Women’s access to finance: no collateral

Using a basic bank account is beyond the reach of almost one billion women worldwide. In Jordan recently I met Sawsan, who runs her own sewing workshop with four other women. Their business is growing, and the orders are flowing in. But Sawsan has no bank account.

Barriers facing women entrepreneurs

We know that a lack of access to finance is one of the major barriers facing women entrepreneurs in marginalised communities across the world. The women entrepreneurs we work with every day at CARE tell us, and so do the statistics: 80% of women-owned businesses with credit needs are either unserved or underserved. This is equivalent to a massive $1.7 trillion financing gap.

When a woman wants to start or grow her own business, the odds of securing a business loan are heavily stacked against her. This affects women like Yeo from Ivory Coast, who was unable to take out a loan for her farming business because, as a woman, she did not own any land that the bank required as collateral.

Stop asking for collateral

As we search for a solution to the inequality between men and women in accessing finance around the world, the answer could be simple: stop asking for collateral. Most financial systems have been designed by and for men. Therefore, when a person requires a business or personal loan, the lender asks for collateral, such as land or a house. In many cultures, it is men who traditionally own the land or the house, which immediately excludes women. Gender disparities reflect a mix of social, cultural and legal barriers to women’s participation in the financial system.

As my good friend Akin Adesina, President of the African Development Bank, recently stated: “While societal limitations and belief systems often kill many a woman’s dream, it is often at the bank counter that dreams come crashing down. Without collateral and without access to land or other financial resources, the bank is the end of the road for many women entrepreneurs. This is a status quo that must change – not because it’s charity or the right thing to do, although it most certainly is the right thing to do, but because it’s the smart thing to do. It’s the strategic thing to do.”

Women are stronger savers, responsible borrowers and more calculated risk-takers

But what will reassure financial institutions that they will get their money back? First, it is knowing that women are a high-value investment. Evidence shows that women are stronger savers than men, more responsible borrowers and more calculated risk-takers. According to recent research from the Bank of New York Mellon, giving women better access to finance could unlock $330 billion in annual global revenue.

Second, financial institutions should start to think outside the box and use other methods to credit-check an individual, such as issuing loans based on cash flow, savings group history, mobile phone transaction history or a track record of enterprise performance.

Creating pathways

Saving is a vital foundation for economic independence. Back in 1991, CARE pioneered a flagship savings programme – the Village Savings and Loans Association. Since then, these savings groups have directly supported nearly 7 million members, the majority of whom are women, across 45 countries and have created pathways for nearly one million members to open their first bank account. We train members of these savings groups to keep track of all deposits and withdrawals, which can be a vital record of a person’s ability to save and repay a more formal loan.

By working with women on ways to collectively save money and develop their business skills, in turn facilitating their access to affordable loans, we have seen an astounding uplift in success rates. In Ethiopia, CARE recently supported 5,000 women entrepreneurs in this way, resulting in a 500% increase in their income. At the start or the project 70% of the women had no savings and by the end, this had shrunk to 3.6%. Through our partnership with a microfinance provider, many of the Ethiopian women were also able to access low-interest loans, which they are now successfully repaying.

Sharing expertise

Collateral is not the only barrier that women are facing in trying to access financial services. However, I believe that changing the goalposts around collateral for women is a good place to start.

So why are there not more banks investing in women? There are two main reasons: First, the banks are unable to reach many of the women. Second, the banks find it difficult to understand women’s priorities and needs. That is why we at CARE want to work with more financial institutions to share our expertise, reach and practical guidance so that we can start to level the playing field of financial access.

Acces Approved

Our Access Approved campaign puts a spotlight on this issue, calling on financial institutions to do their part by developing products and services that specifically meet the needs of marginalised women.

I am therefore calling on the banks to rise to this challenge, rethink their approach and create equal access and opportunities for women around the globe. We cannot overcome poverty until both men and women have equal rights and opportunities. This approach makes financial sense for everyone.

Written by Caroline Kende-Robb, Former Secretary-General, CARE International