Applicable Theories
This section aims to establish critical areas of inquiry to serve as the body of knowledge that aids in understanding secondary base and current performance for building informed practices. It identifies and reviews critical literature on academic ideas and theories as well as evolving business practices related to microfinancing and women entrepreneurship. The researcher subsequently reviews empirical studies covering pertinent aspects of interest to the study, including overview microfinancing in the U.K. and developed countries. Also, the processes involved in microfinance lending, as well as other key factors that promote and challenge women empowerment and entrepreneurship in the context of the U.K. It also captured the process of micro-lending and their social and economic benefits.
2.2.1: Three-Dimensional Empowerment Model
Three-dimensional models of women empowerment provide insights into microfinancing activities’ contributing to the empowerment of women. The model postulate that empowering women occurs at three distinct levels. The first one is the micro-level dimension, where empowerment can be observed in one’s personal beliefs and actions. Empowerment can also occur at the meso level, as found in an individual’s beliefs and actions about their relevant others. The third dimension is the macro level, where outcomes of empowerment are observed in the wider context of the society. Regarding the aspect of women empowerment, self-confidence is seen at the micro-level by observing the confidence in feelings and actions in connection to their partners. Acting confidently within social networks represents a meso-level outcome while their societal situation describes empowerment at the macro-level.
Importantly, women empowerment can be operationalized into personal, relational, and the wider societal empowerment. Accessing MFIs services improves the strength of women by influencing their personal beliefs and actions. The personal strength of microfinancing empowerment is evident in their psychological aspects, including improved self-esteem, self-efficacy, and self-confidence. As noted by Hansen (2015), MFIs services like skills training, micro-loans, and mobilization of saving impact the psychological empowerment of women living in abject poverty. Therefore, microfinancing has the potential to empower the personal strength of women entrepreneurs.
Empowerment through microfinance is observed in the position of women concerning others like the husband, family, and peers, or even their social networks. Ideally, MFIs services can boost the bargaining power of women in the family. This is evident in the form of freedom of mobility, decision making on household spending. MFI services can also boost group membership, such as self-help and religious groups. Social empowerment is also enhanced in female MFIs borrowers, particularly as a result of financial training services (Hansen, 2015). Therefore, the three-dimensional model provides a guiding framework for women empowerment through their participation in microfinancing activities.
2.2.2 Grameem Model of Lending
The second theory applicable in microfinancing is the Grameen lending model. The advocates of game theory can apply in this group lending to monitor and enforce contracts among self-help group members (Lazano, Moreno, Adenso-Diaz, & Algaba, 2013). According to the Grameen microfinance model, group peer pressures are essential in deterring defaults and promoting creditworthiness (Kodongo & Kendi, 2013). Group pressure can be used to build trust among group members by acting as the building block for the broader social network (Ledgewood, 1999). The theory further underscores that a guarantee system is critical in improving access to loans from MFIs by members of self-help groups. However, Chen, Zhou, and Wan (2016) stated that caution is necessary for group-based lending to mitigate possible collusion.
2.2.3 The Uniting Theory
The uniting theory can be applied in microfinancing to explain joint liability requirements for credit acquisition (Fouillet et al., 2013). In group lending, MFIs require that group members guarantee the borrower as their shares become collateral for the borrowed money. Joint liability in microfinancing is interpreted in two ways. First, under the explicit joint liability, when the borrower defaults on repaying the loan and accrued interest, group members are contractually compelled to repay the loan. The repayment is enforced by drawing on member shares, and savings fund deposited with the MFIs as the collateral, or a threat of collective punishment to the group members by denying all members credit in the future. The implicit joint liability is pegged on borrowers believe that if the member defaults on loan repayment, then the entire group becomes ineligible to access loans in the future even if the punishment is not specified in the loan contract. One example of this occurrence is when a microfinance institution decides to fold operations when faced with delinquency.
Therefore, joint liability helps in alleviating major problems that deter people from accessing loans – credit screening, auditing, monitoring, and enforcement (Khan et al., 2013). The reason being that group members repay up the loan if a member fails to remits their repayment to guarantee continuous access to credit from MFIs lending. As a consequence of joint liability, credit-constrained borrowers can access credit from micro-lending institutions (Cropanzano, Anthony, Daniels, & Hall, 2017). In essence, joint liability for micro-lending is doing better for the close-knit community who have more information about each other. Therefore, MFIs are giving disadvantaged people microloans be leveraging on information they have about themselves. The uniting theory is consequently essential in explaining the concept of joint liability as applied in MFIs to lend to the disadvantaged groups such as women.
2.2.4 The Reciprocity Theory
The reciprocity theory borrows from the anthropological model, which emphasize that social obligations, norms, stratification, and hierarchy are the critical factor determining whether an individual is poor or rich (Cook, Cheshire, Rice, & Nakagawa, 2013). As noted by Turner and Maschi (2015), underserved women in the communities are the ones forced to seek informal credit practices. These people fall prey to different forms of informal credit from shylocks, money guards, middlemen, peer group lending programs, and pawnbrokers (Madestam, 2014). Consequently, such practices put at risk the finances and savings of these individuals and groups. The informal lending programs have as high as four-time losses compared to using formal lending programs such as microfinance and conventional banking institutions (Webb et al. 2013). Disadvantaged women locked out of the mainstream banking system are attracted to MFIs to get access to credit for establishing new enterprises.
Most women are using debt from MFIs as a tool for developing and improving family livelihood. The borrowed money is invested in economic ventures to generate income for improving household contingencies. The generated income cushions the family from poverty and supports health, education of the household members. It also empowers them politically, socially, and economically (Sachs, 2018).
2.2.5 Financial Sustainability Theory
The financial sustainability theory argues that long term survival of SMEs depends on the ability of MFIs to reach irs clients and meet the costs. Even though reaching out to the poor is an essential social goal for poverty alleviation, the sustainability of the poor is essential for those receiving MFI services. Therefore, this theory, MFIs should not only focus on funding but rather making women SMEs sustainable in the long term. Morduch (2002) states that sustainability for MFIs depends on several factors, including sound financial performance, ability to mobilize savings and deposits from members, and efficient management of transaction and administrative costs.
2.2.6 The Entrepreneurship Theory
Different theories of entrepreneurship are critical in explaining the growth of women entrepreneurs. The theory of economic entrepreneurship underscores the significance of favorable economic conditions to the prosperity of entrepreneurship. It argues that in poorly performing economies, entrepreneurs may find it cumbersome to attain a high level of prosperity and positive growth. This theory further advocates for a friendly and supportive economic incentive like subsidies and grants, favorable industrial and taxation policies, efficient financial market, good infrastructure, free flow of information, and large markets and investment opportunities (Naudé, 2013). However, predicting economic variables is quite difficult, and this makes entrepreneurship a risky venture. Therefore, this theory seems to suggest that entrepreneurs in developed economies are better placed to gain prosperity and growth than their counterparts in developing economies due to economic stability.
The sociological theory of entrepreneurship is similar to the economic theory linking social culture to the entrepreneurship. This theory contends that certain social setting is favorable and vital for the growth and prosperity of entrepreneurship than other social settings. It identifies social values, customs, culture, and religions as the main social factors influencing entrepreneurial development and success. This theory stresses the need for entrepreneurs to conform to existing cultural and social expectations while conducting their business (El Ebrashi, 2013). Therefore, the social and cultural environment and social expectations within the U.K. society are critical factors to be considered by entrepreneurs.
The resource-based view explains the operations of enterprises run by women. The model underscores the contribution of critical resources such as finance and skills in helping women enterprises to grow and become sustainably competitive. Alvarez, & Barney (2017) observed that most women enterprises are unsustainable due to limited financial resources needed to invest in marketing and technologies to make them competitive in the market. Microfinancing can be a critical resource for exploitation by women entrepreneurs for their sustainability. The MFIs also provide financial skills in management and incubation, which are essential for the sustainability of women enterprises (Weber and Ahmad, 2014). There are also other MFIs resources including insurance, mobilization of savings, business mentoring, and timely and efficient transfer of money updated information for steering and sustaining the entrepreneurial growth and performance. As noted by Bruton, Khavul, Siegel, and Wright, (2015), most Women are underserved by conventional financial systems, thus limiting their urge to engage in business ventures as entrepreneurs. The micro-finance strategy is promising to improve their access to financial support and participate in enterprising activities.
The theory of achievement motivation is an entrepreneurship theory proposed by McClelland. It identified vital three pre-conditions that characterize a typical entrepreneur as high achievement, power, and affiliation (Kuratko, 2016). The spirit of entrepreneurship is built on these three pillars. The high achievement is based on the motivation and the inner need to gain great success in their entrepreneurial activities. Power is derived from the need to gain control and dominate in their market and field of practice, while affiliations are the ability to build an extensive network of friendship. Conclusively, McClelland asserts that successful entrepreneurs have a passion and the urge to do things in a better and new way and make decisions under uncertainty. The entrepreneurial spirit is driven by their passion to gain high achievement and success regardless of any uncertainty.
2.3: Review of Empirical Literature
2.3.1 Microfinancing
The concept of microfinance was designed to target the disadvantaged population who are left of the conventional financial system. In the simplest form, microfinance provides credit and other services critical for people to engage in income-generating business (Sujatha & Malyadri, 2015). Microfinancing is considered a crucial strategy in attaining three objectives of millennium development goals of promoting women empowerment and gender equality (Bruton, Khavul, Siegel, & Wright, 2015). Microfinancing services to women are recognized as strategies for improving women empowerment through access to financial services they use to invest in enterprising activities. Microfinancing is recognized worldwide as a tool for reducing poverty through women empowerment (Bruton, Ketchen Jr, & Ireland, 2013). Microfinance provides multiple programs aimed at improving empowering women. The programs include easy access loans and financial services such as training on business management skills (Keith, Unger, Rauch, and Frese, 2016).
The concept was initiated in the 1970s by professor Yunus and later spread to other parts of the words in the following decades. The MFIs were widely recognized across the world after the 1970s following the success of Grammem Bank in Bangladesh in providing microloan and related financial services to impoverished people. Specifically, the bank was founded to address the problem of poverty by giving out microloans to improve productive capacity (Abul, Chamhuri, Abdul, & Tareq, 2013).
Today, microfinancing is considered an effective strategy for alleviating poverty by reducing the financial exclusion of the unbanked and poor population in society (Rosenberg, 2009). The concept of microfinancing is widely practiced across different countries over the past two decades (Banerjee & Jackson, 2017). Initially, microfinancing focused on providing microcredit but later started to provide ancillary financial services. The integrated services include financial and nonfinancial training, micro-scholarships, mobilization of savings, micro-insurance services, and money transfer services, among others. However, there were still problems with microfinancing, including defaulting on loan repayments.
MFIs aim was intended to provide services such as microloans and mobilize savings from impoverished individuals in society. The concept has spread around the world more so in underdeveloped nations to support economically and socially impoverished populations such as the women, youths, the elderly, and other marginalized groups (Bruton et al. 2015). Neither has it the excluded developed nations such as the U.K. as they continue to record significant growth in microfinancing activities among low-income entrepreneurs.
Most customers of MFIs are women, accounting for over 90% of borrowers in the South Asia region, the microfinance market in the world (Khamar, 2016). Even though focusing on women as recipients of credit is a common thing, the prevalence of gender and social norms across many countries with patriarchal systems have continued to hinder access of women to credit and other services. Most countries have witnessed pressure from gender-related development groups to shift the focus towards improving the financial inclusivity of the rural poor women. These groups have argued that women are likely to invest acquired credit in the income-generating activities by establishing microenterprises and use earned income for the wellbeing of their households. Therefore, improving women’s income would enhance the livelihood functions of women in their households through improved nutrition, education, and health status of family members.
However, promoting the empowerment of women is not the only guiding objective of MFIs, as some adopt minimalist as others adopt a holistic approach in their operation (Weber & Ahmad, 2014). As opposed to the holistic approach, the minimalist credit programs offer credit alongside little nonfinancial training aimed at providing to equip them with some skills to succeed in their business ventures instead of direct empowerment of clients. A holistic approach provides women with integrated nonfinancial training sessions touching on legal rights, health, and nutrition. Literacy training, and social awareness. Either way, both the holistic and minimalist programs are effective in empowering women. Therefore, regardless of the approach taken by MFIs, empowerment is the presumed result of microfinancing activities.
2.3.2 Women Empowerment/Entrepreneurship
Recent decades have seen agitation for the social advancement of women and gender quality. Women empowerment is one of the measures taken to meet the millennium development goals of eradicating poverty through advancing the social development of women (Kabeer, 2015). As pointed out by Malhotra et al. (2012), this power is exercised from below and is executed by individuals. Typically, despite systematic institutional changes in the environment is fundamental in sustaining the empowerment of women, it is not sufficient to claim that women have already gained relational power and authority compared to men. It is noteworthy to assert that an empowered woman is one that has acquired the power to exercise her right, act freely to fulfill her potential as an equal and full member of the society (USAID, 2012). Primarily, the debate on empowerment has focused on differences in gender equality and equity as well as women empowerment. Given the patriarchal nature of the global society, the advancing status of women is essential in improving women’s society in this society. The gender equality concept is focused on having equal rights of male and female members relating to personality development and freedom of choice without any hinderances in the forms of socio-cultural values and norms. While gender differences in preferences and priorities are acknowledged, discrimination in access to opportunities based on gender should be abolished in the society. Gender equity can be attained by putting in place policies and measures that provide a level playing ground for all human beings, regardless of gender (UNESCO, 2010). Thus, equality of men and women should be the norm in society and also the means to attaining the end outcomes.
Even though women empowerment and gender equity are both concerned with enhancing the status of women, it is noteworthy to recognize that gender equity results from external forces such as institutions and government involved in promoting and protecting the rights of in the society (Malhotra et al., 2012). In contrast, empowering women occurs from individual internal efforts of recognizing the rights and utilizing available opportunities and freely making strategic life choices that were previously deprived of (Kabeer, 2015). These are choices with a significant contribution to women’s lives, such as choosing their husband, marriage decisions, the right to sire children, and sending them school and hospital for healthcare. Given the patriarchal nature of most societies, women are suppressed from making strategic choices at the household and community level (Schuler et al., 2016). It has been noted that women never initiate most decisions at community and household level, but they instead respond to instructions from men and local authorities.
It is noteworthy to state that the concept of empowerment is multi-dimensional hence careful is fundamental in interpreting the individual life choices. Empowerment can have three dimensions, namely an outcome dimension, agency dimension, and the resource dimension (Kabeer, 2009). An example of a favorable outcome would include a decision to take the child for immunization, but the agency dimension is the motivation behind the action. Putting it differently, the observable achievement of what was previously derived is the outcome. The outcome dimension at the household level includes things like engaging in their income-generating activities, the ability to make decisions without seeking permission from the husband, and having a legal claim over household assets. At the community level, this dimension encompasses engaging actively in community programs and holding a leadership position within the community as administrators or unions or organizations. As Kabeer (2015) noted, the focus of the agency dimension is on self-worth sense with women being the actors of their actions
The resource dimension refers to the medium through which an outcome is attained and is viewed as an empowerment catalyst (Malhotra et al., 2012). This dimension is measured by the ability of women to have access to healthcare, credits, education, and even employment. A typical example of resource empowerment includes the increasing number of rural women with access to loans from microfinance institutions and conventional banks. It is, however, relying on such optimistic figures as a measure of resource empowerment could be risky because they may not capture the full dynamic of the life of women. Therefore, the increasing number of rural girls attending schools could be an indication of equal access to educational opportunity for both girl and boys but may not capture how teachers in a class treat these girls compared to boys or whether gender stereotyping is a thing of the past in the teaching curricula (Kabeer, 2015). Therefore, the two domains of achievement and resources cannot be used to tell whether truly women are empowered. However, women empowerment can still be measured on these dimensions. Several studies have proposed measures of women empowerment (Al-Mamun et al. 2014). Sujatha and Matyadri (2015) study noted advancing microloans alone without sufficient training does not promote women empowerment. Instead, these authors identified features of holistic programs like numeric and literary training, and attending regular workshops and seminars to plan improves the women’s status and empowerment. Sahu (2015) identified other measures of women empowerment include increased economic security, legal awareness, participation in household and community decisions, and mobility upon enrolling in MFIs programs such as self-help groups and so forth. Abreu and Grinevich, (2013), there has been a surge in the number of women entrepreneurs in the country to reach more than 650,000 enterprises being established annually. A considerable proportion of these enterprises are sole proprietorship and family-owned enterprises. However, a significant proportion of women enterprises fail to pick in the initial stages primarily due to the inadequacy of resources, including funds to channel to essential areas like technology and marketing needed to sustain the newly established enterprise.
2.3.3 Women Empowerment in the Context of Microfinance
The role of microfinancing in promoting entrepreneurship is well-acknowledged d by scholars and policymakers. Microfinancing has enabled marginalized individuals and groups to engage in business activities to generate income and reduce the poverty level. As a consequence, it has fostered access to education and health care by household members and build the social capital of poor and vulnerable groups in the community (Weber & Ahmad (2014). The significant traction of MFIs services in reducing market-based poverty is well acknowledged in the literature. Scholars have developed different models for measuring MFIs market-based poverty reduction, including the creation of the base pyramid and shared value for measuring social welfare and alleviation of poverty.
Most developing countries including the U.K have not been so much into microfinance until recent years. The MFIs are providing people from low-income households with access to finance to establish income-generating businesses (Banerjee et al., 2013). The main focus is to provide microloans to individuals and groups of people to finance their business activities. Most beneficiaries are women members of self-help groups and individuals who were locked out of banking credit facilities due to certain limitations. These persons and groups are therefore ineligible for loans from traditional banks sue to illiteracy and lack of assets to use as collateral for the loans. The rising number and activities of MFIs in the U.K is a motivation behind the study to understand how they are contributing to growing women enterprises in the country witnessed in the past few years.
2.4: Microfinance and Women Entrepreneurship
The concept is of microfinance is a relatively new concept compared to the traditional banking system. It is a recent approach for women empowerment and development as one of the most vulnerable members of society. MFIs main goal is to drive women empowerment through easy access to formal financial services including microcredit, skill training, mobilization of savings, micro-insurance, and money transfers (Keith, Unger, Rauch, and Frese, 2016). These programs have the greater potential to improve women’s empowerment and reducing gaps in gender equality witnessed across the global society (Bruton et al., 2015). Alleviating poverty worldwide is essential in meeting the millennial development goals, and women are key stakeholders in the global efforts towards better living standards.
Participating in micro-finance programs is essential in attaining these goals because unlike men, women have proved responsible for using borrowed money for the benefit of their households (Agier & Szafarz, 2013). Thus, good knowledge of the microfinancing role in empowering women is critical in improving household livelihoods and the general welfare of the population. The economic stress currently facing women can be best mitigated by enhancing their access to microfinance services through the growing number of MFIs worldwide. Brush and Greene (2015) noted that increasing entrepreneurship of women is fundamental in enhancing their economic empowerment and success. Strategic entrepreneurship is essential in building and maintaining the livelihoods of women and other marginalized groups in society. To address the capital accessibility problem, MFIs are strategic tools for promoting the development of enterprises by women among other groups limited due to financial inaccessibility.
As noted by Gem (2012), there are over 400 million enterprises worldwide. However, promoting the empowerment of women is not the only guiding objective of MFIS (Weber & Ahmad, 2014). The MFIs use a different approach in empowering people; these can be classified as either a minimalist or a holistic approach to women empowerment. As opposed to the holistic approach, the minimalist credit programs offer credit alongside little nonfinancial training to improve business management skills to the vulnerable group on an upscale instead of rather than direct empowerment. A holistic approach provides women with integrated nonfinancial training sessions touching on legal rights, health, and nutrition. Literacy training and important skills such as business management, and social awareness are fundamental in ensuring the success of women entrepreneurs. Either way, both the holistic and minimalist programs are effective in empowering women. Therefore, regardless of the approach taken by MFIs, empowerment has presumed the result of microfinancing activities.
Entrepreneurship has a significant economic impact on the people and society at large which improved livelihoods (Naudé, 2013). With a projection of over 140 million new entrepreneurs worldwide over the next five years, the amount of jobs created is insurmountable from just entrepreneurship ventures. Assuming an average of at least five jobs for each, no doubt fostering entrepreneurship is a solution to the growing problem of unemployment worldwide. These statistics underscore the significant role played by entrepreneurial engagement to individuals and society (Bosma et al., 2013). Nonetheless, the success of entrepreneurship strategy requires friendly efforts and policies from the government to foster the spirit of entrepreneurship. There are also challenges with entrepreneurship, and a substantial number of new entrepreneurs fail tis eel the light of the day. Inaccessibility to funds and lack of skills are some of the key challenges to entrepreneurs today.
The rapid growth and popularity of the entrepreneurship phenomenon are evident worldwide (Khan et al., 2013). The significance of women entrepreneurship is attributed to the notion that women can easily volunteer in communities as mentors to fellow members within society. Further to that, if the economic status of women is increased at household and society levels, it also opens the socio-political realm for the female gender further leading to gender equity (Kodongo & Kendi, 2013). The result I alleviation of inherent gender inequality in employment and other areas within the society.
The emergence and popularity of microfinancing organizations have presented women with an opportunity to invest in business ventures to raise income for the households. Robb, Coleman, and Stangler (2014) asserted that like males, females too can successful sustain business activities just like the male counterparts. Further to that, women are better at loan repayment than the men hence more likely to champion the spirit of entrepreneurship than men if they are given an opportunity (Opportunity International, 2012). However, MFIs also need to offer appealing services to women’s situations. Bundling of the services is key for the success of MFIs lending to women for mutual benefit. They should not only offer credit, but also supportive services such as skills training, saving mobilization to act as collateral for loans, money transfer, and micro-insurance services to cater to business risks and uncertainties (Opportunity International, 2012). Therefore, MFIs are essential tools to promote women empowerment through entrepreneurship activities.
As pioneered by Grameen Bank under the guidance of Yunis, the model of microfinance has managed to cater to the financial needs of women from poor households through microloans used to invest in income-generating ventures. Since them, thousands of nonprofit making organization has adopted the model of microfinancing to boost the livelihoods of women and other marginalized groups in society (Bateman, 2014). The model works well with group guarantors, where members form a self-help group for guarantors and mobilization of savings. The loans are advanced to a member in the group with each member acting as a guarantee for the other (Muhammad, 2015; Chen, Zhou, & Wan, 2016). Though was once considered a vehicle for people from underdeveloped countries, the MFIs model has extended into developed nations to serve a member of the low-income households (Sabin, 2016). The target people are those on the fringes of the society and have no collateral needed to secure a loan from the mainstream banking system due to very low creditworthiness.
The trends of MFIs in Europe and developed economies were reported as early as the 1990s. The MFIs target population in Europe include individuals who are financially excluded, the unemployed population, women, immigrants, self-employed people, the elderly, and youths as well as the disabled population. Among developed countries, Canada has the most thriving microfinance sector mainly targeting to empower women and immigrants (Ghosh, 2013). Like in developing economies, the utilization of microfinance services in Developed countries seeks to enhance the livelihoods of people and influence the development of the community through MFIs programs.
2.5: Conceptual Framework
The current paper was motivated by the growing number of MFIs and their activities and women entrepreneurship. The framework shows the main services provided by MFIs to the disadvantaged women as the independent variables. These services include training and consultancy services, microloans, micro insurance services, and money transfer services. The dependent variable in the framework is women entrepreneurship performance measured by growth in sales, assets growth, and the number of newly established business ventures. It is expected that MFIs services have positive effects on the performance of od women entrepreneurship in the U.K context. However, there could still be other services beyond the MFIs services than must be controlled to better understand the effects of the stated variables. The state services work by fostering the empowerment of women through entrepreneurship to improve their livelihoods and development.
2.6: Summary of Literature Review
The works of scholars on the role of MFIs in promoting women empowerment through financial services to support enterprise development have been reviewed. Notable efforts have been made by scholars in this area but focusing on developing nations and not developed countries. The review has identified guiding principles and theories for the study but also established an empirical gap in the literature in this area.