Off the Beaten Path: Exploring Banking Solutions for Women Owned SMEs

Women make up more than half of the world’s population and studies predict that in a decade their impact on the global economy as entrepreneurs, employees, producers and consumers will be as significant as that of India or China.  In 2012, an estimated 126 million women were starting or running new businesses in 67 economies around the world. Despite the growth of women-owned businesses, there is a tremendous gap in their access to finance. It is estimated that over 70% of women-led SMEs are either unserved or underserved financially, which translates to a roughly $300 billion market opportunity for financial service providers 1 .Clearly, financial institutions have not yet realized the business opportunities of meeting the specific financing needs of women entrepreneurs as a distinct customer group. The numbers alone make a strong business case.

There are multiple financial and non financial reasons for why women owned SMEs are reluctant to approach a bank for their financial needs -

• Social and cultural pressures - In some societies, running a business is often seen as a male venture, women are traditionally associated with home and hearth. This heavily impacts their perception and path as self-employed, but more importantly impacts their decision-making process.
• Limited network – They have limited professional connections as compared to men which adversely impact their access to business opportunities, information and contacts. They have fewer role models, and mentors which adversely impacts their growth.
• Attitude to risk – Women fear whether they will be able to pay back loans or not and ‘what if’ question creates trouble for them. They lack confidence in their ability to make up any investment losses through future earnings. Women see themselves as savers rather than investors.

If given the opportunity, through innovative solutions for the constraints stated above, women can thrive and be a profitable segment for financial institutions.

Banks on the other hand hesitate to cater to the unique needs of women SMEs due to complex internal financing policies and stringent risk assessment mandates. A few other reasons are cited below -

• Perception and risk evaluation –Financial institutions perceive women entrepreneurs as a high risk and low return due to the size of their enterprises 2. This negatively influences their appetite to lend whether this perception of higher risk is based on actual facts, experience or conjecture. Financial Institutions tend to offer credit only to those whom they know well. In many cases tracing credit histories is difficult.
• Collateral ownership – Banks usually need collateral of much higher value as compared to the amount of loan given, which is unavailable with women. And in cases where they have land titles in their name women are reluctant to provide these as collateral since losing possession of these documents creates an adverse impact on them as well as other family members.
• Financial literacy – This is a crucial factor as women tend to have less financial knowledge and limited access to formal financial products than men. Even when they have access to information on the financial services and market opportunities available to them, women may be less equipped to process it. Possibly due to the prevalent gender inequality, discriminatory regulations, laws and customs.  

In a changing global financial landscape, where alternative non-bank sources of SME finance are becoming more prominent, it is vital for banks to reposition themselves and adapt to an emerging client base. Enabling women entrepreneurs gain access to credit not only opens up growth opportunities for their business but also marks an entry point for the consumption of other banking services. Here are a few recommendations that banks can follow -

• ‘Know your customer’ strategy should be applied in an effort to understand the size, sector, and patterns of performance of women-owned SMEs in a bank’s portfolio.
• Another area of profitability for banks lies in increasing the financial literacy of women by offering knowledgeable sessions and friendly products. 
• In today’s banking world of robo advisors and mobile only banks, there is a sea of opportunity to serve women digitally, be it for inclusion, customized offerings or contextual marketing. By leveraging new technologies, such as biometrics, online community investment, and data driven individualized products, banks can overcome the gender gap and increase their customer base.  
• Unconventional credit scoring models can also be developed by using data derived from mobile phone usage or utilizing alternative methods designed for women who do not have access to traditional credit assets or a credit history. 
• FIs can make digital services available to women by working in partnership with fintechs and governments to boost their use of banking services while lowering transaction costs by building a comprehensive digital ecosystem.
• Banks must think beyond providing financial assistance to women for supporting this segment. Launching leadership programs and mentoring women can bridge the gap.
• Finally, when banks provide a holistic collection of products and services both at personal as well business level for women; they make it easier for them to manage finances in one place. Banks then stand a higher chance of becoming ‘the primary bank’ of their women customers.

While FIs who adopted the above mentioned practices have the early bird advantage and are already enhancing their profits, this market is growing fast and has plenty of business to offer and banks that ignore this segment may lose out entirely in the race of market share.

**1, 2 IFC Study,women world bank -2014