Partnering with the private sector to increase access to financial services for women entrepreneurs

Access to financial services is critical for micro, small and medium enterprises (MSMEs) to access productive resources like inputs, equipment, technology or skilled labor needed to grow their businesses, create jobs and contribute to positive economic growth. However, access to financial services remains a key constraint for MSMEs globally, especially women-led MSMEs, and the International Finance Corporation (IFC) estimates a global funding gap of $1.4 to $1.7 trillion for women-owned small and medium enterprises (SMEs). Further industry research shows that women-led businesses receive only 7 percent of private equity and venture capital investment.

Despite global evidence showing that women’s repayment rates are better than men’s, gender gaps in financial services persist. This issue is recognized in the new U.S. Strategy on Global Women’s Economic Security, which prioritizes financial inclusion of women-led MSMEs under the Priority Line of Effort Promoting Entrepreneurship and Financial and Digital Inclusion, Including through Trade and Investment. The strategy recognizes issues on the demand and supply sides and commits to fostering an enabling environment that includes working with the private sector to encourage women’s access to financial markets and the integration of a gender lens into products and services.

There are many demand-side issues that contribute to the gender finance gap, including women’s business informality, financial literacy, lack of collateral, and investment readiness (demand side refers to those seeking financial services). Many demand-side problems stem from profound societal gender and social norms that systematically marginalize women. At the same time, there are significant constraints on the supply side (supply side refers to those who provide financial services). Lenders and investors often have not tailored their products and services to women, which makes those products and services inaccessible or ineffective for this client segment. Women are underrepresented in leadership roles in financial institutions, and gender biases remain within financial institutions, which reinforce these challenges.

We have found that engaging the leadership of financial institutions to troubleshoot and overcome these challenges results in win-win solutions that benefit both the institutions and their female clients. ACDI/VOCA partners with local financial institutions to cocreate and implement gender-smart solutions, products and services. Through ACDI/VOCA’s impact investment subsidiary, AV Ventures, we apply a gender lens to private sector investments focusing on increased gender equality and women’s economic empowerment.

Below are a few examples of how the ACDI/VOCA group is working with private sector financial institutions to increase female entrepreneurs’ access to finance.

Redefining female client segments in Honduras

Under the USAID/Honduras Transforming Market Systems (TMS) Activity, ACDI/VOCA partnered with regional bank Banco LAFISE to develop a new business unit and launch an inclusive approach to reach the underserved SME segment, with a focus on women-led SMEs. TMS helped Banco LAFISE Honduras analyze its current portfolio and interview women to understand their needs. The bank then presented evidence from this research in a business case to its board of directors, demonstrating the market potential of this underserved MSME segment with a high representation of female entrepreneurs. The case was made by prioritizing women as an inclusion issue and a business opportunity.

In 2022, Banco LAFISE launched the Pyme Mujer (Women SME) offer to female clients. Based on its market research, the bank developed new, gender-smart financial products that take into account women’s challenges and preferences, including loans, credit cards, employee insurance and automatic savings accounts. With the support of TMS, Banco LAFISE also developed nonfinancial offerings, including a self-diagnostic tool called Coach Pyme, helping female entrepreneurs to become investment-ready by meeting basic investment requirements, such as having current business plans or financial statements. The educational platform provides a real-time diagnostic of their business with access to a digital resource library of tools and content to strengthen critical areas of development. With the support of USAID/Honduras, TMS also helped facilitate a $7 million first-loss guarantee from the U.S. International Development Finance Corporation through the 2X Women’s Initiative.

Since launching Pyme Mujer in 2022, Banco LAFISE has disbursed $5.1 million in loans to women-owned SMEs. The transformation to become a market leader required a top-to-bottom organizational change, with over 300 credit officers and staff trained on how to integrate a gender lens, the development of gender intelligence, and related capabilities within the institution. The result is not a piecemeal change; it is an emerging systems change in how financial markets function, as other financial institutions start to imitate Banco LAFISE’s example, offering promise for broader women’s financial inclusion.

Applying a gender lens to private sector investments

AV Ventures is ACDI/VOCA’s for-profit subsidiary that promotes innovative, catalytic financing to SMEs with strong potential for growth and impact in Africa, Central Asia, and Latin America. AV Ventures has integrated gender considerations into its investments since its start in 2017. However, recognizing the need to formalize and standardize gender integration across its investment processes and within fund management to better achieve gender equality outcomes, AVV developed a gender lens investment strategy in 2022 that it applies across all funds.

The gender lens investment strategy looks to advance gender equality through AV Venture’s investments and defines five different gender lenses applicable to investments, that include: women in leadership, workplace gender equity, women in the supply chain, women as consumers and women’s access to capital.

It also outlines specific actions to better integrate gender across the investment process, as well as short- and long-term gender goals and targets.

In Kenya, AV Ventures manages the Impact for Northern Kenya Fund under the USAID Kuza program. The fund is a $14 million wholesale financing vehicle that lends catalytic capital to financial institutions and pay-as-you-go service providers for onlending to MSMEs in counties within the target geographic area. The fund uses the strategy as a guide to analyze and identify prospective gender lens investments that advance gender outcomes, such as increased number of women in leadership and increased financing for women. The fund also created technical assistance windows for gender and youth, which offer incentives to investees to improve gender and youth outcomes in their investments. For example, in 2022, the fund worked with a local microfinance institution to identify gender and youth outcomes and targets for an investment under the Gender and Youth Lens Investment Windows. In 2022 Q4, the fund disbursed a loan of $2.25 million for the microfinance institution to open new branches, targeting approximately 6,318 new female clients and adding 62 new female staff members and 31 new youth staff.

Closing the gender finance gap

Holistic efforts that support both the supply and demand side are needed to close the financing gap for female entrepreneurs. ACDI/VOCA has learned that understanding the intersection of business and development priorities on the supply side is a key first step. Further collaboration with financial institutions to define opportunities for new female client segments or ways to expand outreach to the segment and cocreating solutions or incentives to innovate or reduce risk can lead to solutions that benefit the bottom line of financial institutions and expand financial services to female entrepreneurs that meet their needs.

This article was originally published by USAID