Kristie Wang

Financial Inclusion of Women: The Need for Systemic Approaches, Savings, and Tailored Financial Products

Editor’s Note: This post is part of a series that covers breakthroughs in financial inclusion and the G2012 Mexico Financial Inclusion Challenge. Check back each week for more news about how social entrepreneurship is making valuable, affordable, secure, and comprehensive financial services accessible to underserved and excluded communities.

Development experts are increasingly calling for a more systemic approach to achieving women’s financial inclusion. It’s clear that women are benefiting from having tools that empower them to manage their money, but women with low incomes, in particular, still lack access to financial services that meet their unique needs.

As a tool for economic empowerment, financial inclusion has the potential to help women increase their autonomy, social standing, and the well-being of their households. Statistics vary according to global region, but women who are in charge of their incomes tend to:

  • Manage household incomes more efficiently than men;
  • Make their own fertility decisions and have less children;
  • Make gender-equitable decisions regarding their children’s nutrition and schooling;
  • Engage in sustainable land use practices

Neverthless, across all income groups worldwide, fewer women than men have access to critical financial tools that would help them save money and make financial decisions that would benefit their households.

Thirty-seven percent of women in the developing world worldwide have bank accounts, compared to 46 percent of men, according to a recent comprehensive study by the World Bank. The gender gap is even greater in populations earning less than $2 a day, where women are 28 percent less likely than men to have a formal bank account.

Financial institutions—in particular those in microfinance—need to reexamine the lessons of the past and begin prioritizing the creation of financial services that truly benefit poor women in order to address this divide, said Mary O’Keefe, founder of two leading Mexican microfinance institutions (FINCA and CAME) and ProDesarrollo, the association of microfinance and enterprise development.

“In Mexico, the key issues are a lack of product diversification, over-dependence on, and misuse of, group lending methodologies, and a lack of providing access to savings,” she said, adding that banks and microfinance institutions (MFIs) have grown complacent about innovating to create tailored services that meet the needs of low-income clients.

“I don’t think group methodologies work as well anymore,” she said. “Institutions are generally too lazy to apply them in a way that would actually benefit the client. In the end, they can become a vehicle for collateralization of the loan, and with little oversight they create, rather than reduce, clients’ risks.”

Microfinance first pioneered group lending because it both enabled women without collateral to obtain credit, and created a space where women could analyze their decision making across a range of topics, including income generation, housing, health, and education, according to O’Keefe.

This learning framework also enabled women to empower themselves with an understanding about how their financial decisions affected other aspects of their lives—the key to building confidence, discipline, accountability, and better money management skills.

“At the kickoff, microfinance made the proper associations with the way women spent money and how they might grow,” O’Keefe said. “Microfinance can help women work toward creating the financial resources that they need to pay for the next proximate expense—healthcare, education, housing, etc. It also has the ability to create spaces where women can come together and discuss their competencies.

“But in Mexico, there is now an overly mechanized interest in the provision of microfinance for the poor. We’ve created ways to make the distribution of credit more efficient, but often times we’ve completely negated the importance of creating the space for people to learn why they might use credit at some times, and savings at others.”

By eliminating the relationship between banking agents and borrowers, and between the borrowers themselves, MFIs are failing to take advantage of learning opportunities that would create true long-term value for women, O’Keefe said. They are also missing a tremendous opportunity to ensure that their products actually benefit their clients.

“Today I’m seeing groups of 40 women where someone might have a credit of $300 and someone else has a credit of $3,000, and no one knows one another or what the others are doing with their money,” she said. “It seems quite unconscionable to me that a microcredit institution would, in the name of efficiency, still make these people have a group collateralized loan.”

Some other common, detrimental practices include mandates that require borrowers to increase the size of their loans over time, thus keeping them in perpetual debt, O’Keefe noted. Such practices may help an MFI issue loans profitably, but can ultimately harm the client.

There is a need for a more systemic approach to women’s financial inclusion according to industry experts like Karon Shaiva, chief impact officer of Idobro, an organization that helps microentrepreneurs in India grow with marketing services and training. “In India, women’s financial inclusion exists on paper, but it doesn’t exist in reality.

“As part of a priority lending initiative, Indian banks—which are separate from microfinance institutions—have a mandate to lend to women entrepreneurs without any guarantee or collateral. But because the focus is only on lending—with no other kind of services or association with other women entrepreneurs, and no other process for further engagement to build an understanding of their target audience—these measures usually fail. A telling indicator would be how many banks have met their priority lending targets.”

Credit is only one piece of the puzzle, Shaiva added. Idobro promotes women’s financial inclusion by primarily concentrating on helping women microentrepreneurs create sustainable sources of profit so that they can become bankable customers and healthy borrowers.

Education initiatives that teach money management are another key puzzle piece that remains missing in both Mexico and India. “When you start having a bank account—when you start having people talking to you about money, and asking you about money, it brings in a lot of discipline,” Shaiva said.

“But financial literacy programs absolutely need to be a requirement, just like you need a driver’s license in order to drive a car. One problem I’ve seen is that money is given to entrepreneurs who are not comfortable with a balance sheet or a profit and loss statement.

“The soft side of financial literacy also tends to be ignored. For example, people often need to make sense of how managing their money can affect them personally and emotionally.”

Getting financial institutions to shift their perspective from simply continuing to provide their customary services to benefiting the client is another key barrier to women’s financial inclusion, O’Keefe said. Women with low incomes need lending terms that are tailored to their needs. Perhaps even more importantly, they need access to a variety of savings products.

“Financial inclusion vis-a-vis savings helps women organize their lives so that the scarce resources they have are growing over time,” she said. “Banks could give this field a run for its money.

“But successful financial inclusion will depend on understanding people’s relationship to money. Banks that develop schemes where there is even some kind of minimal relationship with their clients will do well.”

O’Keefe suggested that banks might learn from existing research on how the poor save and borrow money. Books like Portfolios of the Poor have described how the poor often create sophisticated informal financial tools that closely resemble formal financial products. O’Keefe also said that partnerships with development organizations may help banks reach an understanding of what services women with low-incomes would truly benefit from.

Shaiva pointed to collaboration as a critical step as well. “We all know what needs to be done, but the problem is that we don’t have the bandwidth to do it ourselves, and we don’t have the knowledge about who could do it otherwise,” Shaiva said.

“The cost of examination, outreach, and execution can be so prohibitive that even with the best of intentions, these initiatives invariably dry out. And that is why we need to encourage partnerships and collaboration.”


financial inclusion, microfinance