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Women entrepreneurs: too often trapped in the microenterprise ghetto

Innovative approaches can boost women’s economic presence among small business owners in Latin America and the Caribbean

Over the past three decades, women in Latin America and the Caribbean have dramatically increased their role in the workforce. Currently, about half of women in the region are economically active, more than double the level in the 1970s. They have been elected presidents of several Latin American countries and often dominate the microenterprise and microfinance sector, providing an important contribution to regional economies.

Still, women are severely underrepresented among small and medium-sized business owners. Globally, they own more than half of microenterprises but account for a quarter of small businesses and only 8 percent of medium-sized firms. Too frequently, women’s businesses do not grow beyond the micro stage. Their ventures tend to be small, informal, concentrated in the commerce sector, where profits and margins are low, and they often use less credit.

"We need to avoid confusing cause and effect," said Multilateral Investment Fund General Manager Nancy Lee. “Development institutions like the MIF reject the notion that women's businesses tend to be very small because women are inherently more risk-averse and less ambitious than men. Instead, we are working on a variety of fronts to find the tools women need to overcome obstacles and grow their businesses.”

As a laboratory for development, the MIF is particularly well suited to do this work, which requires experimenting, pioneering and taking risks to find effective new models and interventions, she said. The MIF  is currently testing four different approaches to the array of challenges confronting women entrepreneurs.

  • new credit tools for SMEs particularly suited to women entrepreneurs who are often rejected for credit due to insufficient credit histories and collateral;
  • new savings tools for low-income women interested in funding their start-ups; 
  • different combinations of training and mentoring programs; and 
  • affordable childcare options to help women address their triple business-childrearing-household responsibilities.

New set of interventions

One of the biggest obstacles the MIF is helping women entrepreneurs overcome is the lack of access to training tailored to their needs. Research shows that business skills and experience are more important than formal education for running a successful enterprise. Networks, mentoring and coaching can help foster entrepreneurship among women, as two MIF-financed projects in Peru and Chile have shown.

Image removed.In Peru, where 40 percent of small and microenterprises are headed by women, the MIF has provided a $3 million grant to Mibanco – Banco de la Microempresa S.A. to support a project to train more than 100,000 women microentrepreneurs and small business owners.

The project has provided basic business training, which includes topics such as accounting, marketing and decision making skills to some 35,000 women. After graduating from this more intensive training, 80 percent of the participants began separating their household and business finances and 70 percent started to prepare growth strategies for their business.

Another component of the project offers longer, more intensive training that is part of the Goldman Sachs “10,000 Women” initiative to strengthen women’s business skills in developing and emerging markets. To date, 150 small business owners have participated and many have reported significant increases in sales and revenue after graduating from the program.

“Now I have my website, improved my school’s façade, added two more classrooms,’’ said pre-school owner Edith Pahura, who has hired five more staff after completing training, which included topics such as preparing cash flow statements and registering income and expenses. “I have a new system of payments through banks for the convenience of parents. Today, I have better control over my business. Since graduation, my revenues have increased 40 percent.’’

Innovative tools to increase access to credit

The MIF has partnered with Harvard’s Entrepreneurial Finance Lab to develop new models of financial risk assessment for financial institutions in the region that could improve access to credit for small and medium-sized companies run by women. It is supporting the adoption of psychometric testing, an automated screening tool that takes into account entrepreneurs’ honesty, intelligence, personality, among other personal qualities, to gauge their ability and willingness to pay back loans, a model that goes beyond the traditional methods that just focus on collateral and future cash flows to assess financial risk.

One of the biggest advantages of this tool, to be adopted by four financial institutions in the region, is that it is gender-neutral and it does not rely on individual loan officers, who could be biased against women entrepreneurs for cultural and socioeconomic motives. Evidence from Africa shows that more women are approved for credit with this model than using conventional risk assessment methods.

Lack of access to savings may be just as critical as lack of access to credit for women entrepreneurs, because savings are the main source of start-up credit for 73 percent of businesses globally. The MIF has teamed up with Citi Foundation, New America Foundation, IDRC, CAF and IDB to develop Pro-Savings, a recently launched regional program to create savings and insurance products for recipients of conditional cash transfers (CCTs) and other social protection payments in 10 countries in the region over three years. This project will greatly benefit women, as they account for the majority of the 24 million recipients of these types of programs in Latin America and the Caribbean.

Another barrier that women need to overcome to be able to grow their businesses is access to good-quality and affordable childcare services. The MIF recently approved an innovative project in Colombia, called “aeioTU,” with Fundación Carulla, a non-profit organization, to increase access to quality, integrated early childhood development services for low-income families through a sustainable franchising model. The project is expected to expand the provision of high-quality child care for 7,000 children under the age of five in low-income communities in Colombia by 2017, compared with 2,700 enrolled today.

These multidisciplinary approaches to promoting women entrepreneurship will be in the spotlight at the 2011 Inter-American Forum on Microenterprise (Foromic), organized by the MIF. The event, the leading annual conference on microenterprise in Latin America and the Caribbean, will take place on October 10–12 in San José, Costa Rica.

About the MIF

The Multilateral Investment Fund, a member of the IDB Group, supports private sector-led development benefitting the poor—their businesses, their farms, and their households. The MIF aims to give low-income populations tools to boost their incomes: access to markets and skills to compete in those markets, access to finance, and access to basic services, including green technologies. A core MIF mission is to act as a development laboratory—experimenting, pioneering, and taking risks in order to build and support successful micro and small and medium-sized business models.

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