Microfinance and gender inequality: cross-country evidence

ABSTRACT

Microfinance enables poor women to engage in income-generating activities, which helps them become financially independent, strengthening their decision-making power within the household and society. Consequently, microfinance has the potential to reduce gender inequality (GI). Case-study evidence from across the developing world both supports and contradicts this hypothesis. We therefore revisit this issue using macroeconomic cross-country panel data for 64 developing economies over the period 2003–2014. We find that women’s participation in microfinance is associated with a reduction in GI. However, regional interactions reveal that cultural factors are likely to influence the GI–microfinance nexus.

KEYWORDS:

• Microfinance
• financial inclusion
• gender inequality
• empowerment
• panel data evidence

JEL CLASSIFICATION:

• G21
• J16
• C33

Acknowledgements

We are thankful to Simon Feeny, Sefa Awaworyi Churchill, Nobuaki Yamashita, Jo En Yap and seminar participants in the International Development and Trade Research Group, RMIT, for valuable comments and suggestions on earlier drafts. We also thank one anonymous referee for helpful comments on an earlier version of this article. Any remaining error is our own responsibility.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Prior to estimating equations (1) and (2), we tested for potential endogeneity. It is possible that providing funds to women could be easier in nations with greater gender equity. Furthermore, GI and GNP per capita are potentially endogenous because improvements in GI may enhance economic development by, for instance, increasing the number of women in the labour market. We perform Hausman endogeneity tests and conclude that the variables can be treated as exogenous.

² In this case, South Asia, as a region, is not considered as predominantly Muslim because only two of its members (Bangladesh and Pakistan) have a Muslim majority, while the remaining nations, including India, Nepal, and Sri Lanka, do not.

³ Muslim-country dummies are obtained from Grim and Karim (2011), who define a nation as Muslim if at least 50% of its population self-identifies with that religion.