Australia’s Prime Minister Julia Gillard delivers a speech during a B20 meeting prior to the G20 Summit in Los Cabos, Sunday, June 17, 2012. (AP Photo/Esteban Felix)
By Heather Kipnis
The G20 meets this week in Mexico, just two months after the G20 Finance Ministers and Central Bank Governors acknowledged in their April 2012 Communiqué – for the first time ever – the need to address women’s access to finance. This is a major breakthrough. Women play a critical role in the global economy as producers, consumers, employees, and entrepreneurs. The woman entrepreneur has become recognized as the gateway to household stability with access to finance as the catalyst.
Women entrepreneurs invest their businesses’ profits in ways that have a longer-lasting, more profound impact on the lives of their families and communities. Studies show that women tend to prioritize their children’s needs more than men do, propelling greater intergenerational benefits. In order to increase income, women entrepreneurs desperately need access to finance. Microfinance has served as an effective tool to help marginalized women start businesses. However, a woman who successfully grows her microenterprise often finds herself stuck when she moves towards the small and medium stages – too big to access microfinance and too small and risky to access finance from formal commercial banks. According to International Finance Corporation (IFC), 24-29% of formal, women-owned small to medium enterprises (SMEs) in emerging markets claim that access to finance is their biggest barrier to growth and development. The acuteness of this measure is compounded by the fact that women-owned SMEs represent 31-38% of formal enterprises in emerging markets, and that formal SMEs contribute up to 45% of jobs and up to 33% of GDP in developing countries.
There is real potential for women-owned SMEs to spur economic growth, but it depends upon a country’s ability to invest in interventions that encourage SME financing, particularly for women. The UN estimates that failure to achieve promotion of gender equality and empowerment of women could reduce per capita income growth rates by 0.1–0.3 percentage points.
So if we have a strong economic case for women’s financial inclusion, and leaders like the G20 Finance Ministers recognize the need for greater access to finance, why aren’t we seeing more governments and private institutions take action? Well, the challenges are significant.
First, we lack consistent baseline data measuring SMEs’ demand for financial services. Although development finance institutions, in particular IFC, have made huge strides in assessing the global status of SME Banking (i.e. estimating the total unmet credit needs by all formal and informal SMEs) and The World Bank and Gallup have partnered to create Global Findex, an index that focuses on supply side indicators of financial inclusion around the globe, such data is not fully gender-disaggregated among other limitations. In an era that strives to decide policies based on evidence, this dearth of data inhibits governments and private institutions from investing in women.
Second, business conditions in many emerging markets do not facilitate women accessing growth capital to lead strong and profitable businesses. Restrictive legal environments may not permit women to own property and consequently they cannot produce collateral for loans. Complex practices by financial institutions can appear more cumbersome than they are worth – in some countries it can take 15 visits by a woman to a bank to acquire a loan, versus 2.25 visits with family and friends.
A third reason is by far the most challenging: underlying cultural and social norms can constrain opportunities for women. Restrictions on mobility, greater time demanded to perform household and child care activities, limited formal education as well as business and financial literacy, and less work experience may negatively impact the bankability of a women entrepreneur.
Action expresses priorities. Despite these challenges, the potential to achieve greater economic growth is too great not to take action. Governments alone cannot influence an investment climate favorable to women, nor can the solution rely upon financial institutions. Global impact requires collective action. Leaders from academia, governments, corporations, foundations, and non-profit organizations must work together on women’s access to finance. Organizations such as La Pietra Coalition work towards such cooperation. Let’s move beyond declarations and acknowledgments to actively collaborate and determine tangible, time-bound, measurable goals that will increase the delivery of financials products and services to women-owned SMEs. Only then will we raise the status of women and move towards sustainable economic prosperity for all.
Heather Kipnis is an Independent Consultant in SME Banking and Women’s Access to Finance, and was a Spring 2012 La Pietra Coalition Fellow. Follow her on Twitter.