The irrefutable evidence for empowering women just keeps coming. Last month, the IMF released a new report quantifying GDP losses due to gender gaps in selected countries. On the upside, it shows how many billions of dollars the world has to gain by empowering women, literally 15-40% of GDP. Women’s expanding economic output has already contributed more to the past decade’s global GDP increase than all of China, leading the Economist to call women “the most powerful engine of global growth.”
Whether its cooperative members in India, market vendors in Africa or the more recent tycoons in the Middle East, the emerging markets have their own legacies of female entrepreneurship. In fact, the majority of urban women in Sub-Saharan Africa and South Asia are entrepreneurs, mostly in the informal sector. Only a portion of these women entrepreneurs transcend the micro enterprise stage and they are half as likely as men to own a business with employees. Across the world, women- owned companies seem to hit a glass ceiling, consistently reporting lower turnover and higher informality than male-owned counterparts. A third of all SMEs in emerging markets are likely not reaching their full potential because of this.
This glass ceiling is composed of structural and institutionalized factors, as well as socio-cultural and unspoken biases. And these factors can be mutually reinforcing. For example, one major culprit is access to capital- women-owned SMEs only access between 2 and 10 percent of commercial bank finance in emerging markets. In some countries, women’s access to capital may be legally restricted with clauses not applied to men. But in most countries, its the culmination of other indirect factors. For example, in countries where women have lower educational attainment than men, their formal business documentation is less likely to meet bank standards. Without capital to grow, its difficult to invest in training or even accounting services needed- thus furthering the cycle. Likewise, most banks require collateral but in some countries, land is automatically titled to husbands or male relatives. As a result, only 20% of agricultural land in developing countries is titled to women. They then lack capital to improve their production or cover administrative/ legal costs to even acquire land. It’s easy to see the snowballing nature of these limitations, especially if compounded with social bias and/or child rearing obligations. The cumulative effect is smaller women-owned companies. If we could get around these obstacles, women-owned SMEs alone could raise per capita incomes by an average of 12%.
At GroFin, we’ve backed over 100 female-led companies. Our business support is designed to fill those gaps in capacity, helping all entrepreneurs produce a solid business plan. Assessing investments based on cash flow instead of collateral has allowed us to capitalize women-led companies which would be overlooked by banks. Both methodologies take more time and transaction costs but it’s worthwhile to our objectives.
As women-owned firms are often undervalued, they are an exceptional double-bottom line investment. Despite being smaller at intake, female-led companies our portfolio have had double-digit growth and on average have caught up to their male counterpart in turnover. They have had nearly 10% higher job creation rates, as well as larger improvements to employee wages.
We are sharing these results to highlight the exceptional financial and social returns of women-owned SMEs in emerging markets. Their unmet financial needs are estimated above $300 billion (per year). It is a gap too big for GroFin or any one player to fill, we must count on many stakeholders from the global financial sector.