Microcredit as a strategy for employment creation: A systematic review of literature

Abstract

National governments and their development partners have considered microcredit as a strategic tool for vulnerable populations. Easy access to finance increases the client’s ability to invest and allows clients to use resources to change their behaviour, increase their business opportunities and create employment. This paper aims to review studies that focused on microcredit and employment issues affecting beneficiaries, including gender-based employment creation and the informal sector. Through a systematic search of electronic databases and keywords to identify relevant studies, 40 core articles are identified for the period 1998–2021. The results indicate the significant impacts of microcredit on women’s employment creation and business revenue of microenterprises in the informal sector. Moreover, a few studies set out to integrate gender employment creation and the informal sector with reference to microcredit. A framework is proposed to address the relationship between employment structure and microcredit. Finally, this study recommends developing a financial social accounting matrix and run empirical analysis on macro modelling such as input-output or general equilibrium modelling. Doing so will help obtain better understanding of how microcredit participation is associated with employment creation in different sectors and different types of household groups.

Keywords:

• Microcredit
• informal sector
• job creation
• microenterprise

PUBLIC INTEREST STATEMENT

This study aims to systematically review studies that focused on the issue of microcredit and employment creation. Microcredit significantly contributed to reduce poverty, and easy access to finance increases the client’s ability to invest and allows clients to use resources to create employment, especially for women and in the informal sector. However, this finding is not same for every country and sector. Therefore, more macro modelling study is required to understand the overall picture. The findings of the study will help policymakers, including the microcredit authorities, NGOs, government and local and international actors to facilitate the development of microfinance.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

The authors received no direct funding for this research.

Notes on contributors

Djihad Tria

Djihad Tria is a PhD candidate of Economics at Universiti Utara Malaysia (UUM). Her research areas include finance, investment, microfinance, energy, employment creation, informal employment and social and financial accounting matrix.

Prof. Mukaramah Harun is a Professor of Economics at Universiti Utara Malaysia. She was Post-Doctoral Fellow at University of St Andrews, Scotland. She’s actively involved in teaching at both undergraduate and graduate levels, publishing many articles, speaking at seminars and conferences, and editing academic journals, conducting many research projects. Her areas of specialization cover input-output and social accounting matrix, macroeconomic and sectoral analysis, energy, labor, public expenditure, household income distribution, and poverty.

Dr. Md. Mahmudul Alam is an Associate Professor of Finance at Universiti Utara Malaysia and an Associate Fellow at University Technology MARA (Malaysia). To date he has published more than 160 journal articles and presented more than 100 articles at conferences. His research areas include financial markets, financial economics, financial technology, financial literacy, Islamic finance and economics, sustainable finance and sustainable development.