The power of microcredit for women

Women in developing countries who use microcredit for entrepreneurship are significantly more empowered, according to PEP findings.

A study into the impact of a rural microcredit scheme on women’s vulnerability and empowerment in South West Nigeria found that microcredit beneficiaries are significantly more empowered than non-beneficiaries. The beneficiaries reported improved bargaining power, increased household decision-making, as well as increased self-confidence. By increasing their use of financial services—to access the microcredit—the recipients also benefited from increased financial inclusion.

Similarly, in Benin, female microcredit recipients reported being considerably more empowered, particularly in terms of “social responsibilities and living conditions” and “cultural participation and rights”. The positive effects were most significant among women who used the microcredit to support income-generating activities, such as microenterprises.

Furthermore, simply ensuring that credit is available in the community was found to improve female empowerment in Bolivia. Local PEP researchers found that women experience increased household decision-making in municipalities with access to microfinance.

The family also benefits

The findings from Nigeria show that the household also benefits when women receive microcredit. Instances of child labour and food shortage were found to decrease, while per capita income increased.

But while positive household effects were also found by PEP researchers in Bangladesh, participation in microcredit programs by female family members was found to significantly increase the likelihood that the men in the household would be entrepreneurs. Women’s access to microcredit does increase their likelihood of being entrepreneurs, but to a much lesser degree than for the men in their household.

The importance of removing constraints

However, women can only benefit from increased empowerment through entrepreneurship if they are given access to credit. Findings from PEP research in Cameroon show that female entrepreneurs are limited by the rules for putting up collateral. When the sector of female entrepreneurs is granted the same level of credit as the male sector, it performs better in terms of value-added in GDP. By loosening financial constraints, productivity and job creation can be significantly increased in the female sector.

The best results for female empowerment were found when microcredit beneficiaries took part in training sessions, when repayment was directly to bank staff on a daily or weekly basis (rather than via a cooperative association) and when the microcredit is used to set up or support personal or family businesses.