WEEK 8: FINANCIAL INCLUSION FOR WOMEN
Updated: Nov 15, 2021
Women's access to credit has almost become synonymous with financial inclusion of women. But financial inclusion should be viewed as making the entire financial ecosystem inclusive for women.
Traditional financial services either do not target women as clients or believe that their products and services are “gender-neutral.” What financial institutions often don’t realise is that the status quo system with “neutral” the status quo products were designed with men’s needs in mind. Market research shows that women have different needs when deciding about a new product or service. They need more information and ask lots more questions than men do. [1]
Leadership
In addition to these three recommendations, an issue that needs to be looked into is the low presence of women in leadership positions in the financial industry, the regulators and in the new emerging fintech sector. Gender diversity will add value to the financial industry. Currently, less than 2% of bank’s CEOs are women and less than 20% of board seats at banks are held by women (IMF, 2017).
An industry that intends to serve women but that has no women in its leadership will miss complementary perspectives. Gender diversity in leadership has shown to bring sustainability and new innovation pathways. The recommendation is to ask for regular reporting, publicly, the presence of women in the industry and in regulatory leadership positions. This information could prove a key input to public visibility into the lack of women in these institutions (awareness), the progress made within the financial industry (monitor), and also to allow the general public to show their preferences for more diverse firms, if they wish to do so.
Introducing incentives that favor organizations with women in leadership positions could increase the presence of women in leadership. For example, for the case of financial providers, blended finance products could be offered with better conditions (lower interest rates) to those providers with more gender diversity. Some experiences are already being tested and could introduce a positive market signal to support an increasing presence of women in the financial industry leadership. Regulators, industry leaders and/or civil society organizations can take the lead in creating reports, follow ups and public communications highlighting these business cases.
Data
Regulators and the financial industry require understanding the needs, constraints and preferences of women as users of financial services, for which collecting and analyzing sex disaggregated data constitutes a first, but crucial, step to address women financial needs. On the contrary, as stated by WFIP (2017:2) “Lack of data perpetuates gender gaps in financial inclusion. FSPs have consistently struggled to provide sufficient financial services to women, because they often do not have the data needed to develop an accurate picture of the women’s market, and therefore cannot build a business case for targeting women or monitor their own performance with the women’s market. Simultaneously, regulators and other policymakers frequently do not have sufficient data to identify who is or is not being served (access to financial services), who is being served well (quality of financial services), and who is using what services and why (use of financial services). Therefore, they are limited in their ability to develop and monitor effective financial inclusion policies” (Women Financial Inclusion Partnership, 2018). Data-driven policy designs are required to help close the gender gap. Financial product designs, selection of delivery channels, risk management products and price structure should be informed by sex disaggregated data, to match the financial needs and preferences of women. Serving women sustainably could enlarge significantly the clientele of the financial sector (GBA, 2016). [2]
Products
Why don’t more women use financial products? Because they don’t work for them. And this is a problem, not just for the women who continue to be excluded but also for the financial institutions that neglect to make sure their offerings work for women. Why? Simple: because the biggest untapped market in the world is not China or India or any other country. It’s women.
Access and usage costs
Reduce entry access and usage costs and barriers to financial services for women
It is critical to go beyond access to foster usage. Evidence suggests that expanding access to savings through one-time account openings through G2P, as an example, is not enough to foster use and impact welfare (Dupas et al. 2016). Recent evidence also shows that giving women a bank account that she does not feel empowered to access on her own, or does not trust, may have little impacts
As stated above, supporting the development of low cost (ideally no cost) basic financial services for women is key to help their access and usage. This requires adopting measures to ease access (basic mobile phones as entry devices, extending the delivery channels -correspondent agents- also female correspondent banking agents like in the Philippines), extended cash in/out network -avoiding entry fees-, regulatory adjustments to use tiered KYC and AML, etc. are part of the recommendation. Regulatory bodies play a key role in defining fee limits and other regulations to avoid entry costs that reduce financial access.
Complementarily, countries can explore providing incentives -monetary and non monetary- to encourage the usage of certain financial services, as well as nudges (from behavioral economics) to increase usage.[10] In the same sense financial providers can test different measures to promote this initial interaction with the system (loyalty schemes, etc.).
Financial services to support women’s businesses
In developed countries, women-led businesses grow faster than any other firms. In the developing world, there are between 8 and 10 million SMEs with at least one woman among their ranks. But these businesses face barriers to grow and develop, and some of these come from their limited access to financial services (IFC, 2017). Women face greater difficulties than men in gaining funding for their businesses and funders tend to believe that men are more entrepreneurial and growth minded than women (Eddleston et al., 2016). Yet when analyzed, the notion that women are cautious and risk averse and men are ambitious and risk taking had no statistical evidence. Likewise the notion that women are more reluctant than men to grow their businesses has no statistical evidence. Moreover, the lack of traditional collateral, the prevalence of discriminatory property rights and insufficient financial information are at the center of the capital and credit shortages that women face. As they lack these resources, it is hard for them to scale up their activities and increase their productivity, which would be necessary for them to enter value chains and procurement processes. Businesses run by women tend to be small and medium enterprises and to be underrepresented in the business associations, limiting their voice and bargaining power. Consequently, they tend to participate to a lesser extend in international trade (ITC, 2015).
Digital Financial Inclusion and alternative data
The development of new ways of providing (digital) financial services, mainly credit, through the use of new technologies and of nontraditional information based credit scorings represent a promising opportunity for women-led businesses lacking access to credit. Women-led businesses can take advantage of new sources of credit (provided by fintechs, digital credit, etc.) and other services and delivery mechanisms supported by new technologies (insuretech, etc.) Providing more quality data and information -phone bills, utility payments, input acquisitions, regularity in economic activities, etc.- can enhance how new and old providers (fintechs and FSPs) can evaluate and build alternative credit scores to gauge and learn about the repayment capacity of women-led businesses. Fintechs can easily ensure that microloans, consumer loans, utility companies and retailers are included, so that women can establish a credit history for themselves, as well as for their business.
Fintech products tend to value alternative information streams, and tend to reach traditionally underserved credit clients. Governments can support fintech incubators and women led fintechs that could in turn advantage women led businesses.
I will now move onto my second internship with the IFC’s Gender and Inclusion team where I will research on insurance products for women.