Voices from the Field features contributions from scholars and practitioners highlighting new research, thinking, and approaches to development challenges. This article is authored by Rubin Japhta, SME Banking and Gender Finance Specialist for the East Asia and the Pacific region at International Finance Corporation, a member of the World Bank Group.
Women entrepreneurs across the developing world often face the same roadblock: lack of capital.
Without access to finance, women are excluded from full and productive participation in the global economy. A growing number of Asian countries, however, are taking steps to ease the process—but significant hurdles still remain to improving women’s access to finance.
In China, for instance, in interviews with International Finance Corporation (IFC), women entrepreneurs say loan officers don’t treat them with dignity or may claim they aren’t knowledgeable about the banks’ products and services, making women feel unwelcome at banks.
In the Philippines, women entrepreneurs say they prefer pawnshops to banks because they receive loans almost instantly, with very little paperwork. Unlike banks, the pawnshops also accept moveable assets as security, which makes it easier for women to borrow.
Similar problems persist in Indonesia.
IFC recently commissioned a study that showed that more than half of all small businesses and about a third of medium-sized enterprises in Indonesia are owned by women. The impressive data, however, were overshadowed by another statistic that showed that women-owned businesses faced a $6 billion shortfall in financing needs. The study highlighted the challenges that women businesses owners face in getting loans—although they make significant contributions to the Indonesian economy by creating jobs and boosting growth.
In interviews with more than six-hundred entrepreneurs, the study—Women-owned SMEs in Indonesia: A Golden Opportunity for Local Financial Institutions—found that women lose out on financing from formal banking channels because banks continue to rely on traditional means of credit assessment, including ownership of land and buildings. Indonesian women typically don’t have those assets in their names, so banks are reluctant to lend to them.
Negative experiences with banks prevent women from approaching formal financial institutions, which hinders efforts to improve women’s access to financial products and services. Indonesian banks need to address these challenges because women-owned businesses are a viable source of revenue—they represent half the market share and many want to borrow more to invest in their operations. In addition, female entrepreneurs should be ideal clients for financial institutions: women typically have lower default rates compared to their male counterparts.
Banks can improve women’s access to finance by introducing simple changes. For instance, they could modify financial products to include flexible repayment schedules and moveable assets, such as vehicles, as security. Banks could also reduce the paperwork for getting loans and speed up the turnaround time for loan approvals. Women would also benefit from greater access to financial literacy services, including seminars on networking skills and business training. In addition, banks could explore alternative channels—such as mobile and internet banking—to improve access to finance for women entrepreneurs.
Women’s access to finance is a priority for IFC. We are working with banks across the world for greater financial inclusion of women. IFC currently has thirteen projects in which it advises banks to improve their market research, implement innovative credit-linked products for women, and develop non-financial services.
Gender inequality is not only unjust, it is also bad economics. Closing the credit gap can significantly increase the economic output not only in Indonesia, but also in economies across the world. At IFC, we are proud to be part of efforts to improve women’s access to finance and boost prosperity for all Indonesian people.