Does microfinance improve gender equality?

Impact of Microfinance on Gender Equality in Indonesia

John Vong1, Song Insu2, Rakesh Dhananjay Salian3, Rui Xu3, Rinu Kariath3, and Kritchawan Bunyong3

Abstract. The empowerment of women micro entrepreneurs is necessary for the holistic social-economic development of a nation. The aim of this paper is to address the gap in the study of formal financial access to rural women micro-entrepreneurs in Indonesia. This study will contribute further in the pool of academic resource for micro-financing organisations intending to create formal financial products for this niche market. Meta-analytic research methodology was employed to review relevant literature, in order to assemble supporting data relating to women’s constraints for access to formal micro-finance for women. As a result, a hypothesis was devised that gender inequality is the underlying constraint for rural women entrepreneurs to access formal microfinance. Evidential data was reviewed for factors pertaining to gender inequality index, general and financial education status, and social-cultural norms of rural Indonesian women. In conclusion, the authors found that gender inequality issues require further attention by micro financers during the design process of successful micro-financial products. In addition, relevant recommendations were formulated such as aesthetic redesign of financial outlets, reduction in lead time and costs for micro-financial transactions, and micro-insurance. Further research is required to conduct a test of the generated hypothesis at the location under discussion.

1. Introduction

Microfinance has been a life-saving tool for many households and has enabled them to escape from poverty. It is reported that almost half a billion poor people along with low income groups have access to microfinance services in the world. Microfinance is a “pro-poor” growth strategy where formal or informal financial services are delivered to those who lack access to credit and saving facilities. Microenterprises have provided 60 - 80 per cent jobs in the developing economies (Schreiner & Woller, 2003). This activity empowers the low income household microentrepreneurs in a society (Miyashita, 2000). Especially, women-owned enterprises play a vital role in societies far beyond contributing a job creation and economic development (Davis & Abdiyeva, 2012; Vial, 2011). There is significant importance of financial access for women microentrepreneurs. It has been statistically proven that there is positive impact on children’s welfare from women microfinance activities, compared to male microfinance activities, which recorded insignificant or even negative effect (Pitt, Khandker, Chowdhury, & Millimet, 2003; Cloud & Panjaitan-Driodisuryo, 1999).

The development of microenterprises are considered to be instrumental in providing employment and raising the standard of living of poor people all over the world (Singh, Comer, Catlin Jr., Reynolds, & Sutanto, 1999), however Tambunan (2011) concurs with contrasting research literature that a high percentage of micro-entrepreneurial activity reflects high poverty ‘distress’ in Indonesia. It is noted that Indonesia is still grappling with rural poverty. This can be evidenced by the number of micro-enterprises undertaken by poor households as they are “pushed” to take on activities to incur their primary and secondary income. During the Asian financial crisis in the year 1997, micro enterprise activity in Indonesia absorbed the laid-off workers and currently it represents 90 per cent of all Indonesian firms (Vial, 2011).

1. Conclusion

This paper has shown that Indonesian women micro entrepreneurs face multiple forms of constraints, but they all assimilate from an underlying gender inequality in their country of origin. With reason to believe that altering socio-cultural taboos is high on the government’s agenda, the process will be time consuming and the rate of change will be comparatively slow. While working around this short coming, the opportunity for women micro entrepreneurs can be addressed by micro financiers. However, the gender inequality issues should be their focus of attention during the design process of successful microfinance products. Therefore, there is potential for further research on conducting field tests in rural Indonesia to explore the hypothesis generated. This effort will empower the entrepreneurial success of a developing country and help alleviates its poverty level, irrespective of the various coercions from within the society.