About one in four African women starts or manages a business [1], yet just 10 percent of the women who own small and medium-sized enterprises (WSMEs) have adequate funding and as a result their monthly income is 34 percent lower than SMEs owned by men.[2]
The well-documented constraints women entrepreneurs face in accessing finance include lack of collateral, credit history and formal banking experience, which keep them from accessing formal lending or lead to smaller loan sizes compared to men.
As highlighted in Women and Equitable Growth: Unleashing Capital for Women Entrepreneurs in Africa, a robust analytical report recently published by the Bill & Melinda Gates Foundation, negative perceptions about serving customers with smaller loans lead commercial banks in emerging markets to de-prioritize micro, small or medium-sized enterprise (MSME) lending in favor of government lending, which is low cost, low risk and high return. They don’t tend to see enough upside in serving MSMEs, particularly those owned by women (WMSMEs).
Among the exceptions are Alliance members in Sub-Saharan Africa, such as:
- Kenya Commercial Bank, which has financed 500,000 WSMEs, supported by the introduction of cash flow-based lending to minimize collateral requirements, and by leveraging existing informal savings and investment groups of women to set up the likes of the Biashara Club to offer complementary non-financial support.
- Access Bank in Nigeria, which increased lending to WSMEs by 58 percent in three years after launching its W Power Loan for WSMEs, offering loans as low as $2,750 USD (lower than market averages), with competitive interest rates.
- TymeBank in South Africa, the first digital bank to break even on the continent, which achieved 30 percent growth in its SME lending portfolio in 2023, with WSMEs comprising 44 percent of loan customers, after acquiring SME fintech Retail Capital.
- Moniepoint, which has disbursed significant numbers of working capital loans to largely informal WMSMEs in Nigeria, using data from payments products used to build credit profiles.
A range of fintech start-ups are cropping up to fill additional market gaps. Futa, a new member and recipient of the 2024 Alliance Hack Bronze Fintech award, is using mobile money payroll data to create credit histories for SME employees in Francophone Africa, enabling them to access loans for emergencies and helping business owners sustain workforces.
The strong examples being set by Alliance members demonstrate the value in reaching more WMSMEs by combining tailored loan products with non-financial supports. Indeed, 91 percent of Alliance members in Sub-Saharan Africa offer workshops and networking opportunities for SMEs, and 64 percent have mentoring programs.
Despite these pioneering exemplars, there is no doubt that most of Africa’s women entrepreneurs remain un- and under-served—and we will need to pull multiple levers to reach them. Just as microcredit was once seen as the answer to “solve poverty”, digital finance is now being posited as a cure-all. Payments providers and fintechs are making important advances in this area, but it will take collaborative efforts across all market actors to address the complex underlying demand-side and supply-side constraints.
Acknowledging there are no “silver bullets” to closing the WMSME financing gap, the Bill & Melinda Gates Foundation report provides a suite of recommendations, including:
- Increasing public investment in resources like digital public infrastructure for more efficient onboarding and data exchange, risk sharing to enable credit to reach the bottom of the pyramid, and improved regulations.
- Intentionally investing public resources towards building pathways to bring creditworthy entrepreneurs – including women with subsistence and microenterprises – into the formal financial sector.
- Focusing on loan products that have proven to be high impact, like use of financed assets as collateral, grace periods, and repayment schedules that are flexible or tailored to borrowers’ cash flows.
- Continuing to demonstrate that women-led enterprises are, in fact, good credit risks when served appropriate products.
- Using digital channels to promote business loans, as opposed to the short-term, high-interest consumer loans that have become dominant in Africa. This means getting back to the microfinance approach of supplying productive loans for business growth.
With the launch of the WE Finance Code in 28+ countries this year – including eight in Africa – the imperative is to work across the development, public and private sectors to transform these best practices into standard practices.
[1] https://www.gemconsortium.org/report/gem-20162017-womens-entrepreneurship-report
[2] https://mastercardfdn.org/wp-content/uploads/2024/05/Young-Women-in-Africa_Agents-of-Economic-Growth-and-Transformation-by-2030.pdf
