Hope for African women entrepreneurs battling to unlock funding

Female-led firms are demonstrating their creditworthiness with little or no collateral, as development financiers and commercial lenders start to increase their support for women entrepreneurs through gender strategies, custom bank accounts with accessible requirements, and empowerment programs.

By Conrad Onyango

Africa has the highest proportion of women entrepreneurs globally, but they face significant challenges securing funding for their ventures.

The Global Entrepreneurship Monitor’s (GEM) 2016/17 Women’s Report shows that more than a quarter of all businesses on the continent are either started or run by women.

However, their access to finance has been disproportionately low, with the Africa Development Bank(AfDB) estimating a financing gap of US$42 billion for African women across various business value chains, including US$15.6 billion in agriculture alone.

The lack of traditional collateral, such as land, property, and guarantees, has often caused banks to perceive women as a higher risk and have struggled for decades, according to the report, to understand and adequately respond to women entrepreneurs’ needs.

However, the tide now seems to be changing.

Commercial lenders and development financiers in Africa are widening their gender lens and warming to female-led startups, the report indicates. These are usually small firms with little or no collateral but prove to be more creditworthy than their male-led counterparts, with a huge potential to improve Africa’s economic outcomes and bolster profits for banks.

A Banking in Africa Survey 2024 by the European Investment Bank reveals that 72% of commercial lenders on the continent have implemented a gender strategy, with an additional 17% planning to introduce one.

It means that nearly nine out of ten banks on the continent could soon have a gender strategy in place.

“Two-thirds of banks have financial services or products specifically targeting women, and a further 44% of banks offer preferential terms when lending to women, such as less stringent collateral requirements or lower interest rates,” according to the report.

In the last few years, commercial lenders have been developing affordable products, services, and tailored financial solutions for women across various African countries.

In Kenya, for example, lender Gulf African Bank has a product called ‘Annisaa’ while Credit Bank offers ‘ElevateHer’ and Family Bank has a women-focused banking proposition called ‘Queen Banking’.

In Nigeria, Zenith Bank has the “Z Woman,” a loan product for female-owned businesses, while Access Bank features the “W” initiative, serving as a one-stop centre for all its women empowerment offerings.

Of the pan-African banks, Ecobank has the ‘Ellevate’ program, which aims to empower and support women-led and women-focused businesses, while Absa runs the ‘She Business Account.’

These women-centred products have increased female participation in finance to bolster social outcomes and have improved the banks’ financial performance, the report notes.

“Obtaining finance from sources other than banks can be difficult for women, due to reasons like lack of collateral, which is also linked to cultural barriers and land and property ownership,” said the report.

Development financiers are also playing an increasingly significant role in promoting gender mainstreaming within commercial lenders.

During the World Bank Group’s Annual Meetings in October 2024, the institution launched its Gender Strategy 2030, targeting to provide capital to an additional 80 million women and women-led businesses, addressing a crucial constraint to entrepreneurial growth.

To enhance access to capital for women and women-led businesses, the Bank said it plans to collaborate with regulators, financial institutions, fintech companies, incubators, accelerators, and private equity funds to address gender biases in lending practices.

“By partnering closely with development finance institutions and investors, we will mobilise resources through gender bonds and other financial instruments while generating knowledge to support the necessary regulatory reforms,” the development lender said in a statement.

The African Development Bank (AfDB) has its own Gender Strategy for 2021-2025, which is based on three pillars: empowering women through access to finance and markets, accelerating professional integration and job creation for women through skills enhancement, and improving women’s access to social services through infrastructure.

In March, the AfDB reported that it had secured more than US $1.5 billion in investment for Africa’s women-led small and medium-sized enterprises through its Affirmative Finance Action for Women in Africa initiative (AFAWA) in less than two years. AFAWA incentivises financial institutions to invest in women by unlocking financing for women-led small and medium enterprises.

Through these initiatives, more women are getting access to loans, helping to demistify their perceived  ‘poor credit ratings’ as banks report better loan performance among female-led firms.

Nearly 70% of banks, according to the EIB report, noted lower rates of non-performing loans among small businesses owned by women, an increase from the 40-50% rate recorded in last year’s EIB survey.

“This observation underscores why lending to female-led firms can improve financial performance for banks. The superior asset quality of female-led firms is particularly noteworthy, given that these firms are often concentrated in sectors dominated by small and medium-sized enterprises, which usually have higher non-performing loan ratios than larger firms,” the authors of the report explained.

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