Bridging the Evidence Gap in Women’s Financial Inclusion

Over the years, women’s financial inclusion (WFI) has gained significant attention, funding, and research from public and private actors alike. More recently, there is growing desire to link such efforts with women’s economic empowerment (WEE) and ensure that inclusion into the financial sector has larger outcomes on women’s economic lives.

While the connection between women’s financial inclusion and WEE is widely accepted, we do not know what makes certain interventions more successful than others. Nor is it clear which interventions can be universally scaled. Without this evidence, we are walking blindly, only feeling the ground right beneath our feet – no sense of the path ahead nor the distance already covered.

CGAP’s Impact Pathfinder seeks to bridge this gap by assembling existing evidence clearly and in great detail, so that funders, governments, and private sector actors can start their journey from a strong understanding of what’s already known. In particular, the Impact Pathfinder’s findings regarding the impact of credit and insurance on WEE illustrate the value of using the evidence to guide a path forward. The platform itself has more insights that can be explored. 

What the evidence tells us – and what it doesn’t 

The evidence collected on the Impact Pathfinder clearly shows that financial services can enhance outcomes for women. The Impact Pathfinder finds strong evidence that credit, digital payments, and savings generally have positive impacts for women across their personal and professional lives. However, the findings are more nuanced on the impact of credit on women-owned micro and small enterprises (MSEs) and on the role of savings in enabling women’s long-term recovery from shocks. Further, a significant knowledge gap remains in understanding the impact of insurance on WEE.  

So, what does the Impact Pathfinder tell us about credit and WEE? 

Credit enhances women’s ability to control their personal and household financial resources, enables them to travel and socialize independently, and improves their access to jobs 

One of the well-established relationships between inclusive finance and WEE is the role of credit in increasing women’s agency and access to better jobs, with 48 studies underlying these impact pathways. Evidence shows that credit – particularly microcredit – enables women to earn more, save more, and own more assets, as well as increases their freedom of movement. It can also aid women in gaining greater influence over household dynamics and enable them to be more involved in household decisions. For instance, in Bangladesh, women who took out microloans were 11 times more likely to influence daily household spending decisions than those who did not borrow. 

Credit can also improve women’s access to education, training, and mobility – allowing them to ultimately find better jobs. When women have access to and use credit, they can upskill, take more time to search for jobs, and invest in transportation, allowing them to explore better opportunities that may be beyond their immediate surroundings. For example, a study in Turkey found that formal microcredit helped women move from low-paying informal jobs to better-paying, stable positions in sectors such as retail and services.

Credit creates new opportunities for women entrepreneurs, but its impact depends on factors like supportive policies, tailored loan products, training, and market access

Credit’s role in supporting women entrepreneurs is more nuanced, and the Impact Pathfinder examines this in detail, with 43 studies informing this impact pathway. Credit can open opportunities for women entrepreneurs. It helps them start and grow their businesses, as well as weather economic downturns and other shocks (especially when bundled with other products such as health insurance). Further, when accompanied by training, networking, and mobile banking, credit helps women transition from informal to formal businesses and invest in productivity-enhancing assets.

However, we know that a variety of support structures and market conditions, such as strong consumer protection regulation, access to supplemental training, and beneficial loan structures, including access to long-term credit options, play an important role in shaping outcomes for women entrepreneurs. Restrictive gender norms can limit women’s ability to use credit for business growth (rather than for household needs), and the short-term loans that are often more accessible to women are not always well suited to encouraging long-term investments in technology or innovations that can help a business thrive. A study from Uganda showed that short-term loans for women farmers did not lead to improved agricultural technology adoption, possibly due to the high risk associated with the agricultural sector and a mismatch between the timing of loan repayment and anticipated agricultural income. 

The contextual factors captured in the Impact Pathfinder point to the importance of supportive policies that provide women with the right to own assets and access markets, loan term transparency, linking loan size and type to the needs of women entrepreneurs, and aligning repayment terms to the capacity and experience of women entrepreneurs. For instance, digital credit provides more privacy for women entrepreneurs, which reduces the pressure to share funds with family members and makes it easier for them to invest in their business. 

Additionally, flexible repayment schedules can be beneficial for women entrepreneurs, especially more experienced borrowers and those with strong entrepreneurial abilities. In Bangladesh, experienced female microfinance borrowers who participated in a flexible loan repayment program saw a 51% increase in the value of their business assets, a 25% increase in profits, and a 35% reduction in the likelihood of default. (Although flexible repayment schedules do not always reduce default rates in first-time borrowers.)

But what about when we don’t have the evidence we need? 

For instance, we do not always know enough about how to make insurance work for women’s lives. 

In general, insurance penetration around the world is low, with the global protection gap increasing to USD 1.8 trillion in 2022. Further, where insurance uptake exists in developing countries and has been studied, research typically focuses on its impact at the household level, rather than on women individually. The Impact Pathfinder’s findings, based on 19 studies, mostly infer benefits for women based on household-level outcomes. 

From the literature that exists, the Impact Pathfinder finds that insurance can help households better prepare for shocks. As a safety net, insurance, especially for health, agriculture, and disasters, can encourage households to invest in productive assets, thereby increasing their resilience to shocks. One study in Sub-Saharan Africa shows that insured households were 36 percentage points less likely, on average, to expect to draw down assets (specifically livestock) after receiving an insurance payout than uninsured households. However, the effectiveness of insurance products is influenced by design elements such as premium costs and the speed of payouts. High premiums may, for example, reduce uptake of insurance products and crowd out productive household investments, thus limiting the overall benefits. 

If we want to understand how to best leverage insurance to enhance women’s economic lives, we need further research on how gender differences in risk perception affects investment and insurance decisions, what product types and design elements best suit women’s needs, and ultimately the long-term effects of insurance for women. 

Without the right evidence, the inclusive finance community cannot explain, let alone improve, its impact on women 

The insights from the Impact Pathfinder indicate that financial services play a vital role in improving women’s economic outcomes. But it’s all about the details. Understanding what works, for whom, and under what conditions remain key to driving sustainable progress. A deeper, more granular understanding of these dynamics must be fostered. 

As the evidence base grows, so should the financial inclusion community’s ambition to tackle these knowledge gaps. We need more action-oriented evidence to strengthen our understanding of what works for women. Funders and investors can play a crucial role in building the evidence base by directing more resources into systematically collecting data on WEE resulting from increased financial inclusion. We also need others to act on existing evidence and help us build on our current knowledge through experiential learning. For instance, policymakers can create environments that support women’s safe participation in formal financial systems, and financial supervisors and regulators can collect and use gender-disaggregated data to understand gender-differentiated patterns in the use of financial services. Financial service providers can learn from the evidence to design and deliver products that women can more easily take up, use, and benefit from. 

By doing so, we can truly harness the power of inclusive finance to lift women—and the world—into a more empowered future.