Women’s Financial Inclusion: A Down Payment on Achieving the SDGs

In 2016, women are participating in the global labor force at a slightly lower rate than they did in 1996. Women are still more likely than men to engage in low-productivity activities, and half as likely as men to have full-time jobs. When they do participate in paid employment, women earn 10 to 30 percent less than men. The IFC has also estimated a credit gap of up to $320 billion for women-owned small and medium enterprises.

Ensuring that women have access to formal financial services—transactions, payments, savings, credit, and insurance—can help to address many of these economic gaps. The new Sustainable Development Goals (SDGs) framework also encompasses a specific focus on women’s financial inclusion as part of a broader commitment to women’s empowerment in economic opportunity and other domains. Going far beyond Millennium Development Goal 3, SDG 5, “Gender Equality,” prioritizes women’s equal rights to economic resources and assets, aims to eliminate violence against women and girls, seeks to recognize and value unpaid work, and promotes the enhanced use of enabling technology.

Woman and goat in field, India
Woman and goat in field, India. Photo by Sujan Sarkar, 2016 CGAP Photo Contest.

In its new Gender Strategy, the World Bank Group puts women’s economic empowerment—and the financial services necessary to achieve it—high on the agenda. Recognizing that human endowments (good health, being numerate and literate) act as building blocks for meaningful participation in economic life, the WBG aims to close first-generation gender gaps in education, health and social protection. But the strategy also lays out an ambitious goal of removing constraints to more, better and inclusive jobs. To do this, the WBG is developing policy frameworks for and investments by the public and private sector in care services and safe transport, promoting conditions for women's entrepreneurship, reducing skill gaps and breaking occupational sex segregation. Another objective is removing barriers to women’s ownership and control of productive physical and financial assets, including land, housing, technology and deposits/savings. These assets are central to economic empowerment because they serve as a store of wealth, enhance resilience in the face of shocks, and increase women’s bargaining power.

Individual and private savings are especially important in allowing women to invest in their businesses, increase their incomes, develop financial autonomy, smooth consumption, and mitigate risks. In Kenya, formal savings accounts helped female micro-entrepreneurs to invest in their businesses by up to 56 percent. They also saved more and had more disposal income for clothing, meals in restaurants, and entertainment. Evidence from the Philippines demonstrates the impact of commitment savings accounts on women’s decision-making power. Married women gained more authority in the household over decisions about children’s schooling, family planning, and the purchase of goods, like washing machines and stoves. And in Chile, researchers found that formal savings accounts helped clients of a microfinance institution (primarily women) to smooth their consumption when faced with economic shocks. Their savings also served as a form of self-insurance and the subjective well-being of participants increased significantly.

Access to credit plays a central role in helping women own and grow their enterprises. In rural Mongolia, poor women who accessed microcredit via group lending were 10 percent more likely to own a business. For growth-oriented women entrepreneurs, access to finance can help them sustainably grow their small and medium enterprises. But women-owned businesses tend to be credit constrained. When they do have access to finance, they often pay higher interest rates, perhaps due to the fact that these businesses are often smaller, concentrated in less profitable sectors and commonly operate in the informal sector. Women entrepreneurs often resort to self-financing to fill the gap. According to an IFC study, 44 percent of women entrepreneurs relied on family, friends and private savings to grow their businesses.

Having set the goal of reaching 1 billion financially excluded individuals by 2020, the WBG recognizes the importance of financial inclusion. However, these efforts will not be effective if women are left behind. This is why policymakers will need to consider ways to reduce the barriers to women’s financial inclusion.

Many of these obstacles are well-known. For example, removing legal barriers that prevent women from registering a business, opening a bank account or owning property in the same was as men can help to bridge the gap in access to finance. According to Women, Business and the Law, 943 gender legal differences still persist in 173 economies. Finding new and innovative ways to overcome collateral constraints, like reforming transactions laws and establishing moveable collateral registries, are also effective. Access to formal credit markets can be unlocked by allowing women to use of other forms of moveable collateral, like livestock, crops, machinery and even jewelry. Tameer Microfinance Bank offers a gold-backed loan product to better serve the needs of households in rural Pakistan.

The Bank Group is working to build the evidence base about what works to overcome these hurdles, and the Africa Gender Innovation Lab is making interesting contributions in this area. In Ethiopia, the use of psychometric testing is being explored as a mechanism to reduce repayment risk, eliminating women’s need for credit histories or collateral. Early results are promising, with women borrowers having increased profits by 24 percent, while maintaining a repayment rate of 99 percent. While more work lies ahead, these efforts represent an important down payment on the future of women’s economic empowerment.

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