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As I settled into my table at a small hotel in Huancayo, a sleepy town located approximately 200 kilometers south of Lima, Peru's capital, Magdalena, my very efficient waitress, rushed in to pour me a hot, freshly-brewed cup of coffee.
I'd been in Huancayo for a couple of days, cordially invited by the region's Caja to speak at the Federación de Cajas' annual meeting about the pros and cons behind private investment into microfinance institutions owned by municipalities – the Cajas play a key role in financially including Peru's poorest segments.
Since I was one of the few customers left in the breakfast room, I asked Magdalena, who looked in a hurry to complete that morning's service, how her day was. She told me that she needed to finish sharply by 10am, so she could then rush uptown and open her little store by the Huanca Identity Park, where tourists would start arriving to buy local souvenirs. Magdalena appeared to be in her early fifties, and I took the liberty to ask her if she'd had the store for a long time. As she finished wiping off a dirty tablecloth, Magdalena told me that she'd been following the same routine for over 30 years. At some point, she'd tried to get a loan from a local bank to expand her store into a little market but, being a single mother, this had proven impossible. “They wanted a guarantee from my husband,” she sighed. After several denials, she had finally given up.
A recent World Bank survey shows that men represent, on average, 4.2% of non-profitable loans in a sample of global banks. Women represent 2.9%.
Huancayo is the capital city of the Region of Junin, where 27% of its 1.3 million population is considered poor, according to recent statistics from the Instituto Peruano de Economia, and where poverty has increased by 5% since 2015. 20% of micro-enterprises in the Huancayo area are started and run by women.
The Challenge of the Financially Excluded
Financial inclusion is defined as the provision of affordable, accessible and relevant financial products to individuals and businesses that had previously not been able to access these products. Today, 31% of the global population, approximately 3 billion people, is excluded from financial growth. The majority of excluded groups include minorities and women below the poverty line, who do not have access to financial products for the following three main reasons:
Reason #1: Lack of awareness – a majority of the population has little or no education, which excludes this section of society from financial products and services offered by the government or the private sector. Moreover, the lack of information hampers access to financial products for low-income groups.
Reason #2: Rigid product structure – Most of the products offered by banks are not configured to the requirements of the unbanked population. As such, the terms and conditions are not understood by low-income groups. A majority of such products do not cater to the requirements of diverse disadvantaged sections of society.
Reason #3: Unfavourable regulatory environment – The absence of a prudent regulatory framework for financial products and services offered to low-income people does not provide incentives to private or public sector banks. For example, documentation deters the underprivileged sections of society from accessing financial products and services.
In Latin America, the story is particularly striking, as, according to the OECD, only 45% of small and medium enterprises (SMEs) have access to the financial systems, despite the fact that SMEs account for 99% of the industrial entities and 67% of employment. In terms of individuals, only 51% of Latin American adults have bank accounts, of which only 28% make payments directly from their bank accounts and less than 15% benefit from formal savings or borrowing services. Unlike in Asia and Africa, in Latin America the majority of the poor live in urban areas and, while 38% of the population in urban areas is below the poverty line, 62% of the population in rural areas is also poor.
The Case for 'Womenomics'
The term 'womenomics' was coined in Japan in 1999 by Kathy Matsui, a strategist with Goldman Sachs. Matsui and her colleagues at Goldman Sachs have continued their research on the role of women in Japan's workforce over the past 20 years, advocating for the potential economic gains from greater equality in the workforce, and making policy recommendations.
Most recently, they estimated that closing the gender employment gap, such that the female employment rate matched the male employment rate, could boost Japan's GDP by nearly 13%. Additionally, some economists argue that closing the gender gap in Japan could boost corporate performance. Research finds that Japanese corporations with higher performance consistently have greater female participation in senior management.
Japan is, therefore, a clear example of where including women into the workforce is not just a question of equality, but it is a matter that makes complete economic sense.
It does not stop in Japan. Christine Lagarde, current President of the European Central Bank, was recently quoted stating that “all economies have savings and productivity gains if women have access to the job market. It's not just a mere philosophical or equal-opportunity matter, it's also an economic cause that makes economic sense”.
Let me then frame Ms. Lagarde's bold and logical statement into a couple of relevant statistics:
1. Female Labour Force Participation Rate: Around the world, one of the most important macroeconomic trends is the inclusion of women into the formal economy. As the McKinsey Global Institute notes, if women's participation rates were the same as men around the world, it would add up to $28trn, or 26%, to annual global GDP by 2025.
2. Rising Educational Levels of Women: Women are more actively involved in the formal economy today because they are better educated, skilled and qualified for virtually any job in any sector. Among women ages 25 and over in the US, the percentage of women with a college degree nearly tripled from 1970 to 2015.
3. Purchasing Power of Women: Globally, women control upward of $20trn in wealth – a staggering sum of capital that speaks to the financial influence of women. In the US alone, women control just over half of the nation's personal wealth or investable assets, or $14trn.
4. Gender Earnings' Gap: Women working full time in the US, for instance, earned 79% of what men did in 2014, according to the 2014 Census Bureau comparison of the median earnings of full-time, year-round workers. And what is true in the US is true around the world where, on average, women earn 16% less than men.
5. Corporate Gender Diversity: Although management pipelines vary considerably by industry, region and company, the higher up the hierarchy one goes, the smaller the number of women in line to fill leadership roles. At the top, the number of women named as CEOs declines sharply. Indeed, according to a survey conducted by Strategy&, only one of the 87 new CEOs named to lead a publicly-traded firm in the US and Canada was a woman. Globally, women made up only 10 out of 359 of the newly-appointed CEOs.
One of my favorite articles that addresses the difference in opportunities between men and women is a piece by Tomas Chamorro-Premuzic. Chamorro highlights that one of the biggest problems in today's society is “the lack of career obstacles for incompetent men and the fact that we tend to equate leadership with the very psychological features that make the average man a more inept leader than the average woman”. As these features trick our minds, it is not that much of a surprise that a banker would be less inclined to give Magdalena a loan than to a man of her same credit score and repayment capacity. Therefore, the critical question to answer is how do we manage to bridge the gender financial gap.
Gender Finance: It Just Makes Sense
70% of the world's poor are women. Some studies have shown that women have little control over their loans, with the husband making all decisions. It has even been argued that, up to a point, microcredit can 'unfairly' increase the workload of women and young girls. However, in my opinion, these isolated findings are completely obliterated by the following facts:
1. Microfinance often targets women, in some cases exclusively. Female clients represent 85% of the poorest microfinance clients reached. Women are more loyal customers than men, who often make their financing decisions on price and convenience. However, the IDB reports that women receive loans which are, on average, half of the amount awarded to men and maintain savings balances which are, on average, less than two-thirds than those of men.
2. Women clients register higher repayment rates. A recent World Bank survey shows that men represent, on average 4.2% of non-profitable loans in a sample of global banks. Women represent 2.9%.
3. Women also contribute larger portions of their income to household consumption than their male counterparts.
4. Children of female microfinance borrowers also reap the benefits, as there is an increased likelihood of full-time school enrollment and lower dropout rates. Studies show that new incomes generated from microenterprises are often first invested in children's education.
Gender lens investing considers that gender cuts across all aspects of society, including economic and financial sectors, and that all investments have gendered impacts. Gender lens strategies include an intentional search for solutions to foster gender equality. These might include, for example, investing in a venture capital fund that prioritises women entrepreneurs or investing in an exchange traded fund (ETF) that only includes companies that rate highly on gender equality. Furthermore, there are very successful cases of financial institutions that, through a differentiated ‘women’ strategy have managed to target the segment in a tailor-made, appropriate way (certainly not by issuing 'pink credit cards' for shopping purposes).
An example that I particularly like is BLC Bank in Lebanon, one of the country's oldest banks. Developed into an IFC case study, BLC created a programme with an exclusive focus on serving women-owned SMEs. The bank's logic was to focus on the female SME consumer base as part of its concerted effort to look for new ways to grow its business.
BLC then shifted this focus and adopted a much broader and more holistic approach of empowering women across all of its operations: from its consumer base, to its internal workforce and all the way to the bank's top leadership. This shift was gradual and was driven by the bank's ambition to become the 'Bank of Choice for Women in Lebanon'.
In its financial services offering, BLC addressed two particular gaps that women in Lebanon faced: lack of collateral among women entrepreneurs, and time and mobility constraints on women entrepreneurs who have family responsibilities. Both of these challenges make banking and bank visits for women entrepreneurs particularly difficult. The bank offered a collateral-free loan for businesses that have been in place for at least two years. Given that property rights in Lebanon heavily favour males over females, this particular product aimed to provide greater access for women who owned small businesses.
Another case worth mentioning is Banco BHD Leon in the Dominican Republic, a recent investment target for IDB Invest. Banco BHD Leon embraced the ‘women’ market opportunity to support the growth of women-led businesses and took a leadership role in developing a value proposition of products and services to better provide access to finance and growth opportunities for women in the Dominican Republic. Banco BHD Leon's Mujer Mujer Program, launched in 2014, provides a wide range of adapted products, including tailored working capital and investment loans. In recognition of the fact that women-owned businesses seek additional non-financial products and benefit from access to mentoring and business advisory services, Banco BHD Leon's comprehensive offering – developed in part through the Global Alliance for Banking on Women (GBA) – includes health and business insurance, credit cards with embedded benefits deemed most attractive to women clients, and networking events, to effectively support the overall growth and success of its SME clients.
Empowering Magdalena: A No Brainer for Impact Investors
As I further researched the topic, I found the cherry on the cake: women are also more likely than men to invest in sustainable and social areas, including those with a gender lens. Women tend to invest in order to make a clear and measurable positive impact on society, not just to generate profit. 35% of the 2020 ImpactAsset 50 (IA50) fund managers are female-led and 41% of the senior management team are women. Private funds identified by Wharton Business School as operating with a gender focus had, on average, 72% of female partners, 69% of female investment committee members and 54% of female limited partners.
Impact investors clearly have a role to play. The pipelines of companies that are led by women or benefit women need to be expanded. At the same time, impact investors need to be able to develop capacity among existing fund managers for further propelling 'gender lens' investing and developing a pipeline of female talent that is currently lacking in fund manager and leadership positions.
Back at the breakfast room, I realised that I was the last one left. I finished my coffee, collected my papers, waved Magdalena goodbye and started the 15-minute walk towards Huancayo's conference centre. I put on my headphones, selected my 'pump up' playlist to get revved up for my speech and Avicii's The Nights immediately kicked in.
'He said one day you'll leave this world behind, so live a life you will remember', I sang along, convinced that Magdalena had deserved a better chance. It's up to us to break the stereotypes. Some visionary institutions are already breaking the mold – let this be the norm and not the exception.
Pablo Verra is Regional Head for Impact & Development Finance for Deloitte's Spanish Latin America. He has previously worked at the IFC and the Inter American Development Bank. He is Adjunct Professor of Impact Investments at Universidad Torcuato Di Tella.