Lack of access to finance is consistently cited by business owners as one of their most limiting constraints, and it disproportionately affects women. Most studies find that women are not more likely than men to be rejected for loans or be subject to higher interest rates. But women are less likely to apply for loans than men72 (see Box 8.1).
71. This annex corresponds to Module 5 of Sevi Simavi, Clare Manuel and Mark C. Blackden, “Gender Dimmensions of Investment Climate Reform: A Guide for Policy Makers and Development Practitioners,” Washington, D.C., World Bank, 2009).
Box 8.1
Although women entrepreneurs run nearly half of Kenya’s micro, small, and medium-sized enterprises, they receive less than 10 percent of credit. And they receive only 1 percent of credit directed to agriculture, despite managing 40 percent of smallholder firms.73
Women in Uganda own about 40 percent of their country’s private enterprises, but receive only 9 percent of credit.74
In Tanzania nearly 30 percent of male-headed enterprises have received bank finance, whereas only 8 percent of female-headed enterprises have. Only 10 percent of men are currently bank financed; the proportion of women is half that.75
In a survey of women’s businesses in the Middle East and North Africa,76 most women owners did not have access
to formal credit and were financing their businesses mainly through personal sources, such as savings, family, and friends and by reinvestment of their business earnings.
Microfinance has made a major contribution to enhancing women’s access to credit. It is estimated that 8 out of every 10 microfinance clients are women. But the rigidities of microfinance can be limiting for women.77 By definition,
amounts lent are small, interest rates tend to be higher than commercial bank rates, and lending periods are short. Lack of access to land title can be a major impediment for both men and women seeking finance in formal systems that are frequently highly collateralized. But the problem is likely to be significantly worse for women (see Box 8.2).
Box 8.2
More than 85 percent of loans in Kenya require collateral. The average value of the collateral taken is nearly twice that of the loan. In the vast majority of cases, the collateral required is land, usually land that has a registered title. Women hold only 1 percent of registered land titles, with about 6 percent of registered titles held in joint names.78
Reforms to a country’s secured-lending system to enhance the use of movable securities can have a significant impact on access to credit across the board (see Box 8.3).
Box 8.3
In 1999 Romania undertook a package of measures, including legal reform, to make it easier for a wider range of movable assets to be used as collateral. Since then, more than 200,000 notices of security interests have been registered, the number of borrowers has increased threefold, and the volume of credit has grown by 50 percent. Following similar reform in the Slovak Republic in 2002, more than 70 percent of new loans to businesses are now backed by movable assets and receivables. Credit to the private sector has since increased by 10 percent.79
73. A. Ellis, et al. 2007. Gender and Economic Growth in Kenya. Directions in Development, World Bank, Washington, D.C. 74. A. Ellis. et al. 2006. Gender and Economic Growth in Uganda. Directions in Development, Washington, D.C., World Bank. 75. A. Ellis, et al. 2007. Gender and Economic Growth in Tanzania. Directions in Development, Washington, D C., World Bank
76. Surveys conducted by IFC GEM in Bahrain, Jordan, Lebanon, Tunisia, and the United Arab Emirates in 2006. Women Entrepreneurs in the Middle East and North Africa: Characteristics, Contributions and Challenges. June 2007 The Center of Arab Women for Training and Research and IFC GEM.
77. DFID. March 2007. Briefing Note No. 5 Gender and Growth 78. World Bank. 2004. Kenya Investment Climate Survey.
Enabling movable assets—such as machinery, book debts, jewelry, and other household objects—to be used as collateral can benefit all businesses. But opening up this type of financing has the potential to be of particular benefit to land-poor women, enabling them to circumvent their lack of titled land and use the assets they do have to unlock access to formal credit markets (see Box 8.4).
Box 8.4
In Sri Lanka women commonly hold wealth by way of gold jewelry. This is accepted by formal banks as security for loans.80
In Tanzania, Sero Lease and Finance, a women’s leasing and finance company, provides loans to women to purchase equipment for their businesses, using the equipment as security through leasing agreements.81 Sero has
more than 10,000 exclusively female clients.82
Women’s access to credit not only enables them to start or grow their businesses, but the impact on the household is likely to be profound. When poor women (rather than men) are the direct beneficiaries of credit, its impact on the various measures of household welfare (such as school enrolment rates83) is greater.
Step 1. Diagnostics
Step 1 provides tools to explore (i) the extent to which patterns of secured lending are skewed in favor of men84 and (ii)
legal, regulatory, and administrative reasons for any such unequal distribution.
The critical steps to be taken during an initial project design phase (in the absence of a full diagnostic at that point) are highlighted in **orange.**
1.1. Analyze the Lending Market through a Gender Lens
** Critical initial project design step** Key issues to assess:
How important is collateral in the lending system? What percentage of lending requires collateral? •
What percentage of (secured) lending is to women and what percentage to men? •
What percentage of collateral taken is land title and what percentage is movable
• 85 assets?
What percentage of registered land title is held by women? •
Possible sources for this information may include the central bank, the national statistics office, the ministry of land or land registry (in relation to the question about land), and reports on the financial sector.
If a full diagnostic is being undertaken, overall information on the lending market could be supplemented by more detailed exploration of the issues with officials from commercial banks and other lending institutions.
80. M. S. Pal, 1997. Women Entrepreneurs and the Need for Financial Sector Reform. Economic Reform Today, Number Two.
81. Leasing is frequently regarded as a form of secured lending, and is often regulated as such. Strictly speaking however, title to the asset remains with the lending institution until full payment has been made.
82. A. Ellis, et al. 2008. Doing Business: Women in Africa. World Bank, Washington, DC.
83. Mark Pitt and Shahidur Khandker. 1998. “The Impact of Group-Based Credit Programs on Poor Households in Bangladesh: Does the Gender of Participants Matter?” Journal of Political Economy 106: 958–96.
84. It is highly unlikely to be skewed in favor of women. 85. That is, assets that are not land.
There may be organizations in the country that provide secured finance primarily or exclusively for women—such as microfinance institutions, savings and loan cooperatives, or banks with credit lines directed at female-owned businesses (for example, Access Bank in Nigeria—see Box 8.5). These organizations may have interesting perspectives on women’s ability to access secured lending generally.
Box 8.5
Access Bank, one of Nigeria’s leading banks, is one of the first banks in Africa to dedicate lines for credit to finance female-owned businesses. The International Finance Corporation (IFC) provided the bank with a US$15 million loan specifically to extend lines of credit to women entrepreneurs. In addition, the IFC provided comprehensive assistance and training to the bank to enhance its ability to reach out to the women’s market.