Sharron McPherson is Executive Chair at WEDI International. Prior to founding WEDI she was CEO of Tanaka Investments South Africa. She also worked for Mettle Merchant Bank in Johannesburg and as a Wall Street attorney, having begun her legal career at Cleary, Gottlieb, Steen & Hamilton, one of Wall Street’s most reputable and successful law firms. During her time as a Wall Street attorney, she founded the non-profit organisation ISES, which subsequently grew into one of the leading international privately-funded grassroots research organization committed to women’s enterprise development.
The total funding gap for women owned businesses is estimated around 290-360 billion USD according to the G20 and IFC (2011). To illustrate, that is nearly half the entire GDP of the Netherlands. What is more, the credit gap is not about to go away. In fact, unless we act today, it will only get bigger… Not unlike the gap in the sky.
One reason is that women are the fastest rising group of entrepreneurs worldwide. Globally, there are approximately 187 million female entrepreneurs within 59 economies (GEM 2010). Eight to ten million formal SMEs in emerging markets are fully or partially owned by women, representing 31-38 percent of all SMEs according to IFC. In the United States alone female owned businesses have been growing at a rate of 1,5 times the national average (American Express 2013). And the global “birth rates” of female-owned enterprises are higher than those of male-owned ones according to OECD (2012).
Despite women’s increasing presence on the business stage, research has consistently shown that women-led businesses receive less funding than companies led by men. The IFC estimates that as many as 70% of women-owned SMEs in the formal sector in developing countries are unserved or underserved by financial institutions. In Kenya for instance, 48 percent of business owners are women, yet they receive only 7 percent of formal credit (2011).
Financial institutions and investors stepping up their efforts to serve women business owners can make the difference between an opportunity gained and one lost.
Exciting research by Goldman Sachs (2014) points out the enormous impact of closing the gap for women owned SMEs on economic development. The researchers find a strong relationship between SME credit and income per capita growth. According to the World Bank, SMEs are the biggest contributors to employment across countries, especially in developing countries.
Taking this as a starting point GS estimates that closing the credit gap for women-owned SMEs across the developing world as a whole could boost income per capita growth rates by over 1,1% on average. Depending on other factors some countries would benefit more. On the higher end are Vietnam and Brazil, increasing their per capita growth by 1,7%-1,85%. Naturally closing the gap will take time, nobody knows exactly how much. But hypothetically speaking, gradually increasing funding for female SME owners could mean Brazils per capita income would wind up 28% higher by 2030.
This means everyday our economies are leaking money because companies owned by women are not capitalized to their fullest. What is even worse is that human potential, talents and innovation capacity are being lost. Therefore, in the face of the current global environmental, social and financial challenges, we cannot afford not to invest in women. Let’s start now.
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Giving credit where it is due How closing the credit gap for women-owned SMEs can drive global growth February 2014