COMMENT: The World Bank estimates that the gender finance difference is $1.7tn. One of the best ways to tackle this is to invest in funds that invest in women-led enterprises, writes Susann Tischendorf of iBAN
How finance is allocated can have transformative effects on women, especially across the developing world. Yet despite a sense of progress, the World Economic Forum estimates it will take over 250 years to achieve gender economic parity. And given the disproportionate impact of the Covid-19 pandemic on women, the global gender financing gap is set to widen.
Currently, only 2% of venture capital goes to women-led startups despite it being well established that gender diversity leads to higher financial returns. While investing in women entrepreneurs alone cannot fix the problem, it could help bridge this gap and reap benefits for men and women alike.
To do so, the finance sector firstly needs to do its bit by shifting more capital to women entrepreneurs. To put this in context, the World Bank estimates that the finance gap for women is valued at US$1.7tn.
Often standard financial products do not work for women nor meet their needs
One of the best ways to scale the impact of capital is to invest in funds that in turn invest in women-led businesses. Some of these funds themselves are also women-led and managed, such as Aruwa Capital, one of the few private equity funds in Africa. The organisation invests in businesses that are providing goods or services that serve the untapped $15tn female economy on the continent. Its founder, Adesuwa Okunbo Rhodes, strongly believes that changing the gender imbalance amongst capital allocators is a practical way to narrow the gender finance gap. “More women succeeding as capital allocators means more women getting funded, more mentors, more torch-bearers, and more examples to follow,” she says.
Similarly, Jessica Espinoza of the German finance institution DEG/KfW, believes the way capital is allocated shapes the world we live in. For that reason, the institution set up the 2X Challenge to mobilise private sector investments for women entrepreneurs in emerging markets. In 2020, DEG/KfW and other investors invested $11.4bn, more than three times their original target. This success underlines the demand and importance of investing with a gender lens to support women so that they can build their own businesses and livelihoods.
(Credit: Corey O'Hara/Shutterstock)
Secondly, the finance industry can do more to ensure that financial products and services are inclusive. Often standard financial products do not work for women nor meet their needs. In some countries, for example, lenders ask women entrepreneurs for collateral, such as land or a house, before they can give them a loan. This is a problem when these assets are traditionally owned by men (for social, cultural or legal reasons) thus excluding women.
Alternative solutions to gender-specific financial products and services are emerging and give hope for women entrepreneurs looking for a business loan. In Ethiopia, CARE International is pioneering a savings programme to encourage and support women to save their money. Their savings account can then be used instead of collateral to make a case for a formal loan. Elsewhere, in India Chetna Gala Sinha founded the Mann Deshi Bank and Foundation to help rural women access funding. “If you want to finance the small enterprise, it is very important for the financial sector to do their homework – to understand the challenges and create the right products for small enterprises,” she says. Her homework showed her that women not only needed access to finance, but also basic financial literacy training and doorstop banking for women who were based at home or spent most of their days on the field. This has paid off – 90,000 women have set up bank accounts with Mann Deshi, depositing over $15m and nearly half a million women have participated in their business school.
Hearing real stories from women about their challenges, all serve to inspire others to take action in new ways
Lastly, we all have a role to play in making sure these women entrepreneurs are being seen and heard. Hearing real stories from women about their challenges such as accessing finance, or the success they have had in building businesses, all serve to inspire others to take action in new ways. Furthermore, Catalyst at Large founder Suzanne Biegel notes that storytelling can also help make the case for investors. Investing in forms of storytelling such as success stories, solid data, and compelling case studies, is therefore also an investment in changing social norms. The Global Scale Up X initiative, an Instagram community for female entrepreneurs to connect to others, and iBAN’s online Impact Stories, are two examples of innovative storytelling approaches that seek to amplify the voice of female entrepreneurs, in order to inspire others and foster networks.
Investing in women is good business, both financially and by creating long lasting impact. But finance can only take women as far as social norms allow. Finance cannot single-handedly change social norms, legal rights or unconscious bias. It can, however, act as a catalyst to address the gender imbalance and help close the finance gap. By investing in women entrepreneurs and their business today, investors are financing a more prosperous and equal future for decades to come.
Susann Tischendorf is director at the Inclusive Business Action Network (iBAN), a global initiative supporting the scaling and replication of inclusive business models. iBAN manages the largest online knowledge platform (www.inclusivebusiness.net) on inclusive business. It is jointly co-funded by the German Federal Ministry for Economic Cooperation and Development and the European Union.
iBAN WEF Aruwa Capitlal DEG/kfW Mann Deshi Bank Care international Catalyst at Large