“There is no development strategy more beneficial to society as a whole - women and men alike - than the one which involves women as central players.” - Kofi Annan
It is no coincidence that microfinance often focuses on females, and for good reason. Women, particularly in the developing world, face unique barriers to starting and running their own businesses. While access to credit is usually the most difficult hurdle to overcome, multiple other factors can play a role in preventing or slowing the development of female-owned businesses.
According to research conducting by Goldman Sachs and the IFC(1), in addition to a lack of accessible financing, dilemmas such as prohibitive legislation, a lack of proper education and training along with antiquated traditions and cultural norms all pose challenges to women aspiring to join the workforce.
Given the multi-pronged nature of the problem, microfinance is a tool that can help address several facets of the issue. Obviously, access to credit is the primary way in which microfinance initiatives can make an impact. According to the IFC(1), almost half of women-owned businesses in Pakistan and Brazil cite access to finance as a severe constraint and this number is higher in many Sub-Saharan African countries.
In addition to credit, microfinance initiatives that provide loans directly to aspiring female entrepreneurs circumvent legal and regulatory constraints that forbid women from obtaining a loan or gainful employment. Certain laws exist that restrict women from owning property or other assets that can be used as collateral to secure a loan. In addition, cultural beliefs and even specific regulations bar women from obtaining jobs, rendering them unable to work for anyone but themselves. By granting women access the capital needed to start their own business, women can employ themselves instead, and subsequently, other women.
The microeconomic conditions of the environment must also be conducive to business and are often insufficient in developing world economies. For instance, decrepit infrastructure, both physical and virtual, can staunch growth. High costs to starting a business, weak or non-existent patent protection and government corruption can also wreak havoc. These roadblocks are often more difficult for women to pass than men as the Goldman Sachs study points out, citing the example of technology. An absence of capital to obtain new technology and exposure to training can result in an unequal rate of adoption between genders and consequently result in less efficient production.
Many microfinance programs also include business training and education, another critical resource that women have a much more difficult time receiving than their male counterparts. Beyond capital and regulation, proper preparation and skills not only help birth businesses, but enable them to flourish.
Complex problems require multi-layered solutions. While microfinance may not be a panacea, it touches on many of the obstacles that stand between our current reality and an equal opportunity labor market.
(1) Goldman Sachs (2014) 'Giving Credit Where It Is Due: How closing the credit gap for women-owned SMEs can drive global growth'
Image taken from: http://peacau.org