“The Promise of Microfinance and Women’s Empowerment; What Does the Evidence Say?;” by Dina Pomeranz; published by EY (Ernst & Young Global Limited), February 2014; 24 pages; available at http://www.ey.com/Publication/vwLUAssets/EY_-_Microfinance_and_womens_empowerment/$FILE/EY-The%20promise-of-microfinance-and-womens-empowerment.pdf
In this paper, Dr Pomeranz gives a brief overview of the history of microfinance as well as is discussing the “size, magnitude and geographical reach” of the sector, citing that approximately 3,600 microfinance institutions (MFIs) served 200 million customers globally as of 2010. The paper also discusses the “potential and limits of microfinance” based on research outcomes that applied “innovative” research methods including randomized evaluations and ideas from the field of behavioral economics.
According to data from the US-based World Bank, “only 37 percent” of women globally have access to formal financial services. Dr Pomeranz argues that this constrains women’s ability to participate in “self-employment opportunities,” particularly in South Asia, the Middle East and North Africa. The paper also refers to data from the US-based Microcredit Summit Campaign, indicating that “80 percent of the microfinance industry’s poorest clients are women.” This suggests that microfinance offsets the imbalance in women’s access to formal financial services to some extent.
Dr Pomeranz argues that women’s access to financial services has several benefits, including increasing women’s “business opportunities, [ability to] cope with shocks, bargaining power […] and overall independence.” Also, women’s financial access may help decrease poverty and contribute to gender equality, however further research is required to understand these dynamics.
The paper discusses the results of several research projects on microcredit, microsavings and microinsurance, with particular focus on the impact of these services on women. According to the findings of several randomized evaluations, microcredit may be a “useful financial tool.” However, there is no evidence that access to microcredit generally contributes to increased income. Microsavings is deemed promising as a tool to help smooth consumption patterns and protect against economic downturns. Nonetheless, the collection of tiny amounts of cash remains unattractive to many MFIs. Also, banking regulations in many countries prevent MFIs from taking deposits. Further research is needed to understand whether microsavings would improve with government subsidy. Dr Pomeranz argues that microinsurance faces the “challenges of asymmetric information,” referring to the difficulty that microinsurance companies face in judging the risk profiles of their customers and deciding whether claims are justified. Also, potential microinsurance clients often lack trust in the concept and an understanding of its benefits.
Research, in particular randomized controlled trials, provides insight into the most suitable ways of maximizing the social impact of microcredit, microsavings and microinsurance products. Evidence shows that even small alterations in product features, including changes in repayment schedules, follow-ups and “varying structures of the peer-group liability,” can influence both the economic viability and social impact of these products. Research also helps MFIs to explore the application of innovative solutions such as new technologies and gender-sensitive products.
By Alíz Crowley, Research Associate
About EY Limited Liability Partnership (LLP)
Headquartered in London, England, EY (Ernst & Young Global Limited) is a multinational firm that offers assurance, tax, consulting and advisory services. The history of EY begins with an English company called Harding & Pullein that was founded in 1849. The immediate predecessor of the current company was formed in 1989 by the merger of Ernst & Whinney and Arthur Young & Co. As of 2014, EY is present in 150 countries with approximately 700 offices and 190,000 employees. As of 2013, the total global revenue of EY amounted to USD 25.8 billion.
Sources and Additional Resources
MicroCapital, October 1, 2013, 9th Annual Clinton Global Initiative (CGI) Participants Commit to Advancing 15,000 Women-owned Businesses by 2018
MicroCapital, October 7, 2008, Ernst & Young Donates $1m of In-Kind Resources to Assist Kiva Microfunds with Accounting
MicroCapital, September 29, 2008, Ernst & Young and Kiva.org to Work Together to Increase Transparency of Micro-Loans to Entrepreneurs in the Developing World
MicroCapital Universe Profile: EY Limited Liability Partnership (LLP)
Do you know that MicroCapital publishes the MicroCapital Monitor newspaper each month? Find out more at https://www.microcapital.org/products-page/