Paper prepared by ILO for the Inter-Parliamentary Union (IPU) Annual
Conference, Windhoek, Namibia, 2-11 April 1998
Women as microentrepreneurs in the informal sector
Providing women entrepreneurs with sustainable access to microfinance
Impact of microfinance on women micro entrepreneurs
Access to and control over financial resources - the emerging debate
Recommendations for policy makers
Women, enterprise and microfinance - an attractive combination of topical
Women as micro and small entrepreneurs have increasingly become a key target
group for micro-finance programmes. Providing access to micro-finance is
considered a precondition for poverty alleviation, but also for women's
empowerment. As poor women are increasingly recognized to be better borrowers,
they are starting to become of interest also to regular financial institutions.
But despite the proven positive impact of providing microfinance services to
female entrepreneurs in the informal sector, microfinance is just one tool among
others to address the multiple causes of poverty, unemployment and social
Women as micro entrepreneurs in the informal
In many developing countries, and lately increasingly so in many
industrialized countries, the vast scale and rate of growth of the informal
sector presents a dilemma and a challenge for governments, social partners and
the civil society alike. A dilemma, as the informal sector encompasses
employment situations which not only differ from those in the formal sector, but
also infringe upon established rules and laws. A challenge, as it absorbs a
large and growing fraction of the labour force, and provides a "safety net" for
the poor, finding themselves excluded from formal employment and income
While the data about informal activities are somewhat unreliable, there is
consensus that the informal sector is steadily growing in almost all developing
countries, for example in Latin America, 8.4 of every ten new jobs created
between 1990 and 1994 were in the informal sector; in Asia, the informal sector
absorbs between 40 and 50 percent of the urban labour force, and in Africa, the
urban informal sector currently employs some 60 percent of the urban labour
force and will create more than 90 percent of all additional jobs in this region
The growing informalization of the economy has caused a rise in the number of
women who work - participation rates of women in the informal sector are: e.g.
80 percent in Lima, Peru; 65 percent in Indonesia; 72 percent in Zambia, and 41
percent in the Republic of Korea (Lim, 1996).
While the slow, or even negative, growth of formal sector employment
opportunities, combined with a rapid and significant growth in the urban labour
force, economic stabilization and restructuring programmes, and the quest for
increased flexibility and deregulation of the economy have had detrimental
effects on men and women alike, women have been increasingly pushed into
informal activities. For example, the reduction in public sector jobs has
affected women more than men, because of their concentration in temporary and
lower level jobs; the decline in formal sector wages, has forced many women to
turn to renumerated, most often informal work; attitudes and cultural norms
constitute other powerful barriers to women's entry into the (formal) labour
Since the mid-1980s women as micro and small(2) entrepreneurs have received increased attention
and assistance by governments, international donors and NGOs. Microenterprises
have been seen as having particular advantages for women: e.g. their flexibility
and location in or near women's homes, ease of entry and links with the local
markets. Supporting their entrepreneurship is seen as having important "trickle
down" effects on wider poverty alleviation and gender inequality. Female
entrepreneurs have been given particular characteristics, developed partly as
strategies to overcome economic and other discriminations (Mayoux, 1995):
- the use and investment in social networks;
- a greater reluctance to take risks; and
- a tendency to diversify in order to minimize risks.
With the growing role of female microentrepreneurs, women will need to rely
on the success of these strategies, looking at the constraints they face:
- lack of access to productive resources due to discriminations in property
ownership and in employment;
- lack of time because of unequal gender division of labour in unpaid
productive and reproductive activities;
- lack of skills due to lower levels of literacy and formal education;
- lack of access to labour as a result of norms of gender hierarchy and
- lack of access to markets due to their exclusion from the most lucrative
The lack of access to informal and formal credit by women micro and small
entrepreneurs has been identified by numerous studies as a major, some
even say, the major constraint. Recent ILO studies in the
Philippines(59 percent), Bangladesh (76.4 percent) and Trinidad and Tobago place
the lack of capital, especially in the start-up period, as the problem most
often mentioned by women micro entrepreneurs. These studies confirm that this
problem is more severe for women than for men.
With informal sources of finance being relatively easy to access, women rely
on moneylenders and pawnbrokers, rotating savings and credit associations
(ROSCAS), and friends, relatives, suppliers and shopkeepers. While these sources
are providing the bulk of financial resources for female entrepreneurs and offer
a number of potential advantages, such as proximity between borrower and lender,
immediacy of loan disbursement, small loan size, flexible repayment schedules
and minimal collateral requirements, they can be costly and discriminatory.
Formal financial institutions are even less receptive and welcoming to female
entrepreneurs. Their collateral requirements, bureaucratic loan application,
disbursement procedures, the time and resources necessary to visit the banks and
discriminatory banking culture virtually exclude poor women as clients.
The provision of sustainable access to financial services for women has
therefore become a core component of many women's microenterprise programmes,
and is at the center of the attention of governments, social partners, civil
society organizations and international donors.
Providing women entrepreneurs with
sustainable access to microfinance
The mechanisms developed since the mid-1970s to provide women
micro-entrepreneurs with access to financial services are extremely diverse,
offering alternatives to the formal banking system, while incorporating the
advantages of informal savings and credit systems. The features that most
programmes have in common are:
- close targeting of the most needy borrowers;
- decentralised loan delivery and management systems through intermediary
institutions or parallel banking system;
- group formation to ensure financial discipline; and
- support systems to enhance productivity.
Mechanisms providing women with access to financial services can be
classified as follows (Mayoux, 1995; Hilhorst and Oppenoorth, 1992):
* Social programmes, run by commercial banks, which provide
borrowers with incentives from the government (for example: KUPEDES programme of
Bank Rakyat Indonesia; Banco del Pacifico, Colombia; Integrated Rural
Development Programme, India; Rural Development Banks, Bangladesh). Most
commercial bank schemes have failed to reach large numbers of poor borrowers,
let alone women. Women's participation in formal small-scale enterprise lending
programmes rarely exceeds 20 percent.
* Intermediary programmes, generally run by NGOs offering
micro-businesses a link to the formal banking system (for example: Women's World
Banking; the original activities of SEWA; Production Credit for Rural Women,
Nepal; Institute for the Development of the Informal Sector, Peru). Most
programmes have succeeded in reaching somewhat better-off women, and SEWA
decided to set up its own poverty-oriented bank, because its members encountered
too many difficulties in their dealings with banking procedures, application
forms, opening hours and attitudes of male bank clerks.
* Parallel programmes that provide financial services alongside
other development and social programmes via non-bank institutions (for example:
Working Women's Forum, India; Progreso, Peru; BRAC, Bangladesh; Small Business
Scheme of the National Christian Council of Kenya). Many of these programmes
have succeeded in reaching women clients, heavily supported by donors.
* Poverty-oriented development banks, generally started as
intermediary or parallel programmes and then officially registered as banks (for
example: SEWA Bank, India; Grameen Bank, Bangladesh). They have adapted delivery
systems and loan conditions to meet the specific needs of female clients.
* Community revolving loan funds, similar to ROSCAs, with government
and donor grants or loans (for example: Partnership for Productivity, Kenya).
These funds offer limited but useful services to women. If well managed, they
can be sustainable. The major risk is erosion of funds due to default and
* Savings and credit cooperatives and unions providing special
schemes for women members (for example: Cooperative Union, Gambia).
Participatory methods help ensure that these organizations meet the real needs
of members. They mobilize their own capital and are more or less democratic.
Cooperatives can, however, be formalistic and financial services are not always
Women have become the preferred clients of microfinance institutions, as they
tend to be better borrowers. Studies show again and again that women borrowers'
average delinquency rates tend to be lower than men's, especially for
microloans. A recent study by the Inter-American Development Bank and UNIFEM,
surveying the financial landscape in a number of Latin American countries,
concluded that FED, an NGO in Ecuador, with the lowest delinquency rate, has the
highest percentage of women clients (Almeyda, 1996).
Financial institutions lending to female entrepreneurs most often use
"collateral substitutes"(3) to overcome their
lack of traditional collateral, such as property, equipment or capital. The best
know examples are peer pressure (joint liability arrangements in lending to
"solidarity" groups) and probation (credit scoring). Both have performed as well
as conventional instruments in terms of ensuring repayment and have been used
over a fairly long period (ILO, 1996b).
Successful microfinance institutions are characterized, besides using
"collateral substitutes", by (Christen et. al, 1995)
- offering primarily short-term working-capital loans;
- having a turnaround time for loan approval of less than 2 weeks;
- providing services close to borrowers' home or work;
- charging interest rates significantly above the rate of inflation,
- having lower salary levels than financially less viable programmes.
Interestingly enough, there does not seem to be a trade-off between reaching
the very poor, and primarily women, and reaching large numbers of people. It
seems to be scale, and not an exclusive focus, that determines whether
significant outreach to the poorest occurs.
Impact of microfinance on women micro
It is widely assumed that micro-finance will have a positive impact on
women's livelihood in i) leading to higher income that will help women to better
perform their reproductive role as brokers of the health, nutritional, and
educational status of other household members, ii) increasing women's employment
in micro enterprises and in improving the productivity of women's
income-generating activities, and iii) enhancing their self-confidence and
status within the family as independent producers and providers of valuable cash
resources to the household economy.
The plausibility of these assumptions is largely borne out by empirical
evidence. Impact assessments provide evidence of the positive effects of
micro-finance on the livelihood of poor women, especially in
- a study from Bangladesh confirms improvements in women's physical mobility,
economic security, ability to make own purchases, freedom from family domination
and violence, political and legal awareness and public participation, as a
result of a more stable integration into microfinance circuits (Schuler and
- a study of Grameen Bank suggests that women participants in credit
programmes are more conscious of their rights, better able to resolve conflicts,
and have more control over decision making at the household and community levels
- credit to women has positive effects on the schooling of girls, it increases
women's asset holdings (except land) and is a significant determinant of total
household expenditure (Pitt and Khandkar, 1995);
- a study in Sri Lanka found that loans contributed to women's independent
income, giving them more bargaining power in their relation with male family
members (Hulme and Mosley, 1996);
- enhanced women's empowerment, such as increased self-confidence, and better
cooperation with neighbours has also been observed in Thailand (MkNelly and
The findings for Africa give a less clear picture, in that there is
a positive impact on self-confidence (Vengroff and Creevey, 1994), but little
proof of increased access to credit, intra-household decision making and
individual assets ownership (Vengroff and Creevey, 1994; Creevey, Ndour and
Thiam, 1995). In Latin America, a study in Ecuador found a significant
increase in hourly income for women and in efficiency and productivity of their
enterprises (Buvinic, Berger and Jaramillo, 1989).
However, some studies have also detected negative impacts on women's income
and employment, such as increased work loads (Vengroff and Creevey, 1994) and
higher social pressure to ensure loan repayment. Also, a positive impact on
non-participants, such as the welfare and education of children, cannot be
automatically assumed (Peace and Hulme, 1994; Creevey, Ndour and Thiam, 1995).
Moreover, women often employ daughters and daughters-in-law as unpaid employees
thereby increasing their workload. Finally, participation in credit schemes can
lead to indebtedness that is unmanageable, simply because there are no
sufficiently profitable income-earning activities in which to invest. In this
situation, women may end up being even more dependant that they were
Access to and control over financial
resources -- the emerging debate
Women's control over financial resources is increasingly seen as a key
factor in explaining these mixed results. While only a limited number of impact
assessments exist that focus on this issue, the available evidence highlights
that a significant part of women, who may have
access to finance, may not have
control over the loans contracted
(Sebstad and Chen, 1996):
- about 63% of women's loans are actually invested by male relatives, while
women bear the formal responsibility for repayment in a Bangladesh programme
(Goetz and Gupta, 1995);
- a study of 151 Grameen Bank loans to women found that 12% surrendered the
entire loan to male family members;
- another study in Bangladesh discovered that of 140 loans made by ACTIONAID
to women, about 50% were used for men's productive activities;
- a survey of loans to women borrowers in the Grameen Bank, Save the Children
Fund and BRAC registered a loss of direct control over loan use (Ackerly,
- an assessment of K-REP confirmed that men try to control income from women's
- according to a more recent study of women borrowers in the Grameen Bank, 10
of 40 women in the sample were passing on all or most of their loans to male
family members under circumstances that gave them little control over the use of
this capital (Todd, 1996).
On the other hand, the loss of control over financial resources does not
necessarily mean that women are worse off in terms of increased social and
economic opportunities (Goetz and Gupta, 1995; Todd, 1996):
- even when women loose control over the use of their loans, their overall
status in the household may improve due to their role as a financial
- handing over loans to men may help to secure family stability by easing
cashflow bottlenecks in the household;
- women may also use credit as a bargaining chip to gain access to other
opportunities offered by financial institutions, such as training, education and
However, it seems obvious that the impact of micro-finance services is higher
when women actually control the financial resources acquired in their name.
Increased control is likely (Ackerly, 1995; Goetz and Gupta, 1995)
- to contribute to women's empowerment;
- to facilitate women's entrepreneurship;
- to assist women in their reproductive tasks;
- to ease their repayment burden.
The discrepancy between nominal borrower status and effective control over
loan transactions is also partly due to donor behaviour. This can materialize,
for example, in
- a shift of refinancing from microfinance organizations that emphasise
women's social development and empowerment to others placing a premium on early
and full financial sustainability (Ebdon, 1995);
- cutting back on support services, such business management, skills training
and education and information provision in order to cover costs (Ackerly,
- pushing for bigger and more loans (Ebdon, 1995);
- using women as unpaid debt collectors that facilitate intermediation between
micro-finance institutions and male family members thereby reducing lenders'
transaction costs (Goetz and Gupta, 1995).
However, it could also be argued that in the long term, the insistence on
financial sustainability may contribute to a 'more efficient and continuous
supply of financial services that allow women micro entrepreneurs to take
advantage of economic opportunities' (Almeyda ,1996) by i) stressing
institutional viability, ii) reducing cost due to increased efficiency in
financial technologies, iii) emphasizing market knowledge, which lead to better
knowledge of customers characteristics and financial technologies, iv) using
concepts of microfinance, which cover both the enterprise and household
Recommendations for policy makers
To effectively address the constraints faced by female entrepreneurs
in their access to microfinance, support services are required at many
At the policy level the following actions may be considered:
- surveys to determine the needs, demands and debt capacity of women;
- legal reforms to abolish gender differences in commercial and civil
- abolition of interest rate regimes;
- allowing non-bank financial institutions to take savings;
- setting of realistic capital requirements for non-bank financial
- gender-sensitization of policy makers.
At the institutional level, supply side measures should address
constraints relating to track-record requirements, size requirement, equity
requirement, etc., and include
- the creation of separate, gender-based parallel structures to be developed
into self-sustaining financial institutions;
- the creation of gender-specific windows in financial institutions;
- the gender sensitization of existing financial institutions for the adaption
of financial services that meet the needs of female microentrepreneurs and that
accommodate their reproductive and productive roles.
Direct support measures can address constraints on the demand side,
- helping women satisfy the requirements made by financial institutions
through the provision of education, enterprise development and training;
- dissemination of sensitization information about financial sector
institutions and available microfinance services, and
- support to group-based savings and credit organizations, such as women's
Governments, the social partners and other civil society organizations should
adhere to the following points:
- respect and enforce basic principles for sustainable microfinance, such as
the "Micro and small enterprise guiding principles for selecting and
supporting intermediaries" of the Donors' Working Group on Financial Sector
- coordinate their activities and exchange their experiences in the area of
microfinance and gender; and
- allow for the participation of clients, especially female entrepreneurs, in
the design and offering of financial services to micro and small
Women, enterprise and microfinance --
an attractive combination of the topical themes...
A cautious note at the end. Women, enterprise and microfinance is a
combination of topical themes that have gained global attention not in least due
to the Microcredit Summit, held in February 1997 in Washington. The Microcredit
Summit aims to ensure that "100 million of the world's poorest families,
especially the women of those families, are receiving credit for self-employment
and other financial and business services by the year 2005".
While the ILO, as a member of the UN Council of the Microcredit Summit
Campaign, supports this goal, it should be said that microfinance is not a
panacea. The provision of microfinance is only one instrument among others that
will help female micro and small entrepreneurs to grow and develop. Poverty is a
complex phenomenon with multiple causes -- of which the lack of access to
capital is only one.
The very poor have only a limited credit absorption capacity. For example,
very poor women often become burdened by the repayment obligation, especially as
they use credit primarily for consumption purposes. Studies show that the impact
of providing microfinance is greatest for persons that live above the poverty
line (Hulme and Mosley, 1996), i.e. it is more cost-effective to provide the
somewhat better-offs among the poor with microfinance services.
The current enthusiasm for microfinance needs to be examined cautiously,
especially in looking at the limited outreach that microfinance institutions
possess. Some estimate the percentage of poor reached at only 2 percent.
Moreover, only about 5 percent of all microfinance institutions are judged to
eventually become financially sustainable. The current danger is that too much
money is being invested in too few institutions - international donors, pressed
to increase their involvement in microfinance, are already departing from
established principles(4) of sound assistance in
microfinance in the search for funding opportunities.
Today's primary focus on microfinance may blur the knowledge that women in
micro and small enterprise need to be assisted by holistic strategies and
comprehensive programmes that address not only women's lack of access to
productive resources, but also their difficulties in accessing labour
opportunities and their low skill levels.
Francisco Otero, Director,
Bancosol, P.O. Box 13176, La Paz,
Bolivia, Fax: (00591/2) 392-810
Bank Ryat Indonesia, Unit Desa,
Jalan Jenderal Sudirman, 44-46, Jakarta Pusat, Indonesia
Em. Haryadi, Director, Bina
Swadaya, P.O. Box 1456, Jakarta 10014, Indonesia,
Fax: (0062/21) 420-8412
Fazle Hazan Abed, Executive Director,
BRAC, 66 Mohakhali C.A., Dhaka 1212,
Bangladesh, Fax: (00880/2) 883-542
Secretariat, The World Bank, 1818
H Street, NW, Washington, DC 20433, USA, Fax: (001) 202-522-3744
Donor's Working Group on Financial Sector
Development, Secretariat c/o FSD, World Bank, 1818
H Street N.W., Washington D.C. 20433, USA, Fax: (202) 522-3199
Cesar Alarcon, Executive Director, Fundacion Ecuatoriana de
Desarollo (FED), Calle 9 de Octubre, #1212, Quito
17-01-2529, Ecuador, Fax: (00593/2) 509-084
Inter-American Development Bank,
1300 New York Ave., N.W., Washington, DC 20577, USA
Jane Zhang, ILO FEMMES, 4, route
des Morillons, 1211- Genève 20, Switzerland, Fax: (0041/22) 798-8685
Bernd Balkenhol, ILO Social Finance
Unit, 4, route des Morillons, 1211 Genève 20, Switzerland
Fax: (0041/22) 799-6896
Kimantha Mutua, Managing Director, K-REP,
Ring Road, Kilimani, P.O. Box 39312, Nairobi, Kenya,
Fax: (00254/2) 711-645
Microcredit Summit Campaign, 236
Massachusetts Avenue, NE, Suite 300, Washington, DC, 20002 USA, Fax: (001)
Mirai Chatterjee, General Secretary, Self-Employed Women's
Association (SEWA), Sewa Reception Centre, Opp. Victoria
Garden, Bhadra, Ahmedabad 380001, Fax: (0091/79) 550-6446
Noeleen Heyzer, Director,
UNIFEM, 304 E. 45th Street -
6th Floor, New York, NY 10017, Fax: (001) 212-906-6705
Jaya Arunachalam, President, Working Women's Forum
(WWF), 55, Bhimasena Garden Rd., Mylapore, Madras 600
004, India, Fax: (0091/44) 499-2853
Women's World Banking, 8 West 40th Street,
New York, NY 10018 USA
Zimbabwe Women Finance Trust (ZWFT), Box
CY 122, Causeway, Harare, Zimbabwe
Ackerly, B.A., 1995. "Testing the tools of development: credit programmes,
loan involvement and women's empowerment", in "Getting Institutions Right for
Women in Development", IDS Bulletin, Vol.26, No.3.
Almeyda, G., 1996. Money Matters, UNIFEM/IDB, New York.
Buvinic, M., M. Berger and C. Jaramillo, 1989. "Impact of a credit project
for women and men microentrepreneurs in Quito, Ecuador", Women's
Ventures, edited by M. Berger and M. Buvinic, Kumarian Press, West
Chen, M.A., 1996. Beyond credit: a subsector approach to promoting
women's enterprises, Aga Khan Foundation, Ottawa.
Christen, B, Rhyne, E., Vogel, R. and C. McKean. Maximizing the outreach
of microenterprise finance - an analysis of successful microfinance
programs, USAID, Washington.
Creevey, L. E., Ndour, K. and A. Thiam, 1995. Evaluation of the impacts
of PRIDE/VITA, GEMINI Technical Report No. 94, Bethesda.
Ebdon, R., 1995. "NGO expansion and the fight to reach the poor: Gender
implications of NGO scaling-up in Bangladesh", in "Getting Institutions Right
for Women in Development", IDS Bulletin, Vol.26, No.3.
Goetz, A.M. and R. Sen Gupta, 1996. "Who takes the credit? Gender, power, and
control over loan use in rural credit programs in Bangladesh", in World
Development, Vol.24, No.1.
Hilhorst, Th., and H. Oppenoorth, 1992. Financing women's enterprise:
Beyond barriers and bias, Amsterdam.
Hulme, D. and P. Mosley, 1996: Finance against poverty, London.
ILO, 1995. Gender poverty and employment: Turning capabilities into
ILO, 1995. Guidelines for the integration of gender issues into the
design, monitoring and evaluation of ILO programmes and projects,
ILO, 1996. Action to assist rural women: Gender analysis study,
ILO, 1996b. Collateral, collateral law and collateral substitutes, a
paper for the Donors' Working Group on Financial Sector Development, Social
Finance Unit, Geneva.
ILO, 1997. World Labour Report, Geneva.
Lim, L.L., 1996. More and better jobs for women, an action guide,
Mayoux, L., 1995. From vicious to virtuous circles? Gender and
micro-enterprise development, Occasional Paper No.3, UNRISD, Geneva.
MkNelly, B. and Ch. Watetip, 1993: Impact evaluation of Freedom from
Hunger's credit with education program in Thailand, Davis.
Peace, G. and D. Hulme, 1994. Microenterprise and children - what are the
intra-household impacts of income generating programs? Small Enterprise
Development, Vol. 5, No. 1.
Pitt, M.M. and S.R. Khandker, 1994. Household and intrahousehold impacts
of the Grameen Bank and similar targeted credit programs in Bangladesh,
World Bank, Washington.
Schuler, S. R. and S. M. Hashemi, 1994. Credit programs, women's
empowerment, and contraceptive use in rural Bangladesh, Studies in Family
Planning 25 (2), pp. 65-76.
Sebstad, J. and G. Chen, 1996. Overview of studies on the impact of
microenterprise credit, AIMS, USAID, Washington.
Todd, H., 1996. Women at the center. Grameen Bank borrowers after one
decade, Westview Press, Oxford.
Vengroff, R. and L. Creevey, 1994. Evaluation of project impact: ACEP
component of the community enterprise development project, report to
USAID/Dakar, University of Connecticut, Storrs.
1. Despite substantial research since the 1970s, the meaning
and scope of the informal sector remain a controversy, as its magnitude, nature
and composition vary between regions and countries. The boundaries between
informal and formal sector are determined by the extent and degree of regulation
and institutionalization of a country's economic activities. A recent ILO
report, uses the term "informal sector" to describe a "range of economic units
in urban areas which are largely owned and operated by single individuals with
little capital and labour, and which produce and distribute goods and services
with a view to generating income and employment" (ILO 1997: World Employment
Report, Geneva). Other characteristics include labour-intensive technology,
easy entry, high levels of competition, production of low-quality goods and
services, limited capacity for accumulation and restricted access to assets,
credit and other services, as well as undeclared and unprotected labour and
unstable relationships of production.
2. Micro and small enterprises have never been explicitly
defined. The Committee of Donor Agencies for Small Enterprise Development
considers the term "small" to include "formal and informal nonagricultural
enterprises ranging from micro to medium size".
3. A recent study by the ILO defines "collateral
substitutes" as having two characteristics: it is not enforceable through formal
judicial process and it cannot be sold in a market (ILO 1996b).
4. See "Micro and Small Enterprise Finance: Guiding
Principles for Selecting and Supporting Intermediaries", Committee of Donor
Agencies for Small Enterprise Development and Donors' Working Group on Financial
Sector Development, October 1995.
Hari Srinivas - firstname.lastname@example.org
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