Access to Finance for Women-owned SMEs: Why is it Important?

Updated: Mar 20

Gender experts have once again commented on the link between institutionalised inequalities and economic regression, suggesting that intentionality is key to minimising its effects in a post-COVID-19 world.

The COVID-19 pandemic has, among other things, echoed what many have believed to be true for a long time: care work holds a significant role in our social ecosystem but remains undervalued. This, in part, is due to attitudinal bias across generations, resulting in low recognition of women’s contributions to home and childcare.


A lot of women have come face-to-face with challenges of juggling work life with home life since working from home regulations were introduced early last year. And we’ve seen reports of how these challenges have led to burn out, reduced working hours and in some cases, unemployment. [1] .

So, it’s important that, when assessing ways out of the pandemic, we also understand the means of building back better and stronger, in order to avoid encouraging plans which only lead us back to where we were. We can’t place serious value on women caregivers if we’re not addressing the root cause – the widespread attitudinal bias against women and what they are owed in society.


Some challenges have existed long before the pandemic and will likely continue to exist long after the pandemic. But if we are to contribute meaningfully to the reduction of barriers for women in business and trade, we ought to take financial inclusion very seriously.

Our reliance on trade in the build back better agenda

Small and medium sized enterprise (SME) traders are running at a loss due to the pandemic, despite the role they play in creating jobs for the economy. Figures show that SMEs employ around 60 to 70% of workers in most countries – and is an important source of economic activity.

But how much do we know about the challenges of doing business before the pandemic? Around the world, women-owned SMEs share opinions about the difficulties in scaling their businesses both locally and internationally due to their limited access to finance. And have given insight on how to build a more inclusive world.


At the height of the global pandemic, about 60% of women-owned small businesses in Sub-Saharan African countries lost their sources of income, three times more than men-led businesses. While globally, women-owned SMEs were about 6% more likely to close their business than male-owned businesses (World Bank). [2]

Some challenges have existed long before the pandemic and will likely continue to exist long after the pandemic. But if we are to contribute meaningfully to the reduction of barriers for women in business and trade, we ought to take financial inclusion very seriously.

Very well executed strategies will open doors to new and existing players – who in turn will create more opportunities for other women, their household and the economy.

Financial Inclusion: Another chance to get it right?

Most definitions of financial inclusion highlight the ease to which businesses and individuals access basic or sophisticated financial products and services. (World Bank)[3] . This includes affordability, transactions, payments, savings, credit and insurance.

Financial inclusion is a pretty straightforward, cause-and-effect concept to grasp but a challenging idea to deliver on a local and global scale - with one group in particular (women) leading the global discourse for change.

Almost a billion women worldwide do not have access to a basic account. And 80% of women-owned businesses with credit needs are either unserved or underserved (WEF) [4]. This is significant as it translates into a USD 1.7 trillion financing gap (IFC) [5].

Insight from IFC’s Banking on Women program tells us that women are very active in the private sector through 6.6 million formal SMEs and 39 million micro-businesses in emerging markets. But this presence comes with a great deal of challenges.

Some women-owned SMEs have been rejected for business loans due to gender discriminatory [6]. Take banks in Ivory Coast, for example, who until today still ask women to provide collateral to secure their repayment of business loans.

This requirement is often out-of-reach for a lot of women as it fails to appreciate that in some cultures and economic backgrounds, women either can’t afford or aren’t allowed to have landed properties in their name – let alone the upon which it is built.

So, asking women with no access to such collateral to respond positively to a lending criteria, is not only discriminatory but it’s also exclusionary. And shouldn’t be allowed to continue to rob women-owned SMEs of the opportunities to scale their businesses.

Without credit, many women-owned SMEs can’t take risks with their business which can stimulate growth. This means they can’t lease vehicles and machinery needed to operate their business - not to mention the added bonus of helping to improve credit history if it has been managed property.

Conversely, when there’s little-to-no growth in their businesses, women-owned SMEs are unable to sustain their businesses and might have to make difficult calls such as letting go of staff due to extra costs, cutting necessary expenses and in worst case scenario, close down altogether due to the financial burden it’s now causing them.


I don't want to believe that it's rocket science. I just think that some of us are still stuck in our old ways, otherwise, we would have made serious progress by now. And so while I acknowledge the impact of the pandemic, I'm still somewhat fearful that we'll forget in a hurry, some of the key lessons we've learnt. Nonetheless, I'm an optimist and I think we've been given yet another chance to 'get it right' in a post-covid world.

Recommendations

Women offer substantial growth opportunities, not just for financial institutions but the society and economy at-large [7] . How can we promote this?

At firm level: Financial firms could go out of their way to support more women-owned SMEs. While it’s understandable that banks are also running businesses and would like to protect their interest in an event of a default, we’ve spent too long defending unhelpful practices against women.


Financial institutions should seek to develop (if they haven’t already done so) an inclusive business model that champions women economic empowerment – not one that seeks to exclude women even more.

At country level: Infrastructure development is an important factor to consider. Policy makers in emerging market economies should seek to engage identity management systems as a means of collecting credit information on businesses and individuals.


Policy makers and regulators can also support firms in reaching more women-owned SMEs. Policy makers, among other things, should spearhead changes to unfair treatment and credit access frameworks for women-owned SMEs.


Policy makers could go-above-and-beyond to understand non-financial barriers which prevent women from scaling their businesses. This means tackling cultural myths about women’s economic empowerment in rural areas. It also means using robust legal frameworks to remedy the defects associated with women’s access to property ownership (and property rights as whole). Regulators can use their oversight power to usher change in the market and clamp down heavily on firms who refuse to comply - or when they do, abuse the market (e.g predatory lenders).


At international level: International donor-funded programs should seek to understand the country or market they intend to serve. Tailored solutions - be it sector or infrastructure development - must be promoted at every bend to ensure that we’re meeting objectives. And where they suspect that an approach isn’t working or is no longer suitable, donors must be willing to ‘tweak’ as necessary. The idea of wanting to report positively at all costs (no pun intended) at the end of the program should not be encouraged in a post-Covid-19 world.

Conclusion

I don't want to believe that it's rocket science. I just think that some of us are still stuck in our old ways, otherwise, we would have made serious progress by now. And so while I acknowledge the impact of the pandemic, I'm still somewhat fearful that we'll forget in a hurry, some of the key lessons we've learnt. Nonetheless, I'm an optimist and I think we've been given yet another chance to 'get it right' in a post-covid world.



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