Closing the financing gap between women and men

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Merharriet Hailemariam is an electrician/entrepreneur in Addis Ababa, Ethiopia.Photo: © Stephan Gladieu / World Bank

Mao Zedong once said that “women hold up half the sky.” Think about our mothers, wives, daughters, sisters, aunts and grandmothers – we know that these words ring true. But in the business world, women’s participation and impact still fall short – to the detriment of everyone.

One of the major reasons this is true is access to finance. Globally, women-owned entities represent more than 30 percent of formal registered businesses. But in developing countries, 70 percent of small and medium enterprises owned by women are either shut out of financial institutions or can’t get the capital they need.

While 65 percent of men had a bank account in 2014, only 58 percent of women had one – a 7 percentage point gap. In developing countries, the gender gap is even larger at 9 percentage points.

Yet the evidence is overwhelming that supporting women’s economic participation pays enormous dividends for families, communities and economies. If women had the same opportunities as men in labor markets, some economies could grow by up to 34 percent. There could be many more women-owned businesses, creating more jobs. We would be able to reach our goal of ending extreme poverty that much faster.

We need a concerted push from governments, the private sector and multilateral institutions – including the World Bank Group – to close the financing gender gap and accelerate sustainable economic growth.

So I’m heartened that just a few days ago, 13 countries at the G20 Summit in Hamburg, Germany backed a new initiative to unlock more than $1 billion in financing for women-owned businesses in developing countries.

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The Women Entrepreneurs Finance Initiative is a major global tool to increase access to capital. It will invest in projects and programs that support women-led small and medium enterprises around the globe. At the same time, We-Fi, as it is called, will enable us to work with governments to improve laws and regulations stifling women entrepreneurs.

We-Fi complements some of the things we’re already doing. It will benefit from what we’ve learned working with public and private partners.

For example, new technology is helping us work around an age-old problem that many women face: putting up collateral. Collateral is generally based on real estate assets and is particularly difficult for women to provide because too often they don’t have their names on asset titles.

We’re working with Ant Financial in China on the first internet-based gender finance program that looks at women’s transactional and behavioral data to evaluate their creditworthiness instead of taking securities and assets – such as buildings or inventories – as guarantees for loans.

We’re experimenting with financial technology in Ethiopia, using tests written on tablet computers that can predict the likelihood that a borrower will repay a loan. If this type of innovation can work in places as different as China and Ethiopia, there is no reason it can’t work elsewhere. So we’re working to replicate it in other countries.

In Ethiopia, we also found that many women entrepreneurs were stuck in the “missing middle.” The loans they needed were too large for microfinance, but too small for traditional banks. So we helped microfinance lenders scale up, and commercial banks scale down. Today, they sustainably lend between $2 million and $4 million a month to women entrepreneurs who previously had no access to credit. It’s been such a success that we’re bringing lessons learned in Ethiopia to Indonesia, working with the government to help women entrepreneurs access capital to start or expand businesses.

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Solving the collateral issue and sizing loans to better fit women entrepreneurs are essential, but that isn’t enough. Women face a range of challenges, such as different access to skill-development and networks, restrictive cultural norms, and a lack of time to dedicate to a business.

To overcome some of these constraints, we launched personal initiative training in the low-income country of Togo, testing how much it helps to build traits that enable someone to interact effectively with other people, like self-starting and persistence.

We found that the personal initiative training helped raise profits for women-owned businesses by as much as 40 percent – much more than traditional managerial training. Based on what we learned in Togo, we’re now designing skill development projects in Mexico, Mauritania, Mozambique, and Ethiopia.

There are many challenges; but there are also many solutions to closing economic gaps. Every day, we’re learning more about what works to increase access to finance, redistribute care work, accelerate progress towards financial inclusion, train female entrepreneurs, and help them access higher-value markets.

Women’s economic empowerment is a moral issue, but it’s also a critical economic issue. We know that with access to capital and markets, women start businesses, grow them, and grow the entire economy. No country, organization, or economy can reach its full potential and meet the challenges of the 21st century without the full and equal participation of women and men. Faster progress on this front will lift many more people out of poverty.

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