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Archives of Business Research – Vol. 11, No. 9

Publication Date: September 25, 2023

DOI:10.14738/abr.119.15439.

Bosu, C. (2023). Impact of Microfinance on Women’s Entrepreneurship. Archives of Business Research, 11(9). 01-11.

Services for Science and Education – United Kingdom

Impact of Microfinance on Women’s Entrepreneurship

Champa Bosu

European Microfinance Program, The University Libre Brussels, Belgium

& 35th Bangladesh Civil Service (Education), Government of Bangladesh

ABSTRACT

Microfinance (MF) and its institution’s contribution to poverty reduction,

alleviation, and eradication through entrepreneurship has been a debatable issue

until now. Especially some controversial roles of the traditional microfinance

institutions in different ‘global south’ countries made the situation even more

complicated and problematic. Some recent scientific studies and global media

reports against the role of microfinance in reducing poverty have given us some

space for thoughts on the role of traditional microfinance institutions in

entrepreneurship development among rural women. However, many scientific

studies and media reports have claimed that microfinance contributes to a

reduction in poverty through entrepreneurship by traditional microfinance

institutions or commercial banks. However, it is unclear if MF is the most efficient

way to reduce poverty without the help of other additional procedures among the

poverty-stricken people or areas such as education, politics, health, infrastructure,

etc. In the current paper, a critical observation has been made on the roles of

microfinance in entrepreneurship development among poor, marginalized women.

A literature survey has been made using different sources, such as academic

databases, media reports, I/NGO reports, etc. It was found that some of the women

who have received loans through microcredit or microfinance institutions used the

money for consumption; however, most of the women recipients used the loan for

their entrepreneurial activities or businesses to change their financial condition

and have successfully brought financial sustainability.

Keywords: Microfinance, Entrepreneurship, NGO, Commercial Banks, Credit

INTRODUCTION

Microfinance is not only contributing towards the poverty reduction, alleviation, and

eradication. Likewise, the MF is also working as a powerful instrument for empowerment of the

women from the marginal part of the respective society through entrepreneurships. The

current paper is an attempt to explore the impact of MF on the women entrepreneurship.

The debate over Microfinance (MF) is never-ending, and it has become a powerful means to

alleviate poverty. In addition, it is also an influential instrument for women’s empowerment in

the global south (Mengstie and Singh, 2020). However, poor people have less access to credit,

so they cannot work their way out of poverty using the help of credit; instead, they work on

menial jobs with menial income and live in the vicious cycle of poverty for generations after

generations (Sihag, 2018). In this fourth industrial revolution, there is no space for work

discrimination as working from home is a new reality, so beyond the location of the individual,

people can work for any institution in the world. This is why the new small and medium start-

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Archives of Business Research (ABR) Vol. 11, Issue 9, September-2023

Services for Science and Education – United Kingdom

ups are making their mark in the era of the fourth industrial revolution, and in this race, women

are not lagging (Swapna, 2017; Nawaz, Muhammad Ramzan and Shahid, 2021). Because in

these days, it is believed that women can change the world as entrepreneurs, and it has been

proven that they are doing it with their male counterparts. In this regard, Microfinance helps to

foster women’s entrepreneurship (Tenagne, 2019).

Microfinance also increases women's economic security, ultimately increasing the success rate

of women’s entrepreneurship. Women entrepreneurs start businesses by taking loans from

MFIs, and most of the global South's poor don’t have access to capital or resources. In this case,

microfinance institutions create excellent opportunities for women entrepreneurs (Rahman,

Khanam and Nghiem, 2017). The government and NGOs have worked together for the last few

decades to eradicate poverty. For this, they have devised different projects and programs for

sustainable development. Providing credit to women entrepreneurs has become more fruitful

among many projects and programs to alleviate poverty. Poor women don’t have capital or

collateral to gain credit from formal financial institutions, which is where microfinance

institutions provide loans to entrepreneurs (ibid). The government institutions and the NGOs

have worked successfully in collaboration with the MFIs to help the women of the global south

to reduce the vicious cycle of poverty and to support them to become successful women

entrepreneurs (Nawaz, Muhammad Ramzan and Shahid, 2021).

Women are crucial in alleviating poverty in developing countries, especially in the global south.

Women’s empowerment is essential for women’s entrepreneurship development in developing

countries because, in any given country, women are half of the total labor force. Without the

development of women, the country's overall development cannot be achieved (Agenda for

Sustainable Development, 2018). Women entrepreneurs can create jobs not only for

themselves but also for others. Women entrepreneurs play a remarkable role in different

sectors like restaurants, hotels, industries, education, and other sectors. Microfinance

institutions aim to empower small and medium women entrepreneurs by creating social

capital, providing credit, and providing skill development training. In the economic

development of any specific country, there is a big role from the small and medium

entrepreneurs (Sihag, 2018). In the current paper, we will explore the significant impact of

microfinance on women entrepreneurship, both positive and negative, what are the significant

challenges ahead of the women entrepreneurs in the global south who use microfinance as their

way to crawling out of poverty. This study is based on secondary data only.

BACKGROUND OF MICROFINANCE AND WOMEN ENTREPRENEURSHIP

Both microfinance and microcredit are interchangeably used, however theoretically they have

their own line of differences. Microfinance is the holistic financial product used by formal

financial institutions but in microformat; on the other hand, microcredit is the one product from

microfinance that provides loans and credit to the poor and vulnerable in society (Rahman,

Khanam and Nghiem, 2017). It has been more than four decades since women receive help from

MFIs through microcredit and capacity-building training to improve their entrepreneurship

skill development. There is no doubt that microfinance helps women become successful

entrepreneurs, especially those in the vicious cycle of poverty. The following figure shows how

microfinance helps women’s entrepreneurship and women’s development.

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Bosu, C. (2023). Impact of Microfinance on Women’s Entrepreneurship. Archives of Business Research, 11(9). 01-11.

URL: http://dx.doi.org/10.14738/abr.119.15439

Figure 2: Process of MF to Women Entrepreneurship Development Source: Adopted by the

author

From the above figure, we can speculate that with the products from microfinance (credit,

savings, insurance, etc.), given the opportunity with substantial risks, women entrepreneurs

can achieve the goals of net profit, investment, empowerment, etc. It also displays in the above

figure that microfinance provides financial and non-financial services, such as social capital and

training type of products that eventually help women entrepreneurs succeed in their

enterprises (Tenagne, 2019). However, microfinance also can lead to a burden for many

entrepreneurs as many of the non-entrepreneurial returns to credit, so people use the credit

for consumption instead using it for entrepreneurial investments (Rahman, Khanam and

Nghiem, 2017; J-PAL, 2018). Nevertheless, there will be challenges to entrepreneurial

enterprise success. Still, the MFIs will have to develop innovative ideas, such as finding high- return entrepreneurial investments (J-PAL, 2018) for poor women entrepreneurs to use the

money for successful business enterprises and make their way out of poverty.

Definition of Key Concepts

Microfinance means providing financial services like microcredit, micro-savings, and

microinsurance to low-income people deprived of the traditional banking sector. Microfinance

is about the finance of poor and unbanked people without access to formal financial institutions

(Tariq and Sangmi, 2020). Microfinance is a potent tool for developing and least developed

countries from the global south because it provides services to low-income people, especially

women. The working areas of MF are developing countries in South Asia, Africa, and Latin

American countries. MF provides a small-scale loan to borrowers who have no collateral. World

bank estimates that MF provides services to more than 500 million people (Swapna, 2017;

Nawaz, Muhammad Ramzan and Shahid, 2021). But most MF institutions focus on the women,

vulnerable, and marginalized populations of any given society as these institutions specialize

in developing the poor population.

Financial Inclusion means providing equal opportunities to all the members of society beyond

their color, race, gender, etc. It also means making financial products and services available and

affordable to individuals and businesses (Nawaz, Muhammad Ramzan and Shahid, 2021).

Financial inclusion includes Microloans, Micro Savings, and Microinsurance. These are the

different products of MFIs especially devised for the poor and marginalized population. MFIs in

Islamic countries offer MF products with Islamic principles to attract Islamic members of

society (Faridi, Nawaz and Bibi, 2022).

Microfinance

Products

1. Credit

2. Training

3. Social Capital

4. Savings

5. Insurance

Opportunity

Women

Entrepreneurs

1. Net Profit

2. Output

3. Investment

4. Employment

5. Empowerment

Risks