Making financing requirements
less restrictive for women entrepreneurs
Requirement for collateral is the key challenge for women
Women entrepreneurs face challenges in accessing credit, particularly for loans above $20,000 that require collateral. Limited alternatives and the high value of collateral compared to the loan amount make it difficult for women to secure financing, and unclear restrictions and a lack of understanding of loan criteria are the main reasons for loan denial. The loan application process involves a conversation with a bank official, forms, and requests for additional documentation, but missing criteria did not show a clear correlation with loan denial.
Most financial institutions don’t consider womens’ limitations
Financial institutions in Kenya and Uganda have varying loan requirements and conditions, with only a few banks offering unsecured loans. Collateral requirements are standardized across banks with limited flexibility, except for the women-focused DFCU bank in Uganda, which has a specific unsecured loan facility for women entrepreneurs. While interest rates are flexible and determined by risk profiling, preferential rates for female entrepreneurs are offered by very few organizations.
Selected success cases of gender-lens products
1. LOOP by NCBA: This financial institution offers unsecured loans accessible through a phone app. Entrepreneurs can access loans up to Kes. 3 million with repayments over a period of up to 3 years, and an overdraft facility of up to Kes. 100,000. The app makes it easy for entrepreneurs to view their loan and overdraft limit and secure a loan with minimal paperwork.
2. DFCU: This financial institution runs the Women in Business program, which provides financing to women entrepreneurs at a subsidized rate (10-18% versus 22%), financing for investment clubs, financial literacy training, and an accelerator program.
4. Non-Collateral Based Lending - CGAP: This is another successful example of a financial institution providing financing to women entrepreneurs without the need for collateral. This model has proven to be effective for women entrepreneurs and can be replicated by other financial institutions looking to support this segment.
Collaboration is required
Only by working together, women entrepreneurs and financial institutions can create a more equitable and sustainable financial system.
Recommendations for Women Entrepreneurs:
Women entrepreneurs should work with experts to develop proper financial models to understand the cost of debt and its impact on their operations.
Building strong relationships:
Women entrepreneurs should strive to build strong relationships with their financial institutions, using negotiation skills to improve their chances of accessing loans.
Reducing risk exposure:
By engaging in comprehensive financial planning, women entrepreneurs can reduce their risk exposure and the burden of collateral, increasing their chances of accessing loans.
Recommendations for Financial Institutions:
Financial institutions should consider developing unsecured credit products that cater to the needs of women entrepreneurs, especially in service-based industries.
or investment clubs:
Credit associations or investment clubs: Financial institutions should consider developing credit products for credit associations or investment clubs that serve women entrepreneurs, thereby reducing their risk exposure while learning more about this target group.