Lending to women-owned MSMEs can be cost prohibitive for banks, as many in the segment tend to require lower loan sizes. Further, many banks do not have the systems or processes in place to serve them. This panel explored breakthrough technologies and processes that radically reduce the underwriting cost of lending to small businesses.
- A large proportion of women business owners fall in the so-called “missing middle,” in between traditional microfinance and traditional SME asset-based lending.
- Most banks view this segment as risky and costly to serve. Panelists shared examples of what has worked:
- Stretching the definition of collateral to include: co-guarantors, moveable assets.
- Reducing transaction costs through using mobile devices for KYC and due diligence, integrating credit scoring.
- Integrating new sources of data such as psychometric testing.
- Integrating cash flow-based lending.
- Taking a value chain approach – working with their suppliers (who have invoices to understand their purchasing and repayment patterns) and issuing basic credit cards on that basis, enabling customers to build history.
- Non-financial services are an important part of the equation. Some examples:
- Financial education upfront to build understanding of types and purpose of different types of financing.
- A portal for business customers where they can download templates for business plans, human resources etc.
- EFL presented some of the results of its analytical work related to the women entrepreneurs in its database, across geographies. Key results include:
- The percent of women lent to is greater if a bank uses the EFL tool than if not.
- Women repay loans at the same rate as men.
- Women ask for smaller loans and get smaller loans.
- Women are disproportionately in lower-return industries than men.
- The biggest predictor of business success is confidence levels.