Second Chance Success program prepares women-led firms for growth
In recent years, the need for more investments geared towards women entrepreneurs in the Global South has been widely recognized.
But gender lens investing funds have been slow to materialize or grow.
Gender lens investing involves investing for financial return while also considering the benefits to women, improving economic opportunities, and securing girls’ and women’s social well-being.
A pilot project in Kenya and Rwanda has worked to understand and help address factors that prevent women entrepreneurs from receiving the funding they need to grow their businesses.
Second Chance Success is a joint effort between MEDA, Business Partners International, Criterion Institute and Volta Capital Ltd. The United States Agency for International Development (USAID) provided $1.15 million in funding for the two-year project.
- Business Partners International is an investment firm that provides loans of between $100,000 to $1 million US to small and medium-sized businesses in Kenya, Malawi, Namibia, Rwanda, Uganda and Zambia.
- Criterion Institute is an activist think tank that works to “broaden what matters in our economic decisions by expanding who has power and influence in the work of reinventing the economy.”
- Volta Capital is a United Kingdom-based firm that provides customized venture capital investment services.
Studies show that when women are economically empowered, they re-invest in their families and community. This investment produces a multiplier effect that spurs economic growth.
The Second Chance Success project sought to identify and test strategies that remove barriers to women entrepreneurs’ access to capital.
It worked with investment funds and business development service firms to provide technical assistance to women entrepreneurs, said Regina Nyakinyua, MEDA’s country project manager for the effort.
“In the long run, we hope to see an enabling environment where the businesses and the financial or investment funds can be able to work together to build a stronger economy,” she said.
The pilot looked at the situation of over 180 women-led businesses that had previously been rejected for investment. The firms were winnowed down to a smaller group that showed potential.
Project partners worked to build the women’s confidence and capacity through training and technical assistance in a variety of areas. These included marketing, product development, financial management and record-keeping.
Some entrepreneurs then re-applied for investment through a ‘second-chance’ window. About 20 percent of the firms have received funding from some source so far, said Mike Sarco.
Sarco is a US-based MEDA staffer who is the MEDA headquarters senior project manager with the Second Chance project.
Investment readiness training was financed by the project and participating investment funds. MEDA also worked directly with the investment funds to understand how systemic bias and discrimination might be working against building and financing successful women-owned businesses.
Several participating women entrepreneurs noted that “on paper,” there is no gender discrimination and equal opportunities are available for women and men to operate a business and seek investment.
But investment funds tend to misprice the risk when they get loan applications from women entrepreneurs.
Research done as part of the project revealed that investment firms tend to view younger women as being riskier than more mature entrepreneurs. Lenders also are skeptical of women entrepreneurs working in male-dominated sectors. Men tend to qualify for larger loans than female business owners.
Other challenges include the reality that women often don’t have the time for business accelerator programs or networking.
Cultural expectations that women care for the family leave them with little time for extra training.
Bank underwriting practices and the failure by governments to enforce anti-discrimination policies are also a disadvantage to women in business, Sarco said.
“Banks and capital providers have very rigid selection criteria that relate almost exclusively to money and profit,” he said. “The things that make businesses grow is the knowledge of the owners on how to run them. Very often, this is not captured in the selection process of the capital providers. They miss out on a lot of good, growing businesses just basically because they can’t see (the potential).”
The project discovered that there is a general lack of trust among investors in the ability of women to run their own business with a male counterpart.
One woman noted that the loan officer at the bank is usually a man. She wondered whether they would think differently about the application if the loan officer was a female employee. Several other women noted that financial institutions asked them to get their husband’s approval before pledging any assets against loans.
Research findings helped the project tailor focused technical assistance and training for women-owned businesses to meet their needs at different stages of applications for funding.
Business Partners International worked with firms that had previously applied to them for loans and were declined. MEDA worked with smaller firms that hadn’t made it as far along the loan application process. Both sets of firms received technical assistance to improve their business operations and increase their investment readiness.
MEDA and Criterion Institute interviewed both categories of entrepreneurs, and leaders in the gender lens investing space. “We hope that the lessons learned can be replicable, and a stronger system (will emerge) where women are more engaged in access to finance and also in economically building their country and communities,” Nyakinyua said.
MEDA is hosting a two-day summit in Nairobi, Kenya this month to discuss project findings. The goal of the event is to get the research findings out to the broader investment community, “and provide linkages between the providers of capital and the smaller companies that need it,” Sarco said. “It’s to help them understand what needs to change, from both sides. What do I need to do better as a small company, or as an investment vehicle, what practices do I have to change to find successful investable businesses.”
Learn more by watching: A video about Ruiru Hospital’s experience with the Second Chance program or stories about other participants.