Banks are abandoning women – and it’s costing them $700 billion

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700 billion dollars.

This is the additional annual income that banks and other financial service providers could generate if they provided financial services to women at the same rate as to men. By neglecting women, the financial sector is missing out on a business opportunity that could yield revenues that are more than triple Elon Musk’s estimated net worth.

As I explain in my book, “There’s Nothing Micro About a Billion Women”, almost a billion women around the world are excluded from the formal financial system, even though many of them significant influence on purchasing decisions as managers of household finances or business owners. Why is this happening then? Financial service providers, especially in the developing world, have been slow to design products that meet women’s needs and therefore leave a lot of money on the table.

This inertia is certainly not in the interest of the banks. Women are loyal customers of financial service providers: A 2018 analysis found that in the United States, 61% of women spent more than five years with a bank, compared to 46% of men. The analysis also found that women generally had better loan repayment rates than men and were less likely to “bounce” checks.

For much of the past 50 years, “banking the poor” has largely been the preserve of microfinance institutions, but digital technology has dramatically reduced the cost that more traditional financial service providers faced in serving this customer base. Extending financial services to unbanked and underserved women in the developing world represents a tremendous untapped market opportunity: more than $2 trillion in new deposits and $65 billion in new net interest and commissions on mortgages and other retail loans.

An estimated 320 million micro, small and medium-sized enterprises or MSMEs are registered in the developing world, accounting for two-thirds of private sector jobs and up to 40% of GDP in their respective countries. While a quarter of these businesses are run by women, many are struggling to secure financing, resulting in an unmet funding need of $1.7 trillion. Giving these women-led micro, small and medium enterprises better access to loans and other finance would be a boon to the banks and economies of their countries.

The changes needed to close the gender gap in small businesses’ access to capital are too complex and intertwined for any single actor to tackle alone. Governments must develop policies that address women’s differential access to technology and financial services. For their part, financial service providers will have to remove the blinders that prevent them from viewing women as valued clients. A fairer financial system would not only mean a stronger global economy and more revenue for banks – it would mean more financial freedom for women around the world.

Overhaul laws to allow women access to capital

Governments can deploy a variety of policy tools to expand access to capital for MSMEs. The data suggests that the main reason bank loan applications are turned down is that borrowers do not offer acceptable or adequate assets as collateral for a loan. If the business fails to repay a loan secured by collateral – which can range from real estate to accounts receivable – the lender can seize those assets and sell them to try to recover the money. Although it does not appear that women are rejected for loans more often than men, they are less likely to apply for loans in the first place, citing concerns about their lack of collateral.

But what if the problem is not so much a lack of assets but a legal framework that does not allow women to have assets? do own to be used as collateral? Land and buildings account for 73% of assets used as collateral by banks in developing countries. But about 40% of countries limit women’s property rights in some way. Laws prohibit a woman from owning property or require her husband’s consent before she can borrow against the property, even if the property was acquired during the marriage or the wife brought it into the marriage . Other restrictions include the inability to claim property on the dissolution of a marriage and the absence of inheritance rights for surviving wives and daughters.

These discriminatory legal frameworks often reflect restrictive social and cultural norms and, as a result, much-needed reforms have been slow. Meanwhile, a growing number of countries are taking steps to authorize the use of a company’s assets such as equipment or inventory (known as rolling warranty), opening the door for women who do not do not have access to land or property to obtain loans. Expanding the types of assets that companies can use to raise funds can also lead to the development of a more diverse set of financial instruments and the creation of institutions to serve small businesses. For example, a farmer could finance the purchase of a tractor using the tractor itself as collateral, through a traditional bank loan, or perhaps through a leasing company. material.

When assessing a loan application, banks also look at a potential borrower’s demonstrated repayment history – how well have they paid off other debts such as home loans, credit cards or even utility bills. But in many developing countries, government-sponsored credit bureaus collect limited data, mostly related to large business loans, leaving banks with little information to rely on when considering new loans for businesses. businesses run by women. Many credit bureaus in developing countries exclude repayment information from microfinance institutions, which are often the only lenders willing to extend credit to small businesses run by women. Therefore, even if an entrepreneur has an impeccable record of repaying loans to a microfinance institution, he must rebuild his credit history from zero when applying for a bank loan. For example, when the Afghan Credit Registry began collecting data on repayments from microfinance institutions, banks were able to incorporate this information into their credit approval processes. Loans to women based on credit registry data have grown from a negligible amount to 20% of total loans disbursed in just 18 months.

Fintechs can help bridge the gap…

Fintechs can reduce many of the barriers women face in obtaining credit. Using other data sources such as phone payments and utilities to make credit decisions can be especially helpful for women by allowing them to demonstrate their creditworthiness even without the credit bureau. With access to smartphone data of potential borrowers, digital lenders are building an algorithm to determine their repayment capacity and decide whether or not to offer a loan to customers who are unlikely to have a traditional credit score. Once the borrower has repaid the first loan, they have a credit history on which subsequent lending decisions can be based.

A fintech business model – online peer-to-peer lending platforms – is emerging as a faster and less cumbersome route than traditional banks to connecting women business owners to lenders. Through these platforms, people can post loan applications, provide information about their businesses and their plans for using the requested funds. Investors on the platform make lending decisions based on the information provided and then earn money through interest payments on their loan.

Amartha, an Indonesian fintech, is a good example of this model. It offers microloans to rural women entrepreneurs using a peer-to-peer platform and a proprietary credit scoring system based on over 90 metrics, including women’s demographic information and their payment performance on other obligations such as utilities or tuition fees. Amartha establishes the borrower’s creditworthiness, assigns them a credit rating, approves their loan application, and then posts the loan application to its online marketplace. Individual lenders then choose a loan to finance based on the client’s profile. Amartha manages the disbursement of funds, and investor-lenders receive weekly principal and interest payments and can track loan status online.

…but all financial service providers need to step up

When Kenya’s largest bank, KCB, decided to expand its portfolio of micro, small and medium enterprises with a focus on women-led businesses, its crucial first step was to start assessing businesses by based on how much money they generated rather than how much collateral the borrower had. It has also expanded its popular business club for entrepreneurs to include networking opportunities and executive training through a local business school. To equalize lending opportunities, the bank trained loan officers on the differences between men’s and women’s financial needs and preferences.

These changes produced impressive results almost immediately: Branches increased women’s business loans to an average of 50% of their portfolio, while only adding a few “bad” loans along the way. Pilot program customers saw a 110% increase in customer satisfaction. The impact of the program was also felt outside the bank: companies that had received KCB loans increased their number of employees by an average of 113%, compared to an average increase of 40% for non-borrowers.

Emerging market financial service providers like KCB are beginning to recognize that women-owned businesses are a valuable and underserved market segment. A crucial distinction is these banks’ understanding that non-financial services such as training and networking opportunities can win the business of these customers.

Financial service providers at all levels – from traditional providers such as banks and insurers to new entrants such as fintechs and mobile money providers – have failed to serve women. As these companies grapple with the economic fallout of the pandemic and recession, it’s time for them to admit that a $700 billion annual revenue opportunity is too big to ignore.


Mary Ellen Iskenderian is President and CEO of Women’s World Banking and author of There’s Nothing Micro about a Billion Women.

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