In the dynamic landscape of entrepreneurship, women-led businesses encounter significant hurdles in accessing vital financial resources to grow and expand their operations.
A recent report by the International Finance Corporation (IFC), a sister organization of the World Bank sheds light on the challenges faced by women entrepreneurs who engage in cross-border trade, highlighting the urgent need for gender equality in trade finance.
According to the IFC report, titled “Banking on Women: Who Trade Across Borders,” the disparity in accessing trade finance is stark. Women-owned SMEs often struggle to secure financing due to their smaller size, shorter credit histories, and limited collateral than their male counterparts.
The report stated, “Women-owned SMEs particularly face greater challenges, as they tend to be smaller and younger, which means they have shorter credit histories and therefore [are] less likely to get financial support”.
These factors create barriers that hinder their ability to participate fully in global trade and capitalize on market opportunities. The study suggested that “stringent collateral requirements and a costly and complex documentation process discourage women from seeking trade finance”.
Collateral Challenges and Policy Solutions
Key findings from interviews conducted in Brazil, and sub-Saharan Africa revealed common obstacles encountered by women in these emerging economies. Across all the regions, the need for collateral emerged as a primary impediment to accessing trade finance.
“A gender gap in asset ownership has real implications for women’s access to finance. Women own fewer assets than men, a trend influenced by deeply ingrained cultural practices and sometimes reinforced by legal codes.
“In an environment where women-owned businesses are perceived as riskier, the inability to provide assets as collateral further restricts access to finance, contributing significantly to the observed differences in performance between female- and male-owned firms.”
IFC report
The report emphasized that “the requirement for collateral is addressed through the implementation of institutional frameworks—collateral registries and credit bureaus—to broaden access to finance for women-led enterprises”.
Additionally, bureaucratic processes pose significant barriers, especially in Nigeria and Ghana highlighting the necessity for streamlined procedures and increased institutional support for small and medium enterprises.
To address these systemic challenges, the report proposed several strategies aimed at increasing women’s access to trade finance.
One approach involves reducing the information deficit through targeted capacity building and digitization of financial instruments. Fintech solutions are highlighted as a promising avenue to facilitate creditworthiness assessments and provide alternative funding sources for women traders.
“Financing based on warehouse receipts and supply chain finance are alternatives to collateral, particularly beneficial for women traders in the agricultural sector.
“Access to trade finance can be further improved through fintech, which can play an important role in facilitating creditworthiness assessments while providing diverse funding sources and improving payment methods.”
IFC report
Furthermore, the implementation of institutional frameworks like collateral registries and credit bureaus is recommended to broaden access to finance for women-led enterprises.
The report advocates for blended finance, which combines private sector capital with concessional funds and donor support, as a transformative approach to empower women entrepreneurs and promote sustainable growth.
In response to these findings, stakeholders including financial institutions, government bodies, development partners, and women-owned enterprises are urged to take collaborative action.
Financial institutions are encouraged to offer tailored training and risk-sharing facilities to support women entrepreneurs. Governments and regulatory bodies play a crucial role in improving the regulatory framework and facilitating approval processes for risk-sharing facilities.
The IFC report serves as a clarion call for transformative change in international trade and finance, emphasizing the pivotal role of women entrepreneurs in driving sustainable development and economic growth in emerging markets.
As such, the findings of the IFC report underscore the critical importance of addressing gender disparities in trade finance to unleash the untapped potential of women entrepreneurs on the global stage.
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