Unlocking access to finance for women entrepreneurs: not just another charitable cause

By Lily Han

The challenges small businesses face in accessing finance to grow are familiar and well-established: they may lack the know-how to access formal financing sources, have little collateral to offer, or be perceived as high-risk clients by banks or investors, to name a few. In the developed world, and more recently, in the developing world, increased recognition of the role small businesses play in driving economic growth has led to a proliferation of programs to make it easier for small and medium-sized businesses to access capital and expand their operations.

As difficult as it is for small business owners to access finance in general, women entrepreneurs in the developing world face some of the toughest challenges, including lack of supportive policy environments and economic infrastructure, lack of suitable bank products, and limited networks and information.

The gap between credit supply and demand for women-owned SMEs outside of developed countries is estimated to be $300-350 billion.

The gap between credit supply and demand for women-owned SMEs outside of developed countries is estimated to be $300-350 billion. Photo courtesy of the World Bank.

Women in the developing world are more likely than their male peers to face legal barriers such as weak property rights. Additionally, women who were denied education or consistently discouraged from leaving the domestic sphere may lack the networks and information required to access formal markets.

On the supply side, banks sometimes avoid serving women-led small businesses because they perceive them to be high-risk borrowers that are difficult or expensive to serve. Often, banks do not develop products that meet the needs of women; rather, they offer products with high interest rate and collateral requirements.

Furthermore, many women entrepreneurs in developing countries lack the know-how needed to access capital from formal sources like banks. Dalberg focus groups with women entrepreneurs showed that they can find it difficult to identify their precise capital needs, find an institution that can help them, submit a loan application, and negotiate for fair terms. Although women entrepreneurs recognize that capital can speed up their business’ growth, they often are discouraged by how challenging it is for them to even attempt to access that capital.

The result is a gap between credit supply and demand for women-owned small and medium-sized enterprises (SMEs) outside of developed countries that is estimated to be $300-350 billion. In other words, as many as 70% of all women-led SMEs in the developing world are underserved or not served at all by the formal financial system. With such a large gap, it’s no wonder a recent report found that incomes per capita could increase by an average of 12% in many developing economies if the gap were closed.

As many as 70% of all women-led SMEs in the developing world are underserved or not served at all by the formal financial system. Photo courtesy of the World Bank.

As many as 70% of all women-led SMEs in the developing world are underserved or not served at all by the formal financial system. Photo courtesy of the World Bank.

Yet very few programs have focused specifically on improving financial access for this segment. In fact, programs that focus on access to capital for SMEs in general in the developing world total only $25 billion per year; a stark contrast with the roughly $30 billion in loan support offered to small businesses annually by just one government agency (the Small Business Administration) in one developed country (the United States).

Two weeks ago – just before International Women’s Day – the Goldman Sachs 10,000 Women program and the International Finance Corporation took steps to address the needs of women entrepreneurs. The two announced the world’s first global finance facility for women-owned SMEs, which will raise $600 million in capital to provide incentives to unlock local bank lending to women and grow the population of successful women borrowers.

The $600 million facility is the first globe-spanning effort to narrow the large and persistent financial access gap for women small business owners. Beyond mobilizing capital for women, it will also demonstrate the positive effects on communities in which women have access to finance to grow their businesses.

The mechanism paves the way for proving the commercial viability of lending to women entrepreneurs by bringing together a philanthropic donor, a multilateral agency, and various commercial banks who will participate in the facility. Their hope is that if local banks reach women-led SMEs and carefully measure gender-specific results, a rich array of quantitative data and qualitative insights will follow. These results can help tell a compelling, evidence-based story of why women entrepreneurs are profitable investments for global growth, not just another charitable cause.

Click here to read about Dalberg’s work in gender empowerment.

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2 Responses to Unlocking access to finance for women entrepreneurs: not just another charitable cause

  1. Vince Buscarello says:

    There is something really telling about the fact that the Grameen Bank was created in one of the most gender segregated societies in the world.

    Just out of curiosity, will there be monitoring of the actual outcomes of GS’s program? and will things like default rates and social outcomes be made public?

  2. Lily Han says:

    There certainly is a clear lack of good data right now around how women-led SMEs perform as borrowers. Now that a dedicated facility like the GSF-IFC one has been set up, we hope that one of the benefits will be new gender-disaggregated performance data, and with that, new insights on how to better reach women-led enterprises.

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