Financing women entrepreneurs: three key questions

This month, IPC is observing Women’s History Month and International Women’s Day by celebrating the role of women in our lives. Under the theme of #embraceequity we remember that gender equity also extends to access to financial services, particularly for women entrepreneurs.?

Every day, IPC supports leading financial institutions and funds worldwide in better serving women business owners and entrepreneurs. In this short article, we address three key questions about financing this client group. We provide an overview of the benefits of working with women-owned businesses and outline key strategies that can help financial institutions effectively reach and serve them.???

1. What’s the business case for financing women entrepreneurs??

Women entrepreneurs are essential to local communities.?

Women own 34 percent of private businesses globally and are more likely to employ other women. 70 percent of women entrepreneurs enter the trade and services sector, including health, education and social services, with many of them working in systemically relevant professions.??

Women entrepreneurs are attractive customers for financial institutions.?

They are a potential gateway to the family wallet and have been found to repay their loans at better rates than their male counterparts (with NPLs 400bps lower in the SME segment and even 800bps lower in retail lending). Women banking customers are on average more loyal and have a higher average number of products per customer.?

Women entrepreneurs are a high-growth banking segment yet remain underserved.??

Women banking customers outpace the market in customer, credit, and deposit growth, yet remain under-represented in all segments (less than half the “fair share” in the SME segment for loans). 68% of WSMEs in developing economies don’t have adequate access to credit, representing a EUR 1.3 trillion finance gap.?

2. What are the unique needs of this market segment??

Women entrepreneurs are less likely to have a diverse business network and less likely to have a mentor.?

Networks play an important role in business growth and development: effective peer networks support both revenue growth and job creation. In low- and middle-income countries, greater availability and use of entrepreneurial networks are linked to smaller gender gaps in business sustainability. Yet women entrepreneurs have smaller, less diverse networks than their male counterparts. This inhibits their ability to find timely business information; learn about relevant innovation; and connect with buyers, suppliers and peers with whom they can learn and share experiences. Women are also less likely to have a mentor or role model who can share informed advice and guidance to help them navigate the unknown.??

Women entrepreneurs are often particularly time-starved.?

Women already disproportionately shoulder family care responsibilities – in no country in the world do men spend more time on family care than women. The burden of both extended childcare and care for sick family members overwhelmingly falls to women. This leaves them with even less time to devote to managing their business.?

3. How can financial institutions reach this market??

• Understand the needs of women entrepreneurs: Assess portfolio data on a gender-disaggregated basis to identify gender differences in business sector and financial behaviour. Then conduct rapid surveys to identify main pain points and needs. Include women in solution development – ask women entrepreneurs what they need and tailor responses accordingly.?
• Promote a friendlier environment for women customers. Train staff on how to engage with women entrepreneurs; consider hiring and training more female relationship managers to increase accessibility to new customers. Digital channels should be explored as distribution channels beyond branches (online banking, mobile banking, and phone-a-financial product facilities).?
• Customize policies, processes, and systems to align to women entrepreneurs’ needs. Consider simplifying the approval process to reduce the number of visits to branches. Remove dependence on male members of family as a pre-requisite to access finance. Explore options on psychological or alternative collaterals such as movable assets, and business assets. Concentrate your KYC on cash flow and qualitative indicators.?
• Leverage the position of trust to deliver reliable resources, share information, and build networks: Use all available channels to deliver not only updates on financial products and lending policies, but also relevant sector information, regulatory developments, trainings, networking opportunities, and consultancy services to help women’s businesses to thrive. If digital channels are possible, consider resources like online mentoring or business skills capacity building.?