Africa’s gender gap in women’s access to finance, IMF F&D



Finance & Development, March 2020, Vol. 57, n ° 1 PDF version

Access to Finance: Why Don’t Women Bend Over?

Women are pulling themselves out of the African credit market

Hanan morsy

As a girl, I was taught to believe that personal agency prevails over societal biases. I was told that I can accomplish anything if I believe in myself and sexism is not overwhelming. Later, as a woman, I discovered that my parents’ advice could not have been wiser. In Africa, the gender gap in access to financial services is due to the self-perception of women entrepreneurs. Such a perception leaves many African women on the fringes of the financial sector, unable to save, borrow or build up capital.

Globally, women’s access to finance is disproportionately low. Despite substantial overall progress – in 2017, according to the World Bank, 1.2 billion more people had bank accounts than in 2011 – there is still a 9% gap between women’s and men’s access. In sub-Saharan Africa, only 37 percent of women have a bank account, compared to 48 percent of men, a gap that has only widened in recent years. The numbers are even worse in North Africa, where about two-thirds of the adult population is unbanked and the gender gap in access to finance is 18%, the largest in the world.

These striking figures raise urgent questions for policymakers in Africa. What continues to fuel gender disparities in access to finance across the continent? And why, despite all efforts, is the gap even greater today than it was ten years ago?

The dominant view of economists is that supply side constraints such as high interest rates and collateral requirements play a major role in excluding women from the formal credit market. Rationing credit through high interest rates disproportionately discourages female entrepreneurs from applying for loans, while lack of collateral may mean they have less access to loans than their male counterparts (Morsy and Youssef 2017 ). And when they do have access, women tend to face stricter loan agreements than men.

The overemphasis on credit market supply by academics, policy makers and practitioners means that demand side factors and their influence on the gender gap in access to finance have been largely overlooked. , especially in Africa. But women’s decision-making behavior also plays a key role in this gender gap.

In the credit market, women entrepreneurs fail to even apply for loans due to factors such as poor financial literacy, risk aversion and fear of failure. Intuitively, one would expect women who choose to be entrepreneurs to be at least as competitive as male entrepreneurs. Why, then, are they withdrawing themselves from the credit market?

Distorted perceptions

New evidence taken from the credit markets of 47 African countries suggests that women entrepreneurs in Africa, in general, and North Africa, in particular, are more likely to withdraw from the credit market due to low perceived solvency. These women did not apply for loans or lines of credit because they were discouraged by their own perception that their applications would be refused. Our study shows that women managers of micro and small businesses are more likely than men to withdraw from the credit market.

Along with this key finding, we observed three astonishing phenomena that support our “demand side” hypothesis. First, the complexity of the application procedures and the unfavorable loan and credit conditions did not not discourage women entrepreneurs from applying for credit. Second, the self-selection of women entrepreneurs was not linked to the observed solvency of their companies. And, finally, the self-selection of women persisted even in absence discriminatory lending practices, suggesting that this behavior is not simply a response to discrimination by financial institutions.

Such evidence offers an opportunity to close the persistent gender gap in access to finance in Africa and possibly other developing regions as well. African policymakers should, can and must do more to tackle demand-side factors, such as the financial literacy of women and girls. This is essential in today’s complex and changing credit market. Even in a country like Kenya, which has a strong financial system and many programs specific to women, women entrepreneurs still face many challenges on the demand side to access these funds. Entrepreneurs with financial literacy make more informed financial decisions overall and assess their creditworthiness more objectively. Therefore, equipping women entrepreneurs with appropriate financial knowledge and skills will enhance their effective engagement in the credit market.

A pioneering model is the Women Entrepreneur Finance Program in Malaysia, which equips women with the knowledge and skills to enhance their strategic business capacity in key functional areas including financial management, marketing, leadership and technology. The program has helped close the gender gap in borrowing in Malaysia.

Another vehicle for women’s empowerment is the African Development Bank program
Affirmative Action Fundraising for Women in Africa (AFAWA)
which facilitates women’s access to finance through an innovative risk-sharing mechanism. AFAWA provides capacity building services for women entrepreneurs and advocates for reforms to support women-owned businesses. Last year, G7 leaders pledged $ 251 million to support the program to unlock $ 3 billion in private sector funding.

Different financial behavior

In addition to financial literacy, gender differences extend to financial behavior. Women, for example, are more likely than men to save informally. One way to stimulate women’s demand for financial services is therefore to introduce financial products aimed at meeting the needs of borrowers who traditionally use informal financing systems — for example, loans that accept smaller, more movable assets. and traditional means of storing wealth such as livestock and gold as collateral. Governments can help develop these new products, for example, by putting in place the necessary legal and regulatory framework. Some local banks in the West Bank and Gaza now offer loans to small and medium enterprises on the basis of movable property, with a wide range of innovative products for women, including unsecured loans and loans backed by gold. These loans come with financial literacy programs, online business toolkits, and advisory services to help small businesses and women entrepreneurs manage and grow their businesses.

Our research shows that it is mainly demand-side factors that limit access to finance for African women entrepreneurs, particularly in North Africa. We checked for the differences between male and female entrepreneurs in terms of talent and characteristics of their respective companies. We have ruled out that discrimination in the supply of credit or institutional barriers are at the origin of the self-selection observed. Our conclusion: men and women behave differently. These differences in behavior are based on different risk, social and competitive preferences.

Africa’s gender gap in access to finance can have a dramatic impact on social and economic progress. Women now dominate African agriculture, the continent’s most important sector. When women farmers do not have access to financial services, their ability to invest in modern technologies to increase their productivity is limited. They cannot diversify their operations. They cannot grow high-value crops and invest in assets such as livestock. And they can’t invest in better nutrition for their children.

The fashion industry in sub-Saharan Africa is also dominated by women, whose small businesses link a vibrant cotton-textile-garment industry that produces $ 31 billion annually. Without access to finance, women-owned businesses and entrepreneurs find it difficult to tap into higher-value areas of the fashion industry.

With better access to working capital, many African women entrepreneurs will see their businesses flourish, paving the way for a better future for all.

HANAN MORSY is Director of the Macroeconomic Policy and Research Department at the African Development Bank Group.

This article is based on African Development Bank Working Paper 317, “Self-selection of women in the African credit market», By Hanan Morsy, Amira El-Shal and Andinet


The references:

Demirgüç-Kunt, A., L. Klapper, D. Singer, S. Ansar, and J. Hess. 2018.
The 2017 Findex Global Database: Measuring Financial Inclusion and the Fintech Revolution.
Washington, DC: World Bank.

Morsy, H. and H. Youssef. 2017. “Access to Finance — Beware of the Gender Gap. ” EBRD Working Paper 202, European Bank for Reconstruction and Development, London.

The opinions expressed in articles and other materials are those of the authors; they do not necessarily reflect IMF policy.


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