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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