Africa’s Gender Gap in Access to Finance for Women, IMF F&D
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Bibliographic details
- Authors: HANAN MORSY
- Published: March 1, 2020
Summary
- Hanan Morsy of the African Development Bank discusses fresh evidence that women entrepreneurs in Africa self-select out of the formal credit market, producing and reinforcing a gender gap in access to financial services.
- The article emphasizes demand-side factors—low perceived creditworthiness, low financial literacy, risk aversion, and fear of failure—as central drivers of the gap, alongside but distinct from supply-side constraints like high interest rates and collateral requirements.
Key Findings
- Worldwide, there is a "9 percent gap" between women’s and men’s access to bank accounts (World Bank 2017 data: "1.2 billion more people had bank accounts than in 2011").
- In sub-Saharan Africa, "only 37 percent of women have a bank account, compared with 48 percent of men."
- In North Africa, "about two-thirds of the adult population remains unbanked" and "the gender gap for access to finance is 18 percent, the largest in the world."
- Fresh evidence from the credit markets of "47 African countries" indicates women managers of micro and small firms are more likely than men to self-select out of the credit market because of low perceived creditworthiness.
- Three reinforcing phenomena:
- The complexity of application procedures and unfavorable loan and credit terms did not discourage women entrepreneurs from applying.
- Women entrepreneurs’ self-selection was not found to relate to the observed creditworthiness of their firms.
- Women’s self-selection persisted even in the absence of discriminatory lending practices.
Evidence and Analysis
- Mainstream supply-side explanations cited: high interest rates, collateral requirements, and more stringent loan arrangements for women (Morsy and Youssef 2017).
- Demand-side evidence shows women often do not apply because they perceive their applications would be denied (low perceived creditworthiness), indicating behavioral differences in risk, social, and competitive preferences.
- The study controlled for talent and firm characteristics and ruled out discrimination in credit supply or institutional barriers as the primary drivers of observed self-selection.
Policy Recommendations and Interventions
- Prioritize addressing demand-side constraints:
- Improve financial literacy for women and girls to help them assess their creditworthiness more objectively and make informed financial decisions.
- Provide capacity building that enhances financial management, marketing, leadership, and technology skills.
- Develop financial products that reflect women’s financial behavior:
- Design loans that accept smaller and more movable assets and traditional wealth storage media such as livestock and gold as collateral.
- Offer collateral-free loans where appropriate.
- Governments should establish legal and regulatory frameworks that enable movable-asset–based lending and other innovative products.
- Combine lending products with financial literacy programs, online business toolkits, and advisory services to support small enterprises and women entrepreneurs.
Programs and Examples
- Malaysia’s Women Entrepreneur Financing Programme: equips women with knowledge and skills in financial management, marketing, leadership, and technology; cited as helping close Malaysia’s gender gap in borrowing.
- African Development Bank’s Affirmative Finance Action for Women in Africa (AFAWA): facilitates women’s access to finance via an innovative risk-sharing mechanism, offers capacity building, and advocates for reforms to support women-owned businesses.
- "G7 leaders pledged $251 million to back the program aimed at unlocking $3 billion in private sector funding."
- Local bank innovations (example cited: West Bank and Gaza): loans to small and medium-sized enterprises based on movable assets, including collateral-free loans and loans secured by gold, accompanied by financial literacy and advisory services.
Sectoral and Development Impacts
- Agriculture:
- Women dominate African agriculture; lack of access to finance limits investments in modern technologies, diversification to high-value crops, livestock acquisition, and improved child nutrition.
- Fashion and textile sector:
- The cotton-textile-garment industry in sub-Saharan Africa produces "a whopping $31 billion annually"; women-dominated small businesses in the fashion industry struggle to access higher-value segments without financing.
- Overall implication: greater access to finance and working capital for women entrepreneurs can boost business growth and broader social and economic progress.
Source: Africa’s Gender Gap in Access to Finance for Women, F&D Magazine; Hanan Morsy; March 2020.
Content in this bundle
- Access to Finance: Why Aren’t Women Leaning In?
- لماذا لا تُقْدِم النساء على اغتنام فرص التمويل؟
- Acceso al financiamiento: ¿Por qué las mujeres no tienen mayor participación?
- Accès au financement : pourquoi les femmes ne s’imposent-elles pas ?
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