowerment has been conceptualized mostly as an outcome or a capacity or some means to an end, and a process of achieving power [ 35 , 54 ].

Microfinance and women’s empowerment

Women are the main target audience of microfinance programs. This credit amount not only helps poor women to grow economically but also improves gender equality, the status of women within the family, their health, and their education level [ 35 ]. Moreover, women are examined as a good credit risk by microfinance programs due to their increased propensity to repay loans [ 24 ]. In contrast, men are more interested in moving their money toward risky business practices and are at high risk to consume this money on tobacco, gambling, or drinking [ 20 ]. However, Goetz and Gupta [ 20 ] also highlighted that a significant percentage of women’s loans are directly invested in business activities by their male relatives, but the liability of repayment goes to women borrowers. The recent literature primarily discusses the evaluation process of microfinance programs [ 3 , 38 , 65 ] in the context of the well-being of borrowers [ 14 , 50 ] and empowerment capabilities of women [ 61 ]. The reporting of these evaluations reveals some conflicting conclusions, and it still tells that borrowers have an absence of accounts for themselves and this impact of credit can affect their lives [ 35 ]. There is limited evidence in the literature on how the poor perceive the process of microfinance loans. In addition, the existing literature has limited scope regarding the “transformative process” of entrepreneurship which reveals the lives of those needy people who are living in extreme poverty [ 76 ]. In response, this study fills the gap in the literature by examining how most disadvantaged borrowers or potential borrowers themselves perceive and experience microfinance in a context characterized by extreme poverty, one where family responsibility and entrepreneurial activities are closely intertwined.

A study reported that 95% of Grameen’s borrowers were females and this percentage kept on raising till 2011. Similarly, Aghion and Morduch [ 6 ] highlighted that 71% of total borrowers of MFIs were women. Further, past researchers have also pointed out that MFIs target women because their default rates are very low as compared to men [ 5 , 36 ]. Because of this reason, MFIs have launched several innovative schemes to financially support their female clients. MFIs play a crucial role in enhancing the empowerment of women as it boosts their resources, increase return on human capital by improving their affordability, and consequently improve their living standards.

Social empowerment of women

Women’s social empowerment refers to having a supportive environment by using different affirmative programs and policies for the empowerment of women along with the provision of easy and equal access to necessities of life [ 48 ]. In the field of development, empowerment has become a catchword, with a specific focus on poverty alleviation and the political addition of marginalized groups of women [ 49 ]. Microfinance has proved socially beneficial for women [ 35 ]. In a pivotal study, Mahmud [ 46 ] described that microfinance institutions have a significant positive influence on women’s social empowerment as it substantially improves their control of income spending and intra-household decision-making power, which resultantly enhances their welfare. Sinha et al. [ 67 ] found that women’s participation in MFIs enhanced their capability to spend money, mobility, and dominance in household decision making. Further, Montgomery and Weiss [ 51 ] concluded women’s participation in MFIs leads to enhance family decision making and found that family landholdings, media exposure, and institutional access are key determinants of women empowerment [ 26 ]. Similarly, it was found that savings impact is more significant on women as compared to men as it enhances their decision-making power related to family planning, family expenses, recreation, and their lifestyle [ 8 ].

Therefore, there is a need for an integrated microfinance program comprising education with skill-building training for increasing the capacity building of women and fortifying the relationship between women’s social empowerment and microfinance [ 4 ].

Financial empowerment of women

Many past studies have analyzed women’s empowerment from different perspectives; however, financial empowerment is ignored to some extent. In this study, one of the main objectives is to examine the financial empowerment of women. Past studies have reported that financial empowerment can be understood through three factors; financial literacy, financial attitude, and financial well-being. Financial literacy is inherent in humans and is recognized as the primary privilege of humans. “Financial literacy is the capability of understanding finance” [ 75 ]. Lack of financial knowledge ultimately pulls poor people away from success in financial markets or businesses [ 79 , 86 ]. The importance of financial literacy is equal for men and women. However, it is reported that if women have stronger financial knowledge then they can do effective future planning [ 45 ]. Financial knowledge is related to financial attitude. The financial attitude refers to the capability to manage finances, interest in enhancing financial knowledge, and investment decisions. Past studies revealed that financial knowledge, financial attitude, and financial behavior affect financial empowerment or financial well-being [ 33 , 66 ]. The concept of financial well-being is related to personal traits, knowledge of finance, and attitude. Therefore, the subjective meaning of financial well-being varies from person to person [ 32 ]. Thus, the financial empowerment of women can be assessed by considering financial literacy, financial attitude, and financial well-being.

Research gap

The literature discussed following the structure from the history of microfinance to concepts of women empowerment leads to the discussion on the relationship between women empowerment and microfinance. The literature depicts that different indices were explained in prior research studies giving a quick overview of empowerment but they are limited as they used a few variables, ignored key ontological issues, details, and subjective experiences that deepen the understanding of empowerment [ 9 , 15 , 17 ]. Therefore, this study fills the existing gap as we interviewed women in their natural settings and in their contexts in which they interpreted empowerment from their viewpoints.

Further, there was a strong practical gap regarding the lack of research on how women experienced empowerment and entrepreneurship through microfinance. A majority of the past studies applied quantitative methodology with the top-down approach which focuses on the views of service providers instead of beneficiaries and thus the beneficiaries’ views were not considered. Therefore, it becomes evident that the quantitative approach is not suitable for understanding women’s empowerment because it is a process of realization and only participants can explain what empowerment means to them through their experiences and feelings of becoming empowered. Hence, it is significant to use a qualitative methodology to capture the real feelings and experiences of women. Therefore, we applied the bottom-to-top approach to analyzing the true essence of the lived experiences of women regarding empowerment and entrepreneurship. Thus, this study is based on a case study research design to explore the perspectives of women that how they interpret and understand the phenomenon of empowerment achieved through microfinance in their natural context. Overall, this study enriches the extant literature about women’s empowerment by explicating the complex phenomenon of empowerment through social, financial, and entrepreneurial contexts.

Research question

For exploring the effectiveness of MFIs in terms of women’s empowerment and entrepreneurial development, we propose the main research question of this study as follows;

What is the impact of microfinance on women’s empowerment?

Sub-questions

How does a woman become socially empowered after getting microfinance?

How does a woman become financially empowered after getting microfinance?

To what extent microfinance leads to women’s entrepreneurial development?

Theoretical framework

William’s theoretical model of women’s empowerment.

In this study, two theories as theoretical frameworks are used. The first theory is by Williams [ 84 ] who formed a theoretical model on women’s empowerment. In the development of this model, the innovative insights of Kabeer [ 34 ] were used. Given this theory, empowerment comprises three factors, resources, agency, and achievements. Here, the resources present the supporting factors which are utilized by women to achieve empowerment, the agency presents the ability of the women to achieve their goals, and achievement refers to the success of women in achieving their life goals. Resultantly, the results achieved represent achievements by combining resources with the agency. We have used this model for measuring women’s empowerment.

Status withdrawal theory

The second theory used in this study is the status withdrawal theory, this theory explains that when certain groups of people realize that they are not respected by society. They switch to entrepreneurship for getting respect from society [ 22 ]. Thus, entrepreneurship is a function of status withdrawal. We follow this theoretical framework for understanding the entrepreneurial development among women borrowers. As all women borrowers belong to a poor class so we will explore whether they have any status withdrawal intention behind starting their own business or not (Fig.  1 ).

Conceptual framework of the study

Methodology

This study adopts the case study design approach for the empirical investigation as it inspects a contemporary phenomenon within the real life of participants, particularly when the limits between the context and phenomenon are not visible [ 59 , 85 ]. The case study design is the most suitable design for this study to carefully understand the impact of MFIs on women’s empowerment as it provides more in-depth views about the phenomenon under study.

The variables and themes analyzed in the focus group discussions and in-depth interviews are presented in Table 1 .

Semi-structured interviews

A qualitative method, in particular, semi-structured interviews, and a focus group were employed in this study. We used an interview checklist for the collection of qualitative data as it helps to properly understand the psychology of the participants. Also, it helped us to identify missing information from the participants. All interviews were conducted by telephone. The participants were selected through purposive sampling, as it is widely used in information-rich case studies [ 56 ]. The MFI selected for this study is RCDP, this MFI has played a key role in developing economic activities in communities and it exclusively focuses on women. The sample size consisted of six participants, who are aged 35 or above. Semi-structured interviews were organized in two sections, the first section included background questions based on the loan history of participants at the RCDP, demographic details, and a description of current business progress. The s econd section comprised questions that were related to participants’ viewpoints about their experience of gaining empowerment. For example, respondents were asked to provide in-depth explanations regarding their daily tasks and how their tasks get influenced after getting microloans. We also used sample prompts such as, “What role has microfinance played in your life?” and “Have you experienced any change due to microfinance? How it supported you in establishing your business?” Grand tour questions were also used such as “How would you explain a usual work week?” The grand tour questions lead us to get in-depth information through mini-tour questions for determining the details about certain events and the experience of women borrowers [ 69 ], such as Could you describe to me what you do for the mid-day meal when you are at your business? This helped in inquiring about delicate features such as advantages and changes associated with the role of microfinance in enhancing women’s empowerment. After conducting the semi-structured interviews, a focus group discussion with borrowers was conducted. This discussion helped us to collect data about the socioeconomic factors of women’s empowerment. This method helped us to have firsthand information (Table 2 ).

Focus group

To analyze the experience and interactions among participants, a focus group plays an important role. Through focus groups, we probed answers to the best lending practice, saving plans, and effective interpersonal relationships between members. The group discussion helped us to make certain aspects clearer.

Data analysis, results, and discussion

Developing first-order codes and second-order themes.

For analyzing the data, thematic analysis is used. First, to form codes, the data analysis started with coding iteratively, recorded interviews were used in performing the analysis [ 19 ]. At the initial stage, the data is linked with first-order codes that focus on the main research topic, the impact of MFIs on women’s empowerment. After this, common themes were used to join data fragments together from different but interconnected categories developed in the open coding [ 70 ]. This helped in combining first-order with second-order codes in a more precise manner.

Incorporating first-order codes with second-order themes

In the second phase, the data was revisited to ensure precision in the second-order themes. The existing themes were refined or used to create new second-order themes. We analyzed the constructs for ensuring that the themes are reflecting first-order themes. For example, first-order coding statements related to respondents’ increased level of independence in decision making led us to form a second-order theme explaining “increase in independence in decision-making power.”

Later this statement was defined as “Social Empowerment” described by the first-order coding statements explaining independence to decide without asking anyone. This analysis adds precision in this phase, while simultaneously permitting us to better examine and improve other evolving concepts, such as “being independent.”

Accumulating the theoretical dimensions

After second-order themes, we determined the theoretical dimensions for understanding the interaction among themes. For instance, some themes represented real experiences of social empowerment (e.g., “autonomy in decision making”) while others related to their response to social empowerment (e.g., “confidence in expressing an opinion”). We examined multiple models to check how multiple conceptual models relate to each other, using existing empowerment theory whenever suitable. We evaluated potential models against the data to investigate how emergent theoretical understanding described our research model. Table 3 presents the methodology, presenting the first-order codes, the second-order codes, and the theoretical dimensions that effectively describe the lived experiences of participants and the impact of microfinance in gaining empowerment.

Table 4 reveals the data supporting each second-order theme by presenting that microfinance has proved very beneficial for all six participants. Our main research question was to determine how microfinance increases women’s empowerment. Thus, our results presented that microfinance drastically changed the perception of women borrowers about living an independent life and societal dynamics. Fulfilling the necessities is one of the primary issues of poor people and due to this, they have to earn for each day’s expenses. Further, because of having no savings to rely upon, the lines between households and businesses are often not so clear. All our respondents reveal that now they feel more confident and empowered as compared to their earlier condition. All participants shared that they spend their income on fulfilling their household expenses such as children’s schooling and utility bills. The findings of this study were obtained through thematic analysis which is useful in conducting identification analysis and pattern reporting within data [ 12 ]. This study aimed to determine how microfinance is an effective tool for women’s empowerment, and how microfinance leads to develop entrepreneurial characteristics among women, and how it is useful for women. The conclusions achieved from this study may not become generalizable for the whole population but it is generalizable at a conceptual level [ 30 ].

The study determines the role of RCDP in women’s social and financial empowerment with the help of a case study methodology. We have used focus group discussions with in-depth interviews. We explored the lived experiences of women before and after taking a loan from RCDP and its impact on their social and financial empowerment with a view of William’s theory. In the focus group discussion, all participants shared their lived experiences and in the in-depth interviews, each case was analyzed for understanding the actual circumstances through which each participant has gone through. In this analysis, open-ended questions helped in understanding the real scenarios. The main research objective was to utilize open-ended questions for developing a comfortable association with the participants so that they can share all their lived experiences conveniently. We have selected in-depth interviews and focus groups because these methods were found more suitable for analyzing each case.

Case 1 Participant (1) described when her husband died in a road accident. She became helpless. Her in-laws abandoned her with six children. Then, she applied for the microfinance program of RCDP and was provided with an initial loan worth Rs.75,000/- for establishing a small retail store of food items. In her village, no women were running their retail store. But she took this step to support her children and now she is running a successful business. The credit for her success goes to her decision of taking a loan and starting a new journey in her life. She expressed;

Life became miserable without my husband. It was difficult to feed six children. Without having a source of income and no place to stay. I felt that my life has come to an end. But microfinance helped me to get out of the crisis. Now I am living a peaceful life with my children.

Case 2 Participant (2) shared that she remained in an abusive relationship with her husband for 11 years. Her husband was addicted to drugs. He divorced her after the birth of their seventh daughter. Then, he got married to some other woman. She expressed that she has gone through severe depression during that time when was alone with her daughters. Her mother and sister supported her but financially they were not capable to feed her children.

I was extremely depressed due to my divorce. I had no source of income other than him. I was worried about my daughters. I have four brothers and they also refused to support me at that time. Then, I started weaving and also started a dressmaking business on a small scale after taking a loan from RCDP. Particularly, I was good at making girls’ dresses. Now my mother and sister are living with me and I am supporting my family with my business.

Case 3 Participant (3) expressed that microfinance helped her a lot in supporting her family. Initially, she took a loan of Rs 80,000 to start her business. She shared;

My husband was a plumber but his income was not enough to support the household expenses. Then a time came when my husband couldn’t find any job for three months. We were deprived of all necessities. And we also have three children who were not going to school due to our crisis. Then I asked my husband to start his own business of baking food items. Because I was good at baking. We both decided to take a loan and started our own business. My husband was narrow-minded, initially, he refused to accept me as a partner in his business. But when he realized that only after one week our business showed visible growth. Then he allowed me to help him and we also hired two more workers. Now our children are going to school and we are managing all our household expenses.

Case 4 Participant (4) expressed that her husband was an employee in a garment factory. One day the owner of the factory decided to wind up his business because of a lack of profits. My husband lost his job, he searched a lot for other jobs but he failed to find any suitable job. Then, he died due to a heart attack. She took a loan of Rs 60,000 for purchasing a sewing machine and some clothes. She shared

I was living a happy life with my husband and children but life changed when my husband lost his job. Further his death made the situation even worse. One of my neighbors told me about RCDP. Just because of my children I took a loan and started my own stitching business and now I am in a position to manage my all household expenses.

Case 5 Participant (5) shared that her husband was employed in a workshop. But he lost his job due to the closure of that workshop. They had no other source of money. For four months, her husband searched for another job but he couldn’t find any opportunity. Their children left school because they were not able to pay their fees. Then, she convinced her husband to take a loan and start their own business. Her husband was afraid that we will not be able to repay the loan. Then, they will lose their respect in the family. But she told him that they have no other option and they have to take this risk.

My husband knew how to manage a car workshop so we decided to use the loan amount for starting a business. Gradually our business flourished, and we also managed to repay our monthly loan installments.

Case 6 Participant (6) shared her life experiences by stating that her husband was an electrician and his income was not enough to support the family. They have six children and their school fees were not payable with that income. Thus, she asked her husband to start his own business as a retail store as there was no other store in their area.

I am managing a retail store with my husband. Initially, my husband took all decisions related to savings and asset purchases. But now as I am helping him in managing our retail store. He acknowledges my effort and now we collectively decide how to spend our income. I and my husband started doing all chores together now. We both listen to each other, and collectively make decisions. He respects my suggestions and decisions. As we both couldn’t get a higher education, so we have realized the importance of education. Therefore, we are sending our children to good schools for quality education. The credit for our success and better well-being goes not only to my hard work but to all including my family, friends, and also to RCDP who helped us to build up our lives once again.

We have found that after establishing their own business, women became more confident and self-empowered due to microfinance. They have developed a true belief in their entrepreneurial skills and independent decisions. These women are highly efficient as they not only make a business investment but also save some amount of money for future needs at the same time. Women use their amount of loans in smart investments in some entrepreneurial activities and in providing financial support to their families. But after becoming financially stable, they start saving money for future needs. This indicates the smart and strategic planning of women. After this phase, women are very confident in developing a strong position in their family and taking financial responsibility on their shoulders. These results also find support from past studies [ 53 , 80 ]. Women have developed a serious working attitude toward their profession and are happy for supporting their husbands and family [ 77 ]. Hence, we can say that this all has become possible due to microfinancing as it not only provides financial support to women but also encourages them to contribute positively toward the development of society. [ 44 ]. Also, it plays a prominent role in establishing entrepreneurial knowledge and independent decision-making habit in women. Despite these efforts, many areas such as quality of services and working on new skill development trades, and gender responsiveness need improvement. The present form of this paper is not gender-friendly because it has mainly targeted the female gender and the male gender seems neglected. In addition to tangible development (food access and other necessities of life), it also provides intangible development to women in the form of motivation, self-belief, self-empowerment, confidence, and independent decision making. The findings of the study are in line with William’s theoretical model of women’s empowerment as the participants expressed that they have achieved empowerment by using their resources and agency. Further, the results are also in line with the status withdrawal theory as the participants expressed that they want to become independent because they want respect in society. Hence, our results are in line with the theories.

Microfinance plays a dominant role to motivate and enhance entrepreneurial activities in any country. This study aims to examine the efficiency of microfinance in empowering women in Pakistan. The analysis and results revealed that microfinance is an effective tool that can contribute to the development of women’s empowerment and entrepreneurship. The findings also support the theoretical aspect of William’s theory as women empowerment is being discussed with a view of three dimensions including resources, agency, and achievements. The study contributed to breaking the conventional hurdles levied on women’s decisions and mobility. A developing country needs to focus on the growth and development of entrepreneurship for achieving stability. People find microfinance as an opportunity for themselves as it provides a way to enter into the entrepreneurship field. The six cases elaborated in this study reveal that the RCDP microfinance loan has been proven as a full-time and consistent earning source for the people and helped them a lot in improving their living standards. In the initial stage, the clients operated their business as sole proprietors, and over time, they involved many other people in the business. Thus, microfinance has become a potential source of earning for many needy people.

Hence, this study highlights that microfinance creates a positive and influential impact on rural women. It not only works for the betterment of women but also considers the entire families of those women by supporting them in enhancing their family earnings. In this way, this study will help in increasing the percentage of school-going children and a reduction in child labor due to an increase in family earnings. Although this project is concerned with providing small-scale services still it is contributing a lot toward the growth of Millennium Development Goals related to women’s empowerment, health, child welfare, and poverty alleviation. In light of these results, we came to know that microfinance has a diverse portfolio of benefits. It is not only a source of finance but also a tool that makes women more confident and boosts their morale. The findings indicate that even the small-scale loans taken from RCDP have helped women a lot to grow their socioeconomic and financial position through entrepreneurship which supports the theoretical foundation of the status withdrawal theory. It has benefited females with strong and independent decision-making power. Our results can help policymakers and practitioners to adopt suitable policies that assimilate empowerment in the formation of more effective projects for women. The findings of this study may encourage more women to take part in microfinance projects and entrepreneurial activities.

Limitations and future directions

This study has some limitations. The first limitation is the shortage of time that resulted in designing a moderate sample size as compared to a bigger one. Second, the data collection is done for just one city and is limited to interest-based loans, whereas it has been found that RCDP is also concerned with interest-free loan programs. Third, the study used only six detailed interviews due to the time constraint factor which indicates that the findings cannot be fully generalized as only six cases were taken into account. However, this study has a potential scope in elaborating on all the possible dimensions of the related topic and it would enhance the recognition of women’s empowerment. This paper is dynamic as it covers both practical and theoretical aspects. Keeping in mind the time limitation and resource constraints, the above-discussed six cases can serve as a good starting step to allow the researcher to explore it further and investigate more dimensions in a longitudinal analysis. This study motivates women of our country to take a positive stand and contribute their role in poverty alleviation.

By documenting the limitations of the present study, future researchers are suggested to explore certain areas. Firstly, this study primarily deals with only a single project in the context of the most modern areas of Pakistan, it is recommended to future researchers perform this study in different regions of the country. Secondly, the sample size is limited due to time limitations; hence, future researchers are advised to conduct a study on the related topic by designing a large sample size. Lastly, it would be better for researchers to investigate the sustainability of community-based development projects via localized community-based adjustments with the support of local NGOs’ involvement rather than government funding.

Availability of data and materials

The data analyzed during the current study is available from the corresponding author on reasonable request.

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Khursheed, A. Exploring the role of microfinance in women’s empowerment and entrepreneurial development: a qualitative study. Futur Bus J 8 , 57 (2022). https://doi.org/10.1186/s43093-022-00172-2

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Financial Inclusion Through Microfinance: Is It Possible?

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The present study aims to contemplate the role of microfinance toward financial inclusion. The present economic scenario because of global financial issues has raised doubt regarding the past perspective on the positive role of finance in the growth and development of an economy. Moreover, financial performance has become a focused area for microfinance institutions instead of empowerment and reduction of inequality which was the base for their formation. Therefore, the chapter examines the behavior of microfinance toward curbing financial inequality across different regions in the world. The study further highlights the problems and prospects associated with the role of microfinance in financial inclusion. Adopting descriptive methodology using various secondary data sources, the present study arrives at the conclusion that a major part of the regions has reached the financial inclusion mission with some lacunae. The study thus suggests the use of digitalization and innovation aspects in the present digitalized world to the fullest in order to achieve the sustainability of the qualitative results.

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Yadav, A., Kanojia, V., Jain, M. (2022). Financial Inclusion Through Microfinance: Is It Possible?. In: Das, R.C. (eds) Microfinance to Combat Global Recession and Social Exclusion. Palgrave Macmillan, Singapore. https://doi.org/10.1007/978-981-16-4329-3_11

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Impact of microfinance on women’s economic empowerment

• Belay Mengstie   ORCID: orcid.org/0000-0002-4330-7083 1  

Journal of Innovation and Entrepreneurship volume  11 , Article number:  55 ( 2022 ) Cite this article

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Women’s economic empowerment a strategy aimed at enabling women in decision-making, increment in income and asset ownership. The main aim of the study is to examine the impact of microfinance on women’s economic empowerment. Data were derived from a questionnaire of a sample of 346 women clients of microfinance. Multiple regression and paired sampled t -test data analysis techniques were used in the study. Multiple linear regression result revealed that age, marital status, education level, credit amount, and number of training have significant effect on women’s economic empowerment. However, previous business experience did not have significant impact on women’s economic empowerment. Paired sampled t -test result revealed that there is significant mean difference before and after microfinance service in terms of income, asset, and saving. Microfinance has significant positive effect on women’s economic empowerment by improving women’s independent income, increasing asset possession levels, and improved monthly saving amount. Moreover, the study proved that microfinance has a positive impact on women’s entrepreneurship development and business exposure.

Introduction

Microfinance institutions have been considered as important development program in Ethiopia for the last 20 years. The legal foundation for the microfinance movement and expansion in Ethiopia was started after 1996 proclamation. In the development of microfinance, this proclamation considered as a bench mark to start and develop microfinance in the country. Women’s participation in microfinance is growing gradually. All microfinance industries have a shared vision of poverty alleviation and women’s economic development.

Microfinance institutions are effective instruments for providing basic services like saving, affordable credit, and skill training (Haimanot, 2007 ; Mahfuz et al., 2017 ; Misrak, 2012 ). Microfinance institutions are important economic development agents intended to benefit women and lower income people (Cicchiello et al., 2021 ; Duflo, 2012 ; Meressa, 2020 ). Microfinance institution plays a great role in different countries in alleviating women’s economic problem, creating self-employment opportunities, and developing businesses for women entrepreneurs. Women are benefited from participating in microfinance program. Women’s participation in microfinance credit program increased their economic position, exercise economic independence, and improvement in their business leadership skills (Addai, 2017 ; Haimanot, 2007 ). However, Women’s participation in economic activities is very low in Ethiopia (Dawit, 2014 ; Solomon et al., 2019 ; Zelalem & Chalchissa, 2014 ).

Women represent the main economic force in different developing countries. As economies become more and more information-driven, the issues of women’s access to and the use of information and communication technologies are growing in importance for developing economies (Michota, 2013 ). Economic empowerment improves women’s opportunity to resources and non-financial resources. Moreover, it creates good opportunity for skill development and market information (Addai, 2017 ; Khandre, 2015 ). Women’s economic participation is base to exercise women’s right and helping them develop decision-making role over their household and influence in their community. Women’s empowerment is creating equitable societies (Shaheen et al., 2013 ).

There are controversies on impact of microfinance on women’s economic empowerment. Odell ( 2010 ) study identified the difficultly of making generalized conclusions taking to consideration the heterogeneity of microfinance interventions. Stewart et al. ( 2010 ) study in Africa found little impact of microfinance on income of beneficiaries. According to Rathiranee and Semasinghe ( 2015 ) study, there is a weak but significant impact on women empowerment due to microfinance service provision in Sri Lanka. Addai ( 2017 ) and Mohammad et al. ( 2017 ) study clearly indicated that there is positive effect of microfinance on women’s economic empowerment in Ghana and Bangladesh, respectively. Different researchers confirmed the significance effect of microfinance (Kato & Kratzer, 2013 ; Loomba, 2017 ; Misrak, 2012 ).

There are many published studies linking microfinance to women’s empowerment. The studies mainly concerned on microfinance role on, poverty alleviation, and socio-economic development through microfinance. Particularly in Ethiopia, the concept of microfinance is at its infancy level that needs further investigation. Therefore, this study is focused to examine how microfinance service has impact on women’s economic empowerment taking into account Amhara credit and saving institution of Ethiopia.

Literature review

Microfinance development in ethiopia.

Microfinance program in Ethiopia launched during 1960s as semi-formal microfinance service with credit and saving cooperatives. Semi-formal microfinance created assets to undertake different economic activities, improved household asset building, and manage risks and bad events. Different non-government organizations in Ethiopia have introduced saving and credit cooperatives aimed at creating self-employment and generating income for the betterment of society affected by drought in the country (Befekadu & Berhanu, 2000 ).

Until the beginning of 1990s financial sources to finance for urban and rural poor and small enterprise in Ethiopia were informal and semi-formal sources of finance like families, friends and moneylenders (Itana et al., 2004 ). They further noted that, starting in the mid-1990s after known drought in 1984, Non-Government Organizations introduced the idea of saving and credit among poor section of the society as a means for rehabilitation and development. Later, government programs undertaken in collaboration with international financial institution even though both types of programs were operated in unorganized and scatter manner and lacked sustainability until the year 1996.

Formal microfinance in Ethiopia was developed and flourished recently with fast growth rate. Dawit ( 2014 ) noted that Ethiopian owned microfinances were established to provide different services in rural households, promote saving habit and credit accessibility with strong focus on sustainability. Formal microfinance was strengthened in 1990 when an urban micro-financing scheme was initiated at national level with agreement signed between International Development and Ethiopian Government (Befekadu & Berhanu, 2000 ). After Ethiopian people’s democratic front, present Ethiopian government, took over power in 1991, considerable attempt has been made to liberalize the financial sector. As result, Proclamation No. 84/94 was declared, to allow private and domestic investors to engage in insurance and banking business, which were previously monopolized by the government. Another Proclamation 40/1996 was issued to solve financial services delivery of the to poor section of the society (Dawit, 2014 ). Therefore, the legal foundation for the microfinance industry was laid in the country with Proclamation 40/1996 on supervision and licensing of MFIs in the year 1996. This proclamation act as a framework to start, expands, and develops microfinance in Ethiopia.

Agricultural Development which Leads to Industrialization strategy considered rural finance as an important tool for agriculture and food security. As a result, the Ethiopian government reconsider microfinance operational modality in order to facilitate microfinance service delivery and outreach. Currently, in Ethiopia there are 38 microfinance institutions licensed to operate regional states and throughout the country (Solomon et al., 2019 ).

Microfinance and women’s economic empowerment

Microfinance institutions are considered as society based strategy to give different finance related resources for the poor and disadvantage section of the society in order to improve the life of clients (SEEP, 2006 ). Microfinance sector plays vital role in supporting the community in their transition towards development of the country and peace building. Microfinance industry support local economic development by providing the needed financial and non-financial services for small enterprise development. According to Kamberidou ( 2013 ), women are naturally strong in using financial and non-financial resources in building strong relationships, and creating a culture of collaboration. Some researchers consider microfinance as survival strategy in time of disaster and sustainable peace development (Dawit, 2014 ; Khanday et al., 2015 ).

In Ethiopia context Supervision and Licensing of Microfinance Institution Proclamation No. 626/2009 defines microfinance as “financial services provision including credit, savings, drawing, money transfer services and other related services.” This microfinance business definition does not confine microfinance institution to only credit. In this article, microfinance is defined as financial services provision to the low-income people and small enterprises that lack access to formal financial institutions. Microfinance is not limited to borrowing activities but also includes savings, transfer facilities, training, insurance and others.

Microfinance sector empowers women economically by providing working capital and support women in order to get constant income to their families (Tandon, 2016 ). According to Mudakappa ( 2014 ) many women were clients of microfinance in different countries. Khanday et al. ( 2015 ) believed that development of women economically generated self-esteem and respect for women microfinance beneficiaries. Microfinance provides finance to women who helped them to start new business and expand the existing one. Microfinance institution service of credit and training gives women confidence and helped them to be more active in participating in the household and community affairs.

Microfinance institution service empowers women economically by providing self-employment opportunity, improving labor productivity, and increasing wage rate (UN, 2011 ). Microfinance impact mostly measured using variation in independent income, employment rate, and household consumption on a sustained basis. Microfinance institution service impact could also be directly known by considering increment in outcomes such as literacy rate, fertility rate, and housing pattern. Changes in income and self-employment opportunity among enterprise owners benefit community at large (Ertu & Tilahun, 2022 ).

Microfinance service helped the poor section of the society to protect from different risks and diversify business, to increase sources of income which is considered as important instrument in the reduction of poverty and women’s economic empowerment (Addai, 2017 ; Littlefield et al., 2013 ; UN, 2012 ). Many researchers result showed that income played significant role on consumption, capital formation and other indicators of human well-being. When the income level increases access to balanced food, access to medical services and children education are positively affected (Solomon et al., 2019 ). Moreover, microfinance institutions provide services which seek to minimize the risk from adverse effects for the poor society. For example, savings programs are operating to help microfinance institution clients to gradually accumulate working capital for the times of crises and when there is capital need for different purposes. Efficient microfinance program could also reduce the rate of unemployment, and diversify sources of income. Thus, Women’s economic empowerment as result of microfinance service could be achieved.

Conceptual framework of the study

Conceptual framework for this study is developed based on the evidence available in literature. More than 40 researches reviewed to develop this conceptual frame work. Based on the literature review, the researcher has developed conceptual framework to show the relationship between independent variables, microfinance service, and dependent variable women’s economic empowerment.

According to SEEP ( 2006 ), impact assessment can be used to improve services, increase impact on poverty and microfinance institution efficiency, to promote good client service and accountability, and provide accountability to donors and other external stakeholders. Ledgerwood ( 1999 ) divides impact of microfinance into three categories namely economic impacts, socio political or cultural impacts, and personal or psychological impact. Women’s economic empowerment can be influenced by both women’s demographic characteristics and access to financial resources from microfinance institutions. Demographic factors are expected to influence access to microfinance services. If women have access to these services, they will be able to participate in income-generating activities whether to start a new business or improve the exiting one. The result expected is empowering economically which is manifested through ownership in income-generating activities, ownership of assets, increased income, savings, and decision-making (Selvaraj, 2016 ).

Microfinance service (access to credit and training) and demographic variables (age, marital status, and education) leads to women economic empowerment. Addai ( 2017 ) study clearly showed that microfinance service has impact on women’s economic empowerment but the relationship is mainly take into account marital status, age and educational of the women. Rehman et al. ( 2015 ) study found that education and age have impact on women’s economic development of women beneficiaries. The main independent variables which microfinance institution provides are access to credit and training which enable women to start their own economic activities or invest more in existing activities and earn an additional income. According to Dawit ( 2014 ) and Rehman et al. ( 2015 ) increased participation in economic activities raises women’s independent incomes and savings, increases control of their own and family income, and other household resources which are basis for women’s economic empowerment.

Data and methodology

The research was conducted in Ethiopia in the year 2019. From the literature review, 35 items that would indicate women’s income, asset, saving and decision-making were identified. A questionnaire consisting of both open- and a close-ended question was used to obtain information from the selected samples of 346 respondents. The questionnaire basically focused on socio-demographic characteristics, economic empowerment and microfinance service.

The questionnaire was standardized which was used and approved; however, pilot study from selected respondents was conducted to refine the instrument. Questionnaire was tested on some respondents to make the instrument objective, suitable, relevant, to the problem and reliable. Issues raised by the respondents were corrected and questionnaires were refined. Besides, proper detection by senior research was also taken to ensure validity of the instrument. To check internal consistency, reliability test was conducted in with a sample of 30 clients and the Cronbach’s alpha coefficient for the instrument was checked. Cronbach’s alpha was computed and was 0.85 which is higher than 0.7. Therefore, the instrument was reliable and used for the study.

Multistage sampling technique was used in this research. Amhara region of Ethiopia has 10 zonal towns and the researcher took 3 zone administrations. The researchers Knowledge and experience was used for selecting the study area. In order to evenly distribute the sample in all geographical area; the existing administrative division were taken as a base for allocation of sample size. The numbers of respondents included in the study for each town were found by proportional method based on client’s number in each town using Amhara credit and saving institutions data. Finally, respondents enrolled in the study were drawn using simple random sampling technique. As a result, 51.5% of the respondents were from Dessie town administrations, 27% of the respondents were from Debrebirhan town administration and the remaining 21.5% were from Woldia town administrations.

Multiple linear regression analysis was used to determine whether the six independent variables, which are age, marital status, education level, previous business experience, credit amount and number of training have any significant effect towards economic empowerment of women. Moreover, paired sampled t -test was used to compare mean difference of income, saving, and asset before and after credit program. The econometrics model used is:

where CEEI = Cumulative Economic Empowerment Index; β 0  = constant; β 1 , β 2 , β 3 , β 4 , β 5 , β 6 , are the coefficients, AGE = age; MARS = marital status; EDUL = education level; BEP = business experience; TRAE = training exposure; CUML = commutative loan amount received; έ  = error term.

The dependent variable is cumulative economic empowerment index. Accordingly, for measuring economic empowerment of women in the study, a Cumulative Economic Empowerment Index (CEEI) was developed by summing up the individuals’ scores obtained from all the four indicators: asset, income, saving, and control over resource. Other researchers (Dawit, 2014 ; Kaur, 2012 ; Leonhäuser & Parveen, 2004 ; Mohammod, 2014 ; Parveen & Chaudhury, 2009 ; Simantini & Bimal, 2016 ) also used similar methods to measure women’s economic empowerment by developing a cumulative women’s economic empowerment index.

Results and discussion

This section of the study was conducted to contribute new information about the impact of microfinance through Amhara credit and saving institution on women economic empowerment. Multiple regression and paired sample t test were employed for data analysis.

Regression result

A further inspection on the regression coefficients of individual predictor variables revealed that age (Beta = 0.285, p  < 0.05), marital status (Beta = 0.125, p  < 0.05), level of education (Beta = 0.260, p  < 0.05), number of training (Beta = 0.224, p  < 0.05), credit amount (Beta = 0.225, p  < 0.05), are significant predictors of overall economic empowerment of women. This finding revealed that age, marital status, education level, number of training, credit amount have significant effect on the economic empowerment of women. Previous business experience (Beta = 0.064, p  > 0.05) variable was found to be insignificant on women economic empowerment in the study area (Table 1 ).

This finding revealed that age has significant impact on women economic empowerment. An increase in the age of the women raises maturity and their confidence to earn more money, which leads to increases in their overall economic status of women. This study found that age and women’s economic empowerment was associated positively, i.e., economic empowerment increase with the increases in age. According to Dawit ( 2014 ) explanation for the positive relationship was that women gain more experience and knowledge about different family matters, as women’s age increased to older age. This experience gives them better understanding to make decision about their life, family matters and in the community which leads them towards economic empowerment. The result of the study is consistent with previous researchers’ findings. For example, Rehman et al. ( 2015 ) study found that age has profound impact on women’s empowerment. Further, Ringkvist ( 2013 ) field study in Burma found that age seemingly has effect on the economic empowerment of women.

As indicated in above table marital status has significant positive impact on women’s economic empowerment. The married women were significantly more likely to be enjoying economic empowerment than unmarried, widowed and divorced women. The fulfillment of family requirement may be the main reason to help a married women to earn more and thereby improve the economic status. This finding is consistent with Addai ( 2017 ) finding, married women supported by her husband and her children. Conversely, Dawit ( 2014 ) study indicated that marital status has insignificant impact on women economic empowerment. His explanation of this result was that single women are the decision-maker of their household and they had more exposure to the external environments to participate in economic activities and improve their livelihood status, and have more freedom and self-esteem in controlling the resources that enhance their empowerment.

The regression results revealed that the educated clients of microfinance were better placed in terms of effective usage of credit and training service and enjoying economic empowerment. In other words, educated microfinance institution clients were found to have a positive impact on raising the economic status of women. Women’s level of education has direct relationship with control over resource. Moreover, women’s education level affect her decision on contraception, better employment opportunity and income which are the basic indicator of women economic development and empowerment. Addai ( 2017 ) study also shows that education level has significant impact on women’s economic empowerment. Parveen ( 2005 ) also argued that education improve the socio-economic condition of women, facilitates them to demand and protect their rights. Educated and literate women had greater access to information and knowledge that increased their chances for paid jobs, other benefits and resources.

Amount of credit has significant impact on women’s economic empowerment. The provision of credit service helps to improve the economic condition of women clients. As the amount loan increases, women use their credit on income-generating activities. They jointly use their income to start new business and expand the existing business. Members, who borrowed high amount of credit, secured higher economic empowerment index. Women who got more credit are more likely to achieve higher economic empowerment level than those who received low amount of credit. According to Miled et al. ( 2022 ) microfinance loans can lead to improve the relative income position of the poor in developing countries, albeit slowly. The finding of this study is similar with the research findings of Khan and Noreen ( 2012 ) study in Pakistan. They found that credit given by microfinance institution has significant impact on economic empowerment of women. This finding is consistent with Ringkvist ( 2013 ) and Loomba ( 2017 ) studies that the loan access by microfinance and its effective utilization have a positive impact on women’s economic empowerment.

As can be evidenced in the regression result number of training provided by microfinance has significant effect and leads to women economic empowerment. Women who attended training more likely grow their business skill and attitude than who did not attend training. Number of training significantly affects economic empowerment of women. Regular training is very important, especially so in the initial stage. Microfinance provides training on credit usage, how to start new business and how to expand business. This ensures that women remain committed to the their business and are able to plan in advance as regards the operation of their business. Majority of the respondents reported that all members of microfinance participated in training before they got credit (Beriso, 2021 ; Dincer, 2014 ; Leonhäuser, 2004 ; Rwanda Charles, 2016 ).

From the regression result, it can be concluded that microfinance program is helpful in empowering women economically. The education and training provided by microfinance program lead to the development of the overall personality of the program participants. The beneficiaries of the program have higher levels of employment, income and participation in household financial decision-making as compared to non-participants.

According Alene ( 2020 ) findings level of educational, entrepreneurial experience, access to training, finance, and information, government support, land ownership are significant in explaining women entrepreneurs. The results with respect to multiple regressions have presented several interesting observations. Different variables like age, education marital status, credit amount, number of training has significant relation to women’s economic empowerment. However, previous business experience has insignificant influence on the economic empowerment of women. Bera ( 2014 ) study concluded that participation in the microcredit program increases if the women are aged, educated, currently married, education levels of the heads of their families are high, and possessed more non land assets.

Paired t test result

In this study, paired t test used to compare mean difference of income, saving, and asset before and after credit program. Paired sample t test was conducted to determine the effect of microfinance on women’s asset after credit and before credit program, there was significant effect on asset, t (345) = 16.444, p  = 00. It can be observed from Table 2 that the mean asset difference after credit and before credit program is significant and microfinance program has positive impact on women asset ownership. The result of the study is similar with Temba ( 2016 ), a study conducted in Tanzania and showed that microfinance has able to managed to help women to avoid poverty and empower themselves economically by increasing their asset ownership when compared to before joining microfinance program.

As clearly shown in table above, there is significant mean difference in income after and before credit program t (345) = 23.750, p  = 00. Based on the result by pair t test statistics shown, there is significant mean difference after women get credit from microfinance and before credit program. Gangadhar and Malyadri ( 2015 ) and Wanjiku and Njiru ( 2016 ) study also supports the result of this study.

Paired sample t test was conducted to determine the effect of microfinance on women’s saving amount after credit and before credit program, there was significant effect on saving amount, t (345) = 19.532, p  = 00. Before joining microfinance most women did not save and few women save but the saving amount were small. The main reason for not saving is lack of additional income and lack of awareness about business and microfinance service. After credit program, almost all of women clients put their money in saving accounts maintained with microfinance institutions and commercial banks.

Conclusion and recommendation

Multiple regressions have presented several interesting observations. Different variables like age, education, marital status, credit amount, and number of training has significant relation to women’s economic empowerment. However, previous business experience has insignificant influence on the economic empowerment of women.

To know the use or non-use of microfinance on women’s asset, income, saving, pair t test was employed. The result of study concludes that the difference in asset, income, and saving amount were significant. Therefore, one can easily conclude that microfinance plays a great role on improving women asset, income, and saving. Different researchers also show the importance microfinance on women’s asset ownership improvement, income increment, saving amount improvement, and effective decision-making. Participation in microfinance program has led to greater level of women’s economic empowerment in terms of increase in economic status, knowledge of business activities, self-confidence on participating in income-generating activities, social and political awareness, developmental of organizational skills and mobility.

Recommendation

The findings of this study have important implications for interventions designed to enhance the economic empowerment status in Amhara region of Ethiopia. Since women’s economic empowerment depends on the level of income, saving amount, and asset ownership, attention should be given to those factors that influence women’s economic empowerment. Some factors were identified and the following recommendations are provided:

Amhara credit and saving institution services to women’s economic empowerment should be improved by working with town administration women’s affair office and other non-government organization which are working on women empowerment.

Most of the respondents considered the loan offered as very small which is not adequate to start business. In fact, the loan size increases as settled the loan in full and take another. However, the loan still falls short of the amount needed to start business. Therefore, Amhara credit and saving institution should adjust the amount of credit provided to women clients.

Majority of microfinance clients are dissatisfied with high interest rate. Therefore, Amhara credit and saving institution needs to revise its interest policy so as to attract more women clients and achieve women’s economic empowerment objective.

Availability of data and materials

All data are available on hand.

Abbreviations

Microfinance institutions

United Nations

Micro- and small enterprises

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Mengstie, B. Impact of microfinance on women’s economic empowerment. J Innov Entrep 11 , 55 (2022). https://doi.org/10.1186/s13731-022-00250-3

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DataKind tackles the world’s toughest challenges with data science and AI.

BanhJi Case Study: Developing a Financial Performance Score to Empower Cambodian Farmers

In developing countries, savings groups play a crucial role in fostering financial inclusion and empowerment, especially among rural communities. These self-managed financial systems provide farmers with access to savings, credit, and financial literacy. However, challenges such as over-indebtedness and limited access to formal financial services persist, hindering the economic well-being of farmers. 

Recognizing the challenges faced by farmers in Cambodia, BanhJi , a fintech start up, provides structured credit solutions while mitigating the risk of over-indebtedness. DataKind partnered with BanhJi to develop a group-level Financial Performance Score , producing actionable insights to savings groups to improve financial performance. By leveraging data-driven recommendations, savings groups can make informed decisions to improve their financial resilience and access affordable credit solutions, promoting sustainable economic development.

Savings groups, also known as community-based savings and loan associations, empower individuals in developing countries to save money, access credit, and build financial resilience. Despite their effectiveness, savings groups face challenges, such as limited access to formal financial services and over-indebtedness. 

Partner Introduction

BanhJi , founded in 2016, is a fintech start up providing a financial operating platform for micro, small, and medium-sized enterprises to enable them with better and easier access to cash and financing. A component of BanhJi’s platform caters specifically to the rural community, where it serves approximately 40,000 families across 880 savings groups and agriculture cooperatives. Recognizing the challenges faced by farmers in Cambodia, BanhJi seeks to empower clients to access structured credit solutions, while mitigating the risk of over-indebtedness. 

DataKind partnered with BanhJi to develop a Financial Performance Score for their savings groups, leveraging data-driven insights to target capacity building activities and benchmark the sector.

The Collaboration

Through scoping conversations with the BanhJi team, DataKind identified two key pain points to financial inclusion for farmers in Cambodia: 

• Farmers take out more credit than they’re able to repay , and therefore fall into a cycle of over-indebtedness, where they’re either unable to repay their loans or must seek a new loan to repay the previous loan coming to term. 
• Formal financial institutions , such as microfinance institutions (MFI), who would like to distribute structured credit to smallholder farmers, don’t have the data-driven insight to ensure they’re helping their clients without promoting ongoing debt. And, access to microfinance institutions would allow farmers to access cheaper financing rather than having to turn to loan sharks. 

DataKind leveraged five years of historical data on savings groups to develop a group-level Financial Performance Score . This score provides insights into each group’s financial standing, enabling BanhJi to deliver targeted technical assistance to enhance financial performance and access formal financial products. DataKind also explored if different loan sizes would reduce the risk of a savings group to default.  

Methodology

As mentioned above, data analysis involved five years (2018- 2021) of historical loan repayment data, a total of 46,553 loans, from 832 savings groups across Cambodia. The DataKind team focused on loans that had either six or 12 installments, and examined all variations of loan behaviors to understand how frequently ‘defaults’ occurred and in what combinations. Most defaulted loans had more than six late/missing payments.

Features including early payments, late payments, missing payments, default payments, and repeat borrowers were evaluated to develop the Financial Performance Score . K-means clustering was utilized to identify patterns and inform the scoring model design.

Correlation analysis across features highlighted that savings groups payment behavior doesn’t correlate with the amount being borrowed. Further, the data didn’t support the hypothesis that loans at different sizes have different default rates and that recommendations can be built. 

Financial Performance Score

The Financial Performance Score ranges from 0 to 100, with higher scores indicating better repayment behavior and an absolute maximum of 110 if they have early payments. We can interpret the ranges of our financial score as:

• 0 – 50: Savings group needs heavy intervention 
• 50 – 75 : Savings group needs moderate intervention
• 75 – 90 : Savings group has a few defaults and may need early intervention
• 90+ : Savings group has very few (if any) defaults and doesn’t need intervention

The majority of savings groups exhibit on-time payment behavior, with over 50% achieving scores of 100 or higher.

This project empowered the BanhJi team with the data-driven insight to target capacity building initiatives for savings groups to improve financial performance. By leveraging data-driven recommendations, savings groups will be able to access formal financial products with lower interest rates from banks or microfinance institutions to scale their operations, thus promoting sustainable economic development.

“At BanhJi, we’re incredibly grateful for DataKind’s partnership and expertise in developing the Financial Performance Score for saving groups. Their dedication and the valuable insights gleaned from the project have empowered us to better serve our clients in rural Cambodia. This collaboration is a testament to the power of data science in promoting financial inclusion and driving positive social impact. With the Financial Performance Score, we can now provide targeted support to savings groups and expand our intervention to Agricultural Cooperatives.” – Chankiriroth Sim, Founder and CEO, BanhJi

The collaboration between DataKind and BanhJi exemplifies the power of data-driven approaches in enhancing financial inclusion for rural farmers. By developing the Financial Performance Score , savings groups can make informed decisions to improve their financial resilience and access affordable credit solutions. This case study underscores the importance of partnerships in leveraging technology for social impact and driving sustainable development in underserved communities. 

Here’s more on DataKind’s work in financial inclusion.

DataKind’s partnership with BanhJi was supported by the Mastercard Center for Inclusive Growth.

Join the DataKind movement.

• Interested in supporting our work? Donate here.
• Interested in sponsoring a project? Partner with us .
• Interested in volunteering with DataKind? Look no further.
• Interested in working at DataKind? We’re hiring!
• Interested in submitting a project? Go for it!

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• Advancing Work in Financial Inclusion: DataKind Introduces Six New Projects
• Extending the Boundaries of Economic Opportunity: DataKind Advances Work in Financial Inclusion

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