Today, at the Pre-G20 Side Event: “Growing Economies Through Women’s Entrepreneurship,” co-hosted by the United States and the OECD, the US Treasury Department and the IFC, implementing partner to the G20 Global Partnership for Financial Inclusion (GPFI), previewed the report “Strengthening Access to Finance for Women SMEs in Developing Countries,” (to be released in at the G20 Summit in Cannes on November 4) and USAID announced a new initiative to expand women’s leadership in the small and medium enterprise sector. The report and USAID initiative are significant for both laying out the challenges and identifying possible approaches to reducing gender gaps.
First, across countries, data show a gender gap in venture creation and business ownership, especially as firm size increases. It is difficult to draw solid conclusions, since the evidence base on women owned businesses is limited. Yet, based on existing data, the IFC reports that small and medium enterprises with full or partial female ownership represent 31 to 38 percent of formal firms in this sector. Women’s entrepreneurship is highly concentrated among smaller firms: they represent between 32-39 percent of the very smallest firms, 30-36 percent of small SMEs and 17-21 percent of medium sized companies.[i]
What explains these low numbers? The IFC report argues that female entrepreneurs are less able than male entrepreneurs to access formal banks; they may also face higher interest rates or be required to put up a greater share of their loan in collateral. Female entrepreneurs encounter different non-financial barriers than do their male counterparts – such as laws that prohibit women from owning or inheriting property that can be used as collateral, or practices that discourage women from entering into contracts in their own names. The IFC report, like many others, also identifies lack of access to markets and greater management skills that are particularly critical to SME growth.
USAID’s new initiative to promote women’s leadership in the SME sector seeks to rectify such barriers through support of new models for financing, technical assistance, capacity-building, and risk mitigation for female-owned firms. Interventions may also address non-financial barriers like better infrastructure and changes in regulatory environments. Rigorous impact evaluations will document what works to transform development practice in this field. Ultimately, supporting women to participate more efficiently will grow the pie of national income and employment. As Secretary Clinton has said, in this time of economic uncertainty, “national economies can’t afford to waste the talents of half the population.”
[i] IFC 2011. Strengthening Access to Finance for Women-Owned SMEs in Developing Countries. Washington, DC: GPFI and IFC.