Academic journal article The Lahore Journal of Economics

Access to Finance and Agency: An Overview of the Constraints to Female-Run Enterprises

Academic journal article The Lahore Journal of Economics

Access to Finance and Agency: An Overview of the Constraints to Female-Run Enterprises

Article excerpt

1 Introduction

Pakistan has had a long-standing low labor participation rate: the national rate of active labor participation stands at a little under 46 percent.1 Such low indicators are particularly troubling for a developing country trying to combat poverty and inequality. Labor participation is disproportionately low among women: at 22 percent, the female participation rate is one third that of the male participation rate. The disparity between male and female participation is even greater in paid employment (13 percent for women versus 43 percent for men) and formal microenterprises (19 percent for women versus 41 percent for men). In the informal sector, the gender ratio is more equitable, albeit low, at 38 percent for women and 42 percent for men. According to data from the Global Entrepreneurship Monitor, there are 17 male entrepreneurs to every female entrepreneur at the startup stage (Figure 1). This gender ratio is lower than in other developing countries in South Asia and Africa.

Should we be concerned about this gender disparity? The answer is, undisputedly, yes. The literature shows that the welfare impact of a cash infusion in the household will be very different depending on the recipient of the inflow. Household welfare, as measured by child health, nutrition and education, tends to be higher when cash is allocated by a woman as opposed to a man (see Yoong, Rabinovich & Diepeveen, 2012, for a literature review). Of course, one can argue that economic empowerment has a value per se that ought not to be concentrated in only the male members of the household. That we should be concerned about gender disparity is not disputed. What is less clear is what might explain the gender gap in economic activity.

Part of this gap can be explained by the returns to education. Male and female educational attainment is vastly different, particularly beyond the primary level. However, a plausible reason for this gap (including that in educational attainment) may also be the difference in access and opportunity. Social and cultural norms affect the role of a woman in society, often delineating her as a caregiver - any paid employment she seeks outside the home must not then interfere with her responsibilities at home. This limits her to finding employment closer to home. One argument is that society and the institution of purdah frowns on - if not disallows outright - the woman from working outside the home at all. This may explain why more women engage in home-based production rather than wage employment in the public space to earn an income.

Other than access to financial and technical resources, female-run enterprises in Pakistan are, therefore, limited by sociocultural concerns. Notwithstanding government grants and policies, the needs of micro-entrepreneurs among the disadvantaged in Pakistan are met largely by the microfinance sector. While not catering to the ultra-poor, microfinance organizations provide small, short-term loans to those just above the poverty line, who are unbanked by the traditional financial sector. A detailed exploration of this issue, including a robust empirical investigation, will be directly useful to policymakers and practitioners.

The role of enterprise in economic growth has long been recognized (see Knight, 1921; Schumpeter, 1942; Baumol, 1968) and its importance for women as an acceptable form of income generation makes it all the more pertinent to improving welfare and growth. The Government of Pakistan has already shown keen interest in encouraging entrepreneurship, a testament to which is the Prime Minister's Youth Business Loan Program whereby young people (aged 21 to 45) are provided subsidized financing.2 The program specifically requires that half the funds be disbursed to female borrowers. Against this backdrop, the findings of such a study will be of direct interest to the government as it decides how best to extend credit to these entrepreneurs.

Section 2 provides an overview of the microfinance sector in Pakistan. …

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