On March 18, the Inter-American Development Bank (IDB) launched an initiative to help women entrepreneurs in Latin America and the Caribbean connect with regional value chains and promote international trade. The Devex article quotes IDB Vice President Reina Mejía as saying that women-led businesses are “the engines of economic recovery” and cites a financing gap in the region of USD $91 billion for women-owned MSMEs, the largest in the world. Further, an IDB survey showed that 76% of women who sought commercial financing during the pandemic were unable to obtain it.
To shed more light on this topic, ANDE interviewed Gracia Barahona, Executive Director of the Ecobanking Project of the Latin American Center for Competitiveness and Sustainable Development (CLACDS) of INCAE Business School.
What is the added value that women-led businesses specifically offer as “engines of economic recovery”?
The first aspect is that women-led businesses are becoming very active in the economy and their financial power is growing. They are all interested in innovation, technology, the long term, addressing issues such as education, pensions, health, aspects that they need to strengthen the economy of a country and its competitiveness. Although many enterprises led by women are of subsistence and small, they are transforming into medium-sized and consolidated companies that will have an impact on the economy. There is a lack of access to capital, but once they have access to financial services, women save more than men, and they are more responsible and more careful with risks, therefore tend to offer more business stability.
What differential characteristics must be considered in SMEs led by women, both in the business and in their leaders, to provide them with more effective support?
Women entrepreneurs take less risk, request fewer loans and for smaller amounts. They prefer to do it through financial companies, microfinance companies or request financial support from their relatives. When women access funds, they have to pay higher interest rates than those paid by male entrepreneurs. This does not make much sense, considering women have lower delinquency and leverage rates, and higher savings rates, despite which, are offered higher interest rates than men.
Also, these types of entrepreneurs serve more female clients and employ more women than male-led businesses. This implies that more women are entering the workforce and earning money, therefore, they are making more and more decisions, of all kinds. They are characterized by being loyal, which means they retain more customers and suppliers than male-led companies.
Unfortunately, it must be said that there are still gaps in specific financial services: in several countries in the region, men outnumber women in terms of access to financial services, except in time deposits, which confirms women´s greater propensity for savings. For a combination of historical, cultural, and other reasons, women in the region choose to be entrepreneurs in small businesses with local coverage, usually in the service sector (hotels, restaurants, tourism, etc.) all heavily hit by COVID-19. But we should keep in mind is that this type of business is growing in several countries, and will become a great opportunity once economic recovery is on its way and its safer for people to travel.
What would be the minimum requirements to help these companies recover?
The first thing is for companies or agencies to deepen their understanding of the profile of the women-led SME involves investigating how they operate, with what human and financial resources they use and where their areas for improvement are. What other trainings, in addition to financial ones, they require: coaching, motivation, ambition, increasing self-esteem and confidence. Who will meet these training needs? The next step is to provide support to women to equip them and strengthen their business knowledge and skills, promoting a paradigm change, moving away from stereotypes such as “women do not know about mobile banking or women are not good entrepreneurs,” both obviously false, but still present in the culture.
To offer access to financing, it needs to be done under conditions similar to those available to men, since we know that in many countries of the region, businesswomen, despite being good payers, having less arrears than men, and saving more, are financed with higher interest rates. Giving financing to women-led companies also includes an important task on behalf of the sector: understanding their portfolio and how are they lending to women. With what products? Through what channels? Are they suitable for their clients? Are there biases (intentional or not) that lead to an under-attention of this segment? What requirements and guarantees are requested? Are they the right ones for the segment? As an interesting fact, we know that a businesswoman is not willing to give the house where she lives with her family as collateral for a loan. What can banks do about it?
Finally, financial institutions need to review the practices of their sector. A high percentage of banks confirm the neutrality of their products, and that they have been designed to be requested by men and women alike, but that’s obviously not generating equal access because conditions and client profiles are different. Disrupting this confirmation could be the beginning of a new financial model in which banks offer products and services more limited to the needs of businesswomen in the region, and — maybe — truly assume their huge transformation potential, giving birth to a new economic era.
Promoting role models and success stories is an important part of this transformation. The “Girl Boss” competition in Honduras, promoted by Estilo Magazine, SENPRENDE and BANPAIS, is a great example that features successful women entrepreneurs and their new ventures.
