Inequality in access to bank credit results in a 42 billion USD financing gap for women entrepreneurs in Africa. This lack of financing has a negative impact on social and economic progress.
Understanding the Financial Gender Gap in Africa
Women entrepreneurs often face the reality of the glass ceiling. However, many of them believe that their determination and personal efforts can overcome societal biases, particularly those related to gender.
Gender gap in access to finance
Between 2011 and 2017, the World Bank highlights the access to bank accounts of 1.2 billion people, along with a 9 % gender gap. In sub-Saharan Africa, only 37 % of women have an account, compared to 48 % of men. This financial gap has become more pronounced in recent years. The statistics reveal a more worrying situation in North Africa, where two-thirds of the adult population remains unbanked. The gender gap in access to finance is 18 %, the highest in the world.
Women’s entrepreneurial dynamism
It is noteworthy that Africa has the highest rate of female entrepreneurs in the world, representing 27 % of the female labor force, compared to only 6 % in Europe. Female entrepreneurship makes a significant contribution to the African economy, accounting for 13 % of GDP.
In particular, women play a dominant role in the agricultural sector and the textile industry, which is estimated to be worth more than 31 billion USD. The latter is the second largest source of employment in developing countries in sub-Saharan Africa.
Differences in financial behavior
Women face more barriers to accessing finance, in part because of differences in financial behavior. These differences, linked to preferences for risk, sociability, and competitiveness, influence perceptions of women entrepreneurs. In other words, these perceptions hinder their motivation to apply for credit. This contributes to the marginalization of many African women in the financial sector. Deprived of opportunities to borrow and build capital, women often turn to the informal sector.
Barriers to Financial Inclusion for African Women Entrepreneurs
In Africa, the gender gap in access to financial services is largely due to the personal perceptions of women entrepreneurs. To facilitate women’s financial inclusion in the business world, certain biases need to be overcome.
Exclusion from the formal lending market
Supply-side barriers fuel the exclusion of women from the formal credit market in Africa. High-interest rates discourage women from applying for credit. Strict collateral requirements reduce their chances of accessing credit compared to their male counterparts. This situation stems from a lack of business and financial literacy, which is essential for financial institutions to understand the market for women-owned micro, small and medium enterprises (MSMEs).
On the other hand, when women do manage to obtain financing, they often face more restrictive loan agreements than those offered to men. What’s more, financial institutions generally consider women-owned MSMEs to be a higher risk.
Distorted perceptions of credit
Demand-side factors also limit access to finance for African entrepreneurs, particularly in North Africa. Financial institutions focus on the supply side of credit, favoring academics, wage earners, and the wealthy. This perception overlooks gender disparities in access to finance. The complexity of application procedures and terms puts women entrepreneurs at a disadvantage.
Women’s limited access to finance is not primarily the result of discouragement caused by the unfairness of the financial market. Lack of financial literacy and risk aversion lead to loan denials. Nevertheless, women entrepreneurs are expected to be competitive and have access to venture capital, just like their male counterparts.
Strategies for Equitable Access to Finance
In order to reduce the gender gap in access to finance, it is essential to improve women’s financial literacy. This initiative strengthens their effective participation in the credit market. Financially literate entrepreneurs are more likely to make informed decisions and objectively assess their ability to meet their financial obligations.
Substantial improvements in financial services, including a sound legal and regulatory framework. The introduction of financial products tailored to low-income borrowers will stimulate women’s demand for these services. This must be complemented by the provision of financial literacy programs, online business toolkits, and advisory services to support women entrepreneurs in managing and developing their businesses.
Prioritizing digital for women
The path to financial equality also includes digitizing women in Africa. Indeed, the rise of digital technology offers new opportunities to reduce gender disparities, particularly in terms of access to finance. Digital financial inclusion allows women to access financial services through digital platforms, thereby reducing certain traditional barriers. For example, mobile banking is an innovative solution for women who, for various reasons, are unable to visit a bank branch.
However, the adoption of these new technologies is not without its challenges. There is a gender digital divide in Africa, with women generally less connected than men. It is therefore essential to invest in initiatives aimed at improving women’s access to technology and strengthening their digital skills. Women’s digital empowerment is not only a matter of equity, it’s also a lever for economic growth. Indeed, access to digital finance can be a catalyst for women’s entrepreneurship, a key sector for Africa’s development.
African Financial Markets
The African continent has several financial markets that play an important role in mobilizing the capital needed for its development. The West African Economic and Monetary Union (UEMOA), the Common Market for Eastern and Southern Africa (COMESA), and the Economic Community of Central African States (ECCAS) are key players. Multinational financial institutions such as the African Development Bank (AfDB) are also active on the continent, investing and mobilizing funds to support development.
Among the most developed markets, South Africa, Mauritius, and Nigeria stand out. Kenya stands out with a sound financial system and numerous programs specifically for women. These markets are characterized by their ability to attract capital and withstand economic shocks. Several innovative financing mechanisms have been developed to support key sectors such as agriculture. Initiatives are also underway to promote digital financial inclusion and the financing of micro, small, and medium-sized enterprises (MSMEs).
A pioneering model for women’s empowerment
The African Development Bank’s (AfDB) Affirmative Finance Action for Women in Africa (AFAWA) program is positioned as a pioneering model for women’s financial empowerment. Its main objective is to reduce the financial gap by facilitating women’s access to finance through an innovative risk-sharing mechanism. AFAWA also provides capacity-building services to entrepreneurs while advocating for reforms that benefit women-owned businesses.
The AfDB has also signed a four-year partnership with the « Alliance for Financial Inclusion » (AFI) to promote women’s financial inclusion. This collaboration aims to create an enabling environment through legal, policy, and regulatory reforms. It builds on research conducted by the AfDB in 7 African countries. Over the past decade, AFI has succeeded in developing and implementing more than 920 policy and regulatory changes to improve financial inclusion worldwide, of which 428 have been identified in Africa. These changes have had a significant impact on the financial inclusion of 634 million people, including 192 million in sub-Saharan.
