More than 45 years have passed since Bangladeshi economist and social entrepreneur Muhammad Yunus pioneered the idea of microfinance. Yunus went on to found the microfinance organisation, Grameen Bank, which received the Nobel Peace Prize in 2006.

The Prize was awarded for the Bank’s efforts to create “economic and social development from below,” as well as its contribution to exponential growth in the microfinance services sector. This growth still comprises mostly of microcredit offerings, but now also includes other areas such as savings, insurance and pensions.

A key focus of the organisation has been to empower low-income women, by providing them the financial wherewithal to help support themselves and their families. The idea was to give them access to financial opportunities from which they have been excluded in the past. Women were also considered more likely to reinvest any profits from their enterprises into their family and community, thus contributing to poverty reduction and empowering women in the process.

But according to Saba Mebrahtu and Sara Niner in Women’s empowerment and microfinance: Key challenges, lessons and a way forward the “debunking of microcredit’s ‘magic bullet’ status in relation to women’s empowerment and poverty reduction” is now well under way.

Women were also considered more likely to reinvest any profits from their enterprises into their family and community, thus contributing to poverty reduction and empowering women in the process.

“The overall positive impact of microfinance for women has come under intense scrutiny in recent years with the social and economic indicators becoming conflated, and the hopeful upwards motion within the ‘virtuous spiral’ [of female empowerment] being seriously questioned,” they say. “A number of recent studies have shown that at best, microfinance has had a modestly positive (but not transformative) impact, and several negative effects at worst.

Why Microfinance Isn’t Enough

The editorial team of The Conversation takes a similar stance. The article Why microfinance as aid isn’t enough to empower women attests that “simply improving a woman’s economic situation does not necessarily result in greater equality.” Instead, increasing their “economic engagement often increases their work burden on top of all the unpaid labour they do”.

To make matters worse, it can also “challenge established gender roles and power hierarchies, causing conflict in the home and even domestic violence,” despite the fact that some microfinance programmes have only a minimal impact on development outcomes, such as health and education.

“…simply improving a woman’s economic situation does not necessarily result in greater equality.”

According to the article, “Microfinance programs do nothing to challenge or transform the structural conditions that create poverty in the first place. It is like putting a band-aid over a deep wound. Indeed, microfinance shifts responsibility for poverty alleviation onto the poor and marginalised.”

This situation means that women can become trapped in cycles of debt, taking out one loan to repay another, which along with a range of other cultural and social factors simply reinforces their poverty, inequality and, ultimately, lack of power. Neither has the issue been helped by “a trend toward profit-making microfinance institutions that charge higher interest rates, extracting the little surplus poor people are able to raise from their meagre livelihoods,” The Conversation notes.

But that’s not to say that the microfinance industry should be written off completely. If such initiatives are driven by the community itself, operated at a grassroots level, and run for the benefit of participants rather than for profit generation, then they can often work effectively – although it is important to acknowledge that there is no one-size-fits-all.

It seems that technology could have a part to play too.

Examples of effective microfinancing include Saving for Change, an initiative developed by Freedom from Hunger, Oxfam America and Norway’s Stromme Foundation. The programme, which currently operates in rural villages in 13 countries and has 680,000 members, works by supporting small groups of women to save money together until they are in a position to extend credit among themselves, and subsequently, their communities.

Taking A Self-Help Approach

International distributor and producer of agricultural products Cargill has also partnered with NGO Care India and the Vivekanand Research and Training Institute (VRTI) to support low-income women in a similar way in Kutch, Gujarat. 

The Self-Help Group Federation helps women to set up similar self-help groups by partnering with local banks. Doing so enables the women to borrow up to 10 times their savings at a fair rate of interest. As a result, there are now around 6,000 members of 461 self-help groups, located across 225 villages across the state, with funds totalling approximately $3 million.

Self-help groups are not necessarily the only way to empower women in low-income communities. It seems that technology could have a part to play too.

A study by Oumy Khairy Ndiaye, entitled Is the success of M-Pesa empowering Kenyan rural women? explored the impact of the My Mobile Money app on women in fishing communities on the Kenyan side of Lake Victoria. While fishing there is traditionally considered a male role, it is mostly women who do the fish processing and trading.

As such, these women experienced multiple benefits while using M-Pesa. The app gave them a means of saving money in a safe place, unaccessible by their husbands, who in many cases spend this money on personal items or alcohol. Also, rather than using credit, the women were able to pay the fishermen for their purchases, which in turn increased trust with the vendors.

While benefiting from the advantages of M-Pesa, many of the women gained confidence and began utilizing other financial services, such as opening bank accounts for larger savings, using the apps for transactions, and managing small amounts of money.

As a result, M-Pesa seems to have had a clear, positive impact. Given the opportunity to take control of their cash, women in rural Kenya were able to improve their skills acquisition and take advantage of new opportunities. Their new-found independence and control around money also improved their relationship with their husbands, by relieving tensions around money management. And that can only be a good thing.