The financing needs of entrepreneurs varies depending on business size, reason for starting a business and opportunities for enterprise growth. Typically, necessity-driven entrepreneurs start a business venture to support themselves and their families’ livelihoods when there is a lack of decent employment opportunities. As outlined in our recent blog ‘From necessity to opportunity: Supporting women entrepreneurs at all levels to thrive’ in Asia, most women owned businesses were started out of necessity. Necessity entrepreneurs are more likely to remain at the micro level and their businesses are typically concentrated in low-value added retail and service sectors within the informal economy. 

Microfinance programmes provide access to financial services to those that are traditionally unbanked, offering forms of financial services targeted towards those who lack access to conventional banking and related services. The most common form is microcredit, the provision of small loans; but other forms include micro-savings, micro-insurance, and micro-pensions. 

Often necessity driven micro-entrepreneurs fall into the unbanked category and it is hoped that access to these financial services can drive women’s economic empowerment which in turn can result in poverty alleviation. However, for this to happen, microfinance programmes need to consider the different situations and vulnerabilities of clients and mitigate risks. Gaining an understanding of how finances are organised in households, the decision-making power of different household members, including predominantly who will control loans, as well as the freedom that clients have in a specific household, community, and local context. 

Women and girls are often constrained by social customs and beliefs, which can prevent them from having an equal voice in household decision-making, limit their freedom of movement, and to make their own economic choices. At the same time, women and girls are usually responsible for the majority of unpaid domestic and care work, leaving them with little time for income-generating activities, such as paid work or entrepreneurship, or, if they do juggle both, a highly stressful and sometimes unsustainable double burden. This is important when considering micro finance, as in some cases, women may take out loans, but do not actually control what the funds are used for or how the businesses they fund are managed, while being responsible for the loan’s repayment. These situations are then likely to give rise to indebtedness, high levels of stress and tensions within households, and can lead to domestic violence. 

Micro-savings models are one more promising alternative to the more well-known forms of micro credit. Micro-savings groups allow members to control and grow a common pool of savings funds, borrow from the pool, and benefit from interest repayments by other group members. Savings groups formed within communities allow members to develop schemes based on local needs. Women can set their own interest rates and internal loan processes to suit themselves. They can also plan ahead for when they know loans may be needed most and periods when they cannot be repaid such as before a harvest. 

However, evidence shows that savings groups (and all forms of microfinance) can also fall short of holistic empowerment unless social norms related to women’s agency are shifted. Therefore, for microfinance to deliver on its promises, the following actions are important: 

• Considering gender relations and dynamics within communities and households in the design and delivery of financial products and services and relevant regulation, including by engaging local gender experts and women borrowers.

• Following a bottom-up participatory approach in the design and delivery of financial products and services by including borrowers and entrepreneurs throughout.

• Focusing on building savings alongside offering credit and debt for women entrepreneurs and borrowers. In cases of low financial resilience, building savings should be prioritised.

• Monitoring women’s loan use, including their control of the funds within the household.

• Capping interest rates at low levels to give women the time to grow their capacity and businesses.

• Organizing and providing culturally appropriate training about gender roles and relations using feminist methodologies, with men’s engagement to facilitate more balanced, supportive and safe dynamics at household level.

• Creating support systems, such as subsidized childcare, that lead to manageable workloads working in the paid labour market

ESCAP’s work on entrepreneurship, in partnership with Global Affairs Canada, has supported necessity driven women entrepreneurs through the provision of debt relief support, grants and seed funding and financial literacy training. Among others, the programme has underscored the importance of designing gender sensitive financial products and services.