Access to credit: Challenges and opportunities for women entrepreneurs
by Nicola Ehlermann
International Sustainability and Gender Equality Advisor, former Head of the MENA-OECD Competitiveness Programme, Lecturer at Sciences Politiques – Paris
Over the last 50 years, the average per capita income in the Middle East and North Africa (MENA) has been weak, increasing by only 62%. Numerous surveys mention the need to improve the regions business climate, including access to finance, to take advantage of the significant untapped potential and broaden economic diversification, boost innovation and sustain growth. This includes narrowing the gender gap. And although women’s education attainment has significantly increased and the representation in professional roles is evolving, the overall gaps between men and women remain significant in aspirations, opportunities, and outcomes.
The MENA region has also the second-lowest global share of firms with female participation in company ownership at less than 3 percent and has the highest gender gap in the world for entrepreneurship: 12 percent of women are entrepreneurs compared with 31 percent of men.
Women’ lagging in entrepreneurship is due to the specific challenges they face in establishing, managing or developing a business. Although from a legal standpoint, men and women face the same requirements for registering a business, in practice, they may encounter specific obstacles resulting from legal and socio-economic provisions embedded in the family or labor laws. For instance, work experience and business contacts are critical for business success, yet both are limited for many women in the region.
Access to finance, so essential to establish and grow a business, is equal in principle for men and women. However, a smaller share of women than men hold accounts at a financial institution or have credit cards in their own name. Furthermore, various factors – such as limits on women’s property rights and assets, unequal inheritance laws and banks requiring husbands to co-sign loans – contribute to women having less available collateral to secure external financing than men.
The lack of access to finance is seen by women entrepreneurs as a major and often primary obstacle to creating and developing businesses. Despite specific support programs adopted by some banks and microfinance institutions, bank financing remains a stumbling block. This is due to factors such as collateral requirements that cannot be met by young start-ups. More advanced systems granting funds to women entrepreneurs such as equity investment and profit-sharing appear to be lacking. Testimonies from women entrepreneurs in the region suggest that many projects struggle to secure the funding needed for their growth and operational effectiveness. Obtaining grants or investments tailored to small-scale projects, particularly in rural areas, remains difficult.
Women then generally turn to other options such as borrowing from family and friends or microcredit, all of which have limitations and inhibit women’s businesses to innovate, grow and scale up. There is a need for women owned and run micro, small and medium sized enterprises to move beyond microfinance as many women-owned businesses need more varied services and products, and larger loans than microfinance institutions can provide.
To reverse the trend, governments have stepped up initiatives. But building on testimonies, public schemes aiming at supporting women entrepreneurship seem to remain excessively cautious and bureaucratic in disbursing funds.
Banks are essential key financial players but seem still reluctant to fund small businesses and start-ups and ask for strong personal guarantees. Women mention a lack of interest from banking representatives to gender issues, even when specific projects or products are promoted by their bank. Female entrepreneurs furthermore report being asked questions that men would not be asked e.g. whether they intend to have a child that then impact their access to a loan.
To develop the 4th industrial revolution progress is necessary to increase the representation of women and it is key for financial institutions to understand the importance of women-owned businesses in their markets.
Banks in the Arab world could reflect how to support women’s economic engagement and for women’s entrepreneurship to become a pillar of the regional economy. Avenues of actions include strengthening Public-Private Partnerships and the pooling of resources. Developing trainings and a better understanding of the banking sector of women’s needs and their contribution to the economy. The development of digitized low-cost mobile applications to support access to finance for microentrepreneurs.
