Gender and financial inclusion
Despite great progress in financial inclusion over the past 20 years, 1.7 billion adults still have no access to formal financial services. More than half of them are women in emerging markets.(1) While microcredit is now relatively accessible to women, due in large parts to the success of microfinance, more sophisticated forms to finance growing a business are available to only ten percent of female entrepreneurs on average.(2) In fact, according to a study about women entrepreneurs in Latin America and the Caribbean, only 21% of women entrepreneurs` working capital and 22% of capital investments are financed by banks, noting a generally reduced scope and size of funding products available to women entrepreneurs.(3) This points to a significant funding gap and financial exclusion of female micro-entrepreneurs and women-led SMEs in emerging markets.
Causes of women’s financial exclusion in emerging markets
One of the main reasons for these funding gaps are gender equality barriers at the level of (i) the financial institutions offering products and services to women, (ii) the female end clients, and (iii) society in the wider sense.
Financial products are seldom adapted to women´s needs and circumstances in terms of funding type, terms, access, and distribution channels. Additionally, to access these products women often face significant equality barriers, such as the requirement for more collateral or implicit biases. These can e.g., be cultural norms that support the belief that women entrepreneurs are less business-savvy and experienced. Therefore, they may often be perceived to be higher risk (and thus subject to higher interest rates). Even through dedicated products for women entrepreneurs exist, there is still a lot of room for improvement when it comes to the awareness of availability of such products.
Furthermore, stereotypes and social norms have significant influence not only on women´s opportunities of accessing the job market, but also on the type and quality of accessible employment opportunities. There are also still deeply embedded gender stereotypes which traditionally value or assign certain leadership skills predominantly to men, thus lowering the probability of women to achieve leadership positions. When looking at the promotion of equality, diversity, and inclusion in the workplace of financial institutions and SMEs, gender equality barriers relate to key themes, such as fair pay and leadership, promotion, and talent retention as well as work conditions that enable women to realise their full potential.
Lastly, a lack of gender-disaggregated data to understand gender gap in terms of financial inclusion, promotion, and female-led businesses limits the ability for companies to address financial exclusion of women. Thus, data plays a key role in giving visibility to the needs and aspirations of women, thereby promoting a more effective understanding and implementation of gender smart and inclusive products and strategies. Once financial institutions understand the equality barriers and enablers for minorities, on both a client and employee level, they can adapt their gender, diversity and inclusion strategy and product offering more effectively. This, in return, amplifies the impact and thus contributes to the overall outcome of economic empowerment and resilience of underserved clients and employees.
Bridging the gender gap in access to finance: the role of private equity
Financial inclusion-focused private equity strategies can be a powerful tool to promote gender equality and close the funding gap for female entrepreneurs. Indeed, by targeted investing in financial institutions and insurance companies catering to small businesses and the “bottom of the pyramid”, the private equity strategies provide long-term capital investment. These can enable female entrepreneurs to access gender smart products and services. Furthermore, through their shareholding influence and active board membership, financial inclusion-focused private equity strategies can promote inclusiveness as an integral part of portfolio companies’ strategy. This can be translated into several actions such as (i) promoting awareness of the market opportunity as female-owned businesses and micro-entrepreneurs are an underserved segment which represents a USD 30 billion market potential globally,(4) (ii) collecting gender data of clients to better assess gap and adapt products and (iii) promoting better identification of women-led businesses and development of products better adapted to serve women. Additional products could include contractual or parallel savings accounts, insurance products, business expansion loans, as well as remote or mobile banking adapted to women entrepreneurs.(5) Within these financial institutions, financial inclusion-focused private equity strategies can push to implement changes such as non-discriminatory policies, promote women in management and Board director positions as well as offer a gender inclusive work environment.
Another important part of the work financial inclusion-focused private equity strategies can do is towards value creation at portfolio company level. This translates into (i) focusing on closing the funding gap to support the business growth, (ii) improving efficiency with better products, better trained staff, and better use of technology via digitization of processes as well as better access to products via digitized product and service offer to seize this business opportunity and (iii) being able to leverage a wider and more diverse workforce which can bring more value to the company and its stakeholders.
Closing the gender gap
We believe that financial inclusion-focused private equity strategies can play a key role towards financial inclusion of women via (i) the allocation of long term capital to enable female entrepreneurs to access gender smart products and services, (ii) their stewardship through their shareholding influence and active board membership to promote inclusiveness as an integral part of portfolio companies’ strategy and (iii) value creation by focusing on closing the gender funding gap, improved efficiency, digitization, and leverage a more diversified workforce.
(2) Building Effective Women’s Economic Empowerment Strategies. ICRW & BSR. (2016). Retrieved from: Report.indd (bsr.org)
(3) Women’s Entrepreneurial Venture Scope. The Economist. (2013). Retrieved from: *EIU_IDB_WEVentureScope_WEB.indd (iadb.org)
(5) A Business to Call Her Own: Identifying, Analyzing and Overcoming Constraints to Womens’ Small Businesses in Latin America and the Caribbean. IDB. (2010). Retrieved from: A Business to Call Her Own: Identifying, Analyzing and Overcoming Constraints to Womens’ Small Businesses in Latin America and the Caribbean | Publications (iadb.org)
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