How can Microfinance help in reducing the gender inequality gap in Pakistan?

According to a recent study published by the Economist, only 7% of women have access to any formal banking system. It suggests that a large chunk of the women population in Pakistan is excluded from even the most basic financial facilities. Since most of these women are from rural backgrounds, their financial independence is limited, and so they lack the awareness and ability to conduct basic economic activities.

Methods of Borrowing

Although getting bank loans is a common practice, their accessibility is a major problem in Pakistan. The primary reason for this is the lack of awareness regarding available mediums. Therefore, women often turn to informal sources to borrow money to get loans. Some of these methods include; borrowing from relatives, neighbours & friends, engaging in traditional committees, turning to money lenders, and sometimes pawning their gold as collateral. 

These methods are convenient and the fastest way of receiving cash. However, informal methods of accessing loans are prone to be exploitative and further increase the vulnerability of women. It only gives temporary relief from their financial misery. Often, borrowing from relatives and money lenders can result in exploitative situations, as the lender feels entitled to abuse their position. When women pawn their gold as a method of receiving funds, there is a high chance they will never be able to see it again. Gold is often the only asset women from lower-middle-class families own, and by doing so, they deprive themselves of future financial security.

Benefits of Microfinancing

The purpose of Microfinancing is to include marginalised parts of the population in the financial spectrum of the country. It provides services of giving small personal loans, which can be used to start businesses, pay off debts and fulfil other professional and emotional needs.

Moreover, Microfinancing is a safer, more reliable and secure method of receiving funds. Unlike traditional banking services, it easily caters to women with zero information or financing experience. The majority of microfinance borrowers consist of women from rural backgrounds. Microfinance banks not only lend money but even give training on how to utilise what’s borrowed. 

ADB Financial Survey 2020 suggests that women borrowers have increased in Pakistan. The report further highlights that microfinance does help in achieving some levels of empowerment. An increase in microfinance loans has proven to be favourable for women. 

An Impact Evaluation Study conducted by Akademos found that most female borrowers reported a rise in their living standards due to loans received via microfinance. They were able to save a lot more money than men. The female respondents in the study also showed how microfinance has less impact on their income. Due to smooth repayment methods, they could work on other financial needs as they felt less pressured with repayments. The study further found that women who borrowed through microfinance used that loan to purchase essential goods for their households. They could meet their immediate expenses such as paying rent, buying a refrigerator, paying for their child’s education, providing medical assistance to relatives, and even marrying their children off. 

Ways to improve Microfinance

Many critics argue that women who borrow money through microfinance in Pakistan do not get to spend it, as the male members of the family utilise it. Hence, defeating the purpose of empowering women. However, in most cases, women are consulted before making such a decision. When women borrow money on behalf of their male family members, it does improve their position in front of their in-laws, which would have been unbearable otherwise. 

To avoid such incidents, microfinancing banks should introduce a method to check if female borrowers' borrowed money is utilised by her alone. The microfinancing process may not be perfect, but there are ways to improve it. For instance, Microfinance institutions should invest in spreading awareness programs as is done in countries such as Srilanka and India. These awareness programs should focus on financial literacy. MFIs in Pakistan should also be involved in education, providing primary education and vocational education. These programs can help spread awareness, which could lead to more promising results.

If Pakistan wants to tackle the gender equality gap, it must use Micro Financing as a tool. Microfinance can help women fulfil their economic needs within the households and help them set up and run businesses successfully. It can augment their livelihoods and improve the social standing within the family and community at large.

Sources:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2777155

https://www.adb.org/sites/default/files/project-documents/52124/52124-001-rrp-en.pdf

Authors Bio:

Abeeha is an International Relations student in Turkey. She is a voracious reader and a keen observer of geopolitical and economic developments in South Asian and the Balkan regions. Currently, she's a part-time Consultant at Akademos.

She can be reached at: www.linkedin.com/in/syedda-abeeha-hassan-b563a51b3