An unaffordable luxury

[ By Rachel Kyte ]

No developing country can afford the luxury of leaving aside one half of its population’s entrepreneurial capacity when it tries to grow an economy, a fundamental condition for the eradication of poverty. The current shackles on women’s economic participation and their ability to develop their businesses is having a quantifiably negative impact on growth in the countries that can least afford it.

The International Finance Corporation, the private sector arm of the World Bank Group, is trying, in a highly focused way, to make an impact on the policies that underpin this inequality and on showing how women entrepreneurs, the banking sector and the economy will all benefit from a realignment of interests. IFC’s Gender, Entrepreneurship and Markets Programme (IFC GEM) is focused on the here and now – practical actions that can change behaviour and change attitudes as a result.

Women’s lacking access to finance is consistently listed as one of the biggest barriers to women’s entrepreneurship. IFC GEM has therefore focused on making the case to banks in emerging markets that there is a potential market in serving the underbanked and even unbanked women entrepreneurs.

In most regions of the world the majority of small scale entrepreneurs are women and the vast majority of them are in the informal sector. They make a substantial contribution to national economies. But few have access to reliable banking services, even those that are successful at a small scale, and to develop and grow they require financing and business support services.

The problem is twofold. First, banks lack familiarity with this market segment. Second, specific barriers to collateralisation and other economic activity placed on women derive directly from their gender. In a country where women have restricted ownership of resources and land, the ability to obtain a loan based on collateral is automatically restricted. In many countries women own other kinds of assets – moveable assets such as jewellery and other household objects – or are able to demonstrate excellent repayment histories in a micro or other credit scheme, but this usually cannot be translated into financing.

Women also lack access to business services support – training and help with marketing, product quality control, and other elements of business planning for growth.

The development rationale

Why bother banking the unbanked? Shouldn’t the market just take care of the strong and the economy rely on the strong to raise all boats? Women account for 70 % of the world’s poor, living on less than $ 1 a day. Supporting equal access to finance for women is essential for long-term development results. The development imperative of banking women can be easily stated three ways:

– women entrepreneurs create jobs that are more likely to employ other women;
– women are more likely than men to contribute additional income to household poverty reduction and improved nutrition and schooling for their children; and
– giving more women access to credit and increasing their economic power is more likely to translate into improved livelihoods for a wide cross-section of society.

In fact, gender inequality is the most detrimental kind of inequality to economic growth. For example, studies have shown that GDPs could grow at a higher rate with women’s participation in the market. The Gender and Growth Assessment conducted in Uganda by IFC GEM and the World Bank concludes that Uganda has foregone 2 % of GDP growth per year because of policies that hinder women’s full participation in the economy.

Since December 2004, IFC GEM has been working on improving women entrepreneurs’ access to finance, mostly in partnership with local banks. IFC GEM has developed a model by which it provides the local bank with a loan complemented with advisory services on the creation of women-friendly financial products. The local bank in turn uses the money to extend credit lines specifically to women entrepreneurs and offers its women clients a number of business training courses. IFC GEM operates mostly in Africa and the Middle-East.

Nigeria: In Nigeria, IFC GEM partnered with one of the country’s leading bank, Access Bank. It provided the bank with a $ 15 million loan, to be used to extend lines of credit to women entrepreneurs. With this loan, Access Bank was one of the first banks in Africa to dedicate lines of credit to finance women-owned businesses. At the same time, IFC GEM provided comprehensive assistance and training to the bank, to enhance its ability to reach out to the women’s market.

Tanzania: IFC’s $ 5 million financing made Exim Bank the first financial institution in Tanzania to dedicate lines of credit to women entrepreneurs. For Exim Bank, lending to women is an opportunity to cater for a previously unbanked market segment. As the financial-services sector in Tanzania is becoming more competitive, it is an opportunity for Exim Bank to differentiate itself.

In Tanzania, few women possess land titles, but these are often required as collateral for loans. Women’s applications for loans are often not taken seriously by bank officers. While women’s access to microfinance is easier, the maximum loan size and tenor from microfinance is often too low. Meanwhile, woman entrepreneurs running midsize enterprises frequently lack the training and financial resources they need to gear up their businesses for growth.

Uganda: With help from IFC, the dfcu Group in Uganda launched a Women in Business programme for Ugandan women entrepreneurs, whereby dfcu extends financing to women entrepreneurs coupled with business skills training. IFC provided dfcu with a $ 6 million loan, $ 2 million of which was earmarked for the Women in Business programme.

Although Ugandan women own about 40 % of their country’s private enterprises, they represent only nine percent of credit. A major barrier facing women entrepreneurs is, once again, their limited ownership of land, which banks usually require as collateral. They also have little access to financial management training and often lack experience in dealing with banks.

Egypt: Commercial International Bank (CIB) runs an programme called “Outreach to the women’s market”. IFC GEM is an integral part of IFC’s SME Banking Advisory Service that, among other things, enhances CIB capacities.

Egypt also provides a good example of non-finance-sector measures to promote women entrepenreurs. The IFC-supported Siwa Oasis Sustainable Development Initiative is implementing a number of commercial ventures to help preserve the delicate environmental and cultural balance of the oasis’ threatened ecosystem. The project includes a women’s artisanship component, which has provided over 350 women with marketable skills, and enabled their products to be sold by the international haute couture.

An equal-rights agenda

In summary, for decades the international community has stressed the need for women’s equality and greater economic participation. Now to the language of women’s rights we can bring hard evidence of a business case – banks need to grow, and the greatest untapped market is that of women. Women entrepreneurs, with access to business services, present a good risk. Women entrepreneurs who can grow their businesses will plough their income back into the community and employ more women who will do the same, putting capital at work for families and communities. Unleashing the power of the woman entrepreneur is about equal rights, smart policy making and smart banking.
In 2000, four banks which had been recognised by the Organisation for Economic Cooperation and Development (OECD) as best practice banks in reaching the women’s market in their countries, formed a consortium they named the Global Banking Alliance for Women (GBA). Member Banks collaborate on identifying and sharing global best practices in financial services delivery to women to accelerate the growth of women in business and women’s wealth creation.

Initially started by banks from the UK, the US, Canada and Australia/New Zealand, the GBA has grown to include 15 members from Africa, the Middle East, Latin America, Australasia and North America. IFC hosts the GBA Secretariat. You would not be wrong to call the GBA an international women’s rights movement.