By Mary Ellen Iskenderian, President and CEO, Women’s World Banking
The International Finance Corporation estimates that approximately 65% of women-led small and medium enterprises (SMEs) in developing economies are either unserved or underserved financially 1. For a women entrepreneur, this means the odds are already stacked against the growth potential of her business. Giving women access to credit and other financial tools will not only help those businesses, it will also help us achieve critical Sustainable Development Goals (SDGs).
This gap in access to capital for women-led SMEs exists despite significant contributions by these businesses to gross domestic product and employment. Women-owned businesses account for approximately 40% of the world’s 340 million informal micro, small and medium enterprises and one-third of the 40 million formal SMEs 2. A projected 112 million female business owners also employ at least one other person in their business 3.
Because women-owned businesses are such a major force in the global economy, allowing these businesses to thrive and grow by ensuring access to credit will drive progress on several SDGs. Advancing women’s financial inclusion is linked to eliminating poverty (SDG 1), reducing hunger and food security (SDG 2), achieving good health and well-being (SDG 3), fostering quality education (SDG 4), and promoting gender equality (SDG 5). Greater financial inclusion also has indirect impact on promoting shared economic growth (SDG 8), innovation and sustainable industrialisation (SDG 9), and equitable and peaceful societies (SDG 10 and 16). The impact that women’s financial inclusion can have on the SDGs proves that advancing these goals is not just up to the development community. Private sector and governments of emerging economies must take action. What’s the first action step? Leverage innovative digital technology and regulation to get these women access to finance.
What does this look like for a woman entrepreneur? Take Manal Hassan, a client of Microfund for Women, which is a Women’s World Banking partner in Jordan. Manal owns a successful beauty salon. A salon is one example of a typical service-oriented, women-owned business that does not hold much physical collateral. Like many women in Jordan and other developing countries, Manal is unlikely to own the property where her business is located, and she may not even have an official form of identification. These are some of the significant obstacles to accessing finance, and this is where digital financial services come in.
Women business owners like Manal may not have physical collateral but they do have verifiable cash flows such as bank account transactions and electronic payment histories. They can benefit substantially from the increased availability of unsecured loans via FinTech platforms. By analysing borrower data such as revenue, monthly sales and credit card payments, FinTechs can provide unsecured loans to women-owned SMEs without a formal credit history.
Innovative credit scoring models also remove a common barrier to finance for women like Manal. Service-oriented SMEs such as salons or photo studios often have difficulty formally quantifying output and providing the documentation required for traditional bank loans. Governments can help by instituting regulation that allows the evaluation of credit worthiness using alternative data points. The consideration of electronic supply chain transactions (when Manal purchases supplies from vendors) or mobile phone usage, for example, opens many new doors for women to access finance.
Women business owners often have many responsibilities both at work and at home, and thus face significant constraints on their time. Onerous paperwork and numerous branch visits required for traditional bank loans may prohibit many women from accessing capital. Commercial banks can capitalise on the opportunity to serve these women clients using agents, mobile savings and loan products. These services can greatly facilitate access to savings and capital for women business owners.
These are just some of the ways private sector and government players can deliver on the SDGs by capitalising on a profitable and poised market segment: women entrepreneurs. Closing the financial inclusion gap for women and delivering finance to women-owned SMEs would have a catalytic impact at many levels — at home for her family, in the community and for the global economy. Let’s not let her or us miss that opportunity.
1.↩ “Access to Credit Among Micro, Small, and Medium Enterprises,” IFC (2013).
2.↩“Giving Credit Where it is Due,” Goldman Sachs (2014).
3.↩ “Global Entrepreneurship Monitor: 2012 Women’s Report,” Donna J. Kelley, Candida G. Brush, Patricia G. Greene, Yana Litovsky (2013).