How social norms impact women entrepreneurs’ access to finance

Above: MEDA client Rose, co-founder of Diamond Academy Ltd. posing in her school‘s play area (Photo credit: Alex Kamweru).

For International Women’s Day, we are pleased to provide you with content and events that focus on this year’s theme of “DigitALL: Innovation and technology for gender equality.” We hope that our International Women’s Day content and events will give you some useful insights that will shape your thoughts about how we can advance gender equality, at home and beyond.

The hidden barriers that hold back women entrepreneurs

Women’s economic empowerment (WEE) is integral to the growth of economies. However, women entrepreneurs face restrictive social norms, attitudes, and practices that exclude them from fully participating in the economy, including from accessing financial resources. Multiple studies validate a common-sense hypothesis that supporting the economic stability and growth of women across the globe has multiple positive impacts, from individual economic empowerment and strengthening communities, to a increasing global GDP. Yet, lack of access to finance is one of the major barriers facing women entrepreneurs around the world. The Open Society Initiative for Southern Africa (OSISA) estimates the financing gap for women-owned small and growing businesses (WSGBs) is around USD $20 billion. This gap is much higher for women-owned businesses in total, given the large number of women business owners in the informal sector.

MEDA’s Second Chance Success initiative focused on supporting women-owned businesses and helping investors to apply a gender lens, with the overall goal of facilitating financial capital access for women entrepreneurs. Specifically, the Second Chance Success project was designed to test approaches and provide evidence for overcoming barriers that prevent women entrepreneurs in Rwanda and Kenya from obtaining financing. In partnership with the Criterion Institute, MEDA gathered evidence from women entrepreneurs and investment ecosystem actors on how societal gender norms come into play when making investment decisions.

Above: a doctor with the Kenya Ruiru Hospital (Photo credit: Alex Kamweru).

What the data says

Apparently, there is no legal gender discrimination in Kenya and Rwanda and equal opportunities are available for women and men to operate businesses and seek investment. Governments, especially in Rwanda, are encouraging women to work in different industries and laws have been put in place to facilitate women’s entrepreneurship. Still, WSGBs noted that while governments have pledged their commitment to gender equality by introducing a 30 percent quota in decision making bodies to support women, these rules are generally not followed.

“‘Women feel that there are intentions but no actualization.”

– A women entrepreneur client

And if government regulations are not limiting women entrepreneurs in Rwanda and Kenya, we must examine the influence of social and cultural norms that determine the participation of women in public and private spheres, including their participation in the market economy. Among other things, these norms determine what types of businesses are appropriate for women, which creates gender-based occupational and business segregation. Women entrepreneurs noted that the investment practices still favor large and established businesses, which are usually owned by men. The supportive policies instituted in Kenya and Rwanda still do not address the issue of high interest rates, collateral requirements that usually favor men, and the process involved in seeking investment.

Women entrepreneurs pointed out that societal gender norms pose challenges for WSGBs in seeking investment and running an enterprise. They stated that most of the staff at commercial banks are men and, sometimes, women entrepreneurs felt intimidated.

“There were times I wanted a small loan urgently, but I would see the gentleman handling us would take us round and round and delayed us with forms and waiting times.”

– A women entrepreneur client

Gender norms also play a significant role when it comes to collateral or providing securities against loans. Many women entrepreneurs also noted that financial institutions would ask them for their husband’s guarantorship before accessing loans.

Further, these norms and assumptions that are evident in the investment process reflect deeply-held—and often unconscious—biases and expectations. The norms around “track record” are closely tied to norms around the standards for what a successful entrepreneur or fund manager looks like. These expectations are a barrier to WSGBs, both gender lens investing in general and also in the East African context. Fund managers favor entrepreneurs that have such qualities as being Ivy-league (U.S.) educated, having a certain number of years of work experience, an ability to put in their own capital, and even preferences for certain personality traits that demonstrate aggressiveness and over-confidence. These unconsciously held preferences for white, Western-educated, established, male entrepreneurs with a particular demeanor work subtly and consistently against WSGBs.

The previously mentioned unconscious biases are deeply embedded within the thinking of investment professionals at all stages of the investment process, emerging from initial sourcing to deal structuring and fulfillment. These biases are sometimes explicit but are more often subtle, uncomfortable for individuals to address directly, are overlooked within the decision-making process around investments, and thus are challenging to root out. We can see this across the investment space from multiple aspects: from hiring women for investment positions and screening out women-led businesses, to undervaluing and underestimating women leaders for being less aggressive in pitches and negotiations.

Several interviewees commented that younger women, especially, were considered riskier and less trustworthy to invest in than more mature and experienced women. Generally, investors do not trust women to run their own businesses without help from a spouse or other male family members. In addition, women entrepreneurs working in male dominated sectors are often met with skepticism. In technical sectors (technology, automobile mechanical work), social norms and expectations lead to doubts that women can succeed and grow these businesses. This reduces women’s interest in operating businesses in male dominated sectors fields because of the uncertainty associated with being the first of their kind. Further, Criterion’s analysis of gender patterns reveals that, when it comes to women entrepreneurs, there is a risk misperception. Despite evidence that women are highly resilient business leaders of micro/small enterprises in Rwanda and Kenya, women are still perceived as an investment risk. Investors price the risk for investing in WSGBs differently because there are few examples of WSGBs becoming highly profitable companies.

Cultural expectations about the responsibilities of women to care for families are both barriers and realities for many women entrepreneurs. The realities of familial responsibilities and expectations are particularly true within East African countries, where it is common for a breadwinner to support extended families. For this reason, women entrepreneurs may be more risk averse when it comes to launching particular types of businesses, favoring what is reliable over what is highly scalable and generally preferred by many investors. The perception of women as risk averse is a challenge, despite evidence that disproves this perception.

Leveling the playing field

Yet, the challenges faced by those WSGBs in Kenya and Rwanda are similar to the challenges that WSGBs face worldwide. Cultural norms and biases and the investment/financing process itself make accessing capital challenging for WSGBs. Understanding how power and gender are interrelated is an essential step in beginning to develop and implement programs that seek to increase the amount of capital accessed by women entrepreneurs.

Our research noted that there is a need to improve the enabling environment for gender lens investing by addressing power dynamics, structural biases, norms, and expectations, that continue to present barriers to WSGBs accessing finance. Financial institutions should strengthen their capacities to create GESI focused practices that foster just and equitable relations between their intermediaries, clients, and the socio-economic and political environment.

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