1. Analyzing the Effectiveness of Microfinance Loans Stratified by
Gender
Nate Hansen
December 15th
, 2015
Economics 499

2. The focus of my capstone research will be an analysis of microfinance as a
development strategy in regards to gender stratification in the utilization of a
microfinance loan. The question I will address is: What are the effects on future income
by microfinance institutions offering loans to female-run households, male-run
households, and joint-run households (male and female) in urban Ghana? I will focus on
utility optimization due to the budget constraints of individuals in two-period models.
With this in mind, I will analyze the factor of societal values and cultural pressures on the
preferences of the decision makers in each scenario. Based on these variables, the utility
curves and choices of decision makers will affect the effectiveness of the microfinance
loan, and, in turn, reflect on microfinance as a development strategy.
While microfinance institutions are a well-known development strategy, the
knowledge of the benefits is partial and contentious. For example, the United Nations
expressed concern in their 53
rd
Session in 1988 stating, “it is not clear if the extent to
which micro-credit has spread, or can potentially spread, can make a major dent in global
poverty” (United Nations). While many papers assess the effectiveness of microfinance
Schrieder (1999) and Hermes (2007) and even how to most effectively regulate the firms
Gallardo (2005), few papers focus on the gender disparities in microfinance. The
effectiveness of the microfinance institutions in reducing poverty can suggest a powerful
tool for reducing gender inequality (Duflo 2012). I analyze gender differences in
microfinance loans in an urban Ghanaian context. The question I pose dissects the
benefits of microfinance loans between genders in order to assess their effectiveness to
increase consumption between male households, female households, and joint-run

3. households.
I will use an intertemporal consumption-utility model by Irving Fischer, as
applied by Dr. Banerjee and Dr. Duflo (2009). I will supplement the results with primary
source material I gathered from female business owners in urban Ghana accounting for
their lived experiences operating within the microfinance realm. The results of the model
will infer upon the effectiveness of microfinance as a development strategy and the
possible issues.
1. Literature Review
The effectiveness of microfinance institutions as a poverty reducer in developing
countries is argued fervently on both sides of the debate. Microfinance does not exist as
the only poverty alleviating strategy; it exists alongside such tactics as International
Monetary Fund (IMF) loans, unilateral foreign aid, and Non-government organizations
(NGOs). In order to study the impact more closely, the country of Ghana will be the
concentration of this paper. Located in sub-Saharan Africa, Ghana is a lower middle
income country home to many microfinance institutions. Plagued by issues such as an
unstable electricity grid, poor roads, and lack of proper sewage the costs of operating a
business is a serious investment. Not unique to Ghana, some or more of these issues are
present in other developing countries (Collins 2009). Along with these issues, social
issues revolving around gender equality affect especially marginalized women
entrepreneurs. Differences in literacy rate and proficiency between men and women, and
gender specific domestic duties are just two examples of indicators and societal pressures
that differ between the genders in Ghana.

4. Microfinance does not exist as the only development strategy. There are
numerous development strategies varying between private investment and public
investment strategies (Khan 1990). Loans from such organizations as the IMF or World
Bank are contentious because of their controversial conditionality procedures attached to
them that some would deem restrictive and/or exploitative of the loan recipient country
(Dreher 2006). These loans are focused on macro-level changes in developing countries.
Many of the conditional loans require trade liberalization policies (Dreher 2006).
Foreign direct investment (FDI) is a form of private investment, which is used to
grow enterprises in a given developing country using foreign investment. The impact of
foreign direct investment is irrefutable but the degree of success is debatable as discussed
by Ozawa (1992). While the degree of success concerning this form of development is
debatable, for this capstone, it is crucial to acknowledge it as a development strategy even
though it will not be examined in this analysis.
Foreign aid is yet another development strategy applied through bilateral or
multilateral agreements between developed countries and developing countries’
governments. Foreign aid is another contentious development strategy due to intentions
and use of funds by developing countries (Moyo 2009). For example, because Ghana
suffers from poor governance, given funds from foreign aid, the government does not
always allocate all the funds towards development and poverty reduction. Many foreign
countries that give unilateral foreign aid also use part of the money to pay for oversight of
the funds given in order to reduce corruption and observe that the funds are used
correctly. This distinction is important because it has implications on the necessity of
oversight and the subsequent costs.

5. Non-government organizations such as Doctors without Borders, and the Red
Cross, work to fight poverty through medical services and resources (Doctors 2015, Red
Cross 2015). While non-government organizations may donate money to country
governments, they do not count as unilateral foreign aid because NGOs are not countries.
An example of an NGO that supports microfinance institutions is World Vision
International. World Vision not only supports microfinance organizations, but they have
also funded their own called VisionFund International (Vision Fund 2015). A trade union
is another development strategy. Through lowering trade restrictions among certain
countries, this allows for increased trade. For example, the European Union is a trade
union that uses a common currency and has few trade restrictions within the member
countries. A trade union is thought of as a development strategy because it works to
increase business income through inter-country trade. In the case of Ghana, ECOWAS
(economic community of West African states) includes sixteen countries and began in
1975. It reduces all costs of travel among the 16 states and reduces all tariffs and taxes on
trade (ECOWAS).
While it is certainly recognized as a development strategy, some scholars argue
that microfinance makes substantial impacts on women’s empowerment and social
welfare (Littlefield 2003, and Morduch 1997). Mohammed Yunus, considered a pioneer
of microfinance, argues that the Grameen Bank found tremendous success in key
economic indicators; “per capita income, literacy, and life expectancy all increased”
(Yunus 1999).
On the other hand, many scholars argue that microfinance is not effective because
it does not reach the poorest of the poor (Onyuma, Scully 2004, Ditcher 2007) and that

6. there is no observable gain from microfinance loans (Banerjee 2009). Onyuma attributes
the lack of success to myths of microfinance “as a panacea for poverty eradication and
women’s empowerment” (2005). Banerjee notes that after conducting an empirical study
in India, there was no evidence of significant impact of microfinance on the lives of those
who participated in the services (2009).
Evidence from Canada suggests “self-employment has been rising rapidly in
recent years…women are playing an ever increasing role” (Cohen 1996). Even though
Canada is a categorized “developed” country, the trend can also be observed in
developing countries. Berger (1989) insists, “poor women in developing countries often
turn to self-employment as a way to support themselves and their families.” Another
reason more women are entering into the informal sector “include the limited absorptive
capacity and difficulty of entry into the formal sector for women” (Clark 1991). Yet even
though there are many female business owners in developing countries, male dominance
and unequal household responsibilities make doing business difficult (Jiggins 1989).
Salm explains the differences in responsibilities as part of the culture of Ghana and the
culture shapes how women conduct business (Salm 2002).
The social and cultural atmosphere of Ghana shapes the context in which men and
women entrepreneurs access and allocate microfinance resources and loans.
Approximately ninety percent of women in Ghana are self-employed or work as unpaid
labor in family business, agriculture, or commerce (Hart 1973). Only 11% of parliament
in Ghana is female (World Bank), thus indicating women are not equally represented in
positions of power in Ghana. A study done by Beaman (2009) in West Bengal, found that
when women are not equally represented in positions of power, 86% of parents want their

7. daughters to be housewives or whatever their in-laws decide (2009). While the majority
of women in Ghana may be employed in some capacity, very few are in positions of
governmental authority.
Household expectations of women in developing countries have serious effects on
their opportunities outside of the household. When women are spending more time in the
household performing tasks, they are presented with less time for market work or other
forms outside of the home. A study of developing countries conducted by Berniell and
Sanchez-Paramo (2011) found that in Cambodia women spent 30% more time than men
on housework while in Guinea, women spent 70% more time than men on housework. In
Ghana, women typically spend four hours a day on household chores and spend
approximately two-thirds as much time in the fields as men (Tripp 1982). The trend from
their study suggests women from developing countries are spending more time on
housework as compared to market work. As it pertains to Ghana, research on the division
of power within the family structure in much of Ghana shows men are endowed with
much power and authority while women are endowed with much responsibility (Bleek
1987). In similarity with Cambodia and Guinea, women are expected to do most of the
housework. While some chores such as ironing and washing clothing are usually done by
the respective individual, other chores such as cooking, sweeping, and cleaning are done
primarily by the women and women helpers of the household (Sanjek 1982). Women are
expected to do these domestic chores while men do not share in the same social pressure.
Men are not free of social pressure. They are expected to generate income for the family.
While women bare most of the housework expectations, men also bare income and

8. employment expectations. These societal and cultural expectations can be expected to
influence preferences and utility curves when presented with new capital opportunities.
The main aim of the project stratifies by gender to analyze differences in
consumption and investment based on preferences and gender role expectations dictated
by Ghanaian culture and society. Several case studies were completed that analyzed
business and microfinance differences based on gender in countries outside of sub-
Saharan Africa. In Guatemala, women enjoyed increased autonomy and welfare effects
due to microfinance institutions (Kevane 2001). Kevane also raises an interesting point
that lending to female entrepreneurs is “sacrificing economic growth for poverty
alleviation”. In poverty alleviation, women’s self-esteem and “status within the family”
rose (Goetz and Gupta 1995). A similar study took place in Bangladesh where Khandker
(1998) found that household expenditure increased in situations where women took out
micro loans as compared to men who took out micro loans. Both Kevane and Khandker
found that in developing countries, female entrepreneurs and male entrepreneurs utilize
funds differently. With a focus on Ghana, our results may be different due to varying
societal and culture values.
Using the theoretical model of utility presented by Banerjee (2009) and
accounting for differences in preferences of men versus women will help to discern
repayment efficiency between men and women. Should it show that women make better
investments for microfinance banks, then microfinance banks will put more of their
resources and funds into targeting women entrepreneurs. It can also imply that interest
rates will be lower, maximum loan amounts higher, and repayment time more generous
for women compared to men. These relaxed loans can give women the opportunity to

9. access forms of credit with much softer restrictions than their male counterparts. If it
becomes easier for them to access it, more women ought to be taking out microfinance
loans. Kevane argued that lending to female entrepreneurs alleviated poverty because
women are more connected to the home and thus, used the money to increase welfare in
the household (2001).
2. a. Model: Decision makers do not own a business prior to entrance of MFI
In order to assess the effectiveness of the microfinance loans stratified by gender,
we will use an intertemporal utility maximizing model designed by Irving Fischer. Utility
is widely accepted as the “usefulness” that a consumer gains from any given good. In this
model, there is a single decision maker, i.e. the business owner. In this analysis, the
decision maker is the female business owner, the male business owner, and the joint-run
business owners (businesses run by both the male and female of the same household). It
is assumed the business decisions are made by the business owner. It is also assumed that
decision makers have the autonomy and authority to make financial decisions.
The goal of the household/firm is to maximize utility from consumption given the
following equation:
(1)
We assume that individuals live for two periods; the present period and the future
period. The present period is defined as the period in which the business owner can make
choices affecting consumption (borrowing and saving). The future period is defined as
the period in which the business owner faces all the costs and benefits of the first period

10. consumption (borrowing and saving) manifested in interest on the borrowing and savings
as well as the future period of consumption decisions.
The slope of the original budget constraint (with no MFI loan) is as such that the
x-intercept is
(2)
This says that the maximum value of period 1 consumption is equal to income in
period 1 added to the period 2 income borrowed over 1 + the interest rate. Without a loan,
this is the maximum consumption the decision maker is faced with.
In the second period, the decision maker faces a budget constraint
= (3)
The maximum consumption the decision maker is allowed is 1+ the interest rate
multiplied by period 1 income added to the period 2 consumption.
The budget constraint is a linear down-ward sloped line because as the decision
maker choses to borrow more from period 2, period 2 consumption possibilities
decreases.
2. b. Indifference curves
The variable of societal and cultural pressures is an exogenous variable in the
intertemporal model, changing the shape of the discount rate for the decision maker. At
the beginning of each scenario, the budget constraints for men and women and the joint-
household are all different due to the societal and cultural pressures on gender roles.
These pressures will manifest in the different sets of preferences for each of the decision
makers in the scenarios.

11. Due to societal pressures, women without a business are expected to spend the
majority of their time and income on the household. This inference leads to a utility
function tangent to the budget constraint at a point of borrowing in order to increase
period 1 consumption. Men also face societal pressures on their preferences because they
are expected to be the “bread winners.” In this capacity, they are expected to provide for
the family in the future. This leads males to have a utility curve tangent to the budget
constraint where they are investing in a durable good (in this case, it is the business
costs). While the men and women without existing businesses experience different utility
functions given the same budget constraint, the joint-household will experience a similar
utility curve as the male non-business owner. This is because societal pressures expect
the household to both provide for the family in the current period and the future period
(combining the male and female preferences). This leads to a utility curve that is neither a
period 1 borrower nor saver. The joint-household is assumed to have a maximum utility
at the endowment point.
The indifference curve for the women is steeper than the slope of the indifference
curve for men. This assumption is due to the fact that women are assumed future
discounters relative to men. The slope indicates the marginal utility women receive for
each unit of future income they sacrifice. The same rule is applied to men. The steepness
suggests women gain more utility per unit of future consumption sacrificed than men.
This is due to the exogenous variable of societal and cultural pressures insisting the
women are expected to provide for the family in the present period (and gain utility form
this decision of satisfying societal expectations). The men gain more utility from
discounting the present period of consumption because society dictates that they provide

12. for the family indefinitely for the future. This indicates that when they satisfy this
expectation of discounting the present, they will gain utility from making the
intertemporal choice of future consumption over present consumption.
We now introduce the microfinance loan and observe the effects on the budget
constraints.
With the new loan, the decision maker faces a new down-ward sloping budget
constraint operating under the assumption the microfinance loan interest rate is less than
the discount rate and other money lender rates. The business owner’s utility is limited by
the budget constraints in the two periods. The first period budget constraint is identified
as:
(4)
In the first period, the business owner can make decisions that affect current
consumption as opposed to future consumption depending on the discount rate and future
valuing. The total endowed income is equal to or greater than period 1 consumption,
savings, and borrowed amount. The decision to borrow during the first period has a direct
impact on the possible consumption in the second period. Depending on if the decision
maker is a net consumer, net saver, or net borrower, returns in the second period may
differ.
The second period, i.e. the future period is constrained by consumption given the
options of savings, investments, income, cost of borrowing:
(5)
During the second period, the level of consumption is now limited by the total
income in period 2, plus the return on investment in the business- what was not spent on

13. the business, plus the return on savings dependent on the interest rate minus the cost of
borrowing.
Savings is defined as income minus consumption minus the cost of capital.
(6)
With the budget constraints defined, the utility function is now defined as:
( )+(
) (7)
The equation indicates that utility is now a function of all choices regarding
consumption given the two periods in which a business owner lives and can make
choices.
With the introduction of the microfinance loan at a given interest rate lower than
the interest rate of money lenders, the slope of the new budget constraint will be less
sloped. At the point of the maximum amount of the loan, the budget constraint returns to
the original money lender loan interest rate slope, parallel to the original budget
constraint. This suggests that if the decision maker chooses to borrow the microfinance
loan and wants to continue borrowing, they will have to return to the money lender at
their given interest rate in order to maximize their utility given the new budget constraint.
This is an intertemporal model measuring maximum utility from consumption
with budget constraints faced by the household. There are 3 different scenarios outlined.
The 1st scenario is a female head of household potential business owner who has the
choice to start a business with the introduction of microfinance loans. This does not

14. necessarily mean she is the only individual living in the household. The 2nd
scenario is a
household with a male who has the option to start a business in the presence of a
microfinance loan. The 3rd
scenario is a household jointly run by a male and female who
have the option to enter into a business in the presence of a microfinance loan.
In the 1st case, the female decision maker faces a consumption maximizing
problem dependent on societal and cultural expectations within the household. Under the
assumption women are expect to perform tasks such as cooking for the household, clean
the home, take care of the children and elderly, and wash clothes, these women are not
presented with opportunities outside of the household such as market work. Thus,
assuming women who do not own a business, invest more of their time and effort into
household chores as compared with market work, it can be expected that these
individuals will use a microfinance loans to pay for school supplies, transportation for
children, cooking supplies, electricity, utilities of the household. Thus, they are unlikely
to enter into entrepreneurship based on their discount rate of future earnings because their
greatest utility is found where they are borrowing even in the absence of a microfinance
loan in order to increase period 1 consumption so that their consumption in the first
period (full consumption) is equal to 1 (c= 1) and their savings will equal zero and
investment will equal zero, and borrowing will also equal (K>0) (at any amount). At
attractive rates offered by microfinance institutions (eg. Rates lower than what money
lenders would charge or the discount rate), the high fixed costs of entering into a business
would suggest that present consumption would have to decrease. Assuming their discount
rate is high, these women are unlikely to start a business, preferring to use the loans to
support the family and/or finance children’s education. Further, they will accept the loan

15. because it will bring them to a further utility frontier, but in doing so; their marginal
future consumption will be less than their marginal present consumption with the
microfinance loan.
The model is applied in the graph. Scenario 1 of the household with a female non-
business owner decides not to go into business. She instead, decides to take the
microfinance loan and invest the majority in present consumption. The utility curve of the
female non-business owner suggests she is a future discounter, meaning her consumption
in period 2 is discounted as compared to period 1.1
Figure 1: MFI enters: Female household w/o existing business
1
Edits were made to this model and are discussed in full at the end of the Works Cited page.

16. In the 2nd scenario, we will analyze the decisions of men who do not own a
business at the introduction of a microfinance loan. Due to the societal expectation in
many developing countries that men are the main income earners, men would be
pressured to seek employment. The employment may come in many forms: services
sector, agricultural sector, or manufacturing. Because we are analyzing microcredit in
urban Ghana, we will assume the men in the scenario are seeking self-employment in
business (service sector). Due to the high fixed cost of starting a business, this option
may not be obtainable for many poorer, urban, male Ghanaians. Even though their utility
curve suggests they would borrow in the first period to pay for business costs of
operation they are unable to start a business because of the high initial fixed costs of the
business. It is only in the presence of a microfinance loan at a rate lower than money
lender rates, that an opportunity to enter into entrepreneurship occurs. The male seeks to
maximize utility with budget constraints along with the cost variable of starting the
business. Assuming if one starts a business during period 1, the 2nd
period experiences
higher income due to the new income generating asset. In order to reach the new income
of the 2nd
period, the male soon-to-be business owner must reduce period 1 consumption,
and at the same time, take out a microfinance loan to start the business. Their loan
amount would need to be the maximum amount in order to increase future consumption
through the business. Through the process of reducing consumption in period 1 and the
new microfinance loan, the business will have the start-up capital to cover fixed costs and
surplus capital can be used to invest into the business to further increase profitability of
the firm in period 2.

17. Scenario 2 is represented by the household with a male non-business owner. He
will start the business in the presence of the microfinance loan and not start the business
in the presence of the money lender loan because of the high fixed costs.
Figure 2: MFI enters: Male household w/o existing business

18. In the 3rd
scenario, the household is jointly run by both a male and female decision
maker deciding whether or not to enter into business in the presence of a microfinance
loan. The third scenario is unique in that the household is not confined by a single agent.
The most important assumption in this scenario is that men and women share equal
power and authority in financial decision making.
While the female is still constrained by societal pressures to work within the
household, she is presented with an option to do both self-employed market work and
household work contingent on the market work not reducing current household labor.
The male is still expected to generate income for the family. With these two strains
pulling the utility curve to be a period 1 borrower to support current family consumption
and at the same time, to be a period 1 saver and invest in the durable business we end up
with a utility curve tangent to the endowment point. We also assume the joint-household
shares a single utility curve because both agents will combine their decision making
powers.
In the joint-household scenario, we assume both decision makers share equal
power and authority in decision making. Unlike the previous two scenarios, period 1
consumption will be equal to 1 because of full consumption. The household will consume
at the endowment point. Once the microfinance loan is introduced, the household will
increase both present and future consumption equally (based on the interest rate). In
receiving the loan, the joint-household will use a portion of the loan to boost period 1
consumption, while investing the rest into the business. Because the joint-household
began at the endowment point in the absence of a microfinance loan, they will not have to

19. give up period 1 consumption in order to boost period 2 consumption or purchasing the
durable good (business costs) in the presence of the microfinance loan.
Scenario 3 is represented by the jointly-run household. This household
will take the loan from the microfinance firm, and reach higher equal period 1 and period
2 consumption levels.
Figure 3: MFI enters: Joint-household w/o existing business

20. 3. Application of first model
Figure 4: Households w/o business’ future consumption w/MFI loan

21. The implications of the model suggest that offering microfinance loans can have
unexpected results. Stratified by gender, the usage of the loan is not universally the same.
Women without a business, according to the model, are more likely to use the
microfinance loan to bolster present consumption and face a serious decrease in period 2
consumption. Without assuming they are not paying back the loan, they are more likely
to invest in the household due to Ghanaian societal and cultural expectations.
The men without a business at the introduction of a microfinance loan are more
likely to invest the majority of the loan into the business or start-up business. The men
are more likely to face increased period 2 consumption and a much smaller increase in
period 1 consumption with the acceptance of the loan.
The jointly-run household without the business can expect an equal marginal
increase in period 1 consumption and period 2 consumption. The main variable in this
case is the power and authority of financial decision making which we assume is equal in
the model for both the man and woman in the household.
If this is the case, and greater future consumption is the goal, the male household
would be the better investment for microfinance loans. Not only does he invest in the
business (durable good), but he will also face increased future consumption for each
period following.
The joint-run household would be the next best option for greater future
consumption because they will also invest in the business (durable good) with the
microfinance loan. They will also support the household with part of the loan, increasing
the present period welfare of those within the household.
The female run household is seen as the worst option for the microfinance loan.

22. The model suggests they will use the loan to greatly increase period 1 consumption and
their second period consumption will actually decrease because they are not investing a
large enough portion into investments for the future (not regarding children as
investments for the future).
This is in the case of decision makers without a business, what if all decision
makers own a business prior to the introduction of a microfinance loan? How would the
results differ? In the next set of scenarios, all decision makers own a business, but the
societal and cultural pressures still influence preferences. The only variable changing is
the variable of owning a business.
4. Model: Decision makers own a business prior to entrance of MFI
The next model describes what happens when the households already own a
business and the presence of microfinance loans at an interest rate lower than money
lender rates is introduced.
In the 4th
scenario, the female business owners are presented with the
opportunity to receive a microfinance loan. In the absence of paying fixed costs and
reducing current period 1 consumption, their budget is less constrained but maintaining
the same slope as individuals who do not own a business (regardless of gender or joint-
household). In the second model is the slope of the indifference curves for the female
household. With the presence of both household duties and business duties, she will
discount the future less than before. She is now more invested in the outcome of her
business and its effect on future consumption. Society expects that with the presence of
both the household and a business, that she invests in the business and takes care of the
household simultaneously. This leads to an indifference curve less sloped than before.

23. She now finds more value in the future consumption.
Because they are women who own businesses and also have domestic duties, they
face the same pressures on the utility curve as the females without a business. This
translates into a utility curve of increased borrowing during period 1 in order to support
the family. In this case, the full loan is not being invested so that the return on the loan is
maximized in period 2. Instead, the intertemporal choice is that consumption in period 1
is still discounted over period 2 consumption. The female business owners are choosing
to spend rather than invest their total loan amount. This is not saying the do not care
about the profitability of the business, rather, their duties in the household are demanding
part of the loan because of societal pressures. Unlike the females without businesses, the
model, as illustrated by figure 4, suggests the female entrepreneurs are only sacrificing a
small portion of 2nd
period consumption in order to gain a large increase in period 1
consumption.
Figure 5: MFI enters: Female household w/ existing business

24. In the 5th
scenario, the men, similar to scenarios 4 and 6, are already self-
employed through their business. It is assumed that they still do not have the same
societal expectations of performing household chores as men in previous scenarios.
Because of this reason, men will not experience the same utility curve changes as the
women who own businesses. With the introduction of the microfinance loan, it is
assumed these individuals will take the loan. The loan will be used to cover variable costs
such as inventory or utilities rather than covering fixed costs as in scenarios 2 and 3.
Similar to scenario 4, the male business owner, according to the model, will increase
profitability in period 2. This is illustrated by the interest accrued on the choice of
investing more capital into the variable costs in the business.
The men in this scenario will decrease consumption in period 1 and increase
savings in order to maximize their utility. Once the microfinance loan is introduced, the
men will take the loan and subsidize period 1 consumption in order to soften the financial
burden in the present period. The rest of the loan amount will be used to invest in the
durable good (business variable costs). The movement of the utility curve with the

25. introduction of the microfinance loan is demonstrated in figure 5. In period 2, the savings
combined with interest added to profitability of the business (assumed to be profitable)
will cover the costs of borrowing and increase total earned income and consumption in
period 2.
Figure 6: MFI enters: Male household w/ existing business

26. In the 6th
scenario, the jointly-run household of a female and male already own a
business and are self-employed. The household can be expected to accept the
microfinance loan at an interest rate lower than money lender interest rates. Similar to
scenario 3, the jointly-run household has 2 agents. We are still assuming the male and
female both share an equal amount of power and authority in financial decision making,
thus placing their original utility curve tangent to the endowment point in the presence of
no microfinance loan (as explained in the 3rd
scenario). The utility curves will maintain
the same slope as the curves from the joint-household without a business (figure 3). It
still represents an equal 1-1 trade-off of future consumption for present consumption and
the household is neither a borrower nor saver in period 1. Similar to the joint-household
without a business, this household will begin consumption at the endowment point. In the
presence of the microfinance loan, they will equally increase future consumption (saving
or investing in a durable good) and increase present consumption.

27. Figure 7: MFI enters: Joint-household w/ existing business
5. Application of second model
The application of the model of the introduction of business ownership has
differing effects depending on gender due to societal expectations.
Figure 8: Households w/ business’ future consumption w/MFI loan

28. According to figure 8, women who own a business face lower future consumption
in the presence of a microfinance loan than the joint-household or men with businesses.
In comparison to women who do not own a business and receive a microfinance loan, the
women with a business receiving a microfinance loan face greater period 2 consumption.
This analysis suggests that women who own a business discount the future less and face
greater period 2 consumption, at the cost of smaller period 1 consumption.
The joint-household and male business owners are the most likely to raise future
consumption, while female business owners are likely to greatly increase current
consumption at the cost of the future. This does not reflect on inherent financial
decisions, but rather on the greater scope of the societal and cultural pressures in the
Ghanaian context. The jointly-run household with a business can expect lower income in
the future period if the female has the authority to make financial decisions with the loan.
Thus, the business would not earn as high of returns as the business run solely by the
male or the joint-household. The implications of the model applied in an urban Ghanaian
context is that microfinance loans will not have the same effects in every scenario. If the
goal is to increase current consumption, the female is the individual to receive the loan in
both cases of owning a business or not owning a business. If the goal is to increase future
consumption, the jointly-run households and male business owners are the best options to

29. receive the loans. This suggests that men and jointly-run households will provide the
greatest return on microfinance loans while women will increase current utility and
consumption in the current period if given a loan constrained by societal expectations and
cultural values.
6. Supplemental Research
I had the opportunity to travel to Ghana and gather qualitative data on female
business owners residing in the urban city of Accra from June to July of 2015. I received
a Wang Grant through Pacific Lutheran University to conduct independent research on
business women in an urban setting. Once in Accra, I connected with Mail microfinance
cooperative credit union where I was permitted to conduct my research on bank
members. Through random sampling, all thirty of the business women I interviewed were
currently or previously banking with Mail microfinance institution. I provided the bank
with a summary of my intentions, and each business woman received a copy of the
interview guide and consent agreement. The answers of each business owner varied and
the time of interviews ranged from 15 minutes to approximately an hour. By no means is
the sample size representative of the entire Ghanaian population, but it is a fair
representation of the women who bank at the Mail microfinance institution. Also of note,
I did not interview any male business owners.
Several conclusions can be made about the sample of women. First, none of the
business women were living alone in the household. . Costs associated with dependents
within the household add additional budget constraints. Regardless of marital status, the
presence of dependents in the household affected their decision making. The majority of
business women were married and the majority of business women had children currently

30. living in the household. The presence of others living inside the household can have
serious impacts on the business women’s decisions. The constraints on their budgets can
be assumed to increase, this is particularly true when they have children in school. Public
schools are free, but are often crowded and underfunded. Private school in Ghana costs
anywhere between $100 USD per year to $400 USD per year (applicable to primary,
secondary, and tertiary schooling fees). The presence of others in the household can also
mean constraints on the budget in the form of increased expenditure on utilities, food, and
transportation costs. The presence of others within the household is not always a cost.
Many of the female business owners had family help with the business. These members
helped with cleaning the shop and organizing inventory. In one case, the business woman
had her son who was also attending university, run the store in her absence.
Another interesting conclusion is the varying levels of education the female
business owners received. Some had never completed primary school and some had
attended university. Interestingly, several of the individuals who had never completed
primary school could not read or write English (the official language of Ghana). These
individuals had family members or employees assisting with documenting business
activities in English for official records. Communicating with these women required that
I speak in Twi (the local tribal dialect) or use a translator. Even though they are not fluent
in English, they are still able to apply and receive loans from microfinance institutions.
At the bank, bank officers speak multiple ethnic dialects of the area. This allows them to
reach and cater to entrepreneurs who struggle with English.
One interesting observation is that all the female entrepreneurs and male
entrepreneurs were in socially designated “feminine” or “masculine” occupations

31. respectively. All the women interviewed were self-employed as tradeswomen,
hairdressers, seamstresses, and beauticians. In the market, there were also tradesmen
selling goods. In the realm of hair dressing, sewing, and beauty, there were no men.
There were no male clients or employers/employees in these areas of occupation. It can
be assumed that hairdressing, sewing, and beauty maintenance are deemed as “feminine”
labor in urban Ghana. Information on the income of business owners was not gathered.
Further research could be conducted to analyze the income disparity between “feminine”
and “masculine” labor in Ghana.
The supplemental data provided adds context to the analysis of microfinance and
business women in Ghana. It is by no means comprehensive, but it does provide
perspective on aspects of business life for entrepreneurs. The presence of dependents, the
“gendering” of labor, and education level among female entrepreneurs are just three
exogenous variables affecting business women in Ghana.
7. Macro Implications
According to the model we used to analyze microfinance and the assumptions we
made, microfinance can be a positive instrument in alleviating poverty and assisting in
economic development of a country. In regards to country development, investing the
microfinance loans in business owners is the most efficient option for microfinance
institutions. The nuances explained in the models suggest that individuals who have
societal expectations of domestic labor are the best option for increasing future income of
businesses. The joint-run households, according to the model, have very positive benefits
in both the first period and second period on consumption for the household. These
statements insist that microfinance is useful as a development strategy. Microfinance,

32. according to the model, can have the ability to increase future consumption and incomes.
In essence, microfinance employed correctly can alleviate poverty for the recipient of the
loan. At the same time, depending on the preferences of the decision maker (determined
in part by societal values and cultural pressures), can have detrimental effects and
negative ramifications for the recipient of the loan. Indiscriminate loans can lead to issues
of increased poverty for some decision makers. In order to avoid pitfalls of poverty,
microfinance institutions must discriminately provide loans with stipulations in order to
increase future income and consumption for its recipients.
8. Further Analysis
This model is by no means comprehensive of the entire microfinance issue in
developing countries. It only analyzes the societal pressures variable and the owning a
business variable.
First, we must avoid the “post hoc” argument when analyzing the data provided
by the model. Although it is concluded that females in the model will use the loan to
bolster the current period, we cannot conclude it is because of an inherent value within
females. The purpose of this research is to demonstrate the power of societal values and
cultural pressures upon gender. At the same time, we cannot conclude that men are
always going to invest in the business. While the model concludes that men will invest in
the business, it is very possible they will also spend the loan on current consumption. We
do not assume or conclude any inherent financial decision making qualities prior or post
study. We can only conclude the powerful nature of the external (exogenous) variable of
society in determining the preferences of decision makers in the model.
It does not account for factors such as the distribution of power and authority

33. within the household, or beginning budget constraints for the varying households. These
two unaccounted for variables (both assumed in the model) can have very different
effects on the outcome of the study. Another interesting variable is the education and
wellbeing of the children within a household. While women, in the model, are assumed to
increase period 1 consumption and sacrifice 2nd
period consumption by accepting the
microfinance loan, perhaps they are actually investing in their children. Understanding
the impact of investing in the education and wellbeing of the children in comparison to
investing in a self-owned business is a debate for another analysis, but one that could
yield results contradicting the results we found. This is based on the assumption we made
about period 1 consumption not being portrayed as an “investment” for the future.
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