The growth and success of women-owned businesses are significant factors that can drive profound change in the African economy. In Africa, more women than men choose to become entrepreneurs. Women make up 58 % of the continent’s self-employed population. However, several factors are hindering the sustainability and growth of many women-owned small businesses, and the current COVID-19 pandemic is worsening the situation.
Access to financing solutions is one of the most crucial factors for small businesses, and a lack of financial support services is a major constraint faced by businesses owned by both men and women in Africa. However, women entrepreneurs bear the brunt of this hindrance, since societal norms can prevent women from being able to get business loans.
Unlocking the potential of women entrepreneurs can improve Africa’s economic growth and prosperity. Providing capital solutions specifically for women entrepreneurs can help level the playing field.
While women’s entrepreneurship is vital to Africa’s economic growth, a World Bank report shows that businesses owned by women across Africa consistently see lower profits than men-owned enterprises, due to the gender-specific limitations their proprietors face. Across Africa, women entrepreneurs face social barriers that prevent them from reaching their full potential in business.
There is a dire need for financial institutions to provide capital solutions for women entrepreneurs. Why should financial institutions, which are in the business of making profits, lend to women entrepreneurs without a guarantee through collateral of repayment?
First, investing in women is the right thing to do socially. Investing in women promotes gender equality, which is part of the United Nations Sustainable Development Goals (SDGs) that everyone should invest in. According to studies into corporate responsibility by IO Sustainability and Babson Innovation Lab (2015), companies that integrate social responsibility into their business can increase sales revenues by up to 20% and enhance their brand and reputational value by 11%.
Second, women are a high-value investment. According to research, giving women better access to finance options could unlock $330 billion in annual global revenue. Finding ways to meet women entrepreneurs’ needs for capital solutions will benefit not only the society in general but also the financial institutions themselves, in tremendous ways.
There are also other benefits to providing capital solutions for women entrepreneurs. Financial institutions can partner with development banks to develop financing options to meet the needs of women entrepreneurs. The benefits of extending financing solutions to women-owned businesses include:
- The women entrepreneur sector is an underground seed that has not been fully tapped into, giving financial institutions that participate in this sector an advantage. According to the International Monetary Fund report, 38 percent of women in Sub-Saharan Africa have a bank account, compared with 48 percent of men.
- Women are more likely to save, both as business owners and as personal customers, than men are. Also, based on observations of banking behavior, women increase their deposits and stay loyal to a financial institution more commonly than men tend to.
- Women entrepreneurs are more credible and reliable loan debtors.
- Women customers tend to prefer to connect with a bank and then access various financial products from the bank. They, therefore, present a higher potential for cost sales and more profits for the banks than their male counterparts.
Given these benefits, here are some ways that lending institutions can provide capital solutions for women entrepreneurs in sub-Saharan Africa:
- Develop a Banking Relationship
It starts with a bank account. Having a bank account is the first step in establishing a banking relationship, which can lead to women entrepreneurs seeking out capital solutions. A basic bank account is beyond the reach of almost one billion women worldwide. Financial institutions should therefore target women, particularly those who are already entrepreneurs.
An existing banking relationship enables banks to provide knowledge about the benefits of their various services. Using this knowledge, women entrepreneurs would have the opportunity to learn to use and manage their bank accounts, save money, and apply for other financial services.
In a training class of fifty informal businesswomen conducted by our team here at KilSah Consulting, ninety percent of the women said they did not have a bank account. Their reasons ranged from not trusting banks to not understanding the benefits of opening an account.
If banks specifically targeted women entrepreneurs, informing them that they want to work with them to meet their specific needs, financial institutions would be able to increase the number of women with bank accounts.
- Susu/ Asue / Esusu Discounting
A susu, asue, or esusu is a rotation of credit and savings among a defined group of people, with an agreement that states the amount of money each person will contribute and how the group will disburse the funds. This practice has existed for decades in Africa, and it allows people to save and borrow money. Susu works by having a group of people each paying a fixed sum regularly into a pool held by the “susu collector,” also known as the susu ma or susu pa. The susu collector is known and respected in the neighborhood.
Each time a participant makes a contribution, one of the group members receives the entire sum. This occurs monthly or quarterly, depending on the agreement of the members, with each member receiving the collected money in turn. The susu collector can be involved in handling multiple susu at a time. Individual members of the group can also be involved in multiple susu deposits at a time.
Banks could provide susu discounting, in which the bank would provide capital solutions for women entrepreneurs against their deposits in the susu. Female entrepreneurs’ deposits in the susu could also serve as collateral for loans from the banks in place of a house or land deed.
Financial institutions could work with the susu collector, who would oversee receiving and disbursing deposits to qualify women entrepreneurs for capital solutions. This would require banks to act locally and be involved in the community in which they operate. Working with the community would enable financial institutions to provide services for women that will improve their creditworthiness and help the community.
- Modify collateral requirements
According to Caroline Robb, senior advisor at the African Center for Economic Transformation, women are a high-value investment, with evidence showing that women are more responsible borrowers and more calculated risk-takers. Understandably, collateral is important to buffer against default risk. Women face the issue of not meeting financial institutions’ requirements for collateral, which are usually land, a house, or even an identification card.
The collateral required usually must be equal to or greater than the loan amount requested. Women and girls do not have the same rights to own or inherit land as men and boys. Since land and houses are usually in a husband’s, father’s, or brother’s name, women cannot provide collateral, which hinders female entrepreneurs’ opportunity to access capital solutions. To tackle this, financial institutions should either not ask for land deeds or houses as collateral and accept other forms of collateral.
Guarantors can also replace land or house collateral in the instances that women entrepreneurs are unable to provide a land deed to access capital.
Another way to foster women’s access to capital solutions is to introduce informal collateral methods to meet their needs. Informal collateral such as movable assets and traditional wealth storage forms like jewelry should be encouraged as collateral. It is believed that women save informally more than men, so understanding women’s borrowing culture will provide useful information to meet their capital needs.
- Provide Access to Information and Advisory Services
A lack of financial information can limit women from gaining access to capital solutions. Lending institutions should provide advisory services that will help women gain knowledge of the various financial services available, such as savings, digital payment methods, and insurance.
Lending institutions should also train their staff to properly engage women entrepreneurs and provide all necessary support and information needed to ensure these women can access financial solutions that meet their specific needs.
Another important service banks can provide to women-owned entrepreneurs is financial training and business support. Financial training can help women entrepreneurs manage their businesses successfully, which will enable them to repay their loans. Access to information should also be readily available through in-person services, calls, or digital interfaces so that women can find what they need in the way that is most convenient for them. Female business owners should receive help in real-time through customer support. This would make it easy for them to conduct transactions and continue as customers.
Overall, there is a great opportunity for lending institutions to provide financial services that are target toward women entrepreneurs. Financial institutions that invest in providing capital solutions for women entrepreneurs would enjoy two benefits: increasing their overall enterprise finance portfolio, and making a social impact that improves the community in which they operate. Women entrepreneurs’ financial needs are their biggest barrier to growth. Innovative capital solutions are needed to help these enterprises. If financial institutions, governments, women’s business associations, development organizations, and others in the ecosystem work together to overcome financing barriers, female-owned enterprises can achieve their full potential.
