When I met Aisha, a female entrepreneur with a medium-sized food-processing facility in Lagos, she emphasized: “There is a bias that woman dream too big and Bank staff are more open to listening to men sharing their dreams and ambitions and are wary when women share the same dreams ,” as she discussed her experience trying to obtain a loan for her business. She explained that “In some parts of Nigeria, women are discouraged from owning properties that can be used as collateral and women in northern Nigeria cannot even own land to farm. Even when we own collaterals and have historical cashflow to support the loan application, the inability to get someone on the bank's credit committee or a senior executive at the bank to sponsor the loan reduces the chances of getting the loan.”
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Women entrepreneurs in Nigeria. ©KPMG Nigeria
Aisha has run a successful firm in Nigeria for the past ten years. In dealing with Nigerian banks, Aisha’s business loan applications were constantly rejected making it impossible for her firm to grow and reach its full economic potential.
Her struggle to access finance is an experience many women entrepreneurs face, inhibiting the dynamic women-led small- and medium-sized enterprise (WSME) sector in Nigeria To help unlock commercial financing, The World Bank Group (WBG), with funding from the Women Entrepreneurship Finance Initiative (We-Fi), supported the development of a new credit solution using a customer-centric approach tailored to the needs of women-entrepreneurs like Aisha.
A WBG market diagnostic confirmed that access to finance is one of the biggest challenges hindering WSME development and growth. The study found that 52% of women-led firms identified access to finance as a major constraint to growth, compared to only 30% of male-led firms. In addition, 56% of female entrepreneurs reported being rejected in their most recent loan applications, opposed to merely 17% of men. The main reason women have trouble accessing finance is due to gender gaps in assets ownership . Most loan sizes are determined based on the collateral that the borrower can provide. However, due to social norms, inheritance and marriage practices, household assets tend to be owned by men (e.g. land, houses, and savings accounts in which household funds are held).
In order to address the key constraints faced by women entrepreneurs in accessing financing, the WGBWe-Fi teams, collaborated with local partners, including the Access Bank and the Development Bank of Nigeria, to facilitate the development and of innovative credit products tailored to the needs of WSMEs. Access Bank, a longstanding financial partner of the WBG and the largest bank in Nigeria, launched the initial pilot phase of the “Digital Cash Flow Loan” product at the end of June 2020. Informed by the WBG market diagnostic, the product enables entrepreneurs to access commercial loans easily and safely from the comfort of their homes via an online platform. More importantly, the product has been designed to surmount longstanding collateral constraints faced by women entrepreneurs by using data on business cashflows to determine their credit worthiness, offering the potential to mitigate impacts of COVID-19 by helping viable and healthy women-owned businesses weather the storm and take advantage of future growth opportunities.
The product was launched at a crucial time amid COVID-related lockdowns and social distancing measures. As evidenced in preliminary research and early evidence, women entrepreneurs are over-represented in trade and service industries which have taken the hardest financial hit, worsening the pre-existing gender gap. According to statistics from the World Bank “Future of Business COVID-19 survey” executed by Facebook, 44% of female-owned businesses were shut down in June 2020 as compared to 33% of their male counterparts . Being disproportionally affected by the economic disruptions of the COVID-19 crises, this new product provides a lifeline to cash-strapped women entrepreneurs.
Since the launch of the pilot phase by Access Bank in June last year, the digital cash flow lending product has already led to more than 1,300 applications from women entrepreneurs out of which a quarter has been disbursed. By the end of the program, the goal is to reach more than 1000 WSMEs through innovate credit solutions. While this is a valuable target, the bigger goal is to unleash the potential and stimulate opportunities for women entrepreneurs in Nigeria. To this end, the impacts of the Digital Cash Flow Loan will rigorously be evaluated to assess the extent to which it translates into firm level investments and growth. Existing evidence from Ethiopia is promising and suggests that such novel credit products can have significant impacts on accelerating business growth and boosting employment levels for growth-oriented women entrepreneurs, fueling the MSME sub-sector of the economy. Stay tuned for an update as implementation gets underway.