The Female Economy

WASHINGTON, DC – Today, women own roughly 35% of small and medium-size enterprises in developing countries, and make up approximately 40% of the global workforce. Women’s consumer spending is projected to reach $28 trillion globally in 2014. And women contribute to their societies by investing their earnings in health, education, and family. Indeed, when it comes to women’s economic value, the numbers speak for themselves.

And yet recent research by the World Bank Group documented discrepancies between treatment of women and men in 102 of 141 countries surveyed – policies and practices that severely limit women’s economic opportunities. For example, in many countries, husbands are required to sign off on their wives’ business transactions. And women in developing countries are more likely to work in an inefficient informal economy; to be prevented by discriminatory laws from owning land; and to face bias in establishing, developing, and financing their own businesses.

Gender-based barriers to investment not only put women at a disadvantage; they also reduce the entire economy’s growth potential. Indeed, eliminating such barriers could raise labor productivity an estimated 25% in some countries. Moreover, the world’s most competitive industries are those with the narrowest earnings gap between women and men.

Three fundamental and interrelated gender-specific challenges must be addressed to make countries’ investment climate more woman-friendly. First, women must have legal status. Second, gender-neutral laws require supporting institutions that do not drive gender-biased economic outcomes. Finally, women must be better represented in networks such as chambers of commerce, thereby giving them influence over key decisions affecting their communities.

To be sure, the investment climate in some countries is slowly becoming more responsive to women entrepreneurs’ needs. For example, in Uganda, banks now extend loans to women to buy land; women in the Democratic Republic of Congo can officially register their businesses; and, in Indonesia, women can use alternative forms of collateral to obtain loans.

But women entrepreneurs need better access to finance. In much of Sub-Saharan Africa, women’s applications for business loans are rejected. In Latin America, women entrepreneurs can sometimes obtain loans, though usually less than requested. And, in most developing countries, banks offer an inferior range of financial services to businesses owned by women.

Indeed, women-owned businesses’ unmet financial needs are estimated to total $260-320 billion annually, with medium-size businesses most adversely affected. After all, microfinance institutions serve small business, and traditional banks are more likely to lend to larger businesses – leaving those in the middle to fend for themselves.

There is a strong case for offering financial products tailored to women entrepreneurs. DFCU Bank in Uganda, for example, has built a successful portfolio of business loans, leases, and mortgages that target women entrepreneurs. Before DFCU got involved, women accounted for 40% of small-business owners, but received only 10% of available credit. Since 2007, the bank has provided nearly $20 million to women-owned enterprises, and in the process, has been helping to drive Uganda’s economic growth.

Banks elsewhere should take note: gender-biased lending hurts the bottom line, because it implies missing out on a massive untapped market. Indeed, policymakers and financial institutions alike would do well to recognize that, as abundant research and experience have shown, sustainable growth cannot be achieved without women’s active participation.