Has Microcredit Empowered Women in Bangladesh? Yes, But Not by Itself

Women’s empowerment has long been recognized as an important aspect of equality and sustainable development. One country that has risen to this challenge is Bangladesh. The Global Gender Gap Index 2020 ranked Bangladesh 50 out of 144 countries — far ahead of any other South Asian country. Since its independence 50 years ago, the country has made great progress in women’s empowerment as measured by factors such as labor market participation, educational attainment and fertility rate. Many attribute this success to microcredit, a concept that originated and flourished in Bangladesh. While microcredit has played a role in women’s empowerment, it is not quite the role many have assumed.

The power of microfinance to empower women supposedly comes from the ability of credit to open up economic opportunities. However, there is limited evidence that microcredit improves women’s labor force participation and socioeconomic mobility. A longitudinal study spanning over 20 years did find a significant increase in the formal labor supply among female microcredit clients in Bangladesh. But given its length, the study could not rule out other factors that likely influenced this trend, such as improvements in women’s education and an explosion of labor demand by the ready-made garments industry. A BIGD study found that financial services promoted women’s self-employment; however, home-based work typically has lower returns than wage employment and does not necessarily reduce women’s care burden or time-poverty challenges, limiting its positive impact.

Microfinance has contributed to women’s empowerment, but to understand the impact you have to look beyond where many observers have assumed they would find it.  In fact, the strongest evidence for microfinance’s positive impact seems to be associated not with access to microcredit, but with the support services that often accompany it. These include community organizing and training opportunities in issues like leadership and entrepreneurship, family planning and disaster management. Microfinance has often been a vehicle for services like these that address gender norms that often hinder women from taking control of their lives and decisions.

This is especially true for group-based lending models. In Bangladesh, women often feel isolated, lack confidence, and have limited awareness about their rights and power. When it comes to work, many women prefer home-based self-employment because of the stigma attached to working outside, despite the fact that most could earn more through wage work. In finances, men are often in charge of financial decisions, and when women borrow money it is often their husbands who control it. Evidence shows that women often gain confidence and become aware of their rights and other social issues through group meetings. Group-based lending, as opposed to direct to individuals, has been found to shift households away from norm-guided, male-dominated decision-making dynamics to joint decision-making or decision-making by women. The impact of this group-lending model becomes stronger when women are longer-term members and receive more intensive training. By contrast, when microfinance institutes prioritize efficiency and financial sustainability — for example, shortening group meetings or focusing on encouraging repayment rather than discussing important social issues — it likely diminishes the impact of group meetings on women’s empowerment.

A study of six organizations in Bangladesh — ranging from “minimalist microfinance” institutions that only offer financial services, to those with added social development services, to pure “social mobilization organizations” that organize people to achieve their sociopolitical rights — demonstrates the power of combining microfinance with other services. The study found that minimalist microfinance institutions had the least impact on poor women and their families, irrespective of the duration of NGO membership. On the other hand, social mobilization organizations not only enabled women to demonstrate political awareness and action, participate in community decision-making, and claim entitlements, but also had a strong economic impact by helping women to access to paid work and accumulate assets. This suggests that when women understand their rights and their individual and collective power, they can capture economic opportunities more effectively.

Despite steady improvement in women's empowerment, Bangladesh still has a long way to go. Only 36% of the working-age women participate in the labor force. The unemployment rate among women is double the rate of men, and most women work in vulnerable, informal occupations. Bangladeshi women need more holistic, intensive support, in addition to access to finance, to break the persistent norms that hinder their progress. Multidimensional economic inclusion programs like BRAC’s Ultra-Poor Graduation provide further evidence of the power of more holistic support for women’s empowerment. While microfinance has not and will not empower women on its own, when coupled with support services that address social norms, it can help.

Nusrat Jahan is head of communications and knowledge management, BIGD, BRAC University.

Stay tuned for the next post in CGAP's "Bangladesh at 50: Reflections on Financial Inclusion" blog series.