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In the economic development of a communities and families around the globe, women have been seen to play a crucial role. However, they still face obstacles such as unemployment, societal discrimination, poverty and low household incomes. In developing countries, this has often constrained their effective performance of these roles (Maru and Chemjor, 2013).The proliferation of microfinance services in developing countries is viewed as a panacea for fighting poverty (Akanji, 2006). Microfinance entails the financial services provision to clients who are often locked out of banking and other financial services. It assists in reaching out to the vulnerable segments of the society like women, urban poor and rural poor who are outside the purview of the formal institution (Jain and Jain, 2012).

Women in the working sector, both formal and informal contribute to the overall income of a nation. These women provide and maintain to a sustainable livelihood of the communities and families in the country and around the world. Women face many socio-challenges such as personal difficulties, lack of education, legal barriers and socio0-cultural attitude. As traditionally, women have often been marginalized, approximately 70 % of the world population comprises of women, and they still lack access to financial services and access to credit. MFIs today predominantly target women. Microfinance is an important tool to empower women from poor household (Noreen, 2011).

The women who were already engaged in the informal sector witnessed more competition on products due to trade liberalization and the rise of commodity prices. Similarly, the economic crisis led women into economic activities which were previously considered to be the men’s domain (Rutashobya and Olomi, 1999).

The crisis of the 1970s to 1980s exacerbated a shift of direction of income generating activities, from depending on formal income to informal activities. The informal sector became important; the reliance of household members on formal wage earnings was replaced by informal income generating activities (Tripp, 1996). The rapid growth was initiated by the informal entrepreneurs themselves as a measure of survival following the failure of the state (Maliyamkono and Bagachwa, 1990; Rutashobya, 1998; Rutashobya and Olomi, 1999; Tripp, 1996). The decline of real wages, persistent inflation, and the decline of the formal sector employmentattributed to the rapid expansion of the informal sector (Bagachwa 1993; Lugalla 1995).

Studies on microfinance and women empowerment have used different theories to explain the relationship. These theories include psychological motivation theory, social learning theory, network affiliation theory and human capital theory (Muteru, 2014). These theories are presumed to be appropriate for microfinance and women empowerment as the objective of microfinance services is to provide financial services to women as they often face barriers to access to credit. The majority of the women in employment is in the informal sector and, therefore, is not supported by the commercial banks. Small and medium enterprises owned by women are often beneficiaries of microfinance services and products.

There have been various studies on the relationship between microfinance institutions and women empowerment across the globe. Lavoori and Paramanik (2014) study on microfinance impact on women’s decision making in rural India revealed that MFI system of financing has had an unexpected positive influence in the lives of rural women. Nilkantan et al. (2013) study on the impact of microfinance on women empowerment in India, however, found that need to design explicitly program features to promote women empowerment. Kato and Kratzer (2013) study on microfinance and women empowerment found that participation in microfinance services could enable women to have the capability of making strategic choices concerning their lives.

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