NB Financial Health
Rising Entrepreneurs: New research on reversing underinvestment in women-led Business in Latin America
In recognition of International Women’s Day, which is March 8, NextBillion will feature several articles on expanding access to finance, business development services and health care for women.
Esperanza started baking bread in her clay oven to support her family of six in rural Guatemala, selling it with the help of her husband and children. Over time her business grew to a small roadside stand and she was able to employ a single mother from her community with a fair living wage. By 2012 she was ready to scale her business up to a small café after getting technical support on how to diversify her products, as well as support from other women in her community. But she knew she would need an industrial oven and other equipment to grow her business, so she applied for a bank loan. The bank rejected her application, as Esperanza did not have any land or assets in her name. But when her husband applied – also as an individual without assets in his name – the bank approved the credit. Esperanza was able to purchase the industrial oven, a key step to grow her business, only because her husband was able to get the credit for her.
Esperanza* told her story as part of an innovative research study that analyzes the underlying problems of underinvestment in women-led enterprise led by Value for Women, in partnership with the Aspen Network of Development Entrepreneurs, Cherie Blair Foundation for Women, Fundación Capital, and ING. The research, set for publication in April, is motivated by the fact that in Latin America there are significantly fewer women entrepreneurs than men. This is confirmed by reports by investors and capacity developers who say as few as one in ten entrepreneurs in their portfolios are women. We also know that women entrepreneurs are often concentrated in the smallest firms – they have fewer employees, sales and physical capital – all of which leads to lower sales and profits. These entrepreneurs cite multiple barriers to starting and growing their businesses, including gender-based discrimination in banks, lack of assets, time poverty, and a culture of machismo.
Esperanza’s case is consistent with literature consulted that shows securing a bank loan is far more difficult for women than for men due to gender discrimination. Studies also point out that women-led firms often pay higher interest rates on loans, on average about 0.6 percent higher than what their male counterparts pay. Other women in the study said they were not taken seriously when requesting a loan. Often, women cannot access credit because they have few assets – a big challenge in Latin America considering male farmers own up to 90 percent of the land.
Investors interviewed in the study agree that the lack of access to credit is a barrier for women. Women entrepreneurs in the same study expressed that gender-based discrimination was responsible for not getting access to credit in order to grow their businesses.
Of course, women also carry the bulk of family care responsibilities, which in turn limits the time they can invest in receiving support services and in growing their businesses. Childcare and household responsibilities – unless shared by the family unit – hinder women’s full economic participation. This involves shifting attitudes and the culture at the community and household levels, as well as power and control over household resources. In Esperanza´s case, her empowerment process – supported by a community savings program – led her to negotiate these roles in her home, where the chores are shared by the family unit, including her sons and husband. This freed up her time to invest in growing her business.
Additionally, women entrepreneurs see themselves as self-confident, risk takers, and able to navigate multiple barriers in order to advance their businesses, despite the fact that impact investors often characterize them as more risk averse and less confident, according to the study. To tackle misconceptions, research tells us that more communication between women entrepreneurs and the financial community will lead to raising awareness of women’s positive traits as entrepreneurs.
Despite the barriers women face managing a successful business, their enterprises are often seen as equally productive in performance and efficiency as those of their male counterparts. This tells us that if these barriers were removed or diminished, there is great potential for women-led business to excel and greatly contribute to economic growth.
Why focus on Women? Some benefits of women’s economic empowerment
Women’s economic participation is essential to sustaining economic growth, and improving women’s access to enterprise development impacts gender equality, community development and family well-being. Increasing women’s access to financial products, services, and support is part of the solution, as is changing attitudes and beliefs about women’s economic and social potential.
Increasing economic participation of women often leads to their empowerment at the household level, increasing both autonomy and self-esteem as a result. Women’s success leads to greater investment in their families – in children’s health and education as well as overall wellbeing. At the community level, women-led enterprise benefits job creation, and prevents migration of women to urban areas and to other countries. Additionally, as women take greater leadership roles, they become role models to other women, and achieve greater recognition of their overall rights.
Turning a problem into a solution: What YOU can do about underinvestment in women led enterprises
The good news is that there are many solutions. Financial institutions can develop specialized financial services tailored towards increasing women entrepreneurs’ access to credit, as well as explore the recognition of “associations” as a legitimate borrower – and as a mechanism for women to scale up their businesses. NGOs and capacity developers can better prepare women entrepreneurs to navigate the demands of financial institutions. Specifically, capacity developers are positioned to play a role in bridging the knowledge gap; they work with women entrepreneurs and have knowledge of their characteristics and realities. They can highlight the value of women entrepreneurs to financial institutions and enterprise development ecosystems. They can also develop long-term capacity development approaches that take place in the workplace, such as coaching. When providing training, sensitivity to family responsibilities and childcare will improve women’s access to those trainings.
Some additional ways to contribute to the solutions:
Balance your portfolio goals of financial return with a social return of increased family wellbeing that women deliver better
Build in gender sensitivity training for investment managers to reduce unconscious gender bias in lending practices
Free up women’s time by investing in and providing communication technology and train women entrepreneurs how to use a computer
Support women to improve their financial literacy, and better prepare women entrepreneurs to navigate the demands of financial institutions
Work with NGOs such as Oxfam to reduce gender biases through gender sensitivity training at the community level
Work collaboratively to demonstrate the impact of women entrepreneurs to others
As there is no quick, easy solution to gender inequality, it is important to recognize the need for collaborative efforts over time. Solutions to underinvestment in women-led enterprise must be carried out together with an ecosystem of actors, with participation of multiple experts working for economic and social changes that lead to equality.
Value for Women’s research aims to foster collaborative solutions to this problem, and bring women to the forefront of economic and social transformation, such as adoption of gender- sensitive practices and services offered within financial institutions, through changing cultural and social attitudes and beliefs, to increase investment in women.
Rebecca Fries is the policy director and member of the board of directors at Value for Women. Email her at email@example.com if you would like to receive a copy of the research report, either in English or Spanish.
Value for Women is a social enterprise that that works towards women’s economic leadership and enterprise development in Latin America. It builds partnerships to advance social and economic development through women-led enterprise. For support on implementing these recommendations and improving your impact, get in touch with Value for Women by emailing: firstname.lastname@example.org. Follow them on Twitter @valueforwomen and on Facebook.
*Names and identifying information has been changed to protect the confidentiality of research participants.