Expanding access to finance for women SMEs

Problem Statement Information

Category
Banking

Problem statement tags
women finance accesstofinance business womeninbusiness womenfounders SMEs womenSMEs accesstocredit B2B B2C Banking fintech technology Insurance payment wealth Financialinclusion FemaleEconomy Hackathon 2020AllianceHack

Detailed Description

Subcategory 1: Women-owned informal SMEs face high barriers to financing

Women-owned VSEs and SMEs face a number of constraints to growth, including access to finance. While financing is almost always a challenge for SMEs, the difficulties are often intensified by gender-related factors, including women’s lack of collateral, weak property rights, and discriminatory regulations, laws and customs. The International Finance Corporation (IFC) estimates that as many as 70% of women-owned SMEs in the formal sector in developing countries are unserved or underserved by financial institutions, amounting to a financing gap – and opportunity – of around $285 billion (Source: Credit where it is due, Goldman Sachs Global Investment Research, 2014).

The gap is roughly $1 trillion when informal women-owned businesses are included. And in fact, most women-own SMEs and VSEs fall between formal and informal in a category defined as 'semi-formal'. These businesses are vital sources of income for millions of households. Yet they face compounded financing challenges because of incomplete financial statements and paper trails, lack of formal registration, limited business experience, being located in the home, and making sales based on community credit rather than cash.

Informal small businesses typically fall in between traditional microfinance and commercial banks' SME lending. To cater to these firms, some banks have introduced 'cash-flow'-based lending and or began accepting co-guarantors in place of property titles (which are often a barrier for women seeking loans); however, these approaches can be expensive and adoption by banks is not widespread. Supplier credit offers some respite; but that too has limitations and is irrelevant for many businesses. Supply chain finance has promise; yet it has not been achieved scale.

Banks need faster and more efficient ways of underwriting loans to women-owned VSEs and SMEs, availing of the latest alternative information sources to create credit scoring models, blockchain to establish collateral ownership, social networks to create co-guarantor mechanisms, and customer data to establish financing demand and attract customers (particularly underserved segments, like women). Those who design these systems must be careful to safeguard against potential gender bias within data sources, algorithms, and human-made lending decisions. While some fintechs have solved pieces of the equation, the market is vastly underserved. This presents a huge B2B partnership opportunity for fintech’s and banks.

Subcategory 2: Female business owners lack holistic solutions to help them grow

To support women-owned VSEs and SMES to grow their businesses, access to finance must be complemented with business and financial education (40% + of women going to a bank for a loan do not have a projected cashflow), access to networks and markets (women have smaller networks than men and yet size of network is correlated with business success), relevant information (timely and efficient--women are avid consumers of information) and some form of recognition (too few role models, require increased visibility). This holistic value proposition is what women need to succeed. Traditional approaches (class room training, mentoring, trade fairs etc.) are being combined with digital platforms (PFM platforms, upskilling on eCommerce platforms, networking on social media platforms etc.) and women customers are looking for one-stop shops that improve their skills, build their networks (including exports), enable access to financing (at what ever stage of business lifecycle). Banks in the Financial Alliance for Women network offer this holistic value proposition but need to do so more cost effectively and at scale through use of innovative technology, availing of real and financial sector stakeholders, to solve for business growth needs.