The impact of microfinance on entrepreneurship and welfare among women borrowers in rural Pakistan

Abstract

This study investigates the effects of microfinance on entrepreneurial activity and household welfare among women borrowers in rural Pakistan. Using survey data from 463 clients of multiple microfinance institutions and propensity score matching methods, we find that women who invest their loans in microenterprises experience significantly higher income, clothing expenditures, poverty scores, and income diversification compared to those who use loans for other purposes. However, we do not observe increases in health and education spending or reductions in child labour among entrepreneurial borrowers. The results highlight the potential for microfinance to stimulate women’s entrepreneurship and improve economic conditions in rural Pakistani households, but also underscore the limitations in promoting human capital investment. We discuss implications for enhancing microfinance interventions to support holistic welfare improvements for women entrepreneurs in Pakistan and beyond.