Microfinance, gender equality, and COVID-19: the unravelling of progress on women’s micro-entrepreneurship

Monday, October 5, 2020

Photo by Kévin et Laurianne Langlais on Unsplash.


For developing countries, microfinance was once considered the panacea for everything from economic development to poverty and hunger reduction and to women’s empowerment. With women representing the majority of microfinance borrowers, will COVID-19 unravel progress in terms of improving women’s access to financing micro-entrepreneurship and benefiting from related economic opportunities?


As the Global Innovation Index (GII) 2020 report attempts to answer the question Who Will Finance Innovation?, this blog article zooms in with a gender lens on the “who” element of this question for the highly gendered sub-spectrum of microfinance.


Part 1: The gendered facets of microfinance


The Global Innovation Index (GII) uses data from the World Bank’s MIX Market dataset on microfinance gross loans as a percentage of gross domestic product (GDP) as one of the criteria to measure innovation performance: this casts light on how credit access for micro-SMEs, in particular, stimulates micro-entrepreneurship.


Since the mid-2000s, the microfinance model has provided credit opportunities to the 1.7 billion “unbanked” in the global population - two-thirds of which are also among the world’s poorest individuals, and 70% of whom are women and girls. In 2018, 78 million women were microfinance borrowers (56% of all borrowers), the majority of which came from rural areas (65%) in South Asia (61%). Despite academic research showing a mixed picture, this type of financing has helped a good number of borrowers engage in commercial activities such as micro-entrepreneurship, and, hence, generally improve their economic conditions, and invest earnings in theirs and their children’s health and education. However, gains in women’s empowerment have been more difficult to materialize given the complex and multifaceted nature of gender equality as captured in SDG5: for example, the gender gap between the proportion of women having a bank account (65%) compared to men (72%) continues to persist, barely unchanged since 2011.


In absolute terms, microfinance gross loans worldwide have decreased by 3.8% in 2018. This decrease follows a downward trend that started particularly among upper-middle income economies in 2012. Among this income group, the gross loan portfolio of microfinance institutions in 2018 was 46% lower than the 2012 levels, representing on average 1% of GDP. This fall in microfinance loans is even present among lower middle-income economies, where in exchange gross loans portfolios have increased, passing from 2.8% of GDP in 2013, to its highest levels of 4.1% in 2017, to fall back to 3.7% in 2018.


There is not yet data available to understand the effects of the COVID-19 pandemic on microfinance institutions, but one could expect a further contraction of microfinance loans in the years to come.


Figure 1. Microfinance institutions gross loan portfolio, by income group


Source: Microfinance Information Exchange, Mix Market database; International Monetary Fund, World Economic Outlook Database, October 2019 (current US$ GDP)


Part 2: How will COVID-19 impact this dynamic?


Through liquidity droughts for microfinance


As financing dries up in 2020 in the midst of the worldwide COVID-19 pandemic, the heavy toll disproportionately falls on women microfinance borrowers. The crisis poses an existential threat to the industry, with initial surveys of microfinance institutions (MFIs) estimating that an alarming 70-90% of microfinance borrowers are unable to repay their loans during the ongoing health crisis, with up to 85% of all small businesses unable to operate.


Through disruptions in women-led micro-entrepreneurship


The pandemic is poised to disproportionally affect women micro-entrepreneurs: across the globe, women hold less secure jobs, earn less - hence save less - and are more likely to be employed in the informal sector (for instance, up to 90% of women are informally employed in Sub-Saharan Africa). In this framework, their capacity to absorb economic shocks is therefore much less than that of men.


The International Trade Centre estimated in June 2020 that one in five of all small firms could go bankrupt within three months. Among its surveyed firms, women-led businesses—mostly comprising service firms in the accommodation, food, retail and wholesale sectors—claimed to be more immediately affected by the crisis than men-led firms.


While data on micro-entrepreneurship in the informal economy remains scarce, across all sectors women make up a larger share of the workforce in manufacturing sectors for textiles, apparel, footwear and telecommunication products, which were also the most affected by the fall in exports due to the pandemic. In services, women are overrepresented in retail, hospitality, and tourism, which have been directly affected by travel restrictions.


Finally, double demand and supply shocks created by the Covid-19 pandemic have hit the informal economy hard, and millions have lost their livelihoods virtually overnight. For example, in Latin America, 19 million domestic workers, 80% of whom do not have formal contracts, have already been laid off.


Through the hidden costs of unpaid care work


In addition to a dwindling market, because of the pandemic, female micro entrepreneurs have also had to face an increase in unpaid care work, with a corresponding erosion of the time they could devote to their businesses. In normal times, women spend more time than men in unpaid domestic and child care: before the pandemic, women were responsible for three time more unpaid work than men. The pandemic has severely compounded this situation: due to the limitations created by restrictions of movement and forced social isolation, women are now doing more unpaid care than ever before, both within and outside the household.


Part 3: A gender lens for COVID-19 recovery policies


More than ever, it is important to mainstream gender equality considerations into COVID-19 recovery policies. These could systematically take into account and integrate:


  • Women’s participation in economic opportunities in the post-pandemic recovery: women’s economic participation has demonstrated to be able to boost economic development by creating new webs of services to individuals and communities. However, with 190 million fewer women having a bank account than men, loans to rebuild businesses cannot be the only answer as they need to be designed to be accessible by those that need them the most.
  • Improvements to labor policies linked to care responsibilities: without the redistribution of unpaid care responsibilities within labor initiatives, women will always be more exposed to the shocks of multi-dimensional crises as the COVID-19 pandemic, losing hard-won gains in socio-economic participation.
  • Social protection measures: social protection measures - such as care subsidies, paid sick leave and cash transfers - enhance individuals’ resilience to shocks while freeing up talents to be used in recovery efforts. However, these should be designed flexibly to impact all economic areas and all workers, to offer a holistic economic recovery.
  • Data collection and analysis: while important strides are being made at the international level, significant gaps still exist in the collection and analysis of sex-disaggregated and gender-specific data. The COVID-19 pandemic has compounded this, with researchers and policy makers scrambling to put together reliable, comprehensive and forward-looking datasets. Evidence-based, inclusive policies must rely on solid data. Countries are called to contribute to this both individually and collectively.


See this link for more information on WIPO’s work on Gender equality and IP.


Pamela Bayona is Project Manager for the Global Innovation Index 2020; Sara Callegari is the Gender and Diversity Specialist; and Lorena Rivera León is Economist and Program Officer for the Composite Indicator Research Section, Department for Economics and Data Analytics, all at WIPO.

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