Entrepreneurship and Financial Inclusion

Expanding Women’s Commercial Economic Activities

Microfinance services (microcredit, microsavings and microinsurance) help bridge the gap between poor households and formal financial services by smoothing cash flow -- particularly in times of shock -- and building assets. One major selling point of microfinance, which helped elevate it to the status of being the United Nations’ "weapon against poverty and hunger," is its presumed ability to empower women by increasing their financial security, self-esteem and bargaining power within the household. But rigorous studies of the impacts of microfinance suggest that its services help to improve the lives of some women, but not all. Microfinance helps women who have freedom of movement, autonomy and large social networks. Although microfinance exhibits positive effects on its borrowers, these effects are not transformative. Microcredit may generate additional income for families and increase women's formal labor force participation, but the evidence is mixed: Some research points to women's improved agency in terms of decreasing fertility outcomes, and others find a lack of changes in the gender dynamics, gender equality or educational access in households. Even after an influx of capital, often female-owned microenterprises show significantly less income increases than male-owned enterprises, though at the household level, households with female enterprises benefit as much as households with male enterprises. Expanding women’s commercial economic activities worldwide therefore remains a mixed promise, despite the large investment in providing microfinance services for the poor.

What We Can Do to Foster Women’s Entrepreneurship
Microfinance alone cannot overcome the strict gender norms that often constrain women’s entrepreneurial opportunities. Programs that increase women’s social networks and that train adolescent girls before they enter the labor market have shown success in increasing women’s entrepreneurship.

  • Women’s Social Networks: Microfinance programs that emphasize community and social contact as part of their programming with women lead to sustained social interaction among group members, greater willingness to share financial risk within the group and lower default rates.
  • Financial Incentives: Using financial incentives to motivate work and effort has been tested extensively in well established companies in high-income countries, but how they affect (micro-) entrepreneurs in low-income countries is largely an open question. Standard financial incentives used to motivate employees in developed countries may actually crowd out the intrinsic motivation of micro-entrepreneurs in poor countries. For example, hairdressers in Zambia were more motivated to sell female condoms to their customers by non-financial incentives (when their performance was measured by publicly displayed stars, allowing for social comparisons with neighboring salons), rather than by financial incentives. While it is unclear how generalizable the specific findings are, it is important to note that non-financial motives can affect entrepreneurship and performance even among the very poor who face severe financial constraints.