Poverty is still prevalent in developing economies, although the proportion of people living below the international poverty line (i.e. $1.90 a day) decreased from 35.3% in 1990 to 10.7% in 2013, according to a report by the World Bank. In these developing economies, women are more likely to live in poverty compared to men due to minimal access to resources. Therefore, microfinance institutions were established to empower women and reduce poverty level by lending small funds to women, encouraging entrepreneurship and creating creditworthiness.
This paper examines the effect of microfinance institutions (MFIs) on gender inequality through their attempts to empower women. This paper first calculates output-oriented Data Envelopment Analysis (DEA) efficiency scores using the meta frontier technology, and then relates the efficiency results with the Gender Inequality Index (GII). The sample is obtained from the Mix Market database between 2002-2016, and includes MFIs from 15 countries spread over South Asia, East Asia, Latin America, Middle East and North Africa and Sub-Saharan Africa regions. GII is obtained from the United Nations Human Development database. This paper will test the null hypothesis that efficiency scores are not related to the GII, against the alternative hypothesis that efficiency scores of MFIs and the GII are inversely related. Rejecting the null hypothesis indicates that MFIs play a critical role in empowering women, thus bridging the inequality gap.
This paper did not find enough evidence to reject the null hypothesis. Though an in-depth analysis of the frequent peers in the meta frontier, such as Spandana and Vietnam Bank for Social Policies (VBSP), showed that there is potential for microfinance institutions to reduce poverty levels and empower women in the society. This paper therefore serves as an additional evidence that can be used by policy makers to implement policies that focus on the structure and management of MFI programs, such as incorporating government funding and providing vocational training for women to further equip them with targeted skills.