While many are yet to achieve their full potential, female-led Small and Medium-sized Enterprises (SMEs) are vibrant through self-financing ‘chamas’ where they pool resources for savings and loans.
Globally, only one in three small, medium and large businesses are owned by women, according to the World Bank.
Women entrepreneurs make a substantial contribution to economic growth. While many are yet to achieve their full potential, female-led Small and Medium-sized Enterprises (SMEs) are vibrant through self-financing ‘chamas’ where they pool resources for savings and loans.
Globally, only one in three small, medium and large businesses are owned by women, according to the World Bank.
In some instances, a female business loan applicant may find it difficult to get credit from traditional financial institutions due to lower financial indicators such as annual revenue, unclear operating expenses, especially if there hasn’t been discipline in segregating personal and business bank accounts.
With many businesses being at an earlier stage exacerbated by pivoting because of COVID-19 effects - we are yet to adapt more artificial intelligence systems to capture holistic personal credit scores that assess and predict people’s credit behaviour based on how they pay for utilities like electricity and data.
As a result, many women-owned businesses tend to be smaller than their male counterparts supported by self-financed capital which they acquire from personal savings and ‘merry-go-rounds’ and or table banking.
At a recent Webinar dubbed ‘Funding the missing middle: market failure or untapped opportunity?’ organised by Women Win and New Faces New Voices-Kenya, various stakeholders outlined the limitations encountered by women in growing their businesses, and the need to position women within the financial ecosystem as a critical audience.
Lack of capacity building for women entrepreneurs was highlighted as one of the major barriers that women SMEs face in acquiring affordable working capital.
For start-ups to thrive from seed to growth stage, many lack the financial knowledge on how and where to access funds, have limited knowledge about what financial instruments best suit their growth stage, is yet to fully interpret their financial records and interpret risks appropriately.
Furthermore, the lack of well-packaged investment cases, coupled with the long process of loan approvals to entrepreneurs build on the impediments that have made it hard for women-backed businesses.
In a survey by Graça Machel Trust to explore growth barriers faced by female entrepreneurs in East Africa, at least 71 percent of the women who took part in the survey started their business from their savings.
Most female entrepreneurs have invested between Sh100,000 and Sh500,000 as capital. The research reveals that most female entrepreneurs currently self-finance their business, using their own funds or savings and ploughing the earnings of the business back in to achieve growth.
The decision to self-finance is based on a belief that they do not have the requirements to access funding such as collateral.
Even as the SME world is on the road to resilience and recovery from the Covid- 19 pandemic, there is a need for financial institutions to ensure continuous capacity building to increase business management skills to their customers, particularly businesswomen.
Kenya Private Sector Alliance (Kepsa) for instance, as part of their Covid-19 Recovery and Resilience Program, partnered with Mastercard Foundation to support more than 106 women and youth-led MSMEs who are beneficiaries of more than Sh42 million in form of interest-free short-term loans between Sh100,000 and Sh1.5 million without collateral.
Advancing tech
Other organisations that were also participants in Funding the Missing Middle Webinar continue to reach out to MSMEs and investors to change the narrative that access to funding is a challenge. With the advancing technology, it is also imperative to empower female business owners to capitalise on the use of digital platforms such as WhatsApp, Instagram, Facebook and website to increase visibility.
Scaling can prove to be a challenge to the business if not managed wisely and hence shared services that provide support mechanisms for talent, operational efficiency and sector mentorship are crucial.
For businesses to thrive in the new normal, there is a need to create gender-lens investing strategies to counter some of these challenges.
Andia Chakava, investment director at Graça Machel Trust and New Faces New Voices – Kenya founding chairperson; Eva Warigia, champion for New Faces New Voices for Women in Finance
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