This article is a part of the Invest with Women: Strategies to Accelerate Progress series.

Although more women are joining the workforce in Latin America and the Caribbean, significant disparities remain in job access, with women typically gaining entry to lower-skilled, lower-paying positions. Only one-third of micro, small, and medium-sized enterprises (MSMEs) are owned or led by women, with an associated finance gap of $98 billion. Persistent gender inequality is driven by a range of pervasive and interconnected market failures, and addressing them requires innovative use of resources.

Therefore, how we invest resources is as crucial as how many resources are allocated.  Through our partnership with IDB Invest, we assessed how performance-based incentives (PBIs) can address these market failures. PBIs enable IDB Invest’s clients – whether financial institutions, corporates, or infrastructure projects – to receive interest rate adjustments or performance grants if they achieve incremental gender-intentional results. Our findings were encouraging —PBIs contributed to the achievement of gendered targets beyond those initially set and provided critical justification for resource allocation toward gender equity–focused programming within financial institutions. They also had indirect effects, such as changing internal mindsets on the value of women as customers of financial institutions, alleviating deep-seated gender biases and perceived risks of making operational changes to be more inclusive, and generating new networks which often lead to significant transformation. Combining technical assistance with incentives helped develop essential skills among clients and brought together the interests of various stakeholders. Additionally, by introducing adaptability into program design and supervision (e.g., by creating buffer capacity to support investees in cases of deviations from the target), clients were empowered to meet gender equality–related objectives. 

“Our work with IDB Invest shows that pay-for-performance models such as PBIs can accelerate the expansion of access to finance for women-led and owned small and medium enterprises and employment opportunities for women. PBIs also provide an opportunity to reduce transaction costs and improve how we monitor and measure impact and should be further explored across the financial sector and other industries. Sharing my congratulations to the Dalberg team that led the work—Daniela Casas, Alexander Dow, Alexander Raymond, Kusi Hornberger, and Marcos Paya.” —Fabiola Salman

Read more: Promoting Gender Equality through Performance-based Financial Incentives An Analysis of IDB Invest’s Experience | IDB Invest

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