29. Addressing gender disparities in access to finance for business creation

David Halabisky
María Camila Jiménez
Miriam Koreen
Marco Marchese
Helen Shymanski

Women entrepreneurs have long faced barriers in accessing finance for business creation and growth (OECD/European Commission, 2021[1]) and are less likely to successfully access debt and equity financing than their male counterparts. When they do, they typically receive less funding, pay higher interest rates and are required to provide more collateral (Lassébie et al., 2019[2]; Thebaud and Sharkey, 2016[3]). For example, in Latin America and the Caribbean, women owned micro-enterprises receive USD 5 billion (EUR 4.7 billion) less in financing than those owned by men, while the finance gap between women-owned and men-owned SMEs reached USD 93 billion (EUR 86.6 billion) (UN Women, 2021[4]). This gender gap is particularly noticeable among growth-oriented businesses, notably in Science, Technology, Engineering and Mathematics (STEM) sectors, where women entrepreneurs are under-represented (OECD, 2021[5]). Businesses owned or led by women receive only about 2% of total venture capitalist investments (Figure 29.1). Moreover, women entrepreneurs who acquire venture capital investment only receive about 70% of the funding that men receive on average (Lassébie et al., 2019[2]). Addressing long-standing barriers for women entrepreneurs to access finance could create USD 5-6 trillion (EUR 4.7-5.6 trillion) in potential net value addition worldwide (Women Entrepreneurs Finance Initiative, 2022[6]). For financial institutions, this could represent a USD 1.7 trillion (EUR 1.6 trillion) in growth opportunity (International Finance Corporation, 2017[7]).

Gender gaps in access to finance are often due to institutional and market failures on both sides of financial markets, as well as to specific characteristics of women-owned firms (size, sector, age of the firm). Supply-side factors include gender biases in lending practices and investor preferences, largely due to the small number of women investors and lenders. For example, women represent nearly 40% of the top wealth holders in the United States yet only account for 19.5% of angel investors (Jeffrey Sohl, 2018[8]). Other factors include a mismatch of financial products and services for the needs of women-led businesses and unconscious bias from those assessing funding proposals (Halabisky, 2015[9]). On the demand-side, women entrepreneurs, on average, have lower levels of financial literacy than men (Chapter 12). This can reduce their ability to identify funding opportunities for their businesses and can also negatively impact how they pitch their business to lenders and investors (Halabisky, 2015[9]).

Governments can play an important role in supporting a more diverse and inclusive entrepreneurship pipeline by doing more to address the gender gap in entrepreneurship finance. It is important for governments to utilise the entire range of financial instruments available to support the wide spectrum of women-led businesses, as the needs and challenges experienced by women entrepreneurs and potential entrepreneurs vary depending on an array of factors (e.g. type of business, sector of operation, size of business, growth objectives, etc.). Traditional policy responses include loan guarantees, grants and investor readiness training (OECD/European Commission, 2013[11]) but the governments’ toolkit is growing.

Microfinance is an important financial tool for people who experience financial exclusion from mainstream financial markets. While microfinance is commonly offered through dedicated microfinance institutes (MFIs) in developing countries, it is increasingly used to support business creation in many OECD countries, particularly in eastern European Union Member States and in Central and South American countries. Women are the most significant target client group for MFIs, accounting for as much as 80% of microfinance borrowers in developing countries (Sweidan, 2016[12]) and nearly 60% in the EU (Corsi, 2021[13]). The total global loan portfolio is currently estimated to be about USD 145-160 billion (approximately EUR 124-137 billion) (MEDICI, 2021[14]; ReportLinker Consulting, 2021[15]) and this could grow to reach about USD 400 billion (approximately EUR 342 billion) by 2027 (ReportLinker Consulting, 2021[15]).

Governments can do more to improve access to finance for women entrepreneurs by strengthening microfinance markets. There is significant unmet demand for microfinance for entrepreneurship, especially in the EU where the market gap is expected to grow to nearly EUR 17 billion by 2027 (Drexler et al., 2020[16]). A short-term priority is to inject more capital into the microfinance sector, which was heavily impacted by the COVID-19 pandemic (Box 29.1). Several options are available to governments to increase the supply of microfinance, including providing more dedicated funding for microfinance schemes for women entrepreneurs, increasing guarantees to MFIs so that they lend more and offering greater incentives to attract new entrants into the microfinance market (OECD/European Commission, 2021[1]), providing funds for microfinance with softer conditions (e.g. longer term maturities) and offering relief to MFIs by deferring non-critical supervisory processes.

In addition, governments can offer technical support to MFIs to strengthen their non-financial services offer and improve the efficiency of their business models. The vast majority of MFIs in OECD countries bundle microloans with a variety of non-financial services, such as training and coaching that aim to improve the performance of the business to increase the chances of the microloan being repaid. Evaluations tend to show that these non-financial services are effective (OECD/European Commission, 2021[1]) but many offers are relatively basic (Drexler et al., 2020[16]) and are less commonly offered by MFIs in certain regions (e.g. Eastern Europe) (Diriker, Landoni and Benaglio, 2018[17]). These non-financial services are typically more impactful for women entrepreneurs given their relatively greater skills gaps and, on average, a lack of professionals in their networks (Halabisky, 2015[9]). In addition, the business practices of MFIs could go further in leveraging digital tools to improve the efficiency of internal business processes. For example, the introduction of an electronic signature or “e-signature” by Adie in France has reduced loan processing times and accelerated the disbursement of funds (OECD/European Commission, 2021[1]).

The rapid evolution of fintech in recent years is creating new funding opportunities for women entrepreneurs and others that have difficulties accessing funding in traditional markets. This includes new debt and equity instruments, new actors such as online challenger banks (i.e. new banks that typically rely on fintech products and services to compete with traditional banks), new marketplaces (e.g. online crowdfunding platforms) and the digital transformation of private equity instruments (i.e. digitalisation of investment assessment and monitoring, including the influence on investor objectives) (Halabisky, 2015[9]). Fintech innovations also include new data analytical possibilities (e.g. big data) and distributed ledger technologies (e.g. blockchain) that can inform new methods of evaluation of loan and investment opportunities.

Women entrepreneurs have been successful in many of these new fintech markets. They appear to be more successful than male entrepreneurs on crowdfunding platforms (Wesemann and Wincent, 2021[18]; Johnson, Stevenson and Letwin, 2018[19]). Research suggests that this is due to women entrepreneurs being more active in crowdfunding markets relative to traditional financing markets and “activist homophily”, i.e. women investors support female-led projects over male-led projects (Greenberg and Mollick, 2017[20]).

Despite some of these successes, there is a risk that fintech may reinforce financial exclusion for women entrepreneurs due to a greater reliance on algorithms in decision making by lenders and investors. Such algorithms are likely embedded with the unconscious gender biases of those who are designing, coding and using them – often men (Halabisky, 2015[9]). A greater use of algorithms could also direct funding away from projects that do not seek to generate high levels of growth and profits, putting women entrepreneurs at a disadvantage because they tend to operate small and less growth-oriented businesses (Halabisky, 2015[9]). In addition, there will be fewer opportunities for entrepreneurs, lenders and investors to have face-to-face interactions where “soft” information can be exchanged. This removes opportunities for lenders and investors to learn about entrepreneurs, their motivations and ambitions and gives greater weight to financial history and collateral, which also puts women entrepreneurs at a disadvantage (Malmström and Wincent, 2018[21]). This also reduces the ability of women entrepreneurs to acquire knowledge through interactions with lenders and investors, a potential source of coaching. This is likely more significant for women entrepreneurs since they, on average, have greater knowledge and skills gaps (OECD/European Commission, 2021[1]) and fewer opportunities to acquire such knowledge in their networks (Halabisky, 2015[9]).

It is, therefore, important that governments do more to monitor developments in fintech to ensure that they contribute to financial inclusion. This includes supporting research projects that monitor and measure discrimination in the financial sector – as done by the Swedish Innovation Agency (VINNOVA) – and ensuring that financial regulators effectively balance the need to protect consumers and the integrity of financial systems without stifling innovation. Governments can also do more to equip women entrepreneurs to be able to leverage the new opportunities offered by fintech by investing more in financial literacy training and entrepreneurship education such as the Power for Entrepreneurs initiative in Spain (Box 29.2), covering new issues such as crowdfunding and blockchain in entrepreneurship training. Another approach is to provide support to existing infrastructures that utilise industry expertise to support women entrepreneurs already in fintech fields, such offering dedicated technology incubation and accelerator programmes for women entrepreneurs (Halabisky, 2015[9]). The WILLA Women in Fintech accelerator programme in France was created after research found that start-ups with at least one female founder performed 63% better than those founded exclusively by men, but only 1 in 10 fintech start-ups were founded by women in 2018 (WILLA, 2018[22]).

Governments are increasingly supporting strategies and initiatives that address the gender gap in access to finance for growth-oriented women entrepreneurs. Two broad approaches are observed across OECD countries. The first approach is to offer support through direct funding instruments to women founders. An example is the Women in Technology Venture Fund (Canada) that was launched in 2018. The Business Development Bank of Canada manages the Fund, which invests in women-led technology companies in the seed to series B investment stages (i.e. from the first official equity funding stage to the second round of funding). The current portfolio is CAD 200 million (EUR 138 million), and investments have been made in more than 30 women-led companies (BDC, 2022[24]). Similarly, the Female Founders Initiative was launched in Australia in 2020 (Box 29.3) and other more established initiatives such as Enterprise Ireland’s Competitive Start-Fund for Female Entrepreneurs were significantly scaled-up in recent years. The latter provides EUR 50 000 in equity funding to female-led early-stage start-ups that have the potential to employ more than ten people and achieve EUR 1 million in export sales within three years. The size of the fund has doubled since 2016, reaching EUR 1 million in 2020 (Enterprise Ireland, 2021[25]).

Governments also appear to be taking a more active role in supporting investor networks for women to encourage more investment in women entrepreneurs. Many such programmes combine education, networking and direct investments to support the creation of female investor networks. For example, the Women Business Angels for Europe’s Entrepreneurs (WA4E) was launched in 2017 to increase the presence and action of women in business angel financing market in several countries (e.g. Belgium, France, Italy, Portugal, Spain and the United Kingdom), generating over EUR 20 million in angel financing by women (Tooth, 2018[27]; BAE, 2022[28]).

There have been increasing efforts at both national and international levels to better understand the gender dimension in access to finance. A 2022 pilot initiative in the context of the OECD flagship Financing SMEs and Entrepreneurs: An OECD Scoreboard, showed that only very few countries collect traditional SME financing indicators by gender of the business owner (OECD, 2023[29]). In 2013, the G20 recognised the importance of data collection and analysis as a priority action in addressing the SME finance gender gap and developed a basic set of gender-disaggregated financial indicators, as part of the G20 Global Partnership on Financial Inclusion (GPFI) and its SME Finance Subgroup indicators (World Bank, 2020[30]). The 2022 Updated G20/OECD High-Level Principles on SME Financing also call for gender-disaggregated data collection (OECD, 2022[31]).

Several country-level initiatives are underway to leverage better data collection in order to strengthen women entrepreneurs’ access to finance. For example, the Investing in Women Code is a public commitment launched by the UK Government to support the advancement of female entrepreneurship by improving their access to tools, resources and finance from the financial services sector. Signatory financial institutions commit to collating and publishing a set of financing data by the gender of the business owner (GOV.UK, 2019[32]) (Box 29.4). This builds on earlier experiences, including efforts in Mexico to collect gender-disaggregated data in supply- and demand-side financial inclusion surveys progressively since 2012. In 2014, the Mexican Government approved the Financial Reform law, with the mandate to promote gender equality in access to financial services and in programmes led by national development banks (Data2x, 2019[33]).

The Women Entrepreneurs Finance (We-Fi) Code is a global multi-stakeholder effort which follows the UK example by seeking to expand the quality and quantity of data on women-led firms’ financing across a larger group of countries. Other initiatives that work towards improving the collection of gender-disaggregated data include the Alliance for Financial Inclusion, which developed a data portal to include financial inclusion data from financial institutions of around 65 countries (World Bank, 2020[30]). The Women’s Financial Inclusion Data Partnership is an alliance between the Inter-American Development Bank, the Data 2X and the Global Banking Alliance that aims to increase the production, availability, and use of gender-disaggregated data on both supply and demand of financial services. At the moment of writing, the initiative has undertaken pilot projects in six developing countries to support the development of supply-side interventions (Data2x, 2023[34]).

In addition to the OECD, through its SME and entrepreneurship financing Scoreboard, other international organisations have initiatives to include gender elements in their datasets and improve the collection of gender SME finance data; these include the World Bank Enterprise Surveys, the EBRD Business Environment and Enterprise Performance Surveys, and the IMF Financial Access Survey (World Bank, 2020[30]).


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