JIMMA UNIVERSITY

COLLEGUE OF AGRICULTURE AND VETERNERY MEDICINE

DEPARTMENT OF AGRICULTURAL ECONOMICS AND

AGRIBUSINESS MANAGEMENT

PROGRAM: AGRICULTURAL ECONOMICS (MSc)

REVIEW ON THE ROLE OF MICRO-FINANCE CREDIT ON LIVELIHOODS OF

WOMEN BENEFICIARIES IN ETHIOPIA

Prepared by: Tesema Mesgebu

ID No : RM1014/14
Submitted to:

November, 2022
Jimma, Ethiopia

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 ACKNOWLEGEMENT

Above all, honour, adoration, great appreciations and thanks go to Almighty God for his
everlasting love, mercy and support towards me. I would like to extend my heartfelt thanks to my
ADVISOR: Dr. ADEBA GEMECHU (ASSOCIATE PROFESSOR OF JU) for his valuable
advice, insight and guidance from the initiation to the completion of this seminar.

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LIST OF ABBREVIATION
ADLI- Agricultural Development Led Industrialization

AEMFI Association of Ethiopian Micro-finance Institutions

GO Governmental Organization

GB Grameen Bank

MFIs Micro-finance Institutions

NGO Non-Governmental Organization

S. C Share Company

SMEs Small and Micro-enterprises

Table of Contents
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LIST OF ABBREVIATION iv

ABSTRACT 1

1. INTRODUCTION 2

1.1 Background of the study 2

1.2. Statement of the Problem 5

1.3. Objectives of the Study 5

1.3.1. General Objective 5

1.3.2. Specific Objectives 5
2. LITERATURE REVIEW 6

2.1 Definition of Key Terms 6

2.1.1 Micro-finance and Micro-credit Concepts 6

2.1.2 Microfinance Institution/MFI 8
2.1.3 Micro-finance and Benefits to Women 9
2.1.4 Paradigms of Microfinance Institutions towards Women Empowerment 11
2.1.5 Challenges of Women on Micro-finance 12
2.1.6 Women Empowerment 14
2.1.7 Micro-finance and Benefits to Women 16
2.2 Empirical Review 17

2.2.1 Microfinance Development and Women’s Participation in Ethiopia 17

2.2.2 Sustainable life and Poverty on Women of Livelihood 19
3 CONCLUSIONS AND RECOMMENDATION 21

3.1 CONCLUSION 21

3.2 RECOMMENDATION 21

4.REFERENCE 22

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ABSTRACT
This paper reviews the role of micro credit finance on livelihoods of women beneficiaries.
Nowadays microfinance is proved to be the tool mechanism to handle poverty that resides mostly
in rural areas of the country, and is also a basic mechanism to empower women’s economically,
socially and politically. Thus majority of poor rural women’s in the Ethiopia don’t have access
to financial services. Though credit is generally expected to have a positive impact on household
livelihoods, this paper argues that credit affects households differently depending on wealth.
Reviews show that credit failed to enable poor households to move out of poverty and food
insecurity, whereas better-off and labour rich households used credit to improve their
livelihoods. For poor households, rather than achieving long-term livelihood improvements,
access to credit only means short-term consumption smoothing with a risk of being trapped into
a cycle of indebtedness.

Keywords: Microcredit, Livelihoods

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1. INTRODUCTION
1.1 Background of the study
The concept of micro-credit was first introduced in Bangladesh by Nobel prize winner
Muhammad Yunus. Yunus started Grameen Bank(GB) more than 30 years ago with the aim of
reducing poverty by providing small loans to the countrys rural poor (Yunus, 1999).
Microfinance initiatives have been regarded as an essential development strategy around the
world for more than three decades (Datta & Sahu, 2022). Governments and nongovernmental
organizations (NGOs) in almost every country have introduced and run various credit programs
aimed towards the underprivileged. Because women are more credit constrained, have limited
access to the wage labor market, have a small amount of authority in household decision-making,
and have higher loan repayment rates than males, the majority of these programs specifically
target women (Kratzer, and Kato, 2013). As a result, women are regarded as having low credit
risk and are more inclined to share the loan's benefits with other family members, particularly
their children. The goal of focusing on women is to raise their social and political awareness, as
well as provide training and skill development (Samer, Majid, Rizal, Muhamad and Rashid,
2015). Although there is a tiny conceptual distinction between the two concepts. Credits,
savings, insurance, housing loans, remittances, money transfers, and other financial products are
all part of microfinance.

Micro-credit has evolved over the years and does not only provide credit to the poor, but also
now spans a myriad of other services including savings, insurance, remittances, and non-
financial services such as financial literacy, training and skills development programme, micro-
credit is now referred to as micro-finance (Armendáriz and Morduch, 2010). A key feature of
micro-finance has been the targeting of women on the grounds that compared to men, they
perform better as clients of Micro-finance Instructions and that their participation has more
desirable development outcomes (Universitet, 2006). Overall, it is widely acknowledged that no
well-known study robustly shows any strong impacts of Micro-finance (Armendáriz de Aghion
and Morduch,2005). Because of the growth of the Micro-finance Industry and the

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Attention the sector has received from policy makers, donors and private investors in recent
years, existing Micro-finance impact evaluations need to be re-investigated, and the robustness
of claims that Micro-finance successfully alleviates poverty and empowers women must be
scrutinized more carefully.

On the one hand, women were, and are, the major constituency of the unbanked and low income
population. On the other hand, the new methodology of group lending proved to work extra
ordinary well with women. The perception has come to dominate among Micro-finance
practitioners and scholars that women represent a lower repayment risk than men. Prior to formal
banking systems in Ghana many of the poor, mainly women, and those in rural communities
relied heavily on informal banking services and the semi-formal savings and loans schemes
(Cheston and Kuhn, 2002). According to Cheston, Cooperatives, especially among cocoa
farmers of the 1920s, engaged in thrift and credit. The mission of the informal Micro-credit
organizations or Micro-finance services in Ghana was to provide social and economic support
for the less advantaged, especially rural women and their families. For some, known as susu,
there were weekly meetings.

Since its introduction in the mid-1970s, micro-finance credit has been considered a major tool
for development and poverty reduction (Fisher, and Harper,2002). By the end of 2007, micro-
credit programme reached over 154 million clients worldwide, notably women in developing
countries (Daley-Harris, and Laegreid, 2007,2009) Proponents of micro-credit claim that it helps
poor people to reduce risk, raise productivity, obtain high returns on investment, increase
income, and improve the quality of their lives and that of their dependents (Robinson, 2001). It is
further believed that micro-finance credit can play a major role in assisting the poor to move out
of poverty by providing start-up capital which they have been unable to access historically
because financial markets are undeveloped in poor economies (Getaneh,2001). Microfinance has
become a useful tool for poverty reduction and enhancement of economic growth and
development strategies in developing countries (Eddaoudi, M., Moler, 2000). Existing research
in the field points out to the existence of both cases of success and failure on how to use
microfinance programme to support poor women clients and help women to move out of poverty
and discriminatory situations with developing countries being the main focus of attention.
Taking into account the key role that microfinance plays in less developed economies, this study
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offers a critical assessment of its role in economies that are considered as less privileged, as
microfinance should not be considered as a tool that can be used to deal with poverty reduction
only. Microfinance can also be viewed as a potential enabler of gender equality (Al-Shami,et al.,
2016; Garikipati, 2008; Pitt et al., 2006). In Ethiopia, government and non-governmental
organizations (NGOs) consider micro-credit as a prime policy instrument in fighting poverty and
increasing the productivity of the poor (Wolday, 2001;2003). However, there is so far no
consensus among academics about the actual impact of micro-finance credit on poverty
reduction and household food security (Banerjee et al., 2009, (Fisher,and Sriram,2002.); Weiss
and Montgomery, 2005; Develtere and Huybrechts, 2005; Segers et al., 2010; Armendáriz and
Morduch, 2010 ;Karlan, and Zinman,( 2010:433) argue that, despite claims about the role of
micro-credit in lifting the poor out of poverty, there is little agreement as to whether credit does
borrowers more good than harm. In recent micro-credit literature, the differential impact of credit
on different types of household has become a major discussion point (Khandker, 2006);
Coleman, 2006; Islam, 2007; Segers et al., 2010). So far, there has been little empirical research
on this topic. Moreover, most of the existing micro-credit studies are conducted by employing
quantitative research methods and they tend to ignore the voices of beneficiary communities and
individuals (Cons and Paprocki 2008). In the Ethiopian context, very little is known about the
role of micro-credit in household food security and its impact on wider rural livelihoods (Segers
et al., 2010; Getachew and Yishak, 2006; Getaneh and Garber, 2007; Pankhurst, 2006). This
paper aims to contribute to the debate on the differential impact of credit in Ethiopia. Evidence
will be put forward to support the view that there is a differential impact of credit on the
livelihoods and food security of different types of households in the drought-prone, chronically
food-insecure district of Ebinat in the northern highlands of Ethiopia. Results show that credit
failed to enable poor households to move out of poverty and food insecurity, whereas better-off
and labour-rich households used credit to improve their livelihoods. For poor households, rather
than achieving long-term livelihood improvements, access to credit only meant short-term
consumption smoothing with the risk of being trapped into cycles of indebtedness. Poor
households get into cycles of poverty and destitution mainly because of the very strict micro-
credit repayment regimes and their socio-economic status which forces them to divert most of
the loan for consumption smoothing.

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1.2. Statement of the Problem
However, much as Microfinance services have existed in Ethiopia for a period of time, there is
lack of information on the good practices in the area and the exact magnitude of impact of the
services on the women and how the loans are accessed and utilized in order to attain socio-
economic development. According to the World Bank’s gender statistics database, women have
higher unemployment rate than men in virtually every country. In general, women also make up
the majority of the lower paid, unorganized informal sector of most economics. This situation
justify the giving of priority and increasing women’s access to financial services on the ground
that women are relatively a more disadvantaged than men. Ethiopians’ women who constitute
about 50% of the population and who consists s the majority of the unemployed segment of the
population are the most affected by poverty. However, there is a general consensus that in order
for women to play a meaningful role in economic development, they must be empowered both at
the economic and social level. One way of economical empowering of livelihoods of women is
to make credit easily accessible to them to finance their small and micro enterprises. In her study
“ the role of microfinance in empowering women in Addis Ababa “ Meron (2007) stated that
delivery of microfinance have positive effect on empowering women economically, enhancing
the women’s self-confidence and enabled them to realize their potentials to engage in business
but fails to achieve political empowerment.

1.3. Objectives of the Study

1.3.1. General Objective

The general objective of the study is to review the role of Microfinance on livelihoods of women
beneficiaries in Ethiopia.

1.3.2. Specific Objectives

The specific objectives of the review will be:

 To review the roles of Micro-finance credit in enhancing the socio-economic
improvement of women in Ethiopia
 To review the women benefit that MFIs brought to beneficiaries in Ethiopia

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  To review the existing challenges to the empowerment of women’s through MFIs credit
in Ethiopia

2. LITERATURE REVIEW
2.1 Definition of Key Terms

2.1.1 Micro-finance and Micro-credit Concepts

In literature, the terms micro-credit and microfinance are often used interchangeably, but it is
important to highlight the difference between them because both terms are often confused.
Microcredit refers to small loans, whereas microfinance is appropriate where NGOs and MFIs
supplement the loans with other financial services (savings, insurance, etc). Therefore
microcredit is a component of microfinance in that it involves providing credit to the poor, but
microfinance also involves additional non-credit financial services such as savings, and payment
services (Okiocredit, 2005).

Micro-credit, and by extension, MF, is an activity involving the investment of small loans in

micro businesses by microfinance institutions (Lindmark, 2006; Ayayi, 2012), notes that MFIs
expect that their role in micro-investment will allow the entrepreneurial micro-entrepreneurs to
launch and sustain income-generating activities that will allow them and their immediate
relatives to improve on their well-being over time.

In other words, microfinance means the broad view of financial services, savings, and training
provided to the low-income groups while micro-credit means small loans provided, at a low-
interestrate to persons of below poverty line to help them start or improve their small businesses. 
Micro-credit is an activity within microfinance. Microfinance includes provisions of other
financial services like savings, transfers, payments, remittance, marketing, insurance and financi
al training to entrepreneurs and small business owners who don’t have access to traditional
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sources of capital (Caramela, 2017). Microcredit that today we call microfinance has been there
for a long time when people started to borrow small amounts of capital to use on
either productive or unproductive investment (Lorenzana, 2010). Microfinance history can be
tracked back as to the middle of the 1800s when the theorist Lysander Spooner was writing about
the benefits of small loans to entrepreneurs as a means of getting out of poverty (ibid).
Microcredit and microfinance are mostly used interchangeably and are almost new terms infield
of development, with the first coming to prominence in the 1970s(Robinson, 2001); Otero, 1999).
During the period of 1950 to 1970, the provision of financial services by donors or governments was mai
nly in the form of subsidized rural credit programmes. These often resulted in high loan defaults that
forced beneficiaries to relocate from one place of residence toan other, high losses and an inability to
reach poor rural households(Robinson, 2001).

One of the prominent institutions that nationalized the word `microfinance`was the Grameen
Bank of Bangladesh, grounded by the MF `pioneer`Muhammad Yunus who was honored in
2006(in Lorenzana, 2010). Although the roots of MF can be found in many forms, the best-
known history is that of Muhammad Yunus and the founding of the Grameen Bank in
Bangladesh(A/Rahman, 2010)

Micro-finance refers to micro-credit.Microfinance is referring to the provision of financial

services such (credit, insurance, payments) affordably, targeting mainly the poor. A micro-credit
is a small loan which is mainly granted to people with low income.Microfinance emerged at the
end of the last century as a financial instrument to serve low-income households who are unable
to access the formal financial services provided usually through commercial banks. However,
Microfinance initially emerged in a form of micro-credits programs provided to the poorest
people to help them establish their small businesses and play out their way to get out of poverty
(Abay Yimer, 2011, p.151). Microfinance emerged institutionally on a popular large scale in the
70s decade of the last century, with Grameen Bank, which established in 1976 by Muhammad
Yunus in Bangladesh. But historically, it exists as an informal financial service with small
operations such as savings and small credits since the 18th century. Kagan argued that the “first
occurrence of micro-lending is attributed to the Irish Loan Fund system, introduced by Jonathan

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Swift, which sought to improve conditions for impoverished Irish citizens” (2019). Microfinance
institutions differ from formal commercial institutions in many ways: First, from the mission, the
aim of microfinance institutions is not the profitability as much as the social-based mission to
support low income and unemployed populations, and also, in particular, most vulnerable groups
such as the women (Merra Abafita and Ayalew, 2019), Second, the source of funds for
microfinance institutions which usually come from international development banks and Donors
and NGOs (Abay & Koru& Abate& Berhane, 2019) Finally, they differ also in the form of
financial work methodologies and approaches for the financial operations either credits/landings,
insurance, or payments (Löscher, 2019).

Microcredit as money lent with an obligation to pay back with or without an interest rate. In the
study, loan is taken to mean extension of funds issued by microfinance institution that allows a
customer to purchase goods or services where customer then pays back the bank either in full or
in installments, at an interest rate determined by the bank, loan is very important since local
people comprise a large percentage of third world poor people(Kashuliza et al.,1998)

2.1.2 Microfinance Institution/MFI

Microfinance institution is the term that has been used to mean institutions that provide
Microfinance services. Microfinance institution also known as MFIs, offer financial services to
undeserved, impoverished communities and this services include saving accounts, insurance,
health care and personal development (Brennan 2008:1). The Microfinance Institutions are
registered formal financial institutions that register depending on the legal status taken by the
person registering the institution provided that it falls in any of the tiers under the Financial
Institution Statute ( Understanding MF industry in Uganda 2008:8).

2.1.3 Micro-finance and Benefits to Women

According to an analysis of findings from South Asia by Kabeer,( 2005), a review of Micro-
finance efforts from various parts of the world suggest that access to Micro-finance has had a
positive economic impact as members begin to invest in assets rather than consumption. Kabeer,(
2005), reports that the studies of the Imp-Act (improving the impact of Micro-finance on

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poverty) programme in South Asia confirmed that access to financial services improved the
economic position of households. The improvement involves, improving asset base and
diversification into higher return occupation, promoting the adoption of the new agricultural
policies, increasing ownership of livestock and levels of savings and reducing reliance on money
lenders. Muzaale(1994) explains that in assessing the benefits of the credit scheme to the
participating grass roots women, it is useful and appropriate to distiguish between expressed
benefits and inferred benefits. Muzaale (1994) further explains that the expressed benefits are
those benefits of the scheme that are mentioned most of frequently by the beneficiaries
themselves during focus group discussion and individual interviews. According to UNESCO,
over 8 million very poor people especially women are benefiting from different Micro-finance
programme ( UNESCO,1997). According to a study of Micro-finance in the Asian countries, it
was found that the borrowers of Micro-finance tend to make more money over time through
profitable investments that eventually lift the out of poverty ( Meade, 2001). This particular
study mentions that the members of the Bangladesh Rural Advancement Committee (BRAC)

According to UNESCO, over eight million very poor people specially women are benefiting
from different Microfinance programme (UNESCO, 1997). According to a study of
Microfinance in Asian countries, it was found that the borrowers of Microfinance tend to make
more money over time through profitable investments that eventually lift them out of poverty
(Meade, 2001:2). This particular study mentions that the members of the Bangladesh Rural
Advancement Committee(BRAC) can expect to see their poverty fall by an average of fifteen
percent after three years of participation and for Grameen Bank participants, there is a reduction
of poverty by five percent after four years of participation (Meade, 2001:1). The study by Meade
(2001) also revealed that the micro-credit programme help borrowers to ensure themselves
against crises by building up household asset and such asset can be sold if needed or used as
security or proof of credit worthiness when dealing with businessmen or more traditional lending
agencies.

International aid donors, governments, scholars, and other development experts have paid much
attention to microfinance as a strategy capable of reaching women and involving them in the
development process. The microfinance industry has made great strides toward identifying
barriers to women’s access to financial services and developing ways to overcome those barriers.
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A 2001 survey by the Special Unit on Microfinance of the United Nations Capital Development
Fund (SUM/UNCDF) of 29 microfinance institutions revealed that approximately 60 percent of
these institutions’ clients’ were women. Six of the 29 focused entirely on women. Among the
remaining 23 mixed-sex programs, 52 percent of clients were women.

The study also showed, however, that those programs offering only individual loans or relatively
high minimum loan amounts tended to have lower percentages of women clients. These findings
affirm the importance of designing appropriate products for women. Commercial banks often
focus on men and formal businesses, neglecting the women who make up a large and growing
segment of the informal economy (Daley-Harris, 2006). Microfinance on the other hand often
targets women, in some cases exclusively. Female clients represent eighty-five percent of the
poorest microfinance clients reached. Therefore, targeting women borrowers makes sense from a
public policy standpoint. The business case for focusing on female clients is substantial, as
women clients register higher repayment rates. They also contribute larger portions of their
income to household consumption than their male counterparts. There is thus a strong business
and public policy case for targeting female borrowers. Women are generally responsible for child
rearing (including education, health, and nutrition) and they often have fewer economic
opportunities than men. In virtually every country, women have a higher unemployment rate
than men and make up the majority of the informal sector of most economies. Moreover, the
female population faces cultural barriers that often restrict them to the home, making it difficult
for them to access financial services. Women also have more traditional roles in the economy
and may be less able to operate a business outside their homes. Furthermore, women often have
dis-proportionally large household obligations. Children of women microfinance borrowers also
reap the benefits, as there is an increased likelihood of full-time school enrolment and lower
drop-out rates. Studies show that new incomes generated from micro-enterprises are often first
invested in children’s education, particularly benefiting girls. Households of microfinance clients
appear to have better health practices and nutrition than other households. Positive
environmental impact is also achievable as microfinance programme may support green jobs and
renewable energy systems(Daley-Harris, 2007)

Academics and practitioners have been inspired to address the problems of gender discrimination
and it is today accepted that gender, such as class, race, and ethnicity, is a source of inequality
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( Lopez-Claros and Zahidi 2005:1).The term refers to the unequal structural relationship between
the sexes, linked to the state, the economy, and to other macro- and micro-processes and
institutions.

2.1.4 Paradigms of Microfinance Institutions towards Women Empowerment

Support for targeting women in microfinance programs comes from organizations of widely
differing perspectives. Mayoux, (2005) identifies three contrasting paradigms with different
underlying aims and understandings and different policy prescriptions and priorities in relation to
microfinance and gender policy. The three paradigms, namely the feminist empowerment,
poverty reduction and financial sustainability, also have different emphasis in the way they
perceive the inter-linkages between microfinance and women empowerment.

2.1.4.1 Feminist Empowerment Paradigm

With a focus on gender awareness and feminist organization, microfinance is promoted in light
of a wider strategy for women’s economic and socio-political empowerment. In this regard,
microfinance must be part of a sectional strategy for change that identifies opportunities and
constraints within industries which can raise the prospects for women, when addressed. In
addition, microfinance should be based on participatory principles to build up incremental
knowledge of industries and enable women strategies for change to develop their (Cheston,. and
Kuhn, 2002)

2.1.4.2 Poverty Reduction Paradigm

This paradigm is touched by many NGO integrated poverty-targeted community development

programs. The main focus of such programs is the development of sustainable livelihoods,
community development and social service provision like literacy, health care and infrastructure.
The programs typically target the poorest of the poor. The strategies target women because of
higher levels of female poverty and women’s responsibility for household well-being. The
assumption is that increasing women’s access to microfinance will enable them to make greater

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contribution to household income which is believed to translate into well being for women and
result in changes gender inequality (Kabeer, 2001).

2.1.5 Challenges of Women on Micro-finance

According to Egyir, (2017), both men and women assume risks when taking out a loan which
becomes debt with all of its accompanying stresses and responsibilities. In addition some studies
of the impact of microfinance programs have raised legitimate concerns about the potentially
negative impact that programs can have on women, particularly in highly restrictive
environments. One often-reported concern is that clients’ husbands or other household members
take control of the woman’s loans, yet the client herself retains responsibility for paying off the
loans, thus increasing her level of stress and dependency (Egyir, 2016). Other studies question
the success of Microfinance programs in effecting lasting change in women’s economic welfare
or empowerment. Some scholars, such as Linda Mayoux, argue that Microfinance Institutions
cannot have more than a limited impact on women’s empowerment unless there are changes in
wider gender inequalities in the broader social and economic contexts in which they operate
(Microfinance, 2005).However, empirical evidence shows that Microfinance interventions have
indeed the capacity to reduce poverty, contribute to food security, and change social relations for
the better (Universitet, 2006). Positive impacts have been detected at the enterprise as well as
household level. Newer research indicates that participation in Microfinance programs
contributes to reduced vulnerability to economic risks. Microfinance services help the poor to
diversifying their income sources, building up physical, human and social assets, focus on good
money management, rebuild the household’s base of income and assets after economic shocks
have occurred and to smooth consumption (Microfinance, 2005). The impact assessment studies
carried out in Uganda confirm positive impacts of Microfinance services on poverty reduction

Woman’s access to financial resources has been substantially increasing over the years.
However, their ability to benefit from the access in micro credit is limited by the gender related
disadvantages (Skarlatos, 2004). Further, to women’s poverty levels, social discrimination
against women results in smaller loan sizes in comparison to men. There are only a limited

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number of women in the leadership of microfinance institutions, which might be one reason for
the biased loan access. Although microfinance does not address the entire hurdles to women’s
empowerment, it can contribute to their empowerment if properly implemented (Kabeer, 2005).
Hamida, (2000), study on „Empowering Women through Micro Credit: A case study from
Tunisia‟ revealed that the women entrepreneurs face several obstacles to their desire for self 6
employment, including difficult access to capital, low level of knowledge including literacy and
numeric skills, lack of training, inadequate market knowledge, for both purchases and sales,
conservative traditions in their families and society at large, shyness and lack of public
experience.

Ayadurai, (2004) summarized the constraints that have been found to be similar in the Asian and
African countries have been: i) lack of financing and funding; ii) balancing time between the
entrepreneurial venture and family; iii) poor access to education and training programs to help
women improve their entrepreneurship, managerial and technical skills; and iv) inefficient
production systems and weak infrastructure. Their biggest constraint was lack of international
aid which was however not seen as a major problem in many of the other Asian and African
countries. The building study of Premaratne, 2011 found that impact of micro finance on women
is substantial in confidence, courage, skill development and empowerment but there is no
positive in sustainable rural development especially reduction of poverty, creation of
employment opportunities and creation of assets in rural areas. According to his study on
Accessibility and Affordability of Rural Microfinance Services that the accessibility of
Microfinance depends on factors such as the level of household income, distance to MFI,
availability of information technology, interest rate, level of education, vocational training, and
collateral availability. Arulrajah & Philip, (2011) concluded that the role of GOs and NGOs has
the moderate level contribution on the respondents‟ perception even though they have played a
considerable role in improving equality and personality development of Women Headed
Households African countries. Further they highlighted that there are considerable gaps still exist
in the area of equality and personality developments of Women headed households. Tilakaratna,
Galappattige and Perera (2005), revealed in their study on Promoting Empowerment through
Microfinance is that microfinance is an important component of the lives of the poor especially
among poor who are keen on being entrepreneurs. Chulangani and Ariyawardana (2010)

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revealed that the transaction cost of borrowing declines as the size of loan increases. Transaction
cost of borrowing increases due to high travel cost and opportunity cost of borrowing. Closer
proximity to the borrower, regular inspection of micro enterprises by the lending staff, timeliness
in loan approval and disbursement have built a strong relationship with the Ceylinco Grameen
Credit Company Limited. (Maheswaranathan, and Kennedy, 2010) revealed that the micro credit
led to the elimination the economic hardship of women. Even though the micro credit was meant
for the livelihood activities of women yet, it helped the beneficiaries‟ family to eliminate the
poverty by providing a support in fulfilling the need.

2.1.6 Women Empowerment

The ultimate purpose of microfinance is to empower women. Varied researchers have different
perspectives on the term "empowerment." Empowerment, according to Bhatti (2012), is reflected
in a person's capability set, which is dependent on a variety of aspects such as a person's personal
traits, proper diet, good health, good shelter, and social arrangements. Empowerment, according
to Hunt and Kasynathan (2001), is linked to the process of internal change, but Kabeer, (2001)
feels it is linked to the capacity and right to make decisions. Microcredit organizations provide
microloans to the most vulnerable members of society who are unable to rely on banks (the
unbanked population), which is primarily made up of rural women who work in agriculture
(Intrisano, and Micheli, 2015).

According to Roget`s Thesaurus (n.d.), the term `empowerment` has been in existence since the
17th century. It was around 1986 that it became popular again (ibid). The concept of
empowerment is not new, but was popularized in the 1990s, and it is still lacking a clear
definition (Hennink, et al., 2012) in(Kato et al 2013)). There are several proposed frameworks by
scholars and practitioners for measuring women empowerment.  Chen, (1997)) proposed a model
for measuring the impact of microfinance services, (Kabeer, 2001)also proposed another
framework and the World Bank’s empowerment sourcebook (Kabeer, 2002) proposed different
frameworks for measuring women empowerment at various stages. In this research,
empowerment mainly looks at economic empowerment and also takes on board (Kabeer,
2001)empowerment framework, as well as the work of Malhotra and Schuler (2005) and Chen
(1997) to understand the position of women in Zambia. Kabeer, (2001) concept of empowerment
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relates to expansion of women’s ability to make strategic life choices in a context where this
ability was previously denied. Kabeer, (2002) concept is about getting out of dis-empowered

position and for her empowerment means having access to resources, agency and making
achievements where resources can be material, social or human and resources form the
conditions under which resources are made.
The concept of empowerment has a long history with its roots in the Afro-American movement
in the 1960s. Since, then the concept has gradually evolved in its definition, largely as a result of
popular women's and feminist movements in Latin-America and the Caribbean and the
development of modern thought. There is no universally accepted definition of empowerment,
while some defines empowerment as the process of acquiring power individually and
collectively that enables people to make their own decisions regarding matters that affect their
life and society, others suggest that the notion of empowerment forms part of the vision to
acquire power, to control one’s life and make choices (kidist et.al, 2012). There is a widespread
agreement that empowerment, as understood and promoted in the context of development and
poverty reduction, is a multidimensional and interdependent process involving social, political,
economic and legal changes that will enable people living in poverty and marginalization to
participate meaningfully in shaping their own futures. Without genuine empowerment,
participation can quickly become a token exercise or even a means of maintaining power
relations and without meaningful participation, empowerment an remain an empty, unfulfilled
promise. Empowerment and participation are deeply complementary and can be considered both
means and ends, processes and outcomes (Jethro, 2012)

Similarly, Joyashree and Joyati, 2013, Douglas and Zimmerman, 1995 state that, empowerment
is a multidimensional and comprehensive term which represents the overall development of an
individual. It is something which cannot be present upon an individual must acquire it on his/her
own. Empowerment theory link individual well-being with the large social and political
environment and it is an international ongoing process centered in the local community,
involving mutual respect, critical reflection, caring and group participation, through which
people lacking an equal share of valued resources gain greater access to and control over those
resources or simply a process by which people gain control over their lives, democratic
participation in the life of their community and a critical understanding of their environment.
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Theories of empowerment include both process and outcomes, suggesting that actions, activities
or structures may be improving, and that the outcomes of such process result in a level of being
empowered.

2.1.7 Micro-finance and Benefits to Women

According to an analysis of findings from South Asia by Kabeer (2005), a review of Micro-
finance efforts from various parts of the world suggest that access to Micro-finance has had a
positive economic impact as members begin to invest in assets rather than consumption. Kabeer,
(2005), reports that the studies of the Imp-Act (improving the impact of Micro-finance on
poverty) programme in South Asia confirmed that access to financial services improved the
economic position of households. The improvement involves, improving asset base and
diversification into higher return occupation, promoting the adoption of the new agricultural
policies, increasing ownership of livestock and levels of savings and reducing reliance on money
lenders. Muzaale(1994) explains that in assessing the benefits of the credit scheme to the
participating grass roots women, it is useful and appropriate to distinguish between expressed
benefits and inferred benefits. Muzaale (1994) further explains that the expressed benefits are
those benefits of the scheme that are mentioned most of frequently by the beneficiaries
themselves during focus group discussion and individual interviews. According to UNESCO,
over 8 million very poor people especially women are benefiting from different Micro-finance
programme ( UNESCO, 1997). According to a study of Micro-finance in the Asian countries, it
was found that the borrowers of Micro-finance tend to make more money over time through
profitable investments that eventually lift the out of poverty ( Meade, 2001). This particular
study mentions that the members of the Bangladesh Rural Advancement Committee (BRAC)

2.2 Empirical Review

Empirical evidences gathered in diverse contexts suggest the prevalence of both negative and
positive impacts of micro-finance on women economic conditions. A study conducted by Amin
et al in 2008, goes to argue that targeted credit can be used as a mechanism for enhancing poorer
women's existing socioeconomic conditions and thereby altering the relations between gender
and class, to the benefit of the weaker parties. The authors attempted to explore the relationship
between poor women's participation in micro-credit programs and their empowerment by using
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empirical data from rural Bangladesh. This has been done by examining quantitative data
collected from a representative sample consisting of female borrowers and non-borrowers from
each of five NGO program areas, and the other sample consisting of non-borrowers from
counterpart non-program areas with no significant presence of any NGO program. The results
show that the NGO credit members are ahead of the non-members in all three indices of
empowerment, irrespective of nonmembers' residence in programme areas or non- programme
areas. Moreover, the non-members within NGO programme areas show a higher level of
empowerment on the autonomy and authority indices than do the non-members within the
comparison areas.

The results further indicate that education, house type, yearly income, etc., tend to be positively
associated with autonomy and authority indices. Also positively associated are duration of NGO
membership and non-agricultural occupations. The implications of all these findings are credit
programme in rural Bangladesh are not only likely to bring about rapid economic improvement
in the situation of women but also hasten their empowerment.

2.2.1 Microfinance Development and Women’s Participation in Ethiopia

Up until the early 1990s, the sources of finance for rural and urban poor and micro and small
enterprise operators in Ethiopia were confined only to informal sources of finance like
moneylenders, friends and relatives (Itana et al, 2004).He further noted that, starting in the mid-
1990s, following the drought of 1984/85, some Non-Government Organizations (NGOs)
introduced the idea of saving and credit among poor people as a strategy for rehabilitation and
development. Later on, special government programs operated mainly in collaboration with
international financial institutions came into the picture. However, both types of programs were
operated in a scattered manner and lacked sustainability until of the substantial measures taken to
liberalize the financial sector, the promulgation of proclamation No.40/96 is most commonly
cited. The proclamation provides the framework to create, expand and develop microfinance
programs. Micro-financing is viewed as a means to alleviate poverty through pumping capital to
subsistence agriculture and micro enterprises. Following the Agricultural Development Led
Industrialization (ADLI) strategy of the EPRDF government, rural finance has been considered
as an important tool for agricultural and food security (Belay T., 2019). Consistent with its ADLI
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policy, the government had to reconsider the operational modality of microfinance to facilitate a
very significant improvement in service delivery and outreach. Consequently, the government
came up with Proclamation No.40 in June 1996. The central elements of the proclamation seem
to be outreach and sustainability. That is, if properly implemented, the proclamation has the
potential to facilitate significant outreach, and the flourishing of several sustainable Micro-
finance institutions (Meklit MFI et al, 2005).

The importance of the micro and small enterprises sector in Ethiopia, particularly for the low-
income, poor and women groups, is evident from their relatively large presence, share of
employment and small capital requirement. These are sufficient reasons for governments and
other stakeholders in development to be interested in micro and small enterprises (Gebrehiwot
and Wolday, 2006). In line with the development of micro-finance institutions, the Government
of Ethiopia set up participatory rules and policies which gave space for women productivity.
Padma (2003) noted that, government has formulated and issued the Ethiopian Women’s Policy
to speed up the economic and social advancement of women. This policy gives special emphasis
to rural women by ‘facilitating the necessary conditions whereby they can have access to basic
services and to ways and means of lightening their workload’. Consequently, all development
programs at national and regional levels should be able to integrate gender concerns in their
plans and programs to ensure that women participate, contribute, benefit, become recognized,
and obtain technological support. Since the first Proclamation of 1996 that gave the legal
background for the operation of the micro-financing business, the industry has witnessed a major
boom.

A significant portion of Ethiopia’s population lives without access to basic, affordable and
sustainable financial services. This is largely due to the perception by commercial banks of the
unattractive risk-return outlook of serving the low income and urban population. Data from
National Bank of Ethiopia suggest that more than two third of the population has resorted to
traditional, informal and expensive financial services such as Money lenders, keeping cash at
home funeral funds etc.

Today, there are more than 31 MFIs registered with the National Bank of Ethiopia serving
clients, with more than 1000 branches spread across Ethiopia are serving 2.6 million Customers

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meeting less than 20% of the demand for the finical services. The Ethiopian microfinance market
is dominated by a few large MFIs, all of which are linked to regional state government
ownership.

The five largest institutions account for 87.4% of the market share in terms of borrowing clients,
and 90.4 % by loan provision and 93.5% of deposit Mobilization. These are Amhara (ACSI),
Dedebit (DECSI), Oromia (OCSSCO), Omo and Addis Credit and Savings Institutions.

2.2.2 Sustainable life and Poverty on Women of Livelihood

Livelihoods are the activities, the assets, and the access towards them jointly determines the
living gained by an individual or household. A livelihood is therefore, about money, food, labor,
employment and assets (Mulugeta, 2011). It is not just about a means to survive but also about
providing resources with which people can enhance and enjoy their lives. Equally a livelihood,
its sustainability has been also conceptualized by numerous scholars. The term sustainable
livelihood means by which we can sustain these all into the future without damaging anyone else
s prospects along the way ( Stephen, 2013). Livelihood and income generation activities of
women are closely linked. The survival of human kind depends on both availability of
productive resources and the ability to use them sustainably and economically to improve the
quality of peoples life. Livelihood is a sustainability function of culture but cannot be achieved
without the requisite resources and an enabling environment (Akumbomi, 2011). Livelihood is
environmentally sustainable when it maintains or enhances the local or global assets in which it
depends, and has net beneficial effects on other livelihood (Sheheli, 2012). Livelihoods are
considered socially sustainable when it can cope with and recover from sresses and shocks, and
maintain or enhance its capabilities and assets, both now and in the future, while not
undermining the natural resource base (Kabir, 2012).

Poverty is most completely defined as a human condition, characterized by the sustained or

chronic deprivation of resources, capabilities, choices, security and power necessary for the
enjoyment of an adequate standard of living and other civil, cultural, economic, political and
social rights. As it indicated in Soroptimist International of Americas Study (2015) of the 8% of
the global population that lives on less than dollar 10 a day, 2.2 billion individuals live below the

19 | P a g e
poverty line of dollar 2 a day. Almost half of these individuals (over 1 billion) live in abject
poverty, on less than dollar 1.25 a day. Every day 805 million people go to bed hungry. Majority
of world’s poor people live in Africa. People in Sub-Saharan Africa especially are among the
poorest in the world both in real incomes and in access to social services. In this sub-region of
Africa 300 million people, almost half of the populations the regions, lives on less than dollar 1 a
day.

Worldwide Women are denied the opportunities necessary to improve their economic and social
condition, including basic human rights. In all parts of the world, regardless of class or race,
women continue to be viewed as the inferior gender, incapable and undeserving of the same
rights as men. This discrimination and denial of human rights leads to the feminization of
poverty, which is a result of many forms disadvantage working against women (Steven, 2013).
The idea that women bear and growing burden of poverty at global scale, often encapsulated in
the concept of feminization poverty, has become a virtual orthodoxy in recent decades.
Although, there is a lack of reliable and consistent data on poverty and its gender dimensions, the
development community including international agencies asserted that 60-70% of the world’s
poor are female with deepening tendencies (Berhanu, 2011).

The Government of Ethiopia has placed a strong emphasis on the participation of women in the
development process, policies and strategies have been formulated to integrate and mainstream
the gender dimensions in economic, social and political decisions. Government has taken strong
measures in placing gender responsive goals and targets to reduce the work load of women so as
to enable them to participate in political and socio-economic decision making.

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3 CONCLUSIONS AND RECOMMENDATION

3.1 CONCLUSION
From the review it could be concluded that micro-credit has a positive influence on rural
household livelihood. It was obvious from the review that microfinance institutions received
more patronage than any other credit source in Ethiopia. Microcredit is a primary mode of
income for business start up and expansion for female micro entrepreneurs in Ethiopia to
improve their livelihood. These micro enterprises therefore serve as source of employment as
well as income for household survival and well being. Micro-credit assists women in making
better lives for themselves and their families through their micro enterprises, foster savings,
women development, sustainability and independence.

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3.2 RECOMMENDATION
Ethiopian Government has to keep and sustain this growth in the microfinance sector and give it
more attention in its regular Growth and Transformation Plan (GTPs). Ethiopian central and
regional should promote the competition in microfinance market and support mid-size and small-
size of MFIs, in particular, those owned by the private sector and non-government organization
(NGOs) as mentioned above, in 2019, Five government supported MFIs accounted for 83.4
percent of the total capital, 91.4 percent of the savings, 87.7 percent of the credit and 88.1
percent of the total assets of MFIs, Currently, Ethiopia have 38 MFIs (NBE-Annual Report,
2019). MFIs in Ethiopia have a long way of work and commitment. Thus, they have to expand
their capacities by opening new branches and scale up their coverage in rural areas. According to
the National Bank of Ethiopia’s 2011 annual report, 50 percent of the total MFIs operations are
in the capital Addis Ababa (NBE-Annual Report, 2011). Ethiopian MFIs should strengthen and
support agriculture-based projects, and adapting their interventions in a way that would help in
targeting the most vulnerable groups specifically women in the rural areas.It is recommended
that Government, Non Governmental Agencies, policy makers and other stakeholders that are
devising policies relating to accessibility of micro-credit should take in to consideration the
results of this study for better promotion of microcredit among women micro entrepreneurs.

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