Access to Finance for Women for Booming of Microenterprises – a Clinical Move to Poverty Alleviation

Access to Finance for Women for booming of Microenterprises – a clinical move to poverty alleviation1 

Kishor Karki2

I. Introduction/Background

In Nepal, over 60% of adults do not have access to banks.  Fewer women have bank accounts than men do.  However, due to presence of financial intermediaries such as cooperatives, there is accessibility to finance in places where banks have not been able to establish branches.  Whatsoever, financial intermediaries have their own institutional limitations and cannot provide a wide range of services and products, especially to budding micro-entrepreneurs.  Due to high male labor migration, there is an increasing trend of women going in the micro-enterprise sector.  Women have their own sets of challenges such as cultural and social barriers that inhibit them from accessing finance and eventually making an incremental growth in their businesses.

Access to finance has multi-dimensional advantages that stretch across generations.  Access to finance, has been strong linkage to poverty alleviation, establishment of micro and small enterprises, creation of jobs, reduction of income inequality, increment of domestic consumption, and social empowerment. Financial services such as credit to rural households and to micro enterprises have helped the local economy grow in many rural areas.  Microfinance has been used both as a tool for poverty reduction and a sustainable institutionalized means to offer financial services to many sizeable population.

The access to finance to microenterprises is hence associated with the growth of enterprises. Increasing access to finance help micro-entrepreneurs grow their businesses, whereas the unavailability of finance often leads to the paralysis and in some cases even “exiting” down of enterprise from the market. For example, adequate access to finance fostered microenterprise growth and profitability in Bangladesh.

1 Paper prepared for the partial fulfillment on the course “Poverty, Livelihood and Sustainable  Development” and submitted to Mr. Bharat Shrestha on assignment as “Term Paper”

2 Graduate Student, Masters in Development Studies, Year 1, Semester 2, 2017

II. Objectives

1. Analyze the factors hindering in access to finance for women in relation to entrepreneurial growth.
2. Analyze the policy provisions for financial literacy and microenterprise.

III. Literature Review

General Overview of the State of Access to Finance.

The figure of access to finance is starker.  As per the 2011 World Bank Report, 50% of adults did not have an account at a formal institution, such as a bank, credit union, cooperative, post office, or microfinance institution (Demirguc-Kunt and Klapper, 2012).  The situation is dire for people down the economic ladder— the potent micro-entrepreneurs.  As per the World Bank’s Global Financial Inclusion data (2015), only 23 out of 100 adults earning less than $2 a day have bank accounts.  The report also says fewer women (47 in 100) have access to finance than men (55 in 100).

Possible Explanation

The report mainly cited: 1) not having enough money to use one; 2) expensive to open bank accounts or physical inaccessibility of banks; 3) and lack of proper documentations to not having bank accounts.  The survey also illustrated that only 22 in 100 adults saved money in past 12 months at a bank or other formal institutions, whereas only 9 in 100 borrowed from a bank in the past 12 months during the research period, illustrating less involvement with financial institutions in general.  Most people in developing countries saved through informal means such as community-based saving groups. The data suggested possible innovation in two areas could yield positive outcomes.  First, if the bureaucratic process could be eased – such as lowering threshold for having a bank account or easing documentation process, it would lead to the further accessibility of financial instruments.  Second, the investment in financial instruments and changing the fearful perception among customers regarding financial instruments could help enroll more customers (Demirguc-Kunt & Klapper, 2012).

State of Access to Finance in Nepal

In Nepal, where most people earn less than $2 a day, the state of financial access is expectedly worse. As per the World Bank report, there were only 280 bank accounts per 1,000 adults in 2011.  Similarly, there were only 6.7 bank branches per 100,000 adults. Only 25 in 100 of the population above 15 years of old had accounts at formal institutions, and only 10 in 100 of the group borrowed the loans during the 2010-11 period.  The appeal of firms towards financial institutions did not seem strong either.  About 74% of firms had savings account, and only about 39% firms, in general, had bank loan or line of credit, and only 36.3% of small firms had bank loan or line of credits, suggesting not strong relationship as the size of firm decreased (World Bank, 2013).  Likewise, the provisions of banking facilities were low, apparent by public banking infrastructure such as ATM, whose penetration was at dismal less than one per 100,000 people in 2010, the lowest among other South Asian countries (Gabi and Pero, 2012).

State of Access to Finance for Women

The problem gets exacerbated for women and women micro-entrepreneurs. Women have less access to finance than men because of various legal, social, and institutional reasons (Ghosh & Vinod, 2017; Presbitero, Rabellotti, & Piras, 2014; Mertzanis, 2017).  Though the constitution of Nepal grants an equal land and property ownership to women, the law is yet to manifest socially everywhere. Banks require account holders to present collateral in accessing financial services such as credit loans. Similarly, research (Presbitero et al., 2014; Aristei & Gallo, 2016) show that financial institutions hold some bias against women, not allowing them to access services as per men do, and in some cases even requiring the authorization of men when filling some forms.  In most of the cases, financial institutions have one standard operating system for both sexes; this discounts the struggle of many vulnerable and poor women, who are untouched with the system, and precludes them from accessing the services and products. The World Developmental Report (2008) also cites poverty, poor education, physical distance, subprime and no collateral, low income and social status (ethnic/religious minorities, untouchable, and Dalits) as the barriers to access to finance.