Overview of Microfinance for Women in India


N. Kavitha
MBA, M.Phil,(Ph.D)
(Research Scholar in Mother Teresa Women's University, Kodaikanal)
SSM College of Engineering
Komarapalyam-638 183

Dr. A. Ramachandran
M.Com, M.Phil, Grad.CWA, Ph.D.
Reader in Commerce
SNR Sons College (Autonomous)


In 1980s, microfinance programs have improved upon original methodologies and extended beyond conventional thinking. First, microfinance demonstrated that poor people, and especially women, had excellent repayment rates (and often, rates that performed better than those in formal financial sectors). And second, that the poor were willing and able to pay interest rates that would allow the microfinance institutions (MFIs) to cover costs.


To most, microfinance means providing very poor families with very small loans to help them engage in productive activities or grow their very small businesses. Like us, many poor people need and use financial services all the time. They save and borrow, invest in home repairs and improvements and meet occasional and domestic expenses such as food and school fees. However, there are some 500 million low income entrepreneurs in the world and about 5% have access to financial services. Indeed, the financial services available to the poor often have serious limitations in terms of cost, risk and convenience. As a result, over time, microfinance has come to include a broader range of services (credit, savings, insurance, etc.) as the industry has come to realize that the poor and the very poor who lack access to traditional formal financial institutions require a variety of financial products.


A type of banking service that is provided to unemployed or low-income individuals or groups who would otherwise have no other means of gaining financial services. Ultimately, the goal of microfinance is to give low income people an opportunity to become self-sufficient by providing a means of saving money, borrowing money and insurance.

Micro financing is not a new concept. Small microcredit operations have existed since the mid 1700s. Although most modern microfinance institutions operate in developing countries, the rate of payment default for loans is surprisingly low - more than 90% of loans are repaid.

    1.  Like conventional banking operations, microfinance institutions must charge their lenders interests on loans. While these interest rates are generally lower than those offered by normal banks, some opponents of this concept condemn microfinance operations for making profits off of the poor.
    It is a tool for empowerment of the poorest; the higher the income and better the asset position of the borrower, the lower the incremental benefit from further equal doses of micro-credit is likely to be.

    2. Delivery is normally through Self Help Groups (SHGs).

    3. It is essentially for promoting self-employment; the opportunities of wage employment are limited in developing countries - micro finance increases the productivity of self-employment in the informal sector of the economy - generally used for (a) direct income generation (b) rearrangement of assets and liabilities for the household to participate in future opportunities and (c) consumption smoothing.

    4. It is not just a financing system, but a tool for social change, specially for women - it does not spring from market forces alone - it is potentially welfare enhancing - there is a public interest in promoting the growth of micro finance  - this is what makes it acceptable as a valid goal for public policy.

    5. Because micro credit is aimed at the poorest, micro-finance lending technology needs to mimic the informal lenders rather than the formal sector lending. It has to : a) provide for seasonality (b) allow repayment flexibility (c) eschew bureaucratic and legal formalities (d) fix a ceiling on loan sizes.

    6. It is a tool for empowerment of the poorest; the higher the income and better the asset position of the borrower, the lower the incremental benefit from further equal doses of micro-credit is likely to be.

    7. Delivery is normally through Self Help Groups (SHGs).

    8. It is essentially for promoting self-employment; the opportunities of wage employment are limited in developing countries - micro finance increases the productivity of self-employment in the informal sector of the economy - generally used for (a) direct income generation (b) rearrangement of assets and liabilities for the household to participate in future opportunities and (c) consumption smoothing.

It is not just a financing system, but a tool for social change, specially for women - it does not spring from market forces alone - it is potentially welfare enhancing - there is a public interest in promoting the growth of micro finance  - this is what makes it acceptable as a valid goal for public policy.

Microfinance approach

Microfinance approach is based on certain proven truths which are not always recognised. These are:

  • That the poor are bankable; successful initiatives in micro finance demonstrate that there need not be a trade off between reaching the poor and profitability - micro finance constitutes a statement that the borrowers are not 'weaker sections' in need of charity, but can be treated as responsible people on business terms for mutual profit -
  • That almost all poor households need to save, have the inherent capacity to save small amounts regularly and are willing to save provided they are motivated and facilitated to do so -
  • That easy access to credit is more important than cheap subsidised credit which involves lengthy bureaucratic procedures - (some institutions in India are already lending to groups or SHGs at higher rates - this may prevent the groups from enjoying a sufficient margin and rapidly accumulating their own funds, but members continue to borrow at these high rates, even those who can borrow individually from banks) -
  • 'Peer pressure' in groups helps in improving recoveries.

The clients of microfinance

The typical microfinance clients are low-income persons that do not have access to formal financial institutions. Their "micro enterprises" represent an estimated 80% of the total enterprises in the world, 50% of urban enterprises and 20% of the GNP of their countries. Microfinance clients are typically self-employed, often household-based entrepreneurs. In rural areas, they are usually small farmers and others who are engaged in small income-generating activities such as food processing and petty trade. In urban areas, microfinance activities are more diverse and include shopkeepers, service providers, artisans, street vendors, etc. Microfinance clients are poor and vulnerable non-poor who have a relatively stable source of income.

Access to conventional formal financial institutions, for many reasons, is inversely related to income: the poorer you are, the less likely that you have access. The poor often obtain financial services from informal financial relationships - credit can be available from commercial and non-commercial lenders, but often at very high interest rates; saving services can be available through savings clubs, credit associations and the like. As a result, the chances are that, the poorer you are, the more expensive or onerous informal financial arrangements. Moreover, informal arrangements may not suitably meet certain financial service needs or may exclude you anyway. Individuals in this excluded and under-served market segment are the clients of microfinance.

Microfinance generally targets poor women because they have proven to be reliable credit risks and when they have the financial means, they invest that money back into their families, resulting in better health and education, and stronger local economies. By providing access to financial services - loans and responsibility for repayment, maintaining savings accounts, providing insurance - microfinance programs send a strong message to households and communities. Studies have shown that women become more assertive and confident, have increased mobility, are more visible in their communities and play stronger roles in decision making.

As the definition of the types of services microfinance encompasses broadens, the potential market of microfinance clients also expands. For instance, microcredit might have a far more limited market scope than say a more diversified range of financial services which includes various types of savings products, payment and remittance services, and various insurance products. For example, many very poor farmers may not really wish to borrow, but rather, would like a safer place to save the proceeds from their harvest as these are consumed over several months by the requirements of daily living.

Microfinance help the poor

Microfinance brings the power of credit to the grassroots by way of loans to the poor, without requirement of collateral or previous credit record. Experience shows that microfinance can help the poor to increase income, build viable businesses, and reduce their vulnerability to external shocks. It can also be a powerful instrument for self-empowerment by enabling the poor, especially women, to become economic agents of change.

Poverty is multi-dimensional, and by providing access to financial services, microfinance plays an important role in the fight against the many aspects of poverty. Access to credit allows poor people to take advantage of economic opportunities - for their homes, their domestic environments and their communities. For instance, income generation from a business helps not only the business activity expand but also contributes to household income and its attendant benefits on food security, children's education, etc. Moreover, for women who, in many contexts, are secluded from public space, transacting with formal institutions can also build confidence and empowerment.

Recent research has revealed the extent to which individuals around the poverty line are vulnerable to shocks such as illness of a wage earner, weather, theft, or other such events. These shocks produce a huge claim on the limited financial resources of the family unit, and, absent effective financial services, can drive a family so much deeper into poverty that it can take years to recover.

Micro Finance Institution

Quite simply, a microfinance institution is an organization that offers financial services to the very poor. Most MFIs are non-governmental organizations committed to assisting some sector of the low income population. It is important to note that MFIs are not the only entities serving the financial needs of micro entrepreneurs. Commercial banks, cooperatives and savings institutions all have important roles to play in serving this market

Women can make micro-credit succeed in India:

'India has to understand that micro-finance is workable and sustainable anywhere where there is poverty. And to make it successful, it needs to emphasise and mobilise the role of women in each rural and poor household,' the chief architect of Bangladesh's Grameen Bank told a conference organised by the Federation of Indian Chambers of Commerce and Industry (FICCI). 'India and Bangladesh have no major difference in poverty. If micro-finance or micro-credit is successful in Bangladesh, it can be successful in India as well,' Yunus emphasised. 'The Grameen Bank and the work that we do is not something extraordinary and neither is it a model. It is a rather simple way of solving the complex problems of poverty,' the 66-year-old economist said.

'Bangladesh is very close to achieving the UN millennium development goal of eradicating poverty. And we have been able to successfully reach 80 percent poor households .'India has a long way to go, but it can come out with excellent results only if it catches the pace,' he reiterated.

Women's Role in Economy

All over the world, the significant of women entry into the workforce over the past three decades has produced profound transformations in the organisation of families, society, the economy, and urban life. Since the late 1950s, women's economic activities have been steadily increasing.

Women have always actively participated in their local economies. In Africa, for example, women produce 80 percent of the food and in Asia 60 percent and in Latin America 40 percent. In many cases, women not only produce the food but market it as well, which gives them a well-developed knowledge of local markets and customers.

This is a small example of the importance of women's work in society. It does not illustrate the real extent of women's contribution, especially in developing countries, not only to the labour force, but also their role as a significant income-source for the family.

For instance, in Africa all tasks related to a family's support are the responsibility of women. Due to cultural and traditional aspects, a woman's presence has been a question of survival of her family.

Women, especially poor mothers, must divide their time between work "productive role" and family "reproductive role", and balancing all the demands. Time is valuable for these women, as their livelihoods depend largely on their ability to fulfil the multiple demands of the household and the marketplace.

In spite of the remarkable importance of women's participation, their jobs have been considered as an "extra income" to family survival or simply to improve its living conditions. Moreover, micro enterprises owned by women have been considered as a way to meet primary needs instead of a profitable source of income.

Unfortunately, labour markets have followed this perception and have offered less favorable conditions to women. Women workers consistently earn less than their male partners do. That is the case of Cameroon women who work, for example, up to 10 hours a day, but at the end of the month, their income is far below the Cameroon monthly minimum wage of 29000 CFA francs (US$ 60).

Women have had to fight against an adverse environment, which traditionally had been minimising and exploiting their capacities. As a consequence of this reality, in some cases, women are just satisfied with the non-financial benefits, such as the psychological satisfaction of "social contact".

Women's Micro-enterprises

Considering the entrepreneurial environment, women's activities are very interesting as they offer a great source of knowledge and innovation. For example: there is no single type of female micro-entrepreneur, they differ in social background, educational level, experience and age. Another interesting factor is their strong social coherence that allows them to maintain strong communications-channels at all levels.

One important element, and perhaps the only characteristic that men will never have, is the possibility to transfer "motherhood skills" to job. These include fostering of other people's development through guiding, monitoring, and sharing information. Women are experienced in balancing claims, in organising and pacing, and in handling difficulties.

In general terms, female-led microenterprises tend to be associated with activities that provide part-time employment. They are small in size and have loose, informal structures, require very little start-up capital, and little or no formal education. On the other hand, many women entrepreneurs in the developing world remain illiterate and live in poor rural communities.

Businesswomen in developing and countries share the following general characteristics:

    • They are concentrated in market sectors that have low barriers to entry and low levels of outside communication (transfer to other markets).
    • They focus on trade, services, and light manufacturing activities.
    • Their businesses are smaller than others, employing less than five employees.
    • The owners have relatively little previous working experience.
    • They use traditional technologies.
    • Most employees are family-related
    • They are often home based.
    • Business growth strategies are affected by household responsibilities.
    • Owners tend to have lower levels of education and literacy.
    • Women start their enterprises with less professional work experience and knowledge of their sector than their male counterparts.

Women and micro finance

Although men, as well as women, face difficulties in establishing an additional enterprise, women have barriers to overcome. Among them are negative socio-cultural attitudes, legal barriers, practical external barriers, lack of education and personal difficulties.

In spite of this, for women and especially for poor women, microentreprise ownership has emerged as a strategy for economical survival. One of the most essential factors contributing to success in microentrepreneurship is access to capital and financial services. For various reasons, women have had less access to these services than men.

In this context, credit for microentreprise development has been a crucial issue over the past two decades. Research has shown that investing in women offers the most effective means to improve health, nutrition, hygiene, and educational standards for families and consequently for the whole of society. Thus, a special support for women in both financial and non-financial services is necessary.

Regarding limited-access to financial services, women depend largely on their own limited cash resources or, in some cases, loans from extended family members for investment capital. Smaller amounts of investment capital effectively limit women to a narrow range of low-return activities which require minimal capital outlays, few tools and equipment and rely on farm produce or inexpensive raw materials.

In general, women need access to small loans (especially for working capital), innovative forms of collateral, frequent repayment schedules more appropriate to the cash flows of their enterprises, simpler application procedures and improved access to saving accounts.

Surveys have shown that many elements contribute to make it more difficult for women in small businesses to make a profit. These elements are:

    • Lack of knowledge of the market and potential profitability, thus making the choice of business difficult.
    • Inadequate bookkeeping.
    • Employment of too many relatives which increases social pressure to share benefits.
    • Setting prices arbitrarily.
    • Lack of capital.
    • High interest rates.
    • Inventory and inflation accounting is never undertaken.
    • Credit policies that can gradually run their business (many customers cannot pay cash; on the other hand, suppliers are very harsh towards women).

How to increase and support women's participation in micro-finance activities?

Both governments and donors should explore ways of developing innovative credit programmes using intermediary channels or institutions closer to the target groups such as co-operatives, women's group associations and other grassroots organisations. Savings and credit programmes should be designed in a way not to exclude women from participating.

Additionally, there is a need to examine the impact of structural adjustment policies on men and women at the family level as well as within various sub-sectors of the labour market and within the small enterprise sector itself.

In general terms, in order to facilitate the participation of women in micro and small enterprise, donors should:

    * Encourage micro enterprise programmes to develop specific strategies for recruiting women as clients from within their existing target groups.

    * Encourage micro enterprise programmes to expand their target groups to include the sizes and types of enterprise activities in which women engage and/or experiment with assistance strategies, business and technical assistance needs of these types of enterprises.

    * Consider expanding support to a broader range of organisations, especially poverty-focused organisations active in rural areas. Support for these organisations should include technical assistance and training in programme planning, management and in developing teams of female staff to assist clients in business planning and management.

To increase women's access to credit, the donor community should:

      * Increase the availability of working capital;

      * Experiment with lending programmes that do not require conventional forms of collateral;

      * Replicate and expand existing successful methodologies for delivering small working-capital loans;

      * Introduce savings mobilisation components in the context of credit or other enterprise assistance programmes;

      * Promote credit policies that are open to both small-scale enterprise activities and enterprises operating in trade, commerce and other small enterprise sectors where women have higher participation rates.

Technical assistance for micro enterprise development should focus more on basic training in product marketing and design concepts and on transmitting skills to increase and diversify production. Governments can also directly increase the market for micro enterprise products by improving rural and urban infrastructure.


Traditionally women have been marginalised. A high percentage of women are among the poorest of the poor. Microfinance activities can give them a means to climb out of poverty. Microfinance could be a solution to help them to extend their horizon and offer them social recognition and empowerment.

On the other hand, thank to women's capabilities to combine productive and reproductive roles in microfinance activities and society has enabled them to produce a greater impact as they will increase at the same time the quality of life of the women micro-entrepreneur and also of her family.

Short-term assistance programmes might aim at increasing the productivity of women's labour by providing credit, technology, and skill training. Long-term objectives could emphasise eliminating institutional constraints which limit women's access to productive resources, creating social, technological, and economic mechanisms to reduce conflicts between women's productive and reproductive roles, as well as defining strategies to address traditional and legal barriers that hamper or preclude the active participation of women in the productive sectors of the economy.

The key issue for successful micro finance program focused on women should consider them in a broader context, as a family nucleus, that is vital for societal improvement and progress. Following this idea, micro finance programmes should provide women with specific adapted products through appropriate methodologies, which can offer competitiveness to their business but also well being to them and their families.







Small Enterprise Development, An International Journal Vol 9 No.3, September 98, 1998,72p.

Balancing the double day: Women as managers of micro enterprises, Eliana Restrepo Chebair y Rebecca Reichmann, ACCION Internacional, Monograph Series No.10, Colombia, 1995, 84p.

Women in Micro-and Small-scale enterprise Development, Louise Dignard and Josť Havet, IT Publications, USA, 1995, 282p.

Women entrepreneurs, catalysts for transformation, Diane Chamberlin Starcher, Leith Editorial Services, Great Britain, 1996, 30p.

N. Kavitha
MBA, M.Phil,(Ph.D)
(Research Scholar in Mother Teresa Women's University, Kodaikanal)
SSM College of Engineering
Komarapalyam-638 183

Dr. A. Ramachandran
M.Com, M.Phil, Grad.CWA, Ph.D.
Reader in Commerce
SNR Sons College (Autonomous)

Source: E-mail April 19, 2007


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