Is microfinance a ‘magic bullet’ for women’s empowerment? This article published in the Economic and Political Weekly, India, examines the empirical evidence of the impact of microfinance on poverty reduction and the empowerment of poor women. Focusing on experiences in South Asia, it argues that while access to financial services can and does make important contributions to the economic productivity and social well-being of poor women and their households, it does not automatically empower women.
Microfinance organisations (MFOs) address the institutional exclusion of the poor from formal financial provision, and protect them against adverse informal services, for example those with unfavourable interest rates. MFOs vary considerably in their philosophy, vision and strategies, ranging from those concerned with a narrow financial agenda (the financial systems approach) to those concerned with social transformation. In the South Asian context, most deal primarily with women and take a group-based approach. They aim to help poor women address their practical daily needs as well as their strategic gender interests. Views on the impact of such organisations are polarized, and there is a need to clarify what they have achieved, or not, in the lives of poor women.
While access to financial services can and does make important contributions to the economic productivity and social well-being of poor women and their households, it does not automatically empower women.
- The philosophy and design of MFOs will determine the extent to which they promote women’s well-being and agency and their longer-term capacity to reflect and act on their strategic interest.
- The financial systems approach – requiring less donor funding and government subsidies – has come to occupy a hegemonic position, but it is not self-evident that it is more effective in achieving poverty reduction or women’s empowerment.
- There is a need for caution in talking about the impact of microfinance; it is preferable to talk about the impact particular organisations have had in particular contexts.
- There is reasonably robust evidence that access to microfinance leads to direct economic and social improvements within the household as well as changes in relationships in the wider community.
- There is less evidence to support the view that it helps poor people to ‘grow’ out of poverty and graduate towards mainstream financial services.
- MFOs can build the organisational capacity of poor women, providing the basis for their social mobilisation. Many other development interventions have not been able to achieve this.
In short, microfinance is not a magic bullet for women’s empowerment because there are no such magic bullets. There are only carefully designed programmes, of which the provision of financial services is one example, that seek to address the needs and constraints of poor women in ways that enhance their ability to take control of their own lives.
- MFOs cannot substitute for broader policies to promote pro-poor economic growth, equitable social development and democratic participation in collective forums of decision-making.
- In the absence of such policies, microfinance may at most provide a safety net for the poor rather than a ladder out of poverty.
- The longer term impact of microfinance has not yet been shown; there are very few longitudinal studies and MFOs need to develop a time frame within which they would expect to see tangible results.
- There is no reason why different types of MFOs cannot co-exist alongside each other; indeed, they may prove complementary or synergistic in their effects.
- The design of financial services for the poor should be based on an empirically-based understanding of the relationship between context, approach and impact.