Accessing business start-up and growth capital poses major challenges to all entrepreneurs, however there is evidence of gender gaps in financial markets. To some extent these gaps can be explained by the types of businesses that women tend to operate but there is also evidence of biases in investment and lending decisions. This chapter briefly discusses several of the barriers faced by women entrepreneurs and the policy approaches used to overcome these market failures. Eight policy insight notes are included from Ethiopia, Ireland, Italy, Mexico, Norway, South Africa, Spain and the United States. They present the range of challenges and lessons for policy makers in developing and developed countries.
Entrepreneurship Policies through a Gender Lens
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OECD Studies on SMEs and Entrepreneurship
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6. Facilitating women entrepreneurs’ access to financial capital
Abstract
There are barriers to finance on both the supply- and demand-side
Access to financial capital is widely recognised as one of the most pressing challenges faced by women entrepreneurs (OECD/EU, 2018). Women typically launch their firms with smaller amounts of financial capital than men, and are more reliant on internal rather than external sources of capital (Coleman and Robb, 2016). Women also face challenges in their attempts to secure growth capital in the form of debt and equity. This is due to a variety of factors, including gender bias in bank lending practices, investor preferences for STEM-based industries in which women tend to be under-represented, and the existence of networks dominated by men that have the effect of excluding women entrepreneurs and investors (Brush et al., 2014; OECD/EU, 2018). Simultaneously, women tend to be less secure in their entrepreneurial and financial skills than men, thus resulting in lower levels of confidence and a greater fear of failure (OECD/EU, 2019).
Taken together, these supply- and demand-side constraints represent significant barriers to the launch and growth of women-owned firms, and provide ample justification for policy intervention in the area of access to financial capital (Coleman et al., 2019).
The role of public policy
A growing number of public policy instruments are used to improve women entrepreneurs’ access to financial capital. Traditionally, governments have often used grants to support women-led enterprises. The typical grant schemes use some form of selection mechanism (e.g. an application, business plan or idea competition) to award funds to women entrepreneurs who have a reasonable chance of success. Grants do not need to be repaid by the entrepreneur, but might have conditions attached to them (e.g. the business must be in operation for at least two years). However, governments are increasingly moving away from grants to repayable instruments. In addition to recovering the public funds, repayable instruments provide a greater incentive for entrepreneurs to be successful in their businesses since they need to repay the borrowed money.
Microcredit is one of the most common types of repayable support for women entrepreneurs. This type of finance aims to improve financial inclusion by overcoming market and social barriers in the financial market for disadvantaged groups. Data from the European Microfinance Network indicates that approximately 40% of microcredit loans go to women, and about one-third of microfinance institutions are specifically focussed on women. These loans are for less than EUR 25 000 and are often packaged with financial education and business advice. The advantage of microcredit is that, as a credit product, entrepreneurs have strong incentives for creating a sustainable business since they must repay the loan. Another advantage is that, unlike other financial products (e.g. loan guarantees, bank loans), the instrument is designed specifically for the needs of people who experience difficulties in the credit market.
Another important trend is the growing number of tailored financial products for women entrepreneurs who operate growth-oriented businesses. These include programmes that seek to improve access to angel investments and risk capital – including schemes that match entrepreneurs and investors, and schemes that make equity investments in women-owned businesses – as well as initiatives that support the development of business angel networks and increasing the number of women involved in making lender and investment decisions.
Other new financial instruments and platforms are emerging, including the use crowdfunding or public procurement. These offer policy makers an opportunity to increase reach, since entrepreneurs can typically access the relevant platforms through computers or mobile phones. Another benefit is that they can have low operating costs since intermediaries are largely eliminated from the process of providing finance.
Lessons from the policy cases
The eight policy insight notes that follow provide examples of policies and practices designed to increase women entrepreneurs’ access to financing using various policy instruments. Some are designed to address supply-side structural barriers and market imperfections that restrict the flow of capital to women-owned firms. Interventions of this type help to re-shape the entrepreneurial ecosystem in ways that will make markets more inclusive and welcoming to women entrepreneurs. One such example in the collection is Innovasjon Norge (Innovation Norway), which “manages public policy efforts on entrepreneurship” and has the goal of committing at least 40% of business-targeted funds to women. Similarly, Ireland’s Competitive Start-Fund for Female Entrepreneurs specifically targets women launching firms in areas typically dominated by men.
Other policy and practice measures address demand-side challenges in the areas of entrepreneurial skills, financial literacy and financial confidence. Though sometimes viewed as “fix the women” remedies, such measures serve as a means for helping women entrepreneurs acquire knowledge, skills and networks essential to achieving their goals. As an example, Spain’s Women’s Entrepreneurship Support Programme provides micro-credit without guarantees coupled with advice through Chambers of Commerce, an online portal and follow-on advisory services. Mexico’s National Entrepreneur’s Institute provides both programmes and funding targeted at women entrepreneurs. Two such programmes are Women Moving Mexico which offers entrepreneurial training and advice through seven centres, and SME Women which has provided funding to almost 10 000 women-led companies.
Overall, the eight policy insight notes in this section demonstrate a strong level of commitment to increasing women entrepreneurs’ access to financial capital. They show a collective sense of urgency, energy and drive to “stretch” entrepreneurial ecosystems in ways that will benefit women in their pursuit of financial capital to launch and grow their firms. The notes show that countries have implemented a broad array of financing-focused policies and practices designed to achieve that goal. However, they also suggest that much more needs to be done since women continue to encounter both structural and attitudinal barriers.
The notes highlight several takeaway messages for policy makers:
1. A strong policy framework should be put in place for access to finance measures. A policy framework setting out objectives, targets, activities, responsibilities and budgets serves as a guide for programmes, supports coherence and consistency, and helps to ensure that initiatives will not be eliminated in the face of economic or political fluctuations. Although all eight of these notes provide practice examples, some report that there is no robust country-level policy to increase women entrepreneurs’ access to financial capital (Ireland, Mexico, South Africa). In other instances, practice appears to be inconsistent with policy due to the imposition of programme requirements that serve as barriers for women (Ethiopia).
2. “Gender-blind” access to finance programmes may not be sufficient to address gender gaps in financial markets. Measures need to address the different motivations, circumstances and contexts of women entrepreneurs compared with men. Several of the notes challenge the assumption that financing programmes and sources that work for men entrepreneurs will work just as well for women. A number challenge us to take the different motivations, profiles and contexts of women entrepreneurs into consideration in the design of financing policy and practice (Italy, Ireland). The notes also call for dedicated funding and programmes or designated quotas for women entrepreneurs (Mexico, Norway, South Africa).
3. A variety of funding instruments needs to be made available. Governments are making a growing and diverse array of funding sources available to women entrepreneurs, either directly or indirectly. These sources include grants (Norway), microcredit (Spain), loans (Ethiopia), equity (Ireland) and newer sources such as crowdfunding (United States). The notes attest to the notion that “one size does not fit all” by highlighting financial policies and programmes that address different profiles of women entrepreneurs such as those launching necessity-based or lifestyle firms (Ethiopia, Mexico, Spain, South Africa) as well as those launching growth-oriented firms in STEM and other innovative fields (Ireland, Italy, Norway, United States).
References
Brush, C. G., P. G. Green, L. Balachandra and A. Davis (2014), “Executive Summary: Women Entrepreneurs 2014: Bridging the Gender Gap in Venture Capital”, Arthur M. Blank Center for Entrepreneurship, Babson College, Babson Park, MA, https://www.babson.edu/media/babson/site-assets/content-assets/about/academics/centres-and-institutes/blank-institute/global-research/diana-project/diana-project-executive-summary-2014.pdf.
Coleman, S. and A. Robb (2016), “Financing high-growth women-owned enterprises: Evidence from the United States” in C. Díaz-García, C. Brush, E. Gatewood and F. Welter (eds.), Women’s Entrepreneurship in Global and Local Contexts, Edward Elgar Publishing, Cheltenham, UK and Northampton, MA, pp. 183-202.
Coleman, S., C. Henry, B. Orser, L. Foss, and F. Welter (2019). "Policy Support for Women Entrepreneurs’ Access to Financial Capital: Evidence from Canada, Germany, Ireland, Norway, and the United States," Journal of Small Business Management, Vol. 57, No. 2, pp. 296-322.
OECD/European Union (2019), The Missing Entrepreneurs 2019: Policies for Inclusive Entrepreneurship, OECD Publishing, Paris, https://doi.org/10.1787/3ed84801-en.
OECD/EU (2018), "Policy Brief on Women’s Entrepreneurship", OECD SME and Entrepreneurship Papers, No. 8, OECD Publishing, Paris, https://doi.org/10.1787/dd2d79e7-en.