USAID CATALYZE WBR Summit Sparks Collaboration to Unlock Financial Opportunities for Women Entrepreneurs in El Salvador
In June 2023, the USAID CATALYZE Women Building Resilience (WBR) Activity brought together more than 60 industry stakeholders, including financial institutions, fintechs, anchor firms, business associations, and women-owned micro-, small- and medium-sized enterprises (W-MSMEs), at the Unlocking Economic Opportunities for Salvadorean Women through Finance and Investment: An Industry Summit in San Salvador, El Salvador.
Financial institutions recognize the scale of the W-MSME market, but many struggle to maximize potential for serving the segment. Serving W-MSMEs remains challenging as lending to businesses that lack collateral, guarantee or credit history is often considered too risky. Yet, W-MSMEs have significant unmet demand for financing and present a business opportunity for financial intermediaries. If banks were to build an understanding to barriers impeding W-SMEs access to financial services and invest in developing appropriate client value propositions for them, , banks could capture a still underserved, yet profitable, market segment.
The Industry Summit offered stakeholders the opportunity to discuss the challenges W-MSMEs face in accessing capital; barriers constraining investment in W-MSMEs; and recommendations to increasing access to women entrepreneurs. Participants also engaged in an interactive solutioning session regarding the role of strategic alliances between various actors within the financial ecosystem to better unlock financing for women-owned businesses. The event fostered greater collaboration and learning on how to increase W-MSMEs’ access to financing. Here is what we learned:
· Strict bank requirements and financial sector regulations strongly impact women-owned micro, small, and medium-sized enterprises businesses’ access to bank loans.
· Women-owned micro-top enterprises feel the sharpest edge of the financing gap as they largely cannot quality for bank loans and microfinance loans are too small to meet their needs.
· Lack of institutional data creates gender bias and prevents FIs from developing financial products and programs that are more appropriate and accessible to women.
· Better education and access to information and consulting services can help women make more informed decisions around identifying and accessing suitable financing.
· Financial and digital education, geared toward W-MSMEs can help women make more informed decisions when seeking suitable financing.
· Fintech solutions offer great opportunities for all W-MSMEs.
At the Summit, stakeholders put forth recommendations based on the following questions:
What challenges and constraints do the investors/financial intermediaries face in identifying and closing transactions with W- MSMEs?
· There is a lack of data around lending to women-owned MSMEs, which can make obfuscate pain points restricting access to financing for the segment.
· Misperceptions that W-MSMEs are too small or too risky to finance can deter financial institutions from targeting the segment overall, which also biasing loan officers when evaluating W-MSMEs financing applications
· Regulatory requirements designed to encourage prudential lending constrain lending to women-owned MSMEs as many women-owned MSMEs simply cannot meet requirements. Recent regulatory changes, such as allowing financial institutions to lend to women-owned MSMEs generating less than $300,000 per year without audited financial records, are an important step towards unlocking financing for women-owned MSMEs.
How can the private sector ecosystem work together to unlock financing for W-MSMEs? What other enablers are needed for the solution to be successful or what other assumptions are we making?
· Center the voices of women-owned MSMEs in the development of demand-driven solutions to unlock financing for the segment. There are many misperceptions about what financial services solutions W-MSMEs prioritize and need.
· Build consensus around a shared definition of “Women-Owned MSMEs” and require financial institutions to report gender disaggregated data to the regulator. Both interventions will provide more transparency around financing for women-owned MSMEs.
· Change the perception of women-led businesses. As suggested above, generate more official data for FI decision-making and ecosystem policymaking to help build the case that W-MSMEs are good investments. This also may require integrating soft skills training in financial institutions to evaluate and train employees/employee executives on their behavior toward W-MSMEs.
· Engage with the regulator around financial sector regulations that limit lending to women-owned MSMEs to explore how regulations can be adjusted to unlock financing for women-owned MSMEs while maintaining financial stability. As noted above, recent regulatory changes around financial records are creating opportunities for financial institutions to serve more women-owned SMEs.
· Empower third parties, such as Business Advisory Service Providers, to inform and support women entrepreneurs by building out an ecosystem in which they are incentivized to provide services to the segment. Business Advisory Service Providers can play a pivotal role in building awareness of and trust in financial services in the market.
· Leverage digital technology to create data-driven financing products that reduce turnaround times for financing applications. For example, BAC is leveraging POS data to finance women-owned MSMEs at scale.
Unlocking access to appropriate financing for W-MSMEs at scale requires an ecosystem approach. The availability of appropriate and affordable financial products that reduce turnaround time combined with robust data on W-MSMEs can improve access to finance for women. The benefit of these products and solutions, however, will be limited without additional education, information, and increased awareness of women business owners. Developing new business models and strategic partnerships among private sector actors can facilitate the deployment of profitable new approaches to finance W-MSMEs by drawing on each stakeholders’ respective assets. By providing increased access to financing, FIs can support the growth of underserved sectors, increase their market share, and create positive social and economic impact.
CATALYZE WBR measures its impact through a variety of indicators, including private capital it helped to mobilize. By September 2023, WBR had mobilized $94.8M in private capital.
