The gender gap in financing is costing Africa $95 billion a year


Women entrepreneurs and business owners play a vital role in economies across Africa. Yet many women are excluded from the industry due to barriers that make it difficult to access credit and financial services. Many barriers, poverty, discrimination, lack of institutional support and outdated gender norms contribute to the $42 billion financing gap faced by African women.

However, while a growing number of financial institutions are placing gender-neutral benchmarks on certain financial services and products, offering them without any gender bias, on-the-ground observation, statistics and common practice indicate that the situation general is different and that the financial needs and demands of women are taken much less seriously than those of men.

Benefits for entire communities

Yet, the empirical evidence clearly shows that creating an environment in which women can more easily receive bank finance is beneficial for all of their communities. While men invest only 30-40% of their income in the needs of their families, studies show that women reinvest up to 90%.

Data from the United Nations Development Program (UNDP) also estimates that failure to fully include women in economic life costs sub-Saharan Africa $95 billion in lost productivity each year.

There is no silver bullet that will remove all the barriers women face when it comes to obtaining finance. However, solutions do exist, and banks and other lenders have a unique role to play when it comes to finding ways to close the gender finance gap.

An African Development Bank working paper found that in addition to external financial barriers, “women entrepreneurs are more likely to self-select outside of the formal credit market. [compared to men] based on their perceived creditworthiness,” the report explains.

The results also show that even if banks look favorably on a female candidate, the self-selection behavior still exists, which prevents women from obtaining much-needed financing. One potential way to improve women entrepreneurs’ financial confidence is to offer financial literacy support that objectively explains exactly what banks are looking for when lending money.

Women are also more likely to use informal savings markets than men, which translates into a lack of formal credit history. Even if women have demonstrated that they are able to save informally, banks are unlikely to take this into account when granting loans. Partnering with informal financial markets may not be an easy task for banks, but it would go a long way in gaining a more comprehensive view of customers’ finances.

Dr Tinuade Adekunbi Ojo, a researcher in the Department of Politics and International Relations at the University of Johannesburg, agrees and stresses the importance of South Africa’s stokvels (small informal groups that aggregate members’ contributions to savings and other purposes) to support financial inclusion in Africa.

“Some banks have decided to tap into the informal sector market, bring it into the formal sector and access financial services. This has helped more informal groups like stokvels to benefit from the product offerings of formal financial institutions,” he says.

Various initiatives

Fortunately, many major banks, financial institutions and non-governmental organizations are now actively working on programs to close the gender finance gap in Africa.

A pan-African initiative of the African Development Bank called Positive Finance Action for Women in Africa (AFAWA) is playing an important role in unlocking new finance for women through a range of programs. For example, last year AFAWA partnered with the African Guarantee Fund (AGF) to unlock up to $2 billion in loans to women-owned SMEs.

Using risk reduction measures and technical assistance, AFAWA’s Growth Guarantee is expected to benefit 18,000 women-owned SMEs and support the creation of up to 80,000 jobs. Banks are also introducing programs specifically for women that have been designed to overcome the typical challenges women entrepreneurs face in obtaining financing.

Absa Bank’s Women’s Empowerment Finance Facility offers loans of up to R15 million ($1 million) to women-owned SMEs if they have a proven revenue stream and positive cash flow, even if they have no deposit or guarantee. “The bank also has an initiative called Absa Rise, which annually selects female entrepreneurs and helps with business programs to close the gender gap in entrepreneurship,” says Dr Ojo.

Innovative technologies have undoubtedly transformed African nations in many ways, with women in particular now having access to far more resources through their smartphones than ever before. New fully digital banks are paving the way for financial inclusion by better meeting the needs of female customers.

South Africa’s TymeBank has no physical bank branches but operates kiosks in supermarkets, making it easier for women to access banking services without having to walk into a conventional bank. A major innovation of TymeBank is the hands-on education and guidance that their “ambassadors” give to women who come to open a bank account.

“Mobile money is an initiative that has worked for many women in African countries, especially poor and marginalized women in rural areas. Most banks in Africa have now embraced mobile banking services, which has significantly advanced financial inclusion,” adds Dr. Ojo.

Algorithmic bias

However, a report published by Women’s World Banking found that many of the algorithmic methods used to decide whether a potential customer is offered financing can inadvertently discriminate against women.

“Algorithmic bias is complicated and requires multiple approaches to ensure that automated processes that improve efficiency do not result in unfair treatment of customers. The good news is that machine learning and artificial intelligence, while part of the problem, can also be part of the solution,” the report explains.

The advent of big data means that banks are now able to use artificial intelligence to sift through thousands and thousands of data sources to analyze whether or not to lend a candidate money. Women’s World Banking found that major digital credit companies routinely collect data on software specifications, phone hardware, and GPS location to create an image of an applicant.

Since women are more likely to provide unpaid care to family members, and they are less likely to have internet or smartphone access, gender biases can arise in processes that appear to be fair. . Banks who want to improve their decision-making process can access a tool created by Women’s World Banking and uncover potential biases. When new products are developed that use AI or deploy often complex algorithms, banks need to ensure developers are aware of the potential for gender discrimination.

The systematic barriers blocking financing for women that have been put in place in the past, and in some cases continue to be in place, will take a lot of effort from African business leaders and governments if they are to be deleted.

While improving access to finance is key to unlocking the potential of female entrepreneurship across the continent, banks and other lenders need to recognize that simply providing finance is not enough to eliminate the longstanding exclusion and discrimination that women have suffered.

Mentoring, knowledge transfer and access to business networks should also be part of the support program offered to women entrepreneurs.


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