Financial services for women-owned small businesses

Globally, one in three businesses are owned by women, who often face major financial and non-financial constraints. For instance, women encounter obstacles in financing, owning, and growing a business. IFC estimates a $1.7 trillion gap in financing exists for formal, women-owned small businesses across the globe, who account for an outsized share of the overall finance gap for micro- and small businesses. Women also face persistent challenges associated with discriminatory regulations and laws, societal and cultural norms, and a greater proportion of time spent on unpaid domestic and care work. Together, these challenges and constraints often mean women cannot start and run businesses in the same way as men can.  

Further, women-owned businesses were particularly impacted by the COVID-19 pandemic, often because they were smaller, more informal, and more concentrated in service-related sectors (e.g., hospitality, retail, or food) and thus subject to lockdowns and closures. For example, micro- and small women-owned businesses were more likely to report a larger decline in sales revenue compared to those owned by men, in addition to having significantly less cash to cover costs. They have also struggled to recover from the pandemic more than men-owned businesses. The Center for Financial Inclusion found that men-owned businesses saw overall better profit trends, with 80% reporting that profits stayed the same or increased in the pandemic’s wake, compared to 67% for women-owned small businesses. 

Digital financial services (DFS) and products are offering opportunities to women-owned businesses around the globe. More broadly, DFS can address women’s mobility and time constraints by offering a new channel to access financing and increased safety and privacy. In the wake of the pandemic, women-owned small businesses, particularly micro-businesses, were markedly more likely to increase their use of digital platforms and technology compared to men-owned businesses. Similarly, women entrepreneurs in Ghana reported that mobile money made it easier to manage their finances in the aftermath of COVID-19 at a significantly higher rate than men. This brief outlines evidence of the impact of digital finance on women-owned small businesses and highlights ways that DFS providers can better encourage adoption.

Emerging evidence suggests that digital finance can have positive business and household impacts on women, both related to digital payments broadly, and access to credit and savings specifically. 

DFS can be useful in various business and geographical contexts:

• A review of evidence from Bangladesh and Indonesia found that DFS helped women entrepreneurs overcome mobility limitations. 
• In Ghana, women entrepreneurs reported that mobile money made it easier to manage their finances in the wake of the pandemic. 
• In Uganda, research found that women who received a loan via mobile money had higher levels of business capital and higher business profits than women who received a loan via cash, because mobile money enabled women to circumvent pressures to share loans with other household members. 
• In Tanzania, researchers found that women entrepreneurs with improved access to mobile savings accounts and business training had more savings and improved life satisfaction compared with the control group. 
• In Kenya, mobile money was catalytic in alleviating poverty in female-headed households, where women left subsistence farming for business or retail employment. 
• DFS use has also been shown to increase investment for women-owned small businesses. Research across 16 African countries found a positive relationship between mobile money use and capital investment in women-owned firms, a statistically insignificant finding for men-owned firms.
• In its review of its MSE accelerator program in partnership with the Mastercard Center for Inclusive Growth, Accion found that digital products empowered women-owned micro- and small businesses, with more than 70% of women respondents reporting improvements in their financial health.   

Women-owned firms are often more credit-constrained than their men-owned counterparts. Barriers to accessing finance for women can include limited business skills, such as keeping financial records; a lower understanding and lack of awareness of financial services and products; a lack of fixed assets to serve as collateral; biased credit approval processes; and distances from financial institutions. Digital credit solutions can mitigate many of these constraints by enabling alternative data sources for assessing risk, cost-effective borrowing, and streamlined and fast application processes. Alternative data, such as from mobile phone usage or purchase habits, has shown to be effective in cash flow-based lending by enabling access to loans by overcoming collateral constraints. In Ethiopia, a fintech designed a psychometric assessment to predict repayment likelihoods for small business owners—the assessment enabled women entrepreneurs to borrow higher-value loans. A review of the assessment found that women entrepreneurs in Ethiopia reported a 24% increase in business profits after borrowing, and repayment rates were 99% in the initial months.

While these findings show promise, there’s still more work to do. Researchers have identified that evidence on the longer-term impacts of access to finance for women-owned small businesses remains lacking, in addition to insights on the effectiveness of gender-responsive financial products and services and the use of bundled products and services. While progress has been made in closing the gender gap in financial account ownership, especially due to the proliferation of DFS in Africa, women across the globe are still less likely than men to have a mobile money account. Further, women face other digital constraints. They are less likely to own a mobile phone and less likely to use mobile internet than men. These digital gender gaps—in addition to societal and cultural barriers that persist—must be addressed so that women, and women-owned small businesses, can utilize and reap the benefits of DFS in the same way as men.

To better support women-owned small businesses to use digital finance to grow and increase their resilience, Strive Community has identified some insights and practices for DFS providers and organizations that support small businesses. As a living record of our learning, this insight brief will be updated as we discover best practices through our partners and programs.

Collect and use data on women and women-owned small businesses.

A lack of data on women-owned small businesses is a barrier to understanding their needs and pain points. This is a frequently cited challenge by regulators and financial providers. For example, an IFC survey found that 60% of financial institutions interviewed collect gender-disaggregated data, but just 10% use that data to provide differentiated products. 

Gender-disaggregated data is critical for building the business case for targeting women-owned small businesses as providers that collect and analyze this data develop a more accurate picture of the opportunity to serve women. For instance, one fintech in Mexico analyzed data to determine that women customers were a missed opportunity, as financial institutions mostly targeted male customer segments. They leveraged data to support their rationale to offer lower interest rate loans for women. In Kenya, KCB Bank began tracking gender data among their micro- and small-business customers, enabling them to make better decisions. Now, 51% of loans go to women, compared to just 22% in 2015.

Several initiatives and tools can support DFS providers in collecting and using data on women, such as the GSMA’s Connected Women Commitment Initiative and policy guidance and frameworks. The World Bank has developed a tool kit for digital solutions to address barriers to female entrepreneurship, which includes country snapshots of 125 relevant indicators. The Financial Alliance for Women has developed a global business case tool for providers to quantify the market opportunity of reaching women customers and more recently, a gender data playbook for women’s financial inclusion. FinEquity, a community of practice that empowers women through financial inclusion, has developed a Gender Data and Analysis guide. Though not gender specific, Strive Community also explores good digital measurement practices in our related insight brief. 

Additionally, as DFS providers explore the use of artificial intelligence to analyze data for credit scoring of women entrepreneurs, it is crucial to address potential gender bias. Women's World Banking, in collaboration with the University of Zurich, created a “Check Your Bias” tool for financial institutions to assess how well they make decisions about whether and how to lend to women compared to men. The toolkit is based on academic work on bias detection with practical experience analyzing administrative data from real lenders in selected financial institutions in Colombia, India, and Mexico. 

Design products that meet the needs and behaviors of women-owned small businesses.

Beyond the dearth of data on women, there’s a need to recognize that women-owned businesses are a distinct and diverse group within the wider population of small businesses. To better support them, programs must recognize this diversity and integrate it into their approaches. 

Research indicates that financial services providers often assume their products and services are gender neutral. However, this assumption has led to women being among the least satisfied customers of traditional financial services. Instead, providers that design specific products and services that meet the needs and behaviors of women-owned businesses can better encourage their use and loyalty. For example, DFS products could be designed to strengthen women’s financial control and privacy. Providing women with mechanisms to set aside money for their business can help insulate these funds from other household financial demands. Evidence suggests that these savings mechanisms can positively affect business investment and the performance of women-owned businesses. 

DFS products can also be designed to better address the time, mobility, and regulatory constraints that women experience. For instance, BLC Bank in Lebanon launched the We Initiative, an online banking platform and holistic program offering finance and expertise for women entrepreneurs. In India, Mahila Money, a digital financial platform for women entrepreneurs, offers loans, prepaid cards, and learning resources. Digital products can also be designed to alleviate some of the collateral constraints that women face. In Africa, cash flow-based credit assessment and digital lending have been used by providers in Kenya and Nigeria to determine the creditworthiness of women-owned small businesses, removing collateral requirements. Similarly, moveable collateral systems—which allow assets such as equipment, inventory, or receivables, among others, to be used as collateral—can expand women’s access to capital. 

One way DFS providers can design products for women-owned small businesses is by considering a women-centered design approach. Similarly, FUNDES in Latin America (a Strive Community partner) advocates for a conscious process when designing for women entrepreneurs. While understanding the day-to-day financial needs and behaviors of small businesses is not new, a women-centered design approach also enables providers to assess women’s place in the digital journey and capture their perceptions around DFS. For example, in Mexico, research found that women entrepreneurs had differing perceived security benefits and risks between cash and digital payments. While digital payments were perceived as physically safer than carrying cash, they were perceived as less secure in other ways, such as a lack of confidence in completed transactions or a lack of proof of payment. Design features that enable women entrepreneurs to immediately confirm completed transactions may increase their confidence and trust in DFS. Another resource for providers is the Digital Confidence Design Tools, a design approach that addresses common obstacles facing new users who may be less confident. Additionally, women entrepreneurs preferred a one-stop experience that combined financial services (such as transactions, bill payments, financial reports) with non-financial ones (such as advertising and communication with clients and suppliers) within the same platform.

Build familiarity and confidence with training and trusted channels.

In our insight brief on digitizing payments, we discuss how combining training with DFS can increase loyalty and drive greater awareness and usage. This is especially true for women, who may be less familiar with and lack trust in digital financial services and technology For example, women entrepreneurs in Ghana who used mobile money were significantly less likely to perceive it as convenient compared to men; they were also more likely to use a narrower range of services. By offering women entrepreneurs support in learning about services and how to use them, providers can increase women’s familiarity and confidence in their offering, leading to greater use. As referenced above, women entrepreneurs in Tanzania saved substantially more through mobile accounts, and business training bolstered this effect.

Reaching women through networks and channels they already use and trust is one way to increase their digital financial capacity and encourage their use of DFS. For example, women entrepreneurs in Mexico identified social media platforms and messaging apps, which could double as a digital wallet, as a way to springboard digital financial inclusion. Finding a balance between digital and in-person support can help gain the trust of women entrepreneurs. CARE, which partnered with the Mastercard Center for Inclusive Growth on its Ignite program, has used this hybrid approach with its microfinance partners by offering ongoing human support to new women customers. A balance between digital and in-person support reduces digital fear and encourages regular digital behaviors, leading to higher usage and success.

Savings groups, which are popular with women, especially in Africa, are another network that can be leveraged. The Digital Savings Group Hub has developed a tool kit to support a gender-responsive approach to digitalizing savings groups. Boost Technology (a Strive Community partner) has tailored its digital credit solution for women-owned small businesses in Nigeria. Many women in Nigeria are involved in traditional saving and lending circles, where social interaction and trust play important roles. Boost uses a tech-and-touch approach to mimic this experience; alongside its digital channel, Boost employs a field team from the same communities as its target audience to build trust. Boost has found that women are more confident trying out their digital product because it is introduced by people they already trust. This strategy has also improved financial performance, with a 96% repayment rate among women customers.

Strive Community remains committed to promoting the meaningful use of relevant financial services, especially for women-owned small businesses, which often experience significant financial and digital constraints. In Nigeria, we’re working with Boost Technology to develop and test a new service that combines data analysis, behavioral science, and conversational commerce to empower small female retailers with insights to drive digital confidence and business resilience. In Colombia, we’re working with Open Contracting Partnership, building on their ongoing work to create a solution to unlock financing for small businesses, particularly women-owned businesses that are awarded public contracts. In Peru, Pakistan, and Vietnam, Mastercard’s Center for Inclusive Growth and CARE have launched Strive Women, a renewed partnership to further strengthen the financial health and resilience of women-owned businesses.

We'll update this brief as we uncover insights and best practices about digital financial services for women-owned small businesses. We invite you to explore our other insight briefs on financial services for small businesses.