Contents
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 themes..
Bibliography

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 exclusion.

Women as micro entrepreneurs in the informal sector⁽¹⁾

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 opportunities.

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 (ILO, 1997).

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 market.

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 separation; and

• lack of access to markets due to their exclusion from the most lucrative markets.

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 inflation.

* 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 readily available.

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, and

• 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 entrepreneurs

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 Asia:

• 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 Hashemi, 1994);

• 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 (Chen, 1992);

• 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 Watetip, 1993).

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 before.

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, 1995);

• an assessment of K-REP confirmed that men try to control income from women's enterprises;

• 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 mediator;

• 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 information.

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, 1995);
• 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 sphere.

Recommendations for policy makers

To effectively address the constraints faced by female entrepreneurs in their access to microfinance, support services are required at many levels.

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 law;

• abolition of interest rate regimes;

• allowing non-bank financial institutions to take savings;

• setting of realistic capital requirements for non-bank financial institutions; and

• 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; and

• 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, such as

• 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 associations.

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 Development;
• 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 enterprises.

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.

Contact addresses

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

CGAP 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) 202-546-3226

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

Bibliography

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 Hartford.

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 entitlements, Geneva.

ILO, 1995. Guidelines for the integration of gender issues into the design, monitoring and evaluation of ILO programmes and projects, PROG/EVAL, Geneva.

ILO, 1996. Action to assist rural women: Gender analysis study, Geneva.

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, ILO, Geneva.

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.