Women’s Economic Empowerment Through Financial …

Women's Economic Empowerment Through Financial Inclusion

A Review of Existing Evidence and Remaining Knowledge Gaps

Financial Inclusion Program Innovations for Poverty Action March 2017

Authors

Kyle Holloway Zahra Niazi Rebecca Rouse

The opinions expressed in this report are of the authors and do not reflect the opinions of Innovations for Poverty Action or its research affiliates.

Acknowledgments

Special gratitude to Laura Burke and David Batcheck of Innovations for Poverty Action.

Sincere appreciation goes to the following experts who provided technical advice and comments on versions of this report: Simone Schaner and Russell Toth. The authors are grateful to the researchers who participated in an early workshop on women's financial inclusion research in November 2016: Jenny Aker, Emily Breza, Leora Klapper, Natalia Rigol, and Simone Schaner. The authors also thank the Bill & Melinda Gates Foundation for its support of this project.

Cover Photo: Tugela Ridley

Innovations for Poverty Action (IPA) is a research and policy non-profit that discovers and promotes effective solutions to global poverty problems. IPA designs, rigorously evaluates, and refines these solutions and their applications together with researchers and local decision-makers, ensuring that evidence is used to improve the lives of the world's poor. Our well-established partnerships in the countries where we work, and a strong understanding of local contexts, enable us to conduct high-quality research. This research has informed hundreds of successful programs that now impact millions of individuals worldwide.

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Women and Financial Inclusion

Increasing access to and use of quality financial products and services is essential to inclusive economic growth and poverty reduction. Research shows that when people participate in the financial system, they are better able to manage risk, start or invest in a business, and fund large expenditures like education or a home improvement (E.g., Ashraf et. al, 2010, Dupas and Robinson, 2013b, Cull et. al., 2014).

Increasing women's financial inclusion is especially important as women disproportionately experience poverty, stemming from unequal divisions of labor and a lack of control over economic resources. Many women remain dependent upon their husbands, and about one in three married women from developing countries have no control over household spending on major purchases (United Nations, 2015). About one in 10 are not consulted about the way their own earnings are spent (United Nations, 2015). In addition, women often have more limited opportunities for educational attainment, employment outside of the household, asset and land ownership, the inheritance of assets, and control over their financial futures in general.

Despite important advances in expanding access to formal financial services in the developing world in recent years, a significant access gap remains between men and women. This is illustrated through a basic measure of financial inclusion: account ownership. Globally, only 58 percent of women hold an account in a formal financial institution, compared to 65 percent of men (Demirguc-Kunt et al., 2015). This gender gap is even more pronounced between men and women in developing markets,

with the largest gap, 18 percentage points, observed in South Asia (Demirguc-Kunt et al., 2015).

Providing low-income women worldwide with effective and affordable financial tools to save and borrow money, make and receive payments, and manage risk is critical to both women's empowerment and poverty reduction. However, the path to greater women's financial inclusion is dependent upon the creation of a more gender inclusive financial system that addresses the specific demand- and supply-side barriers faced by women, supported by an inclusive regulatory environment. These barriers range from something as basic as the lack of assets for collateral to more structural constraints such as account opening requirements that disadvantage women. Figure 2 summarizes some of the potential barriers women face in accessing financial services and products.

While there is a growing body of evidence surrounding the impact of financial inclusion and the importance of product design in achieving desired welfare impact outcomes, there remains much to learn about the ways in which formal financial products and services can contribute to women's economic empowerment. This review finds that, overall, financial service providers and other stakeholders can leverage appropriate product design features to overcome some of these barriers to women's financial inclusion. Even so, broader social constraints related to intra-household bargaining power and the social status of women may continue to limit the broader impact of financial inclusion on women's economic empowerment. There is a need for further evidence on effective product-led strategies to address these barriers and improve economic empowerment outcomes for women.

FIGURE 1 71%

67%

FFoorrmmal AccocouunnttOOwwnneerrsshhiipp bbyy GGeenndder

Female (% age 15+)

Male (% age 15+)

47%

56%

54% 49%

19% 9%

55% 37%

30%

39%

East Asia & Pacific Europe & Central Asia

Latin America & Caribbean

Source: 2014 Global Findex Database

Middle East

South Asia

Sub-Saharan Africa

FIGURE 2

Gender-Based Barriers to Financial Inclusion

Demand Side Barriers

Supply Side Barriers

Lack of bargaining power within the household

Concentration in lower-paying economic activities

Competing demands on women's time related to unpaid domestic work

Lack of assets for collateral

Lack of formal identification

Reduced mobility due to time constraints or social norms

Lower rates of cell phone ownership among women, needed to access many digital products

Inappropriate product offerings

Lack of gender-specific policies and practices for product design and marketing

Inappropriate distribution channels

Legal & Regulatory Barriers

Account opening requirements that disadvantage women

Barriers to obtaining formal identification

Legal barriers to owning and inheriting property and other collateral

Lack of gender-inclusive credit reporting systems

The remainder of this paper is organized by product and presents the existing evidence on the impact of savings, credit, payments, and insurance products on women's economic empowerment outcomes, as well as the remaining open research questions in each area. The studies included in this review are limited to those designed as randomized control trials (RCTs), widely considered to be the gold standard in impact evaluation methodology.

Savings

The ability to manage risk and smooth consumption in the face of shocks or loss of income is an essential component of women's economic empowerment There is much research that supports the importance of saving at the individual and macroeconomic level (see Karlan et al., 2014), yet women in the developing world consistently report lower levels not only of account ownership but rates of formal savings balances. The greatest gender gap in formal savings held is observed again in South Asia.

New research in this space is beginning to explore the impact of accessible savings products on women's savings and expenditures. Researchers are also beginning to explore women's unique preferences surrounding product liquidity and control, and how changes in product design can impact savings product use as well as the final destination of women's savings.

Simplified Accounts to Remove Barriers to Entry

One barrier to access and use of formal savings accounts among women might be the costs associated with opening and maintaining accounts. The offer of simplified, or no-frill, low-cost accounts may be a way to reduce this barrier to entry and improve account ownership among women. However, evidence on the impact of these simplified accounts is mixed.

A study in Chile found, for example, that individuals (91 percent of whom were women) who were randomly assigned to receive a free savings account not only reduced short-term debt by 20 percent, but also reduced consumption cutbacks associated with a negative income shock as compared to those who did not receive an account (Kast and Pomeranz, 2014). Similarly, in Nepal, researchers studied the effect of offering easily accessible, no-fee accounts to female heads of household living in slums. The accounts were popular, with 84 percent of women opening an account and 80 percent making at least two deposits in the first year. While there was no evidence to suggest the accounts led to an increase in assets, women in the treatment group did increase spending on education, meat and fish purchases, and festivals and ceremonies (Prina, 2015). Follow-up research suggests that financial access among these unbanked female heads of household led to an increase in schooling levels of

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Women's Economic Empowerment Through Financial Inclusion

FIGURE 3

Percent of Adults Who Saved in a Formal Financial Institution % Adults Who Saved in a FLoarsmt aYleFairnabnycGiaelnIndsetritution Last Year by Gender

Female (% age 15+)

Male (% age 15+)

16% 9%

13%

18%

11%

16%

South Asia Source: 2014 Global Findex Database

Sub-Saharan Africa

Latin America & Caribbean

daughters and the education aspirations parents have for them (Chiapa et al., 2015). The accounts also helped households better respond to health emergencies. Households with an account saw a smaller drop in income after a health shock and a corresponding increase in health-related expenditures compared to those without an account. Both these studies suggest that no-frills accounts lead to positive downstream effects.

Conversely, a study in India targeting low-income women as part of a public welfare program found that simply providing basic savings accounts had no observational impact on women's employment, earnings, or even the rate of utilization of these accounts (Field, 2016a). Researchers did find, however, that basic training on account features led to increased use, suggesting that basic literacy and technical know-how might have been a barrier to account use rather than simple access. Similarly, evidence from a study conducted in Uganda, Malawi, and Chile found that offering simplified saving accounts to individuals (over 55 percent of whom were women) did not result in a significant increase in savings or to any positive downstream impacts such as on business investment, or expenditures on education or health (Dupas et al, 2016). These results suggest that there is a need for more work to understand the specific barriers to take-up and usage of formal financial accounts among women in order to design products and policies with the highest likelihood for success.

Understanding preferences for (Il)liquidity and control

Women may demonstrate different preferences for

levels of liquidity and privacy in their savings products, depending on their personal and household investment goals, as well as their level of bargaining power within their households. For example, a study in rural Kenya offered married couples the opportunity to open up to three accounts: a joint account and individual accounts in the name of the husband and/or the wife. Each account was randomly assigned one of four temporary interest rates (between 0 percent and 20 percent APY) to incentivize savings in the accounts. The study found that large temporary interest rate subsidies on the individual accounts led to increased income via investments in entrepreneurial activities in the long run, while subsidies to the joint account had no impact on income but led to increased investments in household assets such as home repairs or livestock. Couples who received high interest rates on their joint account reported higher levels of agreement about the usage of that account.

These results suggest that savings which are explicitly co-owned by spouses are subject to different demands and uses than individually owned savings. This could have implications for women's preferences for privacy and control over their savings, especially in contexts where women have lower bargaining power within the household (Schaner, 2016).

The evidence also suggests that deposit accounts designed to restrict access and reduce the liquidity of savings can help individuals subject to high social and intra-household demands save more. Product tests in Malawi (Brune et al., 2015) and Kenya (Dupas and Robinson, 2013a, 2013b) suggest that illiquid accounts with significant withdrawal costs or linked to a specific commitment can be effective in encour-

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