research paper on micro finance

• Open access
• Published: 20 April 2022

Does microfinance foster the development of its clients? A bibliometric analysis and systematic literature review

• João Paulo Coelho Ribeiro 1 ,
• Fábio Duarte   ORCID: orcid.org/0000-0002-4919-0736 2 &
• Ana Paula Matias Gama 3  

Financial Innovation volume  8 , Article number:  34 ( 2022 ) Cite this article

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This paper conducts a scientometric analysis and systematic literature review to identify the trends in microfinance outcomes from the perspective of their recipients, specifically more vulnerable people, while also focusing on the demand side. Applying the keywords “co-occurrence networks” and “citation networks,” we examined 524 studies indexed on the ISI Web of Science database between 2012 and March 2021. The subsequent content analysis of bibliometric-coupled articles concerns the main research topics in this field: the socioeconomic outcomes of microfinance, the dichotomy between social performance and the mission drift of microfinance institutions, and how entrepreneurship and financial innovation, specifically through crowdfunding, mitigate poverty and empower the more vulnerable. The findings reinforce the idea that microfinance constitutes a distinct field of development thinking, and indicate that a more holistic approach should be adopted to boost microfinance outcomes through a better understanding of their beneficiaries. The trends in this field will help policymakers, regulators, and academics to examine the nuts and bolts of microfinance and identify the most relevant areas of intervention.

This study conducts a scientometric analysis and systematic literature review to identify the trends in microfinance outcomes from the perspective of their recipients

A Bibliometric analysis were conducted to examine 524 studies indexed on the ISI Web of Science database between 2012 and March 2021

A content analysis of 11 ABS ranked articles (rank 4 or 4*) were conducted to stablish trends of research

The findings suggest that a holistic approach should be adopted to boost microfinance outcomes through a better understanding of their beneficiaries

Introduction

Microcredit has emerged as an innovative tool for fighting poverty in underdeveloped countries (Mustafa et al. 2018 ). Positive experiences suggest that it constitutes an agile, flexible, and cost-effective financial instrument for entrepreneurship projects that otherwise suffer from bank credit rationing (Stiglitz 1990 ). Combining microcredit, microsavings, and microinsurance, microfinance “can help low-income people reduce risk, improve management, raise productivity, obtain higher returns on investments, increase their incomes, and improve the quality of their lives and those of their dependents” (Robinson 2001 : 9).

The promise of microcredit to eradicate global poverty has proven overly ambitious, as poverty results from a wide number of factors. Nevertheless, at least theoretically, providing poor people with financial resources to start their own businesses can help them increase their income and purchasing power, even if starting and running a successful business is not a simple task. Furthermore, if microcredit loans do not create financial wealth, they should then be classified simply as a “mechanism for transferring resources to the poor” (Khandker 1998 : 7).

The implementation of microfinance and its potential as a tool for fighting social and financial asymmetries is an expanding research topic. However, while microfinance may have grown into a worldwide industry, scholars have expressed doubt about its actual impact on the recipients (e.g., Morduch 1999 ). The lack of true profit-generating potential of financed ventures (Bradley et al. 2012 ), high interest rates (Webb et al. 2013 ), and the lack of management and entrepreneurial skills (Evers and Mehmet 1994 ) raise substantial doubts about the outcomes of microfinance for recipients. Furthermore, the current empirical literature casts doubt on the ability of microfinance to generate multidimensional outcomes such as empowerment, education, health, and nutrition (Khavul et al. 2013 ; Miller et al. 2012 ). Therefore, this study seeks to examine the trends in the outcomes of microfinance for its clients, particularly for more vulnerable people (e.g., women, self-employed, older adults, low-income, and refugees), by focusing on the demand dimension of microfinance. To present the prevailing state of research on microfinance and its benefits for clients, we apply a scientometric analysis, which enables us to trace the anatomy and analyze the knowledge of this research topic. Thus, we address three research goals: identifying the current trends in the outputs of the microfinance literature in terms of dates, journals, authors, affiliated countries, and institutions; examining the most influential studies and themes in this field; and discussing the intellectual structures of the outcomes of microfinance research and the underlying trends.

This approach identified five clusters using keyword analysis and knowledge maps: (1) the socioeconomic outcomes of microfinance, (2) the conflict between social performance and the mission drift of microfinance institutions; (3) group lending, social networks, and social capital; (4) poverty alleviation through entrepreneurial activities and the impact of innovative services, especially crowdfunding; and (5) gender and new thematic frontiers.

Muhammad Yunus argues that poor people possess natural abilities to run businesses, and that their own subsistence reflects the capacities of their survival skills (Yunus 1998 ). However, to set up new businesses, poor entrepreneurs need to find alternative financial resources due to their general exclusion from the traditional banking system because of their lack of collateral (Stiglitz 1990 ), limited property rights (Webb et al. 2013 ), and the high transaction costs incurred by small-scale bank loans (Chliova et al. 2015 ; Ghatak 1999 ; Weiss and Montgomery 2005 ). Ongoing and established relations between lenders and borrowers often generate trust and reduce the risk of credit rationing (Stiglitz 1990 ); however, this inherently does not apply to most potential microcredit beneficiaries, as they lack any credit history (Tang et al. 2017 , 2018 ). Hence, Yunus ( 1994 ) identifies the provision of credit as a key factor for overcoming poverty through innovative approaches to providing credit to the poor as encapsulating a potential solution. Therefore, as microfinance-related articles have been published, literature reviews have appeared on several microfinance-related themes. Table 1 summarizes these studies.

Brau and Woller ( 2004 ) surveyed 350 articles related to microfinance institutions (MFIs) sustainability, products and services, management practices, client targeting, regulations and policies, and impact assessment before calling for further research into microfinance practices as a means of combatting poverty around the world. Based on 71 research papers (peer-reviewed journals, university publications, reports by development organizations, and conference publications) on the performance of MFIs, Roy and Goswami ( 2013 ) propose that microfinance researchers, practitioners, and rating agencies consider other dimensions for assessing MFI performance besides the financial aspect, particularly considering measures for social performance, outreach, and sustainability. García-Pérez et al. ( 2017 ) carried out a systematic literature review of 475 articles on microfinance, resulting in their classification of sustainability research under four perspectives: economic, environmental, social, and governance. They report that the economic and social fields have received the most attention, with authors having researched the interrelationships and considered a broader variety of subjects in those areas than in the environmental or governance fields. Fall et al. ( 2018 ) performed a meta-regression analysis of the performance of 38 MFIs before demonstrating that the mean technical efficiency (MTE) of MFIs has increased over time. However, research estimating social efficiency generated lower MTE levels than that for financial efficiency, which may explain why the African microfinance sector has poor performance. Hermes and Hudon ( 2018 ) also studied MFIs while focusing on the determinants of social and financial performance. From a study including 169 articles, they concluded that the most important determinants of MFI performance addressed by the literature are their own respective characteristics (such as the size, age, and type of organization), their funding sources, the quality of their corporate governance policies, and the characteristics of their external environment (such as the prevailing macroeconomic, institutional, and political conditions). However, they report mixed empirical findings, which may stem from a multidimensional perspective of performance. They suggest that outreach, gender, and rural measures should be adopted to measure the social performance of MFIs more holistically. Akter et al. ( 2021 ) have also recently addressed this dual nature of MFI performance (i.e., spanning the financial and social dimensions). After applying bibliometric data to 1252 Scopus-indexed articles, the authors convey how the hot topic research themes related to microfinance cover poverty alleviation, group lending, and credit scoring, whereas the financial performance aspect has been gaining greater attention from recent research evaluating MFI performance.

Copestake et al. ( 2016 : 290) review three decades of microfinance doctoral research, referring to this as a “distinct field of development thinking,” describing the “mainstream narrative of progressive inclusion of poor people and their livelihoods into a globally integrated and regulated financial system, largely in the private sector but also strategically subsidised by government and aid agencies.” The authors identify a critical counterpoint to this narrative of development thinking by emphasizing the specific negative effects of financial integration on poverty and inequality. By compiling a series of studies, they suggest that the performance of microfinance depends on socio-cultural norms, regulation, and management practices, which might further explain the mixed empirical evidence on the impact of microfinance.

Deploying a scientometric analysis of 1874 papers on microfinance, Gutiérrez-Nieto and Serrano-Cinca ( 2019 ) focus on the most cited 5% in this pool and classify the resulting 94 papers as institutionalist (when more oriented toward MFIs), welfarist (when more oriented toward microfinance clients), and generalist (otherwise). Based on chronological analysis, these authors report that, having previously covered innovations in microcredit practices and their impacts (the first research stage), as well as the peculiarities of MFI (second stage), current research primarily targets certain concerns over MFI mission drift and the role of microfinance in fostering financial inclusion. Somewhat interrelated with Gutiérrez-Nieto and Serrano-Cinca ( 2019 ), Zaby ( 2019 ) sets out an overall picture of the state of the art in the microfinance literature coupled with the main schools of thought. This author adopts science mapping to examine 4,409 Scopus-index articles explicitly related to microfinance (Zaby 2019 : 1), and correspondingly identifies three thematic research clusters: (1) the institutional aspects of microfinance, (2) the application of sophisticated research methods to evaluate the impacts of microfinance, and (3) ground-breaking microfinance literature related more generally to social justice. Nogueira et al. ( 2020 ) also report how MFI performance-related issues represent one of the most commonly approached fields of research. Based on 2168 articles indexed in the Web of Science, these authors point out how financial inclusion and entrepreneurship are hot topics related to microfinance. The authors then conclude in favor of the relevance of studying entrepreneurship in order to better understand the beneficiaries of microfinance.

Duvendack et al. ( 2011 : 2) argue that “no study robustly shows any strong impact of microfinance” on the well-being of its beneficiaries. After analyzing 58 papers, these authors identified cases with both poor methodology and data and concluded that most studies advanced no reliable evidence regarding the impact of microfinance. Van Rooyen et al. ( 2012 ) also focus on the impact of microfinance on poor people in their systematic review of studies conducted in sub-Saharan Africa. They report that microfinance has a modestly positive impact, but also occasionally results in the deterioration of the situations faced by beneficiaries. This framework indicates that academics and practitioners should closely consider the beneficiaries of microfinance rather than the overall performance of MFIs. This research gap prevents us from reaching any conclusions about the value of microfinance, particularly microcredit, as a tool for mitigating poverty and financial and social exclusion, nor regarding whether their multidimensional outcomes extend beyond the creation of wealth.

Only a few studies have hitherto focused on the impact of microfinance on the poor and on their well-being (e.g., Duvendack et al. 2011 ; Van Rooyen et al. 2012 ). This gap led us to combine bibliometric and content analysis to compile current literature and provide a roadmap of trends for future research into the outcomes of microfinance for recipients with a particular demand-side focus.

Therefore, this study makes several contributions to the literature. In particular, the results of the knowledge maps convey how more traditional topics, such as the focus of microfinance institutions, may potentially shift gradually over time and with the move from social to financial performance, increasing the risk of mission drift, and the advantages of group lending for creating social networks to overcome access to capital-related problems still attracts research interest. Furthermore, emerging trends relate to strategies for overcoming poverty and enhancing socioeconomic development. Entrepreneurship is a powerful tool that strengthens the financial and non-financial outcomes of microfinance. In addition, the scope of microfinance outreach is changing due to the emergence of crowdfunding platforms, particularly prosocial platforms (e.g., KIVA: https://www.kiva.org/ ) that boost women empowerment and gender equalities, stimulating the liberalization of financial systems at a global level and potentially prompting a more financially and socially inclusive system.

The structure of this paper is as follows: Sect.  2 sets out the research methodology design, and Sect.  6 details the bibliometric analysis that systematizes the publication trends, the most prolific journals, authors, and affiliated institutions, as well as the most influential studies and subjects in the field. Section  12 provides the content analysis based on bibliometric coupling, and Sect.  18 outlines and discusses the new trends in the microfinance literature, before Sect.  23 presents our conclusions.

Research methodology

Data and research criteria.

This study applies bibliometric and content analytical procedures to the selected papers, focusing on the outcomes of microfinance for their recipients (demand side), based on information collected from the Web of Science (WoS), Footnote 1 a database that “contains thousands of academic publications along with bibliographic information on their authors, affiliations, and citations” (Ferreira et al. 2019 : 186). We limited our research to articles published after 2011, as that was the last year with systematic literature reviews of this field, following the studies by Duvendack et al. ( 2011 ) and Van Rooyen et al. ( 2012 ; see Table 1 ). Our search of the field adopted the keywords (“microfinance*” OR “micro finance” OR “micro-finance*” OR “microcredit*” OR “micro credit*” OR “micro-credit*”) AND NOT (“microbank*” OR “micro bank*” OR “micro-bank*” OR “microfinance institution*” OR “micro finance institution*” OR “micro-finance institution*” OR “mfi*”) AND (“performance*” OR “success*” OR “outreach*” OR “impact*” OR “impacts*”) as entered in the WoS database. We then screened the articles based on titles, keywords, and abstracts to establish a database of 796 articles with the data collected in April 2021 spanning the period between 01:2012 and 03:2021. Footnote 2 Table 2 provides a comprehensive summary of the criteria used to collect the WoS data.

In accordance with our objective of analyzing the literature on the outcomes of microfinance for recipients, the more vulnerable people (demand side), we carried out a screening process of these documents involving the reading of the abstracts and, in case of doubt, we examined the documents in full length, which led to the exclusion of 272 purely institutional articles, that is, those concentrating solely on the financial performance of MFIs (e.g., Gutiérrez-Nieto and Serrano-Cinca, 2019 ). Nevertheless, this screening process did not exclude studies focusing on the social performance of MFIs, as these usually reach out to women, rural, vulnerable, and marginalized populations. This process was undertaken independently by two of the authors before verification by the third author. Thus, the bibliometric analysis examined 524 articles with detailed content analysis and then applied more detailed analysis to 47 of them in keeping with their common linkage to other documents in the network, based on the bibliometric coupling methodology. Furthermore, we undertook an additional context analysis of the most recent articles published between January 2018 and March 2021, ranked by the Association of Business Schools (ABS). This analysis concentrated on 11 articles published in elite journals (ABS 4*) and top journals (ABS 4). These journals generally publish the greatest advances in their respective fields and generate the highest citation impact factors within their field of knowledge. Figure  1 provides a comprehensive summary of the data analysis process.

Data retrieval process

Therefore, this study combines bibliometric analysis and a systematic literature review. Based on quantitative literature analysis, bibliometrics represents a study method from the library and information sciences (Huang and Ho 2011 ) and, according to Sengupta ( 1992 : 76), “is a sort of measuring technique by which interconnected aspects of written communications can be qualified.” Narin et al. ( 1994 : 65) refer to “bibliometrics and, in particular, evaluative bibliometrics,” which “uses counts of publications, patents, and citations to develop science and technology performance indicators.” This type of analysis emerged in order to deal with constantly growing bodies of knowledge and incorporates three major dimensions: measuring a particular scientific activity, its impacts as conveyed by the total number of article citations, and the links among articles (Narin et al. 1994 ), thus tracing the anatomy of the knowledge existing in a research field with regard to a specific topic.

Our study applied VOSviewer Footnote 3 software version 1.6.8 to analyze the publishing trends and most prolific journals, disciplines, authors, institutions, countries, studies, and subjects. This analysis is mainly derived from the number of published articles, total citations, and occurrences. To complement the analysis of the most influential studies, we performed co-citation analysis to systematize the most fundamental articles published between 1:2012 and 3:2021. Introduced by Small ( 1973 ) and developed by White and Griffith ( 1981 ) and White and McCain ( 1998 ), co-citation analysis is one of the most common bibliometric methods for unveiling similarities among the cited articles (Small 1973 ). By applying this tool via VOSviewer, we were able to highlight the main studies guiding the research over the last decade. The fractional counting methodology was used to analyze the most influential subjects, correcting the number of occurrences of each keyword in accordance with the total number of (key)words used in the title, abstract, or keyword list for the same article (Xu et al. 2018 ). The fractional counting method is more suitable than the full counting method (Narin et al. 1994 ): “When full counting is used to construct a bibliometric network, each link resulting from an action has a full weight of one, which means that the overall weight of an action is equal to the number of links resulting from the action. On the other hand, when fractional counting is used, each link has a fractional weight such that the overall weight of an action equals one” (Perianes-Rodriguez et al. 2016 : 1180). In so doing, the relationship between two keywords becomes closer when articles provide fewer keywords. Thus, Van Eck and Waltman ( 2014 ) recommend the fractional counting method, as this overcomes the potential for bias created by highly cited articles with long reference lists or more keywords, leading to misinterpretations.

Following the bibliometric analysis, we performed a systematic literature review to systematize the state of the art and to determine trends and possible research gaps based on the content analysis of clusters. Detailed content analysis was performed in the cases of bibliographically coupled articles—articles sharing a common link to other documents in the network. Bibliographic coupling establishes relationships between articles based on citation similarities and deems two articles to be bibliographically coupled whenever there is a third article cited by both these articles (Kessler 1963 ). Based on a dataset of 524 articles, we deployed VOSviewer to generate bibliometric maps based on the visualization of similarities technique. Of the 524 published articles in our refined dataset, this software reports that only 47 articles were coupled by the same item of reference, with at least 25 citations.

• Bibliometric analysis

Annual publication trends

Figure  2 illustrates the trends displayed by the 524 WoS-indexed articles in the field of microfinance outcomes (i.e., demand side) since 2012.

Publication trend of 524 published articles, indexed to WoS, between 1:2012 and 3:2021

The figure indicates an upsurge in publications from 27 papers in 2012 to 84 in 2020. Footnote 4 This trend in publications stems from the increasing number of scholars challenging the proposed benefits of microcredit as a salient tool for addressing credit constraints and poverty (e.g., Angelucci et al. 2015 ; Banerjee et al. 2015a ; Bocher et al. 2017 ; Tarozzi et al. 2015 ), especially when based on entrepreneurial activities (e.g., Alvarez and Barney 2014 ). The Nobel Prize awarded to Banarjee, Duflo, and Kremer in 2019 for their work on different strategies to mitigate poverty also justifies the rise in research related to the ability of microfinance/microcredit to generate positive outcomes, such as empowerment and education, beyond mere wealth creation.

Prolific journals and subjects

Table 3 depicts the list of the most prominent journals publishing on issues related to the demand side of microfinance, and hence the microfinance recipients. A total of 252 journals were included in the 524 articles analyzed. The most prolific journals (two of them ex aequo with nine published articles, three with six published articles, and five with five published articles) have published 179 of the articles studied (34.2% of the total). Almost all of these 179 articles appear in ABS-ranked journals, mainly in ABS 3 (according to the ranking published in 2018) by the Chartered Association of Business Schools. Footnote 5 These findings illustrate how research on the microfinance field primarily engages quality journals of business and management. The Journal of Development Studies represents the most productive journal, having published 31 articles, followed closely by World Development with 30 articles. Together, both journals published 11.4% of the articles analyzed.

Figure  3 displays the 10 main fields of journals publishing microfinance research since 2012. The most representative areas are economics , business , and management (which includes business finance), with 379 articles (i.e., 72.32% of the total articles). This figure indicates how the analysis of the outcomes of microfinance (on the demand side) has especially adopted an economic perspective. Despite the prominent position of Development Studies in publishing research on this topic (80 articles), the journal still only represented 15.27% of the total articles. The relevance of microcredit for society as a whole remains only a marginal issue and is scarcely addressed in the literature. More studies from the fields of health, business ethics, sociology, and psychology would be worthwhile to generate a better understanding of the effectiveness of microfinance in promoting the Sustainable Development Goals (SDG) of the United Nations 2030 Agenda, specifically eradicating poverty (SDG 1), promoting health and well-being (SDG 3), gender equality (SDG 5), and reducing inequalities (SDG 10), in addition to the economic objective of decent work and growth (SDG8).

Top 10 subject areas in microfinance (demand side) research in the 524 published articles, indexed to WoS between 1:2012 and 3:2021

Prolific authors, affiliated institutions, and countries

Tables 4 and 5 display the top 10 authors, institutions, and countries publishing on microfinance (demand side) outcomes since 2012 in WoS-indexed journals by number of publications and citations. Abdullah Al Mamum provides the list detailed in Table 4 , with nine published articles. His research mainly targets the effectiveness of microcredit and training programs to combat poverty and promote the sustainable growth of micro-enterprises in rural areas in Malaysia. However, Ester Duflo stands out as the most prolific author based on total citations—412 citations (Table 5 ) with three published articles. Ester Duflo and her research team, Michael Kremer and Abhijit Banarjee, won the Nobel Prize for Economics in 2019 for research on fighting global poverty over the preceding two decades, contributing to transforming development economics into a flourishing field of research. In the field of microfinance, Duflo conducted experimental research in less developed countries to evaluate the impact of training programs on microfinance outreach, especially on health and empowering women. Dean Karlan emerged as the second most prolific author based on both the total number of published articles (Table 4 ) and the total number of citations (Table 5 ), with six published articles (equal to Ariana Szafarz) and 381 citations, 32 more than Johnathan Zinman, with four articles published with Karlan. The expansion of microcredit, the use of loans, and repayment incentives constitute the main topics in the experimental research undertaken by Dean Karlan and Johnathan Zinman. Erica Field and Rohini Pande attained three publications with a total of 179 citations. Based on randomized experiments in India, these authors have been working on the default risk of microborrowers and the repayment requirements that best suit the needs of the poor. Ariana Szafarz represents one of the six authors with over 100 citations divided across six published articles, mainly approaching the topics of social and financial performance, gender, and empowerment. This evidence suggests that, despite the prevalence of articles from the fields of economics, business, and management (as pointed out in Fig.  3 ), the most prolific authors focus on topics within the scope of development studies. Experimental researchers seem to capture the enthusiasm of their target communities, mainly in less developed countries such as Bangladesh, India, Morocco, and Malaysia.

The institution with the most articles published on this aspect of microfinance (Table 4 ) is the University of Groningen (Netherlands) with 11 published articles, followed by the World Bank (United States) with 10, and MIT (United States) and Yale University (United States) with 9 each. MIT is the most prolific institution, based on total citations (968 citations). Yale University and Harvard University (United States) are among the top three with 440 and 300 total citations, respectively. Together, the articles published by members of these institutions received 1,708 citations, accounting for over 57% of the total citations generated by our dataset of WoS-indexed articles. The most prolific institutions all have locations in the United States and are responsible for the highest number of published articles (145) and total citations (2,990).

Citation analysis

Citation analysis is the best method for mapping the influence of a research paper. Citation counts encompass the number of citations that a paper received over a period of time. Thus, a more influential and productive paper is cited most frequently. We use VOSviewer to determine the most influential papers on microfinance outcomes. Table 6 displays the 10 most cited articles locally and globally. The local citations reflect the number of times a paper is cited by others within a sample size of 524 papers, whereas global citations measure the number of times a paper is cited by other works across all databases, including other areas and research fields.

According to global citations (local citations), Banerjee et al. ( 2015b ) are at the top of the list with 295(72) citations, followed by Banerjee et al. ( 2015a ) and Bruton et al. ( 2013 ) with 226(53) and 157(8) citations, respectively. Banerjee et al. ( 2015a , b ) are the most prominent papers paving the way for further research on microfinance outcomes. These studies provide theoretical support for the use of a randomized experimental methodology to measure the causal effects of microcredit on community development, namely on the livelihood of microentrepreneurs.

The number of citations reflects the popularity of a paper. To measure this prestige, we use the total link strength based on the fractional counting method, which indicates the number of times a paper is cited by highly cited papers. Thus, a highly cited paper could not also be a prestige paper. The total link strength is a composite measure that encompasses both popularity and prestige. Table 7 lists the top 15 papers based on the total link strength. The results differed from those of the citation count. When the top 10 papers were compared based on citations (global and local) with the total link strength (co-citations), only 5 papers (Angelucci et al. 2015 ; Attanasio et al. 2015 ; Banerjee et al. 2015a , b ; Crépon et al. 2015 ) are among the top 15 papers based on total strength links (co-citations). Co-citation refers to the number of times two articles are co-cited by an article in the database. The more often articles are co-cited, the greater the link strength (i.e., the more similar the domains under study).

Table 7 shows the studies that mostly guide the research in the last decade, which includes several articles published before 2012. Pitt and Khandker ( 1998 ), with the highest number of co-citations(total link strength) 76(546), is the most influential study in the recent literature. This study provides an evaluation of the group lending program of the Grameen Bank (and similar ones) in Bangladesh, showing that these programs have a significant effect on the well-being of poor households; their effect on education, health, labor supply, and consumption is greater when targeting women. Khandker ( 2005 ) is the third most influential study in this ranking, with 63(411) co-citations (total link strength) in our dataset. This study examines the effects of microfinance on poverty reduction in Bangladesh, at both the individual and aggregate levels, finding that microfinance contributed to poverty reduction, especially for female participants, in line with Pitt and Khandker ( 1998 ), concluding that microfinance boosts local economic growth at the village level. Morduch ( 1999 ) is the fourth most co-cited author in our sample statistics articles with 524 articles and 55(417) total link strengths. The author promotes an evaluation of innovative mechanisms beyond group-lending contracts, raising doubts about the effectiveness of microcredit programs in fighting poverty compared to traditional credit programs. Armendáriz and Morduch ( 2010 ) is the seventh most influential study according to this ranking, with 49(394) co-citations and total link strength.

These authors conducted extensive research on general topics that question the economic problems of microfinance, why such programs are needed, and why financial resources do not flow naturally to the poor. Karlan and Zinman ( 2011 ), with 46(437) co-citations(total link strength), and Karlan and Zinman ( 2010 ) and Stiglitz ( 1990 ), both with 44 co-citations and 325 and 437 total link strengths, respectively, are the ninth and tenth ( ex aequo ) most influential studies. Karlan and Zinman ( 2011 , 2010 ) adopted experimental research methodologies to analyze microcredit programs in the Philippines and South Africa, respectively. Karlan and Zinman ( 2011 ) found that microcredit may serve to increase the ability to cope with risk, strengthen community ties, and increase access to informal credit, but under channels different from those often proposed. The results of Karlan and Zinman ( 2010 ) corroborate the presence of binding liquidity constraints in South Africa and suggest that expanding the credit supply improves welfare. Stiglitz ( 1990 ) also analyzed the success of the Grameen Bank, suggesting that peer monitoring is largely responsible for the financial performance of the microcredit program in Bangladesh. Banerjee et al. ( 2015a ), with 70(605), Crépon et al. ( 2015 ) with 52(517), and Banerjee et al. ( 2015b ) with 51(398), Attanasio et al. ( 2015 ) with 48(517), and Angelucci et al. ( 2015 ) with 43(409) co-citations(total link strength), all published after 2012, also assume a prominent place in this ranking.

Keyword analysis

Table 8 reports the top 15 keywords in the 524 articles selected by the study methodology and published between 1:2012 and 3:2021 that attain at least 20 occurrences. This table’s right column reports the number of links a given keyword obtains with another keyword based on the total link strength. “Microfinance” is the most frequent keyword, with 320 occurrences (281 total link strength), indicating that this word acts as a termed concept in the literature. The words “microcredit,” “impact,” and “poverty” are also three of the most frequently cited words with 199(187), 154(148) and 138(136) occurrences (total link strength), respectively, suggesting that scholars are focusing on microfinance/microcredit outcomes, especially approaching these as tools for development and intervention with the potential to lift people out of poverty. The emerging topics of “gender/women,” “entrepreneurship,” and “empowerment” emphasize how the literature is increasingly evaluating the effects of microfinance/microcredit across various dimensions beyond the financing facet.

Figure 4 displays the most influential subjects based on the keyword occurrence networks. Footnote 6 These keywords are either extracted from the title and abstract of each article or sourced directly from the article keyword lists (Van Eck and Waltman 2014 ). To establish this network, we applied VOSviewer software and the fractional counting method, which considers the number of keywords (key), to explore the most relevant themes in microfinance outcomes. This figure also confirms that “microfinance” is widely interconnected with “microcredit,” “poverty,” and “impact.” These results again corroborate how researchers examine microfinance/microcredit as a tool to eradicate poverty in greater depth, especially through entrepreneurial activities.

Network of keyword occurrences in the 524 articles selected from the study sample, covering the period between1:2012 and 03:2021 according to the fractional counting method

Content analysis

We deploy bibliometric analysis to explore the most relevant documents in this field of research. To identify the most influential publications, we applied VOSviewer to perform bibliometric coupling with a threshold of 25 citations for our analysis, yielding 47 articles out of a total of 524 with at least 25 citations, coupled into five clusters. Figure 5 depicts the knowledge map of the most-cited microfinance articles resulting from the fractional counting method. In a network, these nodes may be aggregated into clusters in which the weighting of edges is higher between the nodes within one cluster than those with another cluster. Thus, the VOSviewer algorithm returned five distinct clusters, with 11 documents in Cluster 1, 10 documents in Cluster 2, 9 documents in Cluster 3, 9 documents in Cluster 4, and 8 documents in Cluster 5. Footnote 7 Table 9 portrays the 48 papers in the five clusters. We subsequently carried out a content analysis with careful examination of the papers in each cluster to determine their common theme.

Knowledge map of the top articles cited by cluster according to the fractional counting method, based on 524 studies selected between 1:2012 and 3:2021

Cluster 1: socioeconomic outcomes of microfinance

This cluster comprised 11 studies focusing on the impacts of microfinance programs on socioeconomic outcomes with randomized experimental evaluations, questioning the influential role of microcredit on poor households. Banerjee et al. ( 2015b ) report that group lending programs in India increase the take-up of microcredit with a positive impact on small business investment and profits as well as on the expenditure of durable goods, but only over a short period. They also did not encounter any significant effects of group microcredit lending on health, education, or women’s empowerment. Banerjee et al. ( 2015a ), Angelucci et al. ( 2015 ), and Tarozzi et al. ( 2015 ) raised doubts about the transformative impacts of microcredit as a development tool. Angelucci et al. ( 2015 ) and Tarozzi et al. ( 2015 ) provide evidence that the effectiveness of microfinance is modest, with little or no evidence of any effectiveness in promoting micro-entrepreneurship, income, the labor market, consumption, social status, subjective well-being, schooling, or empowerment, despite affording a substantial increase in access to credit. Microcredit increases borrowing, which is mainly used for investment and risk management. However, this increased access to credit leads to only modest increases in female decision making, trust, and business size, with little effect on overcoming debt traps (Angelucci et al., 2015 ).

Crépon et al. ( 2015 ) suggest that the effects of microcredit are mainly derived from borrower characteristics rather than from externalities. Microcredit access leads to a significant rise in investment in the assets applied to self-employment activities and an increase in profits among households with higher abilities to borrow. Ngo and Wahhaj ( 2012 ) also demonstrate how access to microloans can lead to positive outcomes for intra-household decision-making and the welfare of women depending on their starting point conditions. They convey how women only benefit from microcredit when they are able to use the credit to invest in profitable joint activities, and when a large proportion of the household budget goes to the consumption of public goods. Otherwise, women borrowers may experience a decline in welfare.

Bruhn and Love ( 2014 ) document the remarkable effects of microcredit on labor markets and income levels, especially among individuals located in areas with lower pre-existing bank penetration and those with low incomes. Arouri et al. ( 2015 ) also provide evidence that access to microcredit, internal remittances, and social allowances can help households strengthen their resilience to natural disasters. Kaboski and Townsend ( 2012 ) indicate that microcredit lines might increase total short-term credit, consumption, agricultural investment, income growth (from business and labor), and wages, but decrease overall asset growth. Schicks ( 2014 ) provides measures for policymakers to address the over-indebtedness potentially arising from microcredit. Analyzing the loan-related sacrifices that borrowers report, the author identifies how male microborrowers are more likely to be over-indebted than women and that over-indebtedness is lower for borrowers with good levels of debt literacy. Based on a case study of microfinance trials, Allcott ( 2015 ) suggested that default rates may depend on the size of the trial samples. This study of program evaluations based on randomized control trials draws attention to the systematically biased out-of-sample predictions of program evaluations, even after many replications.

Microcredit has been referenced as a relevant tool for addressing credit constraints and promoting entrepreneurial activities. However, empirical studies have returned conflicting results, casting doubt on the strength of microcredit not only in financial outcomes but also in its actual ability to enhance several dimensions of human development. Stressing the research findings that indicate the need to consider the context of microcredit program deployment, we suggest paying particular attention to the development setting, as some studies demonstrate how microcredit programs are more effective in contexts where the credit markets have failed (i.e., poor settings), while others propose that microcredit intervention is boosted by environments with higher levels of social, economic, and institutional development. Research on this domain constitutes a fruitful field of research.

Cluster 2: Social performance or mission drift?

This cluster encompasses 10 studies. The focus of this cluster is access to microfinance, usually addressed in the literature as an indicator of MFI social performance (mission locked-in versus mission drift). Vanroose and D’Espallier ( 2013 ) report that MFIs reach more poor clients and prove more profitable in countries where access to the traditional financial system remains low. The results suggest that MFIs offset market failures in the traditional banking sector and flourish best when the formal financial sector is absent. However, MFIs have also shown remarkable social performance in countries with well-developed financial systems, as this pushes MFIs down the market and makes mission drift less likely. Cornée and Szafarz ( 2014 ) also provide evidence that banks offer advantageous credit terms for social projects. In turn, borrowers are motivated to repay loans, thus reducing the probability of default. Louis et al. ( 2013 ) and Lebovics et al. ( 2016 ) provide evidence that these dimensions of performance, and thus the social and financial aspects, are not mutually exclusive. Over a short time frame, there are positive relationships between social efficiency and financial performance (Lebovics et al. 2016 ; Louis et al. 2013 ). However, D’Espallier et al. ( 2013 ) adduce evidence pointing in the opposite direction and propose that microfinance faces a mission drift with the lack of subsidies, worsening the social performance of MFIs. Dealing with this trade-off has involved the implementation of several strategies, including charging higher interest rates, targeting less poor individuals, or reducing the proportion of female borrowers in order to compensate for public non-subsidization.

Bocher et al. ( 2017 ) demonstrate that individuals owning land and with larger households and/or savings experience a greater probability of getting microcredit. These results may indicate that some MFIs do not target the poorest of the poor. Canales ( 2014 ) examines how MFIs balance the pressures to pursue financial efficiency with the need to remain responsive to local needs. The authors document how MFI branches allowed discretionary diversity and decentralized flexibility through relational embeddedness to cater to local needs tend to achieve better performance. Thus, microcredit committees may yield substantial benefits for organizations and unbackable local individuals, for example, when dealing with missed repayments. Augustine ( 2012 ) proposes that the transparency of MFIs’ corporate governance policies is more important than their orientation, concluding that transparent declarations of their social orientation increase their performance. This may occur because public statements about MFI orientation generate commitments to the target community.

Among these clusters, the studies conducted by Al-Azzam et al. ( 2012 ) and Van Gool et al. ( 2012 ) are somewhat collateral to the main topic of MFI social performance. Van Gool et al. ( 2012 ) analyze whether the credit scoring system adopted in retail banking is appropriate for the microfinance industry, especially with regard to its social concerns, and reported that all the benefits of credit scoring models are commercially related. However, they also suggest that credit scoring may serve social concerns, for instance, by modelling information about indebtedness in order to avoid debt traps. Al-Azzam et al. ( 2012 ) focus on the effects of screening, peer monitoring, group pressure, and social ties on borrowing group repayment behaviors. The authors provide evidence that social ties built on religious attitudes and beliefs improve repayment performance. Thus, this study straddles the frontier with Cluster 3.

The trade-off between MFI outreach and profitability remains controversial. Several studies report that MFI shifts over time from social to financial performance as a result of both the costs of microfinance market contracts and the high fixed costs associated with small loans. Recent studies also reinforce that the national context also has a relevant impact on MFI performance. Consequently, several strategies have emerged to improve profitability, including increasing loan amounts, charging high-interest rates, public subsidization, and gaining efficiency through new technologies. Hence, the trade-off between outreach and sustainability continues to attract the research community studying governance and new organizational strategies, such as legal status, to improve MFI social and financial performance.

Cluster 3: group lending, social networks, and social capital

The third cluster involves nine studies focusing on group lending, social networks, and social capital, and how these relate to credit access and loan repayment. Group lending has the ability to build up social networks outside of the family (Attanasio et al. 2015 ), promoting social interactions that increase repayment rates (de Quidt et al. 2016 ), even in the absence of any collateral (Feigenberg and Pande 2013 ). One concern here is that the grace period might restrict social networks among group members, thus increasing default rates by lowering the effectiveness of informal insurance (Field et al. 2013 ).

Social capital is based on a “pre-existing connection between group members” (Banerjee 2013 : 496). Group members hold better information about each other than the respective MFI; they are therefore not only in a better position to screen and monitor the actions of each group member but also to punish those who default, for example, by withdrawing social capital from them (Banerjee 2013 ). Thus, group meetings increase social capital and networks and reduce the monitoring costs of lenders, which may encourage recourse to formal insurance, reducing the bail-in costs in case of default (de Quidt et al. 2016 ). According to the authors, by also functioning on an individual liability basis, group lending might facilitate increases in repayment rates depending on the social capital and networks developed within those groups. Group lending also displays the ability to increase both borrowing and entrepreneurship, as such an approach reduces the discouragement experienced by some individuals who are uncomfortable with borrowing on an individual basis but are willing to borrow in groups and share the liabilities, especially women with lower levels of education (Attanasio et al. 2015 ).

Wei et al. ( 2016 ) indicate how credit scoring models encapsulating client social networks—their social score—might provide a means of raising access to microcredit as an alternative to group lending. However, Yuan and Xu ( 2015 : 232) drew attention to how poorer households “are limited by social networks and they have no financial means to invest in their social capital to expand their social network.” Donou-Adonsou and Sylwester ( 2016 ) examine the relationships between financial development and poverty reduction, a topic on the frontier with Cluster 1. Gabor and Brooks ( 2017 ) seem to approach the frontier with Cluster 4, as they analyze the growing importance of digital-based programs for fostering financial inclusion in the fintech era.

Group-lending mechanisms are still attracting the attention of scholars. The social cohesion characterizing borrowing groups explains the effectiveness of the screening and monitoring stages that reflect in the repayment rates as well as in the outcomes of loans made for business purposes. Furthermore, this requires a deeper understanding of where group lending contexts generate advantages over individual contracts, for example, in developing countries where social capital often implies investments that poor people are not able to attain.

Cluster 4: poverty alleviation, entrepreneurial activities, and financial service innovations

Cluster 4 includes nine studies that focus on the contribution of entrepreneurial activities and financial service innovations to poverty alleviation. The literature posits that entrepreneurship represents a crucial pathway for alleviating poverty (Bruton et al. 2013 ) arising from socioeconomic and technological growth and development (Zahra and Wright 2016 ), which requires an industrialized approach to offset the multiple market failures prevailing in developing economies (Alvarez et al. 2015 ). This might explain why microcredit generally has stronger socioeconomic impacts (especially for the empowerment of women) in more challenging contexts and when targeting client entrepreneurs (Chliova et al. 2015 ). However, not all entrepreneurial activities lead to sustainable economic growth. For example, self-employment opportunities in sectors requiring low levels of human capital tend to perpetuate abject poverty (Alvarez and Barney 2014 ). Significant economic growth and poverty alleviation depend on the ability to discover and create new business opportunities based on more effective utilization of human capital, property rights, and financial capital (Alvarez and Barney 2014 ; Alvarez et al. 2015 ). In fact, local development (Diniz et al. 2012 ) and entrepreneurial success (Josefy et al. 2017 ) depend on the ability to mobilize resources, including financial capital. However, to be effective, an increase in financial resources requires accompanying financial education.

Formal credit markets and even traditional microfinance sources for encouraging investment, innovation, and launching new ventures may no longer be sufficient to overcome the persistent societal challenges of poor countries (Zahra and Wright 2016 ). According to these authors, peer-to-peer lending and crowdfunding may provide a solution for financial, social, and environmental wealth. “Crowdfunding refers to the practice of raising funds for a venture or project from dispersed funders typically using the Internet as a channel of operation” (Josefy et al. 2017 : 163). The availability of funds for promoting microenterprises is expanding rapidly through crowdfunding platforms, such as Kiva, which provides a greater audience of lenders for microenterprises’ signaling autonomy, competitive aggressiveness, and risk-taking (Moss et al. 2015 ). The success of loan campaigns on crowdfunding platforms also depends on contextual community attributes, such as the cultural values of the target audience that shape the level of interest the projects generate in the crowd (Josefy et al. 2017 ).

Information and communication technology (ICT) seems to be an alternative for supporting financial inclusion and fostering social inclusion (Diniz et al. 2012 ). By examining an ICT-based platform, Berger and Nakata ( 2013 ) analyze the socio-technical characteristics that technological solutions may have to successfully implement financial service innovations in the field of microfinance. According to these authors, these innovations tend to produce better results when they are congruent with the unique surrounding socio-human, regulatory, and market conditions.

The literature references entrepreneurship, particularly in deprived environments, as the only option to earn money due to the absence of any other market participation. In such contexts, microcredit enhances entrepreneurial activities through the issuance of small and unsecured loans. Scholars still raise concerns about the effectiveness of such programs, mainly due to the lack of profits generated by the financed ventures to pay the costs of loans and ensure loan repayment. The lack of management skills is an additional issue pointed out by researchers. Recently, new finance alternatives have emerged, especially crowdfunding, which deploys online platforms to allow entrepreneurs to connect with prospective crowd funders—the crowd—who finance new entrepreneurial ventures by lending small amounts. Empirical studies in this area are still in their infancy, but strengthen the perspective that crowdfunding may democratize entrepreneurial finance, particularly among the more vulnerable, and help break the poverty cycle.

Cluster 5: gender and thematic frontiers

The final cluster included eight studies. This cluster covers the impacts of microcredit targeting the vulnerable, with some articles focusing specifically on women. Thus, in this cluster, we encounter several studies bordering on the frontier with other clusters, such as Cluster 1 (e.g., Duvendack and Palmer-Jones 2012 ; Roodman and Morduch 2014 ), Cluster 3 (e.g., Willy and Holm-Müller 2013 ; Mallick 2013 ; Mendes-Da-Silva et al. 2016 ), and Cluster 4 (Deininger and Liu 2013 ; Barasinska and Schäfer 2014 ; Mendes-Da-Silva et al. 2016 ; Gleasure and Feller 2016 ).

Duvendack and Palmer-Jones ( 2012 ) and Roodman and Morduch ( 2014 ) re-examined previous studies, specifically those developed by Pitt and Khandker ( 1998 ), questioning the evidence they reported after studying Bangladesh microcredit programs. Both studies raise doubts about the microcredit outcomes identified by Pitt and Kandker. However, Duvendack and Palmer-Jones ( 2012 ) corroborate the positive effects of microcredit for vulnerable women. Gleasure and Feller ( 2016 : 110) conducted a meta-triangulation analysis of crowdfunding research. Their results suggest that crowdfunding generates new opportunities and describing how these “present genuinely new ideas and behaviours” and not “simply a migration of established practices into a new domain.” For example, crowdfunding may solve some of the discrimination problems faced by women in traditional credit markets, as the study found no gender effects on the likelihood of receiving funds. Deininger and Liu ( 2013 ) report that a combination of microcredit and self-help group initiatives (including training and capacity-building programs) produces positive pro-poor effects, especially by promoting the empowerment of women and health and improving consumption and income diversification in the short term.

Mallick ( 2013 : 179) examines whether continued support for poor individuals, which includes “management assistance, a subsistence allowance, health care facilities, and support for building social networks,” plays a crucial role in borrowing decisions. The authors indeed conclude that this “big push” affords the extremely poor access to microfinance. This effect is higher for larger households and for households with male heads, and increases with the average levels of education and income in the household. Social capital also plays an important role in borrowing decisions, in keeping with several of the findings systematized in Cluster 3. Mendes-Da-Silva et al. ( 2016 ) also support the notion that entrepreneurs’ social networks might play a central role in funding, especially on crowdfunding platforms. Willy and Holm-Müller ( 2013 ) examined the effects of social influence, social capital, and credit access in the agricultural sector and demonstrated how they represent significantly positive predictors of farm soil conservation.

Scholars have identified how entrepreneurship represents one path to the empowerment of women, particularly in developing countries, although empirical evidence indicates a mixed range of outcomes. Some studies stress that microcredits/microfinance endows women with great control over the operations of their ventures and household resources, thus fostering their empowerment. Others argue that microfinance programs do not take into account the cultural and social context of their deployment and thus, in some ways, sustain the existing hierarchy of classes, increasing tensions among household members and providing new forms of dominance over women. Recent research posits that new technologies extending basic financial services have a large effect at a relatively low cost and are susceptible to deepening through knowledge transfers in the form of financial literacy.

Mapping the trends

This section discusses the most recent and influential articles on microfinance topics published in the last three years (2018–3:2021) and ranked on ABS with a classification of 4 or 4*, yielding a total of 11 articles. Footnote 8 As they are more recent, these articles have been cited less often and therefore excluded from the bibliographic coupling analysis carried out in Sect. 4 . We also identified the most relevant emerging topics in the field.

Emerging trends

Table 10 systematizes the scope and main findings of all the articles published in ABS (4 or 4*)-ranked journals in the field of microfinance. Recent studies have promoted new approaches to examining the socioeconomic impacts of microfinance at both the macro (Buera et al. 2021 ; Duflo 2020 ) and micro (Burke et al. 2019 ; Singh et al. 2021 ) levels. The theme of MFI mission drift or mission lock-in is still at the fore in most recent literature (Alon et al. 2020 ), as well as the benefits to the group and joint lending (Attanasio et al. 2019 ), and reputation, social capital, and network (Li and Martin 2019 ). ABS (4 and 4*)-ranked journals have also published papers on somewhat underexplored topics on the frontiers of some clusters, such as alternative programs for promoting social changes (Kim et al. 2019 ), the impact of microcredits on subjective well-being (Bhuiyan and Ivlevs 2019 ), and the roles of cultural institutions (Drori et al. 2018 ) and government regulation (Tantri 2018 ) in the microfinance performance returns.

After analyzing the keywords of the most influential studies published between 1:2018 and 3:2021 (whether or not ABS ranked), Table 11 presents the most recent trends on microfinance literature, with “microfinance,” “microcredit,” “impact,” and “poverty” still representing the keywords with the most occurrences. Comparing Tables 8 with 11 , we observe that roughly half of the occurrences of these keywords relate to articles published since 2018. “Gender/women,” “entrepreneurship,” “performance,” and “empowerment” are trending topics, gaining in importance in the microfinance literature over the last three years.

Entrepreneurship and performance

Microfinance appears as an instrument that promotes access to capital for impoverished individuals otherwise excluded from financial systems and gaining popularity as a means of enhancing entrepreneurial activities (Yunus 1998 ), enabling vulnerable people to engage in market transactions and end subsistence-based livelihoods. Consequently, entrepreneurship among individuals living in poverty settings represents a more important outcome than much traditional entrepreneurship research in developed countries.

However, the empirical literature is inconclusive about the ability of microfinance to enhance the financial standing of vulnerable people (Khavul et al. 2013 ). This ambiguity is strengthened when coupled with other development outcomes, specifically the capabilities of the poor across several facets of human development (e.g., empowerment, education, health). Thus, researchers perceive that a key aspect for continuing scrutiny derives from the effectiveness or otherwise of microfinance, justifying the emergence of an increasing number of papers on this domain. Furthermore, some authors maintain that the context of microfinance deployment, hence the national context and specific features, impact the outcomes of such tools (Crépon et al. 2015 ; Weiss and Montgomery 2005 ), particularly in environments where credit markets have failed. Hence, the performance effect of microfinance is greater in developing countries (Chliova et al. 2015 ). Meanwhile, other authors emphasize the synergetic relationships between institutional and socioeconomic developments as outcomes that microfinance can achieve. However, it remains unclear whether microfinance aligns with supplementary or complementary outcomes.

Our bibliometric analysis demonstrates that when designing programs, microfinance institutions should focus on borrower characteristics instead of standard credit contracts; otherwise, credit only worsens problems of over-indebtedness. To achieve win–win propositions, in addition to credit, microfinance interventions should also involve education and training programs to boost the capabilities of less advantaged citizens to start, maintain, and grow their own ventures. This seems particularly relevant in less developed entrepreneurial ecosystems as well as in regions where the economic development model is based on intensive (low-educated) human capital that is more exposed to persistent poverty traps and anemic economic growth. By achieving successful entrepreneurial outcomes, educated and trained entrepreneurs increase their financial and non-financial outcomes. In sum, our findings shed light on the powerful interwoven effects of knowledge, credit, and entrepreneurship in lifting poor entrepreneurs out of poverty, particularly in deprived settings.

Empowerment and gender

Gender inequalities constitute one of the greatest barriers to human development (Conceição 2019 ), especially in developing countries (Ojong et al. 2021 ). In these countries, women may face additional challenges in obtaining education and a well-paid job, in addition to working an average of three times more often in unpaid and domestic activities than men (UN Women 2020 ). Scholars have emphasized how entrepreneurship provides a pathway to empower women, stressing that microfinance is a reliable tool that leverages its effects primarily through business activities.

The strength of microfinance as a development intervention tool to transform social and economic structures relies on its potential ability to lift people out of poverty (Yunus 1998 ) by running small ventures that generate financial resources to increase entrepreneurs’ financial well-being (Mckernan 2002 ). However, beyond wealth creation, this approach forecasts a capacity for microfinance to boost the livelihood of recipients across several dimensions (Buckley 1997 ; Miller et al. 2012 ). Hence, this places great emphasis on non-financial human development outcomes, specifically women empowerment (Hermes and Lensink 2011 ), which is particularly relevant in poor settings, as the constraints women face regarding market participation constitute a form of dominance and control over women. Women empowerment emerges as a multidimensional concept (Weber and Ahmad 2014 ) that, besides access to credit, also includes income, contribution to household expenditure, health, education, control over resources, participation in community and household decision-making, social mobility and freedom of movement, and self-worth (Kabeer 2001 ; Noponen 2003 ). Therefore, when considering these dimensions, any substantial increase in access to credit certainly does not automatically promote subjective well-being or empowerment (Angelucci et al. 2015 ; Tarozzi et al. 2015 ). Nevertheless, studies suggest that the provision of small loans to women enables them to more effectively mitigate gender barriers by running their own businesses, increasing their mobility outside the household, and achieving the ability to make decisions (Todd 1996 ). In addition, through economic activities, household income increases, improving their standard of living, and consequently enhancing the education of their children and leading them to adopt more preventive health practices (Yunus 1998 ).

The mission to promote the empowerment of women through the provision of small loans also depends on training programs and the ability of MFIs to understand the characteristics of female borrowers (Hunt and Kasynathan 2001 ). Thus, MFIs must design and implement internal policies to mitigate gender biases based on the conditions of female borrowers at the outset. Promoting the participation of women in decision-making processes in higher loan cycles, for example, will spread women’s empowerment (Swain and Wallentin 2009 ) and positively increase the abilities of female borrowers to decide how to use their loans (Weber and Ahmad 2014 ). Hence, recent research suggests a more holistic approach to answering the extent to which microfinance meets sustainable development goals, for example, eradicating poverty, reducing inequalities, and boosting sustainable development.

In fact, the outreach of microfinance itself is changing with the emergence of fintech, namely prosocial crowdfunding platforms. Fintech has had a noteworthy impact on the financial system by reducing operating costs, providing higher quality services, and increasing user satisfaction (Kou et al. 2021 ). In the context of microcredit, prosocial crowdfunding platforms act as socially oriented digital marketplaces, particularly targeting poor settings (Meyskens and Bird 2015 ), where lenders provide credit access to impoverished people underserved by the banking industry, facilitating the liberalization of the financial sector at a global level. In turn, this boosts more inclusive financial and social systems (Dupas and Robinson 2013 ) that generate large effects at relatively low costs.

To be fruitful, the crowdfunding platform design cannot ignore the decision dynamics underlying not only traditional e-commerce platforms but also fintech. Commercial digital platform users base their judgments and decisions on trustworthy reviews. Likewise, we posit that prosocial lenders will increasingly drive digital funding decisions on systematized crowd reviews on borrowers and MFI. Thus, as in many financial applications (see Li et al. 2021 ), detecting clusters of financial and social-environment data (such as borrowers’ social capital and MFIs’ financial and social performance) will be critical for inferring lenders’ behavior and maximizing the performance of crowdfunding platforms and their outcomes. This might constitute a new application case for the so-called data-driven opinion dynamics model (see Zha et al. 2020 ), because financial technologies provide important advantages in processing big data into more meaningful, cheaper, worldwide, and more secure data than conventional methods (Lee and Shin 2018 ).

Thus, we might expect these topics to guide future research, providing a starting point for returning practical implications for policymakers, academics, players in crowdfunding markets, and microentrepreneurs.

Conclusions and implications

Poverty remains a key global challenge. According to the World Bank forecast, the total number in poverty is due to rise for the first time in over two decades, from 119 to 124 million by the end of 2021. In this context, microfinance has emerged as an innovative and sustainable poverty alleviation tool to serve more vulnerable people, particularly in developing countries. However, some scholars have challenged its proposed benefits (e.g., Chliova et al. 2015 ; Morduch 1999 ). Through the application of bibliometric methods, this paper reviews the most recent literature on the trends in the outcomes for microfinance recipients, thus focusing on the demand side. The study examines 524 articles collected from the Web of Science database published between 1:2012 and 3:2021.

Based on keywords, co-occurrences, and links between citations to obtain knowledge maps, the findings demonstrate that in both the theoretical domain and the empirical, research still casts doubt on the capacity of microfinance to generate positive outcomes beyond wealth creation, particularly in terms of empowerment, education, and health (Cluster 1). Further studies in this domain should consider the macro-context when undertaking empirical research; otherwise, policies designed based on such limited evidence may yield unexpected outcomes contrary to the forecast socioeconomic goals. Furthermore, entrepreneurship, through granting small loans (microcredits), represents a precondition for individuals living in poverty starting small businesses and the most efficient strategy for leaving behind subsistence-based lives. However, as lack of management skills may hamper the survival of these businesses, providing finance literacy training has a positive impact on the performance of such small ventures (Cluster 4). Nowadays, the reach of microfinance is changing due to the emergence of crowdfunding, as the crowd of lenders provides prompt credit access to start-ups launched by impoverished microentrepreneurs and empowering women (Cluster 5). This research is still in its infancy, but by sharing risks worldwide, informal lenders can extend credit through small loans, thus democratizing entrepreneurial finance to boost new ventures. The group lending methodology remains an efficient instrument for overcoming the lack of access to financial resources by building up social networks in the community (Cluster 3). Therefore, research in this field should examine how new screening models and credit social models, along with soft information, leverage the financial performance of new ventures and enhance financial inclusion and foster the social inclusion of such individuals. This study also identifies the role of MFIs in addressing market failures in the traditional banking sector, stressing the idea that MFIs gradually shift over time from social performance (outreach to the poor) to financial performance (Cluster 2). Thus, taking into account the recognized role played by microfinance and MFIs in the process of socio-economic transformation, public policy must consider the need to compensate for the market’s financial performance gap in the poorest economies by subsidizing credit activities to avoid mission drift effects. This needs to be accompanied by a transformation of MFI corporate governance policies to ensure transparency in their operations and selection of microfinance recipients. Overall, this study corroborates that microfinance is a distinct field of development thinking that requires a more holistic approach to overcome poverty and boost economic and human development at the global level.

As with any bibliometric analysis, this study has some limitations. As we gathered bibliometric data from the WoS database, we may have missed studies listed only in other databases (e.g., Scopus). Furthermore, some research domains within microfinance and microcredit may rely more on citations than others, which may reduce the scope of the outputs within clusters. Finally, early career researchers may not fare well in citation and co-citation studies even when producing seminal research, which may reduce the impact of their studies as measured using tools deployed to gather bibliometric data.

One of the greatest advantages of the Web of Science database, compared with PubMed, Scopus or Google Scholar, is its timeline coverage in terms of quality research production (Falagas et al., 2008 ). This aggregates research information from five indexed databases: Science Citation Index Expanded (SCI Exp.), Social Sciences Citation Index (SSCI), Arts and Humanities Citation Index (A&HCI), and the index of Chemistry and Current Chemical Reactions (Goodman 2005 ). The SCI Exp. includes articles published since 1900; and with SSCI and A&HCI dating back to 1956 and 1975, respectively (Meho and Yang 2007 ).

We would acknowledge how searches based on a set of keywords include certain limitations (e.g., Costa et al, 2016 ). One way of improving the selection process in a systematic literature review involves adopting a Preferred Reporting Item for Systematic Review and Meta-Analysis – PRISMA (Moher 2009 ).

VOSviewer is a program developed for constructing and viewing bibliometric maps based on the visualization of similarities (VOS) technique (Van Eck and Waltman, 2009 ).

The year 2021 reflects only the publications until March.

https://charteredabs.org/academic-journal-guide-2018-view/ (accessed in April 2021).

The following similar keywords were merged: “programs” and “credit programs” (to “credit programs”); and, “gender” and “women” (to “gender/women”).

VOSviewer software only reports the name of the first author.

Paul et al. ( 2017 ) examine the most influential papers in the last four year. Spasojevic et al. ( 2018 ) also examine the papers ranked as class ABDC. Furthermore, Gutiérrez-Nieto and Serrano-Cinca ( 2019 ) select the top 5% articles for analysis as the excellent highly cited papers.

Abbreviations

Arts and Humanities Citation Index

Association of business schools

Information and communication technology

Microfinance institutions

Mean technical efficiency

Preferred reporting item for systematic review and meta-analysis

Science citation index expanded

Social enterprises

Social Sciences Citation Index

Sustainable development goal

Visualization of similarities

Web of science

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Ribeiro, J.P.C., Duarte, F. & Gama, A.P.M. Does microfinance foster the development of its clients? A bibliometric analysis and systematic literature review. Financ Innov 8 , 34 (2022). https://doi.org/10.1186/s40854-022-00340-x

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Microfinance, an alternative for financing entrepreneurship: implications and trends-bibliometric analysis.

1. Introduction

2. materials and methods, 3.1. analysis of scientific production performance, 3.2. analysis of strategic diagrams, 4. discussion, 5. conclusions, author contributions, institutional review board statement, informed consent statement, data availability statement, acknowledgments, conflicts of interest.

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Coronel-Pangol, K.; Heras-Tigre, D.; Jiménez Yumbla, J.; Aguirre Quezada, J.; Mora, P. Microfinance, an Alternative for Financing Entrepreneurship: Implications and Trends-Bibliometric Analysis. Int. J. Financial Stud. 2023 , 11 , 83. https://doi.org/10.3390/ijfs11030083

Coronel-Pangol K, Heras-Tigre D, Jiménez Yumbla J, Aguirre Quezada J, Mora P. Microfinance, an Alternative for Financing Entrepreneurship: Implications and Trends-Bibliometric Analysis. International Journal of Financial Studies . 2023; 11(3):83. https://doi.org/10.3390/ijfs11030083

Coronel-Pangol, Katherine, Doménica Heras-Tigre, Jonnathan Jiménez Yumbla, Juan Aguirre Quezada, and Pedro Mora. 2023. "Microfinance, an Alternative for Financing Entrepreneurship: Implications and Trends-Bibliometric Analysis" International Journal of Financial Studies 11, no. 3: 83. https://doi.org/10.3390/ijfs11030083

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International Journal of Emerging Markets

ISSN : 1746-8809

Article publication date: 8 July 2021

Issue publication date: 11 August 2023

The authors present a systematic literature review on microfinance institutions’ (MFIs) effect on poverty and how they can ensure their sustainability. The purpose of this article is to review the effect of MFIs on poverty in South Asian countries. The analysis and review of the selected corpus of literature also provide avenues for future research.

Design/methodology/approach

A total of 95 papers from 49 journals in 4 academic libraries and publishers were systematically studied and classified. The authors define the keywords and the inclusion/exclusion criteria for the identification of papers. The review includes an analysis of the selected papers that give insights about publications with respect to themes, number of themes covered in individual publications, nations, scope, methodology, number of methods used and publication trend.

The literature indicates the positive effect of microfinance on poverty but with a varying degree on various categories of poor. The relation between poverty and microfinance is, however, dependent on the nation under the scanner. While sustainability and outreach co-exist, their trade-off is still a matter of debate.

Originality/value

This is the first systematic literature review on MFIs’ effect on poverty in South Asian nations. Additionally, the authors discuss the literature on the trade-off between sustainability and outreach for MFIs.

• Microfinance
• Sustainability
• Systematic literature review

Gupta, P.K. and Sharma, S. (2023), "Literature review on effect of microfinance institutions on poverty in South Asian countries and their sustainability", International Journal of Emerging Markets , Vol. 18 No. 8, pp. 1827-1845. https://doi.org/10.1108/IJOEM-07-2020-0861

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• Open access
• Published: 08 December 2022

Exploring the role of microfinance in women’s empowerment and entrepreneurial development: a qualitative study

• Ambreen Khursheed   ORCID: orcid.org/0000-0003-1497-5848 1  

Future Business Journal volume  8 , Article number:  57 ( 2022 ) Cite this article

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In developing countries, women’s empowerment is a major concern. Several efforts were made to tackle this issue as the aims of poverty reduction and development cannot be achieved without giving attention to women’s empowerment. Over the past decades, microfinance institutions (MFIs) have appeared as crucial tools not only to address the issue of poverty but also particularly to empower women. Resultantly, a huge number of studies focus on the relationships between MFI and women empowerment. However, in the context of rural areas of Pakistan, the research is limited. Therefore, the objective of this study is to investigate the role of MFI in women’s empowerment in Pakistan so that the research will facilitate MFIs and policymakers in strengthening the link between MFIs and women entrepreneurship. We have used a qualitative methodology, using primary data collected through in-depth interviews and a focus group discussion with six female borrowers of Rural Community Development Programs (RCDP). The empirical results provide valuable insights into the efforts made by RCDP to empower women and combat poverty by encouraging women’s entrepreneurship. Hence, this paper not only examines empowerment, which women are attaining from microfinance but also assists MFIs to know about their significance in developing the economy. The paper is significant for MFI practitioners to develop policies for boosting women’s entrepreneurship and to help their existing women clients with efficient training and supervision.

Introduction

Microfinance has a unique ideological demand as compared to charity. It is particularly designed to support poor people. However, it is a long-term process that enables the poor to improve their living standards in an effective manner [ 39 , 41 , 74 ]. In particular, when we talk about microfinance from the perspective of women, the role of benefactors of microfinance seems important in making it a relatively effective resource for poverty alleviation, the stability of economic growth, and women empowerment [ 25 , 39 , 41 ].

The difference between male and female ratios is not considered significant, but in several areas, women are provided less importance and power in comparison with men [ 29 , 37 ]. Women around the world have little control over their assets and have less political power. Further, they do not have a lot of properties to their name [ 58 , 68 , 87 ]. Due to a lack of security saved in the financial sector, women faced several difficulties during the financial crisis period which lasted from 2007 to 2008 [ 52 ]. Similarly, it is crucial to understand the impact of the recent crisis of COVID-19 which affected all businesses badly and also threatened world health security [ 81 ].

However, several researchers have questioned this statement. The classification of all expected benefits and disadvantages of MFIs is still in the initial phase. We are still discovering how to improve the living standards of poor women and their families. This study aims to broaden existing knowledge about the role of MFIs in empowering women in rural Pakistan.

In emerging economies, MFIs and women empowerment is considered to be one of the most effective tools for poverty alleviation by particularly focusing on women [ 62 , 87 ]. Certainly, women are one of the most important parts of society and without their presence, societies cannot improve [ 23 ]. Women empowerment leads to the increased participation of females in the workforce, the capability to decide, and poverty reduction. Thus, an increase in their income will not only prove beneficial for their family but will also have a very positive influence on the economy [ 58 ]. Another study investigated the nonlinear effect of the education level on the ecological footprint by incorporating the variation in the population and income structures and recommended crucial policies regarding education levels and environmental sustainability [ 82 ].

In developing countries, all businesses are male-dominated and females have to suffer from discrimination in most of the phases whether it is their personal life or professional life. However, financial segregation seems complicated for developed nations regardless of the gender factor. Financial stability is a key concern for developing as well as economically challenged countries as these economies do not have a stable financial environment and well-established institutions [ 42 , 43 ]. The presence of poor health facilities, underdeveloped financial industries, illiteracy, and weak infrastructure have raised serious problems for developing nations. To consider the requirements of financially excluded women, MFIs step forward to help those women in establishing new endeavors [ 55 ]. As a result, non-government organizations and government agencies decided to provide subsidized loans for a better lifestyle of people and poverty alleviation. Prior researchers appreciated the initiative of such investments (for example, [ 25 , 60 ]), but disproportion has been observed in these investments from the side of rich landlords or agencies. To tackle this issue, some highly effective alternative social networks, social collaterals, and credit scoring are needed here to approach the poorest women [ 57 ]. Moreover, women in more rigid cultural settings are likely to face a higher risk of domestic violence because economic empowerment intervenes with patriarchy and expedites change in rigidly defined gender roles [ 27 , 28 ]. Therefore, the need to address gender power imbalance and existing gender roles need to be taken into account before making interventions to empower women. It is found that the main body of the related existing literature primarily discussed only those factors that played a key role in the supply side of agriculture finance and microloans. A few past studies have also focused on the demand side of microfinance loans. However, the study of Guirkinger and Boucher [ 21 ] and the study of Ashraf and Ali [ 7 ] have highlighted the possible hurdles of the demand side of microfinance loans faced by smallholders. These obstacles include complex application procedures and complexity in providing loan securities. The seminal work of Garikipati et al. [ 18 ] reveals that the process of providing loans to the poor is uncertain, and is not easily generalized. So, people should be careful to utilize this development tool. However, it is clear that these loans provide financial benefits for poor women in developing new endeavors [ 71 ] and also act as a smart policy to help the poor [ 10 ]. Irrespective of the talk of “gender neutrality,” MFI clients that are women of immobile poor backgrounds have a lower default record as compared to men. MFI start-ups usually have significant and underreported economic effects because the poor women who work within households are not getting the standard pay and have limited start-up funds.

Brière and Szafarz [ 13 ] reported that MFIs have now become a risk-averse thing and it is “financialized,” i.e., MFIs now act as mainstream financial institutions. On the other hand, MFIs are considered a good source of financial support for women in starting new businesses and a tool to eliminate poverty in the country but this fact is not applicable universally because MFIs can also appear as an enigma in providing microfinance access to women. In various literature studies, researchers have focused on savings and credit products MFIs. It has been found that research studies are showing great interest in microfinance. Therefore, we aim to explore how MFI can lead to women’s empowerment and entrepreneurship. Furthermore, we also decided to investigate the possible benefits of microfinance for women from RCDP’s microcredit program.

Problem statement

One of the objectives of microfinance is to enhance women’s empowerment and to generate employment opportunities by promoting self-employment that consequently improves the social well-being of poor people. Most of the existing studies, mainly in economics, have only focused on how MFIs lending helps in poverty alleviation, rather than analyzing its impact on social and financial empowerment and new venture creation by women. The majority of the past studies were quantitative [ 9 , 15 , 17 ], while there were a few qualitative studies applied in various contexts that analyzed the impact of MFIs in enhancing women’s empowerment but still substantial studies are not available which explores specific lived experiences of women borrowers when they avail microloans and how they utilize that loan in starting their businesses. Therefore, this study aims to enhance the understanding of the role of microfinance from the viewpoint of beneficiaries in improving their empowerment and entrepreneurial development.

Significance of the study

Pakistan is a developing country and the majority of its population is living under the poverty line and are mostly unaware of different sources of financial facilities. MFIs particularly focus on such rural areas in which most of the people are un-bankable and marginalized. This study contributes to the extant literature, as it explores the lived experiences of women borrowers regarding empowerment and entrepreneurial development. To get deeper insights into the structural meaning of empowerment analyzed by considering participants’ histories, lived experiences, and social interactions, we used a qualitative approach that relies on in-depth interviews and a focus group under the case study research design. This study provides valuable insights into how MFIs are making women socially and financially empowered. Also, how microfinance helps in women-led ventures’ creation process. To investigate how microfinance is increasing women’s empowerment, we deduced the following sub-objectives.

To explore how women become socially empowered after getting micro-financed.

To figure out how women become financially empowered after getting micro-financed.

To determine how microfinance increases women’s entrepreneurship.

Literature review

• Microfinance

Microfinance programs have been playing a dominant role in poverty alleviation since long ago [ 40 ]. The vision behind the growth of microfinance is to pull the poor toward the entrepreneur side by giving them enough credit to achieve this goal. However, microfinance usually considers one assumption, i.e., the beneficiaries have adequate social capital, human capital, and other required assets for expanding their small-scale businesses. This indicates that the lack of credit is the only prominent hurdle experienced by poor women [ 73 ]. This assumption seems quite complicated because the growth of even a small business requires a lot of competencies, knowledge, expertise, and abilities [ 2 ]. Another major issue is that microfinance faces difficulty to approach the right poor people [ 16 ]. In the light of practical aspects, microfinance refuses the poorest division of people from borrowing money. This violates its role in approaching very poor applicants [ 14 , 83 ]. Furthermore, the poorest household people who are availing the benefits of microfinance still lack the proper technical skills that are necessarily required for business. The background of microfinance shows it is an essential tool to alleviate poverty, it works by receiving donations and lending money to poor people. Microfinance programs disregard the non-income parameters of poverty such as health, security, and education [ 11 ]. The study of Shaw [ 64 ] explains how the poorest households possess limited formal education. Also, poor health and undernutrition play a vital role in limiting the overall productivity of such households. The lack of education results in severe illiteracy which can badly affect the poor and make them unable to properly understand the effective working procedure of loans. Famous examples include Akhuwat, AGAHE Pakistan, AMRDO Foundation, non-bank microfinance companies, and many more.

Measuring empowerment

The study of Malhotra et al. [ 47 ] reports that the identification of empowerment as a primary development tool has been done, but still, institutions such as the World Bank and development agencies haven’t introduced an authentic method for estimating and analyzing the tracking variations in various levels of empowerment. Researchers define empowerment as a dynamic procedure that is complex to measure. The reason behind this is that empowerment is related to social, economic, and political challenges as well [ 63 ]. The spiritual, social, political, and health factors make the complete empowerment measurement procedure and these all factors are interconnected with each other. The term empowerment can also be expressed as a way of independent decision making, identification, and utilization of resources [ 1 ]. The literature reveals that empowerment is a multidimensional concept and it can be assessed under multiple dimensions [ 31 ]. This study primarily focuses on the influential impact of microfinance on women’s empowerment in the context of the financial and social aspects. This is because the financial and social aspects of women’s empowerment help increase the development of both the quality and quantity of existing human resources. These two aspects are proven as critical factors in enhancing the development of a society.

Meaning of women’s empowerment

There is significant diversity in the agendas, emphases, and terminologies used for describing women’s empowerment. Many papers have defined empowerment and its measurement approaches. The most common terms used in the extant diverse approaches use power, choice, control, and the option to describe women’s empowerment [ 72 , 78 ]. However, it is still confusing to say whether the terms “empowerment”,” “gender equality,” “women’s autonomy,” and “women’s status in society” are similar or different concepts. The term women empowerment has been conceptualized mostly as an outcome or a capacity or some means to an end, and a process of achieving power [ 35 , 54 ].

Microfinance and women’s empowerment

Women are the main target audience of microfinance programs. This credit amount not only helps poor women to grow economically but also improves gender equality, the status of women within the family, their health, and their education level [ 35 ]. Moreover, women are examined as a good credit risk by microfinance programs due to their increased propensity to repay loans [ 24 ]. In contrast, men are more interested in moving their money toward risky business practices and are at high risk to consume this money on tobacco, gambling, or drinking [ 20 ]. However, Goetz and Gupta [ 20 ] also highlighted that a significant percentage of women’s loans are directly invested in business activities by their male relatives, but the liability of repayment goes to women borrowers. The recent literature primarily discusses the evaluation process of microfinance programs [ 3 , 38 , 65 ] in the context of the well-being of borrowers [ 14 , 50 ] and empowerment capabilities of women [ 61 ]. The reporting of these evaluations reveals some conflicting conclusions, and it still tells that borrowers have an absence of accounts for themselves and this impact of credit can affect their lives [ 35 ]. There is limited evidence in the literature on how the poor perceive the process of microfinance loans. In addition, the existing literature has limited scope regarding the “transformative process” of entrepreneurship which reveals the lives of those needy people who are living in extreme poverty [ 76 ]. In response, this study fills the gap in the literature by examining how most disadvantaged borrowers or potential borrowers themselves perceive and experience microfinance in a context characterized by extreme poverty, one where family responsibility and entrepreneurial activities are closely intertwined.

A study reported that 95% of Grameen’s borrowers were females and this percentage kept on raising till 2011. Similarly, Aghion and Morduch [ 6 ] highlighted that 71% of total borrowers of MFIs were women. Further, past researchers have also pointed out that MFIs target women because their default rates are very low as compared to men [ 5 , 36 ]. Because of this reason, MFIs have launched several innovative schemes to financially support their female clients. MFIs play a crucial role in enhancing the empowerment of women as it boosts their resources, increase return on human capital by improving their affordability, and consequently improve their living standards.

Social empowerment of women

Women’s social empowerment refers to having a supportive environment by using different affirmative programs and policies for the empowerment of women along with the provision of easy and equal access to necessities of life [ 48 ]. In the field of development, empowerment has become a catchword, with a specific focus on poverty alleviation and the political addition of marginalized groups of women [ 49 ]. Microfinance has proved socially beneficial for women [ 35 ]. In a pivotal study, Mahmud [ 46 ] described that microfinance institutions have a significant positive influence on women’s social empowerment as it substantially improves their control of income spending and intra-household decision-making power, which resultantly enhances their welfare. Sinha et al. [ 67 ] found that women’s participation in MFIs enhanced their capability to spend money, mobility, and dominance in household decision making. Further, Montgomery and Weiss [ 51 ] concluded women’s participation in MFIs leads to enhance family decision making and found that family landholdings, media exposure, and institutional access are key determinants of women empowerment [ 26 ]. Similarly, it was found that savings impact is more significant on women as compared to men as it enhances their decision-making power related to family planning, family expenses, recreation, and their lifestyle [ 8 ].

Therefore, there is a need for an integrated microfinance program comprising education with skill-building training for increasing the capacity building of women and fortifying the relationship between women’s social empowerment and microfinance [ 4 ].

Financial empowerment of women

Many past studies have analyzed women’s empowerment from different perspectives; however, financial empowerment is ignored to some extent. In this study, one of the main objectives is to examine the financial empowerment of women. Past studies have reported that financial empowerment can be understood through three factors; financial literacy, financial attitude, and financial well-being. Financial literacy is inherent in humans and is recognized as the primary privilege of humans. “Financial literacy is the capability of understanding finance” [ 75 ]. Lack of financial knowledge ultimately pulls poor people away from success in financial markets or businesses [ 79 , 86 ]. The importance of financial literacy is equal for men and women. However, it is reported that if women have stronger financial knowledge then they can do effective future planning [ 45 ]. Financial knowledge is related to financial attitude. The financial attitude refers to the capability to manage finances, interest in enhancing financial knowledge, and investment decisions. Past studies revealed that financial knowledge, financial attitude, and financial behavior affect financial empowerment or financial well-being [ 33 , 66 ]. The concept of financial well-being is related to personal traits, knowledge of finance, and attitude. Therefore, the subjective meaning of financial well-being varies from person to person [ 32 ]. Thus, the financial empowerment of women can be assessed by considering financial literacy, financial attitude, and financial well-being.

Research gap

The literature discussed following the structure from the history of microfinance to concepts of women empowerment leads to the discussion on the relationship between women empowerment and microfinance. The literature depicts that different indices were explained in prior research studies giving a quick overview of empowerment but they are limited as they used a few variables, ignored key ontological issues, details, and subjective experiences that deepen the understanding of empowerment [ 9 , 15 , 17 ]. Therefore, this study fills the existing gap as we interviewed women in their natural settings and in their contexts in which they interpreted empowerment from their viewpoints.

Further, there was a strong practical gap regarding the lack of research on how women experienced empowerment and entrepreneurship through microfinance. A majority of the past studies applied quantitative methodology with the top-down approach which focuses on the views of service providers instead of beneficiaries and thus the beneficiaries’ views were not considered. Therefore, it becomes evident that the quantitative approach is not suitable for understanding women’s empowerment because it is a process of realization and only participants can explain what empowerment means to them through their experiences and feelings of becoming empowered. Hence, it is significant to use a qualitative methodology to capture the real feelings and experiences of women. Therefore, we applied the bottom-to-top approach to analyzing the true essence of the lived experiences of women regarding empowerment and entrepreneurship. Thus, this study is based on a case study research design to explore the perspectives of women that how they interpret and understand the phenomenon of empowerment achieved through microfinance in their natural context. Overall, this study enriches the extant literature about women’s empowerment by explicating the complex phenomenon of empowerment through social, financial, and entrepreneurial contexts.

Research question

For exploring the effectiveness of MFIs in terms of women’s empowerment and entrepreneurial development, we propose the main research question of this study as follows;

What is the impact of microfinance on women’s empowerment?

Sub-questions

How does a woman become socially empowered after getting microfinance?

How does a woman become financially empowered after getting microfinance?

To what extent microfinance leads to women’s entrepreneurial development?

Theoretical framework

William’s theoretical model of women’s empowerment.

In this study, two theories as theoretical frameworks are used. The first theory is by Williams [ 84 ] who formed a theoretical model on women’s empowerment. In the development of this model, the innovative insights of Kabeer [ 34 ] were used. Given this theory, empowerment comprises three factors, resources, agency, and achievements. Here, the resources present the supporting factors which are utilized by women to achieve empowerment, the agency presents the ability of the women to achieve their goals, and achievement refers to the success of women in achieving their life goals. Resultantly, the results achieved represent achievements by combining resources with the agency. We have used this model for measuring women’s empowerment.

Status withdrawal theory

The second theory used in this study is the status withdrawal theory, this theory explains that when certain groups of people realize that they are not respected by society. They switch to entrepreneurship for getting respect from society [ 22 ]. Thus, entrepreneurship is a function of status withdrawal. We follow this theoretical framework for understanding the entrepreneurial development among women borrowers. As all women borrowers belong to a poor class so we will explore whether they have any status withdrawal intention behind starting their own business or not (Fig.  1 ).

Conceptual framework of the study

Methodology

This study adopts the case study design approach for the empirical investigation as it inspects a contemporary phenomenon within the real life of participants, particularly when the limits between the context and phenomenon are not visible [ 59 , 85 ]. The case study design is the most suitable design for this study to carefully understand the impact of MFIs on women’s empowerment as it provides more in-depth views about the phenomenon under study.

The variables and themes analyzed in the focus group discussions and in-depth interviews are presented in Table 1 .

Semi-structured interviews

A qualitative method, in particular, semi-structured interviews, and a focus group were employed in this study. We used an interview checklist for the collection of qualitative data as it helps to properly understand the psychology of the participants. Also, it helped us to identify missing information from the participants. All interviews were conducted by telephone. The participants were selected through purposive sampling, as it is widely used in information-rich case studies [ 56 ]. The MFI selected for this study is RCDP, this MFI has played a key role in developing economic activities in communities and it exclusively focuses on women. The sample size consisted of six participants, who are aged 35 or above. Semi-structured interviews were organized in two sections, the first section included background questions based on the loan history of participants at the RCDP, demographic details, and a description of current business progress. The s econd section comprised questions that were related to participants’ viewpoints about their experience of gaining empowerment. For example, respondents were asked to provide in-depth explanations regarding their daily tasks and how their tasks get influenced after getting microloans. We also used sample prompts such as, “What role has microfinance played in your life?” and “Have you experienced any change due to microfinance? How it supported you in establishing your business?” Grand tour questions were also used such as “How would you explain a usual work week?” The grand tour questions lead us to get in-depth information through mini-tour questions for determining the details about certain events and the experience of women borrowers [ 69 ], such as Could you describe to me what you do for the mid-day meal when you are at your business? This helped in inquiring about delicate features such as advantages and changes associated with the role of microfinance in enhancing women’s empowerment. After conducting the semi-structured interviews, a focus group discussion with borrowers was conducted. This discussion helped us to collect data about the socioeconomic factors of women’s empowerment. This method helped us to have firsthand information (Table 2 ).

Focus group

To analyze the experience and interactions among participants, a focus group plays an important role. Through focus groups, we probed answers to the best lending practice, saving plans, and effective interpersonal relationships between members. The group discussion helped us to make certain aspects clearer.

Data analysis, results, and discussion

Developing first-order codes and second-order themes.

For analyzing the data, thematic analysis is used. First, to form codes, the data analysis started with coding iteratively, recorded interviews were used in performing the analysis [ 19 ]. At the initial stage, the data is linked with first-order codes that focus on the main research topic, the impact of MFIs on women’s empowerment. After this, common themes were used to join data fragments together from different but interconnected categories developed in the open coding [ 70 ]. This helped in combining first-order with second-order codes in a more precise manner.

Incorporating first-order codes with second-order themes

In the second phase, the data was revisited to ensure precision in the second-order themes. The existing themes were refined or used to create new second-order themes. We analyzed the constructs for ensuring that the themes are reflecting first-order themes. For example, first-order coding statements related to respondents’ increased level of independence in decision making led us to form a second-order theme explaining “increase in independence in decision-making power.”

Later this statement was defined as “Social Empowerment” described by the first-order coding statements explaining independence to decide without asking anyone. This analysis adds precision in this phase, while simultaneously permitting us to better examine and improve other evolving concepts, such as “being independent.”

Accumulating the theoretical dimensions

After second-order themes, we determined the theoretical dimensions for understanding the interaction among themes. For instance, some themes represented real experiences of social empowerment (e.g., “autonomy in decision making”) while others related to their response to social empowerment (e.g., “confidence in expressing an opinion”). We examined multiple models to check how multiple conceptual models relate to each other, using existing empowerment theory whenever suitable. We evaluated potential models against the data to investigate how emergent theoretical understanding described our research model. Table 3 presents the methodology, presenting the first-order codes, the second-order codes, and the theoretical dimensions that effectively describe the lived experiences of participants and the impact of microfinance in gaining empowerment.

Table 4 reveals the data supporting each second-order theme by presenting that microfinance has proved very beneficial for all six participants. Our main research question was to determine how microfinance increases women’s empowerment. Thus, our results presented that microfinance drastically changed the perception of women borrowers about living an independent life and societal dynamics. Fulfilling the necessities is one of the primary issues of poor people and due to this, they have to earn for each day’s expenses. Further, because of having no savings to rely upon, the lines between households and businesses are often not so clear. All our respondents reveal that now they feel more confident and empowered as compared to their earlier condition. All participants shared that they spend their income on fulfilling their household expenses such as children’s schooling and utility bills. The findings of this study were obtained through thematic analysis which is useful in conducting identification analysis and pattern reporting within data [ 12 ]. This study aimed to determine how microfinance is an effective tool for women’s empowerment, and how microfinance leads to develop entrepreneurial characteristics among women, and how it is useful for women. The conclusions achieved from this study may not become generalizable for the whole population but it is generalizable at a conceptual level [ 30 ].

The study determines the role of RCDP in women’s social and financial empowerment with the help of a case study methodology. We have used focus group discussions with in-depth interviews. We explored the lived experiences of women before and after taking a loan from RCDP and its impact on their social and financial empowerment with a view of William’s theory. In the focus group discussion, all participants shared their lived experiences and in the in-depth interviews, each case was analyzed for understanding the actual circumstances through which each participant has gone through. In this analysis, open-ended questions helped in understanding the real scenarios. The main research objective was to utilize open-ended questions for developing a comfortable association with the participants so that they can share all their lived experiences conveniently. We have selected in-depth interviews and focus groups because these methods were found more suitable for analyzing each case.

Case 1 Participant (1) described when her husband died in a road accident. She became helpless. Her in-laws abandoned her with six children. Then, she applied for the microfinance program of RCDP and was provided with an initial loan worth Rs.75,000/- for establishing a small retail store of food items. In her village, no women were running their retail store. But she took this step to support her children and now she is running a successful business. The credit for her success goes to her decision of taking a loan and starting a new journey in her life. She expressed;

Life became miserable without my husband. It was difficult to feed six children. Without having a source of income and no place to stay. I felt that my life has come to an end. But microfinance helped me to get out of the crisis. Now I am living a peaceful life with my children.

Case 2 Participant (2) shared that she remained in an abusive relationship with her husband for 11 years. Her husband was addicted to drugs. He divorced her after the birth of their seventh daughter. Then, he got married to some other woman. She expressed that she has gone through severe depression during that time when was alone with her daughters. Her mother and sister supported her but financially they were not capable to feed her children.

I was extremely depressed due to my divorce. I had no source of income other than him. I was worried about my daughters. I have four brothers and they also refused to support me at that time. Then, I started weaving and also started a dressmaking business on a small scale after taking a loan from RCDP. Particularly, I was good at making girls’ dresses. Now my mother and sister are living with me and I am supporting my family with my business.

Case 3 Participant (3) expressed that microfinance helped her a lot in supporting her family. Initially, she took a loan of Rs 80,000 to start her business. She shared;

My husband was a plumber but his income was not enough to support the household expenses. Then a time came when my husband couldn’t find any job for three months. We were deprived of all necessities. And we also have three children who were not going to school due to our crisis. Then I asked my husband to start his own business of baking food items. Because I was good at baking. We both decided to take a loan and started our own business. My husband was narrow-minded, initially, he refused to accept me as a partner in his business. But when he realized that only after one week our business showed visible growth. Then he allowed me to help him and we also hired two more workers. Now our children are going to school and we are managing all our household expenses.

Case 4 Participant (4) expressed that her husband was an employee in a garment factory. One day the owner of the factory decided to wind up his business because of a lack of profits. My husband lost his job, he searched a lot for other jobs but he failed to find any suitable job. Then, he died due to a heart attack. She took a loan of Rs 60,000 for purchasing a sewing machine and some clothes. She shared

I was living a happy life with my husband and children but life changed when my husband lost his job. Further his death made the situation even worse. One of my neighbors told me about RCDP. Just because of my children I took a loan and started my own stitching business and now I am in a position to manage my all household expenses.

Case 5 Participant (5) shared that her husband was employed in a workshop. But he lost his job due to the closure of that workshop. They had no other source of money. For four months, her husband searched for another job but he couldn’t find any opportunity. Their children left school because they were not able to pay their fees. Then, she convinced her husband to take a loan and start their own business. Her husband was afraid that we will not be able to repay the loan. Then, they will lose their respect in the family. But she told him that they have no other option and they have to take this risk.

My husband knew how to manage a car workshop so we decided to use the loan amount for starting a business. Gradually our business flourished, and we also managed to repay our monthly loan installments.

Case 6 Participant (6) shared her life experiences by stating that her husband was an electrician and his income was not enough to support the family. They have six children and their school fees were not payable with that income. Thus, she asked her husband to start his own business as a retail store as there was no other store in their area.

I am managing a retail store with my husband. Initially, my husband took all decisions related to savings and asset purchases. But now as I am helping him in managing our retail store. He acknowledges my effort and now we collectively decide how to spend our income. I and my husband started doing all chores together now. We both listen to each other, and collectively make decisions. He respects my suggestions and decisions. As we both couldn’t get a higher education, so we have realized the importance of education. Therefore, we are sending our children to good schools for quality education. The credit for our success and better well-being goes not only to my hard work but to all including my family, friends, and also to RCDP who helped us to build up our lives once again.

We have found that after establishing their own business, women became more confident and self-empowered due to microfinance. They have developed a true belief in their entrepreneurial skills and independent decisions. These women are highly efficient as they not only make a business investment but also save some amount of money for future needs at the same time. Women use their amount of loans in smart investments in some entrepreneurial activities and in providing financial support to their families. But after becoming financially stable, they start saving money for future needs. This indicates the smart and strategic planning of women. After this phase, women are very confident in developing a strong position in their family and taking financial responsibility on their shoulders. These results also find support from past studies [ 53 , 80 ]. Women have developed a serious working attitude toward their profession and are happy for supporting their husbands and family [ 77 ]. Hence, we can say that this all has become possible due to microfinancing as it not only provides financial support to women but also encourages them to contribute positively toward the development of society. [ 44 ]. Also, it plays a prominent role in establishing entrepreneurial knowledge and independent decision-making habit in women. Despite these efforts, many areas such as quality of services and working on new skill development trades, and gender responsiveness need improvement. The present form of this paper is not gender-friendly because it has mainly targeted the female gender and the male gender seems neglected. In addition to tangible development (food access and other necessities of life), it also provides intangible development to women in the form of motivation, self-belief, self-empowerment, confidence, and independent decision making. The findings of the study are in line with William’s theoretical model of women’s empowerment as the participants expressed that they have achieved empowerment by using their resources and agency. Further, the results are also in line with the status withdrawal theory as the participants expressed that they want to become independent because they want respect in society. Hence, our results are in line with the theories.

Microfinance plays a dominant role to motivate and enhance entrepreneurial activities in any country. This study aims to examine the efficiency of microfinance in empowering women in Pakistan. The analysis and results revealed that microfinance is an effective tool that can contribute to the development of women’s empowerment and entrepreneurship. The findings also support the theoretical aspect of William’s theory as women empowerment is being discussed with a view of three dimensions including resources, agency, and achievements. The study contributed to breaking the conventional hurdles levied on women’s decisions and mobility. A developing country needs to focus on the growth and development of entrepreneurship for achieving stability. People find microfinance as an opportunity for themselves as it provides a way to enter into the entrepreneurship field. The six cases elaborated in this study reveal that the RCDP microfinance loan has been proven as a full-time and consistent earning source for the people and helped them a lot in improving their living standards. In the initial stage, the clients operated their business as sole proprietors, and over time, they involved many other people in the business. Thus, microfinance has become a potential source of earning for many needy people.

Hence, this study highlights that microfinance creates a positive and influential impact on rural women. It not only works for the betterment of women but also considers the entire families of those women by supporting them in enhancing their family earnings. In this way, this study will help in increasing the percentage of school-going children and a reduction in child labor due to an increase in family earnings. Although this project is concerned with providing small-scale services still it is contributing a lot toward the growth of Millennium Development Goals related to women’s empowerment, health, child welfare, and poverty alleviation. In light of these results, we came to know that microfinance has a diverse portfolio of benefits. It is not only a source of finance but also a tool that makes women more confident and boosts their morale. The findings indicate that even the small-scale loans taken from RCDP have helped women a lot to grow their socioeconomic and financial position through entrepreneurship which supports the theoretical foundation of the status withdrawal theory. It has benefited females with strong and independent decision-making power. Our results can help policymakers and practitioners to adopt suitable policies that assimilate empowerment in the formation of more effective projects for women. The findings of this study may encourage more women to take part in microfinance projects and entrepreneurial activities.

Limitations and future directions

This study has some limitations. The first limitation is the shortage of time that resulted in designing a moderate sample size as compared to a bigger one. Second, the data collection is done for just one city and is limited to interest-based loans, whereas it has been found that RCDP is also concerned with interest-free loan programs. Third, the study used only six detailed interviews due to the time constraint factor which indicates that the findings cannot be fully generalized as only six cases were taken into account. However, this study has a potential scope in elaborating on all the possible dimensions of the related topic and it would enhance the recognition of women’s empowerment. This paper is dynamic as it covers both practical and theoretical aspects. Keeping in mind the time limitation and resource constraints, the above-discussed six cases can serve as a good starting step to allow the researcher to explore it further and investigate more dimensions in a longitudinal analysis. This study motivates women of our country to take a positive stand and contribute their role in poverty alleviation.

By documenting the limitations of the present study, future researchers are suggested to explore certain areas. Firstly, this study primarily deals with only a single project in the context of the most modern areas of Pakistan, it is recommended to future researchers perform this study in different regions of the country. Secondly, the sample size is limited due to time limitations; hence, future researchers are advised to conduct a study on the related topic by designing a large sample size. Lastly, it would be better for researchers to investigate the sustainability of community-based development projects via localized community-based adjustments with the support of local NGOs’ involvement rather than government funding.

Availability of data and materials

The data analyzed during the current study is available from the corresponding author on reasonable request.

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Khursheed, A. Exploring the role of microfinance in women’s empowerment and entrepreneurial development: a qualitative study. Futur Bus J 8 , 57 (2022). https://doi.org/10.1186/s43093-022-00172-2

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• Women empowerment
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Impact of microfinance on women’s economic empowerment

• Belay Mengstie   ORCID: orcid.org/0000-0002-4330-7083 1  

Journal of Innovation and Entrepreneurship volume  11 , Article number:  55 ( 2022 ) Cite this article

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Women’s economic empowerment a strategy aimed at enabling women in decision-making, increment in income and asset ownership. The main aim of the study is to examine the impact of microfinance on women’s economic empowerment. Data were derived from a questionnaire of a sample of 346 women clients of microfinance. Multiple regression and paired sampled t -test data analysis techniques were used in the study. Multiple linear regression result revealed that age, marital status, education level, credit amount, and number of training have significant effect on women’s economic empowerment. However, previous business experience did not have significant impact on women’s economic empowerment. Paired sampled t -test result revealed that there is significant mean difference before and after microfinance service in terms of income, asset, and saving. Microfinance has significant positive effect on women’s economic empowerment by improving women’s independent income, increasing asset possession levels, and improved monthly saving amount. Moreover, the study proved that microfinance has a positive impact on women’s entrepreneurship development and business exposure.

Introduction

Microfinance institutions have been considered as important development program in Ethiopia for the last 20 years. The legal foundation for the microfinance movement and expansion in Ethiopia was started after 1996 proclamation. In the development of microfinance, this proclamation considered as a bench mark to start and develop microfinance in the country. Women’s participation in microfinance is growing gradually. All microfinance industries have a shared vision of poverty alleviation and women’s economic development.

Microfinance institutions are effective instruments for providing basic services like saving, affordable credit, and skill training (Haimanot, 2007 ; Mahfuz et al., 2017 ; Misrak, 2012 ). Microfinance institutions are important economic development agents intended to benefit women and lower income people (Cicchiello et al., 2021 ; Duflo, 2012 ; Meressa, 2020 ). Microfinance institution plays a great role in different countries in alleviating women’s economic problem, creating self-employment opportunities, and developing businesses for women entrepreneurs. Women are benefited from participating in microfinance program. Women’s participation in microfinance credit program increased their economic position, exercise economic independence, and improvement in their business leadership skills (Addai, 2017 ; Haimanot, 2007 ). However, Women’s participation in economic activities is very low in Ethiopia (Dawit, 2014 ; Solomon et al., 2019 ; Zelalem & Chalchissa, 2014 ).

Women represent the main economic force in different developing countries. As economies become more and more information-driven, the issues of women’s access to and the use of information and communication technologies are growing in importance for developing economies (Michota, 2013 ). Economic empowerment improves women’s opportunity to resources and non-financial resources. Moreover, it creates good opportunity for skill development and market information (Addai, 2017 ; Khandre, 2015 ). Women’s economic participation is base to exercise women’s right and helping them develop decision-making role over their household and influence in their community. Women’s empowerment is creating equitable societies (Shaheen et al., 2013 ).

There are controversies on impact of microfinance on women’s economic empowerment. Odell ( 2010 ) study identified the difficultly of making generalized conclusions taking to consideration the heterogeneity of microfinance interventions. Stewart et al. ( 2010 ) study in Africa found little impact of microfinance on income of beneficiaries. According to Rathiranee and Semasinghe ( 2015 ) study, there is a weak but significant impact on women empowerment due to microfinance service provision in Sri Lanka. Addai ( 2017 ) and Mohammad et al. ( 2017 ) study clearly indicated that there is positive effect of microfinance on women’s economic empowerment in Ghana and Bangladesh, respectively. Different researchers confirmed the significance effect of microfinance (Kato & Kratzer, 2013 ; Loomba, 2017 ; Misrak, 2012 ).

There are many published studies linking microfinance to women’s empowerment. The studies mainly concerned on microfinance role on, poverty alleviation, and socio-economic development through microfinance. Particularly in Ethiopia, the concept of microfinance is at its infancy level that needs further investigation. Therefore, this study is focused to examine how microfinance service has impact on women’s economic empowerment taking into account Amhara credit and saving institution of Ethiopia.

Literature review

Microfinance development in ethiopia.

Microfinance program in Ethiopia launched during 1960s as semi-formal microfinance service with credit and saving cooperatives. Semi-formal microfinance created assets to undertake different economic activities, improved household asset building, and manage risks and bad events. Different non-government organizations in Ethiopia have introduced saving and credit cooperatives aimed at creating self-employment and generating income for the betterment of society affected by drought in the country (Befekadu & Berhanu, 2000 ).

Until the beginning of 1990s financial sources to finance for urban and rural poor and small enterprise in Ethiopia were informal and semi-formal sources of finance like families, friends and moneylenders (Itana et al., 2004 ). They further noted that, starting in the mid-1990s after known drought in 1984, Non-Government Organizations introduced the idea of saving and credit among poor section of the society as a means for rehabilitation and development. Later, government programs undertaken in collaboration with international financial institution even though both types of programs were operated in unorganized and scatter manner and lacked sustainability until the year 1996.

Formal microfinance in Ethiopia was developed and flourished recently with fast growth rate. Dawit ( 2014 ) noted that Ethiopian owned microfinances were established to provide different services in rural households, promote saving habit and credit accessibility with strong focus on sustainability. Formal microfinance was strengthened in 1990 when an urban micro-financing scheme was initiated at national level with agreement signed between International Development and Ethiopian Government (Befekadu & Berhanu, 2000 ). After Ethiopian people’s democratic front, present Ethiopian government, took over power in 1991, considerable attempt has been made to liberalize the financial sector. As result, Proclamation No. 84/94 was declared, to allow private and domestic investors to engage in insurance and banking business, which were previously monopolized by the government. Another Proclamation 40/1996 was issued to solve financial services delivery of the to poor section of the society (Dawit, 2014 ). Therefore, the legal foundation for the microfinance industry was laid in the country with Proclamation 40/1996 on supervision and licensing of MFIs in the year 1996. This proclamation act as a framework to start, expands, and develops microfinance in Ethiopia.

Agricultural Development which Leads to Industrialization strategy considered rural finance as an important tool for agriculture and food security. As a result, the Ethiopian government reconsider microfinance operational modality in order to facilitate microfinance service delivery and outreach. Currently, in Ethiopia there are 38 microfinance institutions licensed to operate regional states and throughout the country (Solomon et al., 2019 ).

Microfinance and women’s economic empowerment

Microfinance institutions are considered as society based strategy to give different finance related resources for the poor and disadvantage section of the society in order to improve the life of clients (SEEP, 2006 ). Microfinance sector plays vital role in supporting the community in their transition towards development of the country and peace building. Microfinance industry support local economic development by providing the needed financial and non-financial services for small enterprise development. According to Kamberidou ( 2013 ), women are naturally strong in using financial and non-financial resources in building strong relationships, and creating a culture of collaboration. Some researchers consider microfinance as survival strategy in time of disaster and sustainable peace development (Dawit, 2014 ; Khanday et al., 2015 ).

In Ethiopia context Supervision and Licensing of Microfinance Institution Proclamation No. 626/2009 defines microfinance as “financial services provision including credit, savings, drawing, money transfer services and other related services.” This microfinance business definition does not confine microfinance institution to only credit. In this article, microfinance is defined as financial services provision to the low-income people and small enterprises that lack access to formal financial institutions. Microfinance is not limited to borrowing activities but also includes savings, transfer facilities, training, insurance and others.

Microfinance sector empowers women economically by providing working capital and support women in order to get constant income to their families (Tandon, 2016 ). According to Mudakappa ( 2014 ) many women were clients of microfinance in different countries. Khanday et al. ( 2015 ) believed that development of women economically generated self-esteem and respect for women microfinance beneficiaries. Microfinance provides finance to women who helped them to start new business and expand the existing one. Microfinance institution service of credit and training gives women confidence and helped them to be more active in participating in the household and community affairs.

Microfinance institution service empowers women economically by providing self-employment opportunity, improving labor productivity, and increasing wage rate (UN, 2011 ). Microfinance impact mostly measured using variation in independent income, employment rate, and household consumption on a sustained basis. Microfinance institution service impact could also be directly known by considering increment in outcomes such as literacy rate, fertility rate, and housing pattern. Changes in income and self-employment opportunity among enterprise owners benefit community at large (Ertu & Tilahun, 2022 ).

Microfinance service helped the poor section of the society to protect from different risks and diversify business, to increase sources of income which is considered as important instrument in the reduction of poverty and women’s economic empowerment (Addai, 2017 ; Littlefield et al., 2013 ; UN, 2012 ). Many researchers result showed that income played significant role on consumption, capital formation and other indicators of human well-being. When the income level increases access to balanced food, access to medical services and children education are positively affected (Solomon et al., 2019 ). Moreover, microfinance institutions provide services which seek to minimize the risk from adverse effects for the poor society. For example, savings programs are operating to help microfinance institution clients to gradually accumulate working capital for the times of crises and when there is capital need for different purposes. Efficient microfinance program could also reduce the rate of unemployment, and diversify sources of income. Thus, Women’s economic empowerment as result of microfinance service could be achieved.

Conceptual framework of the study

Conceptual framework for this study is developed based on the evidence available in literature. More than 40 researches reviewed to develop this conceptual frame work. Based on the literature review, the researcher has developed conceptual framework to show the relationship between independent variables, microfinance service, and dependent variable women’s economic empowerment.

According to SEEP ( 2006 ), impact assessment can be used to improve services, increase impact on poverty and microfinance institution efficiency, to promote good client service and accountability, and provide accountability to donors and other external stakeholders. Ledgerwood ( 1999 ) divides impact of microfinance into three categories namely economic impacts, socio political or cultural impacts, and personal or psychological impact. Women’s economic empowerment can be influenced by both women’s demographic characteristics and access to financial resources from microfinance institutions. Demographic factors are expected to influence access to microfinance services. If women have access to these services, they will be able to participate in income-generating activities whether to start a new business or improve the exiting one. The result expected is empowering economically which is manifested through ownership in income-generating activities, ownership of assets, increased income, savings, and decision-making (Selvaraj, 2016 ).

Microfinance service (access to credit and training) and demographic variables (age, marital status, and education) leads to women economic empowerment. Addai ( 2017 ) study clearly showed that microfinance service has impact on women’s economic empowerment but the relationship is mainly take into account marital status, age and educational of the women. Rehman et al. ( 2015 ) study found that education and age have impact on women’s economic development of women beneficiaries. The main independent variables which microfinance institution provides are access to credit and training which enable women to start their own economic activities or invest more in existing activities and earn an additional income. According to Dawit ( 2014 ) and Rehman et al. ( 2015 ) increased participation in economic activities raises women’s independent incomes and savings, increases control of their own and family income, and other household resources which are basis for women’s economic empowerment.

Data and methodology

The research was conducted in Ethiopia in the year 2019. From the literature review, 35 items that would indicate women’s income, asset, saving and decision-making were identified. A questionnaire consisting of both open- and a close-ended question was used to obtain information from the selected samples of 346 respondents. The questionnaire basically focused on socio-demographic characteristics, economic empowerment and microfinance service.

The questionnaire was standardized which was used and approved; however, pilot study from selected respondents was conducted to refine the instrument. Questionnaire was tested on some respondents to make the instrument objective, suitable, relevant, to the problem and reliable. Issues raised by the respondents were corrected and questionnaires were refined. Besides, proper detection by senior research was also taken to ensure validity of the instrument. To check internal consistency, reliability test was conducted in with a sample of 30 clients and the Cronbach’s alpha coefficient for the instrument was checked. Cronbach’s alpha was computed and was 0.85 which is higher than 0.7. Therefore, the instrument was reliable and used for the study.

Multistage sampling technique was used in this research. Amhara region of Ethiopia has 10 zonal towns and the researcher took 3 zone administrations. The researchers Knowledge and experience was used for selecting the study area. In order to evenly distribute the sample in all geographical area; the existing administrative division were taken as a base for allocation of sample size. The numbers of respondents included in the study for each town were found by proportional method based on client’s number in each town using Amhara credit and saving institutions data. Finally, respondents enrolled in the study were drawn using simple random sampling technique. As a result, 51.5% of the respondents were from Dessie town administrations, 27% of the respondents were from Debrebirhan town administration and the remaining 21.5% were from Woldia town administrations.

Multiple linear regression analysis was used to determine whether the six independent variables, which are age, marital status, education level, previous business experience, credit amount and number of training have any significant effect towards economic empowerment of women. Moreover, paired sampled t -test was used to compare mean difference of income, saving, and asset before and after credit program. The econometrics model used is:

where CEEI = Cumulative Economic Empowerment Index; β 0  = constant; β 1 , β 2 , β 3 , β 4 , β 5 , β 6 , are the coefficients, AGE = age; MARS = marital status; EDUL = education level; BEP = business experience; TRAE = training exposure; CUML = commutative loan amount received; έ  = error term.

The dependent variable is cumulative economic empowerment index. Accordingly, for measuring economic empowerment of women in the study, a Cumulative Economic Empowerment Index (CEEI) was developed by summing up the individuals’ scores obtained from all the four indicators: asset, income, saving, and control over resource. Other researchers (Dawit, 2014 ; Kaur, 2012 ; Leonhäuser & Parveen, 2004 ; Mohammod, 2014 ; Parveen & Chaudhury, 2009 ; Simantini & Bimal, 2016 ) also used similar methods to measure women’s economic empowerment by developing a cumulative women’s economic empowerment index.

Results and discussion

This section of the study was conducted to contribute new information about the impact of microfinance through Amhara credit and saving institution on women economic empowerment. Multiple regression and paired sample t test were employed for data analysis.

Regression result

A further inspection on the regression coefficients of individual predictor variables revealed that age (Beta = 0.285, p  < 0.05), marital status (Beta = 0.125, p  < 0.05), level of education (Beta = 0.260, p  < 0.05), number of training (Beta = 0.224, p  < 0.05), credit amount (Beta = 0.225, p  < 0.05), are significant predictors of overall economic empowerment of women. This finding revealed that age, marital status, education level, number of training, credit amount have significant effect on the economic empowerment of women. Previous business experience (Beta = 0.064, p  > 0.05) variable was found to be insignificant on women economic empowerment in the study area (Table 1 ).

This finding revealed that age has significant impact on women economic empowerment. An increase in the age of the women raises maturity and their confidence to earn more money, which leads to increases in their overall economic status of women. This study found that age and women’s economic empowerment was associated positively, i.e., economic empowerment increase with the increases in age. According to Dawit ( 2014 ) explanation for the positive relationship was that women gain more experience and knowledge about different family matters, as women’s age increased to older age. This experience gives them better understanding to make decision about their life, family matters and in the community which leads them towards economic empowerment. The result of the study is consistent with previous researchers’ findings. For example, Rehman et al. ( 2015 ) study found that age has profound impact on women’s empowerment. Further, Ringkvist ( 2013 ) field study in Burma found that age seemingly has effect on the economic empowerment of women.

As indicated in above table marital status has significant positive impact on women’s economic empowerment. The married women were significantly more likely to be enjoying economic empowerment than unmarried, widowed and divorced women. The fulfillment of family requirement may be the main reason to help a married women to earn more and thereby improve the economic status. This finding is consistent with Addai ( 2017 ) finding, married women supported by her husband and her children. Conversely, Dawit ( 2014 ) study indicated that marital status has insignificant impact on women economic empowerment. His explanation of this result was that single women are the decision-maker of their household and they had more exposure to the external environments to participate in economic activities and improve their livelihood status, and have more freedom and self-esteem in controlling the resources that enhance their empowerment.

The regression results revealed that the educated clients of microfinance were better placed in terms of effective usage of credit and training service and enjoying economic empowerment. In other words, educated microfinance institution clients were found to have a positive impact on raising the economic status of women. Women’s level of education has direct relationship with control over resource. Moreover, women’s education level affect her decision on contraception, better employment opportunity and income which are the basic indicator of women economic development and empowerment. Addai ( 2017 ) study also shows that education level has significant impact on women’s economic empowerment. Parveen ( 2005 ) also argued that education improve the socio-economic condition of women, facilitates them to demand and protect their rights. Educated and literate women had greater access to information and knowledge that increased their chances for paid jobs, other benefits and resources.

Amount of credit has significant impact on women’s economic empowerment. The provision of credit service helps to improve the economic condition of women clients. As the amount loan increases, women use their credit on income-generating activities. They jointly use their income to start new business and expand the existing business. Members, who borrowed high amount of credit, secured higher economic empowerment index. Women who got more credit are more likely to achieve higher economic empowerment level than those who received low amount of credit. According to Miled et al. ( 2022 ) microfinance loans can lead to improve the relative income position of the poor in developing countries, albeit slowly. The finding of this study is similar with the research findings of Khan and Noreen ( 2012 ) study in Pakistan. They found that credit given by microfinance institution has significant impact on economic empowerment of women. This finding is consistent with Ringkvist ( 2013 ) and Loomba ( 2017 ) studies that the loan access by microfinance and its effective utilization have a positive impact on women’s economic empowerment.

As can be evidenced in the regression result number of training provided by microfinance has significant effect and leads to women economic empowerment. Women who attended training more likely grow their business skill and attitude than who did not attend training. Number of training significantly affects economic empowerment of women. Regular training is very important, especially so in the initial stage. Microfinance provides training on credit usage, how to start new business and how to expand business. This ensures that women remain committed to the their business and are able to plan in advance as regards the operation of their business. Majority of the respondents reported that all members of microfinance participated in training before they got credit (Beriso, 2021 ; Dincer, 2014 ; Leonhäuser, 2004 ; Rwanda Charles, 2016 ).

From the regression result, it can be concluded that microfinance program is helpful in empowering women economically. The education and training provided by microfinance program lead to the development of the overall personality of the program participants. The beneficiaries of the program have higher levels of employment, income and participation in household financial decision-making as compared to non-participants.

According Alene ( 2020 ) findings level of educational, entrepreneurial experience, access to training, finance, and information, government support, land ownership are significant in explaining women entrepreneurs. The results with respect to multiple regressions have presented several interesting observations. Different variables like age, education marital status, credit amount, number of training has significant relation to women’s economic empowerment. However, previous business experience has insignificant influence on the economic empowerment of women. Bera ( 2014 ) study concluded that participation in the microcredit program increases if the women are aged, educated, currently married, education levels of the heads of their families are high, and possessed more non land assets.

Paired t test result

In this study, paired t test used to compare mean difference of income, saving, and asset before and after credit program. Paired sample t test was conducted to determine the effect of microfinance on women’s asset after credit and before credit program, there was significant effect on asset, t (345) = 16.444, p  = 00. It can be observed from Table 2 that the mean asset difference after credit and before credit program is significant and microfinance program has positive impact on women asset ownership. The result of the study is similar with Temba ( 2016 ), a study conducted in Tanzania and showed that microfinance has able to managed to help women to avoid poverty and empower themselves economically by increasing their asset ownership when compared to before joining microfinance program.

As clearly shown in table above, there is significant mean difference in income after and before credit program t (345) = 23.750, p  = 00. Based on the result by pair t test statistics shown, there is significant mean difference after women get credit from microfinance and before credit program. Gangadhar and Malyadri ( 2015 ) and Wanjiku and Njiru ( 2016 ) study also supports the result of this study.

Paired sample t test was conducted to determine the effect of microfinance on women’s saving amount after credit and before credit program, there was significant effect on saving amount, t (345) = 19.532, p  = 00. Before joining microfinance most women did not save and few women save but the saving amount were small. The main reason for not saving is lack of additional income and lack of awareness about business and microfinance service. After credit program, almost all of women clients put their money in saving accounts maintained with microfinance institutions and commercial banks.

Conclusion and recommendation

Multiple regressions have presented several interesting observations. Different variables like age, education, marital status, credit amount, and number of training has significant relation to women’s economic empowerment. However, previous business experience has insignificant influence on the economic empowerment of women.

To know the use or non-use of microfinance on women’s asset, income, saving, pair t test was employed. The result of study concludes that the difference in asset, income, and saving amount were significant. Therefore, one can easily conclude that microfinance plays a great role on improving women asset, income, and saving. Different researchers also show the importance microfinance on women’s asset ownership improvement, income increment, saving amount improvement, and effective decision-making. Participation in microfinance program has led to greater level of women’s economic empowerment in terms of increase in economic status, knowledge of business activities, self-confidence on participating in income-generating activities, social and political awareness, developmental of organizational skills and mobility.

Recommendation

The findings of this study have important implications for interventions designed to enhance the economic empowerment status in Amhara region of Ethiopia. Since women’s economic empowerment depends on the level of income, saving amount, and asset ownership, attention should be given to those factors that influence women’s economic empowerment. Some factors were identified and the following recommendations are provided:

Amhara credit and saving institution services to women’s economic empowerment should be improved by working with town administration women’s affair office and other non-government organization which are working on women empowerment.

Most of the respondents considered the loan offered as very small which is not adequate to start business. In fact, the loan size increases as settled the loan in full and take another. However, the loan still falls short of the amount needed to start business. Therefore, Amhara credit and saving institution should adjust the amount of credit provided to women clients.

Majority of microfinance clients are dissatisfied with high interest rate. Therefore, Amhara credit and saving institution needs to revise its interest policy so as to attract more women clients and achieve women’s economic empowerment objective.

Availability of data and materials

All data are available on hand.

Abbreviations

Microfinance institutions

United Nations

Micro- and small enterprises

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Belay Mengstie

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Mengstie, B. Impact of microfinance on women’s economic empowerment. J Innov Entrep 11 , 55 (2022). https://doi.org/10.1186/s13731-022-00250-3

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Received : 06 December 2021

Accepted : 11 October 2022

Published : 27 October 2022

DOI : https://doi.org/10.1186/s13731-022-00250-3

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• Microfinance
• Women economic empowerment