Why empowering women is smart economics

By Tania Ngima

Mrs Eleanor Roosevelt, both during and after her role as first lady, was one of the most esteemed and admired women in the world. From human and civil rights activism to playing a role in drafting the Universal Declaration of Human Rights, the legacy she left behind is still felt and honoured, five decades on.

Closer home with the Beyond Zero campaign, our own first lady espouses sacrifice and commitment, qualities we would do well to embrace. In a bid to combat maternal and infant mortality, the campaign addresses one of the major Millennium Development Goals for Africa. Statistics show there are 488 deaths for every 100,000 live births.

This rises to 706 deaths for the same number of live births in some slum areas like Korogocho, translating to 300 women and 200 babies dying each year.

But why should maternal health, or any other initiatives targeting women be taken seriously? A wide range of economic research shows that investing in girls and women is one of the highest return opportunities available in the developing world.

Women’s propensity to use their bargaining power and earnings in order to access goods and services to improve their family’s welfare creates a virtuous cycle: female spending supports the development of human capital, fuelling economic growth.

Although half of the world’s population consists of women, they represent 70 per cent of the world’s poor, yet they bear almost all responsibility for meeting the family’s basic needs. Empowering women as key agents for change is an essential element to putting an end to most social ills; from poverty and hunger to education and governance. Not to be confused with various forms of tokenism, empowerment encapsulates access to information, resources and freedom of action.

As women venture more into entrepreneurship and business, access to finance is typically identified as a critical constraint.

Therein lies a self-propagating vicious cycle: lending financial institutions require collateral before funds are accessed, but underprivileged prospective entrepreneurs usually have no other sources of funds or assets to their names.

Traditional lines of credit therefore lock out those who need these funds at the most basic stage of business development and start-up. On top of inability to access financing, women face additional challenges such as access to education, retrogressive cultural mindsets and discriminatory regulations.

A recent paper by Goldman Sachs states that the credit gap – the value of formal financing in the women-owned SMEs that are unserved or underserved by financial institutions in developing countries – is USD 285 billion.

While financing for entrepreneurs exists, there is a marked absence of financing with a gender -specific component. There exists an opportunity for financing institutions to go beyond providing general banking products and investing in tailor-made banking (both savings and credit) products that address the challenges that women face. Solutions must tackle policy bias, discrimination and especially misconceptions about female credit risk.

With the population of Kenya showing a slightly higher female than male populace, ignoring this demographic or forsaking it to traditionally patriarchal business models will only serve to lose out on the substantial growth premium.

One argument I have heard advanced is that women-owned businesses exhibit lower growth, lower productivity and less profitability than their male counterparts, and therefore do not represent a demographic public of note to commercial lenders.

As opposed to ability and skill, differences in business strength are caused by environmental factors. For example, traditional lending systems, by virtue of their historical inaccessibility to women create reluctance for women to borrow funds.

This therefore impacts on the scalability, growth of the business and sometimes ability to respond to changes in the external environment. Coupled with a historical lack of access to entrepreneurship training, women-owned businesses begin trading at a disadvantage and this therefore affects future growth prospects.

Research shows that in many regions, closing the credit gap over the next six years has the potential to raise income per capita by, on average, 12 per cent. A competitive business environment facilitates entry, growth and exit of firms, an essential component for any sector’s development. The call to action is for commercial lenders and equity buyers to use their investment capital in order to expand their loan portfolio profitably while enabling women in business to strengthen their ventures.

Crossing over to the boardroom, numerous academic studies show that more gender-diverse boards improve the quality of board discussions and decision-making: contributing to organisational and financial performance.

South Africa is a shining example of embracing gender diversity on corporate boards, showing an average of at least one woman on each board. The statistics rival many industrialised countries, showing the positive change that can come out of consistent lobbying.

As any worthwhile initiative that has the capacity to create positive change, the approach is akin to that of a marathon as opposed to a sprint. Commitment, endurance and conscious deliberate actions over a long period of time yield the strongest rewards.

Indeed, as the IMF says, empowering women is smart economics.

Ms Ngima is a strategy, finance and governance expert

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