Microfinance helps give low-income and underserved individuals access to the financial services they need. Providing loans, credit, and banking access affords marginalized groups more opportunity for economic growth and, ultimately, self-sufficiency. Empowering women through microfinance not only benefits women as individuals but also impacts their families and communities.
While the original goal of microfinance was to serve whole populations who wouldn’t otherwise have access to important financial services, female entrepreneurs living in poverty tend to take the most advantage of microfinancing opportunities.
To understand why and how, here are five important ways that organizations are empowering women through microfinance.
1. Providing a Path out of Poverty
Multiple studies around the globe have shown that empowering women through microfinance works because it gives them tools to get out of poverty. Especially in countries with strongly patriarchal cultures, women may be partially or fully shut out of wage labor. But with access to banking and loans, more women are able to enter the workforce or start their own businesses.
2. Increasing Assets in Women’s Names
Microfinancing allows women workers and entrepreneurs to access their own lines of credit, which may be impossible to secure through traditional banks in their regions. While Western consumers may equate “credit” with “debt,” a Sida study focusing on the Self Help Group bank linkage program in India shows that in providing women greater financial agency, granting lines of credit can change their economic status for the better. Women with lines of credit are more likely to report a greater amount of assets held in their own names.
3. Driving Up Awareness and Agency
The same report shows that women don’t just enjoy more assets but that they actively make use of their increased economic status. They benefit from greater purchasing power—and perhaps more importantly, female microfinance clients report that they have more political and legal awareness. A report in the ACRN Journal of Entrepreneurship Perspectives found that women in Tanzania who were members of a microfinancing group had more control over their income, savings, and purchases than nonmembers. These women reported making their own decisions about how to use money.
4. Giving Women a Place at the Table
When women are more active and informed, they can transform their households and introduce new ideas and ways of being to their families. Microfinance empowers women to be more involved in family decision-making around money and employment.
This can, in turn, lead to greater self-confidence and esteem. That alone isn’t enough to change socioeconomic status, but there’s power in self-perception. When women feel empowered, they’re more likely to make decisions and take actions that reflect that feeling—which paves the way for tangible changes in their lives. The ACRN Journal report also found that female members of microfinancing groups felt more confident, outspoken, and worthy than women who were not members. Members also believed that women should have equal rights to men.
5. Encouraging Action at the Community Level
Empowering women through microfinance isn’t limited to individuals. In many regions, small and supportive groups of women come together to apply for loans or credit for joint ventures. In Orissa, India, for example, a group of women started a cashew plantation on a plot of land leased from the government. They raised cattle and goats for milk and planned to take another loan from a microfinancing organization to install a water pump.
Microfinancing organizations can also help set up self-help groups in which members of the community are encouraged to pool savings and resources in order to make their own loans to women in their area. The process helps every participant, from lender to borrower, learn more about finance and grow their wealth.
Economic improvement can translate into greater equality and new opportunities in a number of other areas in women’s lives. Microfinance provides specific benefits—but the greatest value for women around the world may be the ability to snowball one gain into several other successes, both for themselves and for their children and families.