The critical role of trade in fostering economic growth and poverty reduction, especially in emerging markets, faces setbacks due to the pervasive gender bias that impedes the financial backing of women-owned ventures, thereby hindering their ability to participate fully in international trade.
This is based on a recent report by the International Finance Corporation (IFC), seen by Nairametrics.
Despite the significant contribution of trade to job creation, particularly for micro, small, and medium enterprises (MSMEs), women-owned businesses encounter disproportionate challenges in accessing financing from banks.
This gender disparity stems from the perception that women-led ventures are inherently riskier, resulting in reluctance from financial institutions to extend credit to them.
A part of the report states below.
“Women entrepreneurs and women-owned enterprises face a number of challenges in accessing trade finance, including gender bias, limited networks, and information disparities; these are further exacerbated by the business practices of trade finance markets”.
“High interest rates and fees place further financial constraints on women traders, reflecting wide gender-based disparities in access to trade finance. Bureaucratic processes pose another significant barrier, particularly in Nigeria, highlighting the need for streamlined procedures and greater institutional capacity to support small and medium enterprises.
“Observations regarding firms’ characteristics such as size, age, sector, and managerial experience explain a significant portion, but not all, of the gender disparity in access to finance. “Women-led businesses continue to experience reduced access to finance even after accounting for the characteristics described above.
“This strongly indicates that bias is deeply ingrained within capital markets and societies.”
Why women-led ventures are often ignored
In Nigeria, for instance, most women-owned MSMEs operate within the agriculture and wholesale/retail sectors.
However, despite their prevalence in these sectors, access to trade finance remains insufficient, with financial institutions often exhibiting reluctance to underwrite the risks associated with these industries.
- The agricultural sector, with a significant portion of women-led ventures operating, is particularly vulnerable to weather conditions, climate variations, and fluctuating commodity prices.
- These inherent risks make financial institutions wary of extending trade finance to women-owned businesses in this sector.
- Moreover, the lack of collateral assets further compounds the challenge, as women entrepreneurs may struggle to meet the stringent collateral requirements set by financial institutions.
“On the supply side, financial institutions perceive women-owned enterprises as high risk, partly due to their small size and young average age, and partly because of incomplete records. Consequently, financial institutions frequently require collateral and are more inclined to reject application.
Additionally, societal perceptions and biases play a significant role in limiting women’s access to finance.
Women are often perceived as riskier borrowers, with credit providers questioning their commitment to business ventures due to their assumed primary responsibility for household obligations. These misconceptions further exacerbate the hurdles faced by women-owned businesses in accessing essential financial support.
Nevertheless, these perceptions are not necessarily grounded in empirical evidence. Recent studies have shown that women entrepreneurs demonstrate a higher propensity to repay their loans compared to their male counterparts, debunking the notion of inherent riskiness associated with women-led ventures, the IFC stated.
There is a growing recognition of the untapped potential of women entrepreneurs and the need to address the systemic barriers they face. Initiatives aimed at promoting gender-inclusive financing and fostering supportive ecosystems for women-led ventures are crucial in unlocking their full economic potential.