Women-owned businesses: what works promoting women’s economic empowerment?

The GrOW program at IDRC (with WEConnect International and the Urban Institute).is assisting the UN High-Level Panel on Women’s Economic Empowerment, to synthesize what we know about female entrepreneurship: the trends, the challenges and ‘bundled constraints’ that continue to hamper women, and what works in promoting women-owned businesses. The following presents some early ideas, hoping for reactions and inputs.

Trends and gaps

Globally, according to IFC estimates, one-in-three formally registered businesses are owned by women. SMEs account for 80 per cent of jobs world-wide, and women tend to be over-represented in, and own smaller and often informal enterprises. Rates of female entrepreneurship have been increasing, and gender gaps decreasing, including since the financial crisis.

However, 50 per cent of women’s productive potential is underused, compared to 22 per cent of men’s (ILO estimate). The credit gap for formal women-owned SMEs across all regions is 30 percent of the estimated total credit gap for SMEs, roughly $287 billion (IFC estimate).

Regional variations in levels of female entrepreneurship are very large, and this variation seems similar to variations found in female labor force participation. There is a tendency to explain these regional variations with reference to socio-cultural factors. A better understanding of these social-cultural constraints, and how these interlink with constraints to access to factors of production, in different stages of enterprise development seems a priority.

Women entrepreneurs lack access to the resources needed to exploit their economic potential. Disparities in access can exist in all sectors and for all types of enterprises. Women entrepreneurs tend to crowd in specific sectors, often in markets that appear saturated and offer low-profit potential. 70 percent of women-owned small- and medium-sized enterprises in developing countries are un- or underserved by financial institutions.

Growth-potential of women-owned businesses

Very few small enterprises, men- or women-owned, become big enterprises, according to Chris Woodruff. There is limited understanding of which businesses grow, or which informal businesses become formal. Among formal businesses, there appear to be no large differences between women- and men-owned enterprises in terms of number of employees. But women-owned enterprises have on average lower sales and assets. Female entrepreneurs tend to be over-represented in the smallest and informal enterprises, where the gaps tend to be larger.

Gender gaps tend to exist across production factors: women face ‘bundled constraints’. This has important implications for the measurement of women’s economic empowerment, and for support to women-owned businesses. Expansion of entrepreneurial activity for women – and potentials for success of support programs – cannot be seen in isolation of the responsibilities they have in the care economy.

Solutions

Evidence on what works in supporting women-owned businesses is not amply available. This is not surprising as data is scare, and approaches and metrics vary. Data on costs is generally not available. Support to women-owned businesses is partly provided through public policies, partly through private and foundation initiatives.

Success in improving women’s business performance and growth has been limited, though training for larger enterprises may be more successful.

  • Training leads to positive impacts in business behavior, but longer-term and growth impacts are not easily found.
  • While addressing constraints to financing is a key priority, the evidence shows that finance on its own may not have a large impact on most women-owned businesses.
  • Access to mobile phones and other technologies, similarly, is a necessary but not sufficient condition; gender-specific applications can be critical.
  • Women need the legal protection business registration offers, but female entrepreneurs may resist registration to avoid taxation or because they fear harassment by government officials.

Many studies point at the need for multi-pronged approaches to support female entrepreneurs, and given evidence on multiple constraints this appears logical. Evidence on what works in multi-pronged approaches is scarce however.

There is emphasis on the need to combine micro-interventions like training, mentoring, etc, with the need to address the broader eco-system and macro-level constraints:

  • World Bank research indicates correlations between legal constraints and women’s economic roles.
  • Different trade regimes have different impacts on women, and complementary measures are deemed necessary to enhance the benefits of trade liberalisation.
  • As public procurement forms significant proportions of country’s GDP, and initiatives exist to help women have greater access to this. Politically, targeted interventions in this area may not always be popular, however.

There is growing evidence that building market connections are a critical path for promoting women-owned businesses. This is partly driven by approaches by businesses, to promote supplier diversity and inclusion: similar to increasing the number of women in senior positions, this is thought to be good for business as well as gender equality. Value chain approaches, including for women, and in agriculture in particular, have shown positive results. Impact investment provides new avenue to promote women-owned businesses, but evidence on what works is limited.

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One thought on “Women-owned businesses: what works promoting women’s economic empowerment?

  1. Pingback: Supporting Women Owned Businesses – 6 lessons I learned | arjandehaan

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