Why Are Women Targeted As Recipients of Microfinance Loans?

 by Juliette Franks

Microfinance institutions (MFIs) aim to alleviate poverty by empowering the poor through access to financing. 70% of microfinance clients worldwide are women. Why is this? 

Many argue that MFIs wish to empower women, so they focus on women to give them control of their finances, in order to make them economically self reliant. The Grameen Bank (a microfinance bank in Bangladesh) states that “ Grameen Bank has always made it a priority to empower women and involve them in economic activities”. This would improve gender equality by making women less reliant on their fathers or husbands, giving them freedom to make their own decisions because they can fund themselves. Originally, most MFIs were non-profits (although many MFIs are now for-profit), and the microfinance sector started by aiming to ‘do good’ by helping to alleviate poverty, so many of them may also target women as a part of their aim to ‘do good’ in order to improve gender equality in developing countries. This is especially relevant when the institutions are from countries with better gender equality such as the UK, because gender equality is valued more highly in the West, meaning it is prioritised as a secondary goal by MFIs from these countries. Furthermore, goal 5 of the Sustainable Development Goals set in 2012 is gender equality, meaning that this may be a focus of MFIs that ultimately aim to improve development. Whilst the initial aim is to improve economic development, social development is also important, explaining why some MFIs may target women.

Women in India running a business
resulting from a microloan (Wikipedia)

However, it can also be argued that it is because women are more likely to repay loans. In instances of group lending (a method of microfinancing), often pressure from the community makes women more likely to repay loans due to them being more receptive to social coercion. This is due to the method of loaning, group lending with joint liability means the whole village needs individuals to repay loans so that as a group they can take out further loans, by proving their creditworthiness. So the nature of social pressures in a community results in a higher percentage of women repaying loans. Furthermore, women are generally less mobile than men in developing countries. Women are far more reliant on others due to the nature of gender inequality, they are reliant on their fathers until they get married, then they are reliant on their husbands and eventually responsible for their families. Due to their lack of financial self reliance, women are less inclined to move away in order to escape paying off loans. This makes them far less likely to take risks that may result in them being unable to repay loans. Therefore women are normally more cautious with loans, and hence the argument that they are more likely to repay loans, explaining why they may be targeted by MFIs. 

Finally, poverty alleviation is considered more likely when women make profits from microloans because women tend to invest in their children and community, leading to long term benefits for development. For example, when mothers invest in sending their children to school, this increases literacy rates, increases the amount of people in secondary education and university, and can lead to increased amounts of doctors, which in turn results in more health benefits for a country. Therefore, another argument could be made that women are the focus of microfinance loans because they are more likely to further the impact of a singular loan to have a much bigger positive impact on a wider community. However, there are many other factors that evidence that focusing on women will not benefit long term development. This is due to inequality meaning they are less educated, and so less likely to create successful businesses using loans as they may struggle to read, write or do arithmetic, all of which are important skills in business, especially when loans are involved. Furthermore, the lack of risk taking can also result in less successful business endeavours, even if loans are still paid back. Therefore, despite the fact that women may invest in children, there is also an argument that they create less successful businesses, so don’t generate employment or a large amount of income either, meaning that they do not have a meaningful impact on poverty alleviation.