Across the globe, women-led businesses play a crucial role in driving economic growth, creating jobs, and sparking innovation. Yet, a significant barrier stands in their way – lack of access to finance. This problem is not confined to one country or region; it’s a global issue that holds back female entrepreneurs from reaching their full potential.
In the UK, businesses led by women contribute substantially to the economy. However, many face hurdles when it comes to securing funding to gro.w their ventures. Research commissioned by HSBC revealed that nearly half of female business leaders in the UK have plans to expand their businesses, but one in ten cited access to finance as their biggest challenge. The same research found that a fifth of surveyed businesses had delayed or scrapped plans due to a lack of funding.
The gender finance gap is a real issue that impacts the growth potential of women entrepreneurs. A report by the British Business Bank found that for every £100 of equity funding in the UK, less than £2 goes to women-founded businesses. This disparity underscores the systemic challenges women face in securing finance.
The root of the problem lies in both perception and process. Outdated stereotypes paint women entrepreneurs as risk-averse or less likely to scale, leading to reduced confidence from investors and lenders. This perception can deter investors from backing female-led ventures. To address this, HSBC UK launched the £250 million Women’s Business Growth Initiative, aimed at unlocking opportunities for women-led businesses in the UK. The initiative offers financial support, access to international markets, and additional business resources to help women entrepreneurs grow their ventures.
Amid the stark funding disparities, entrepreneurs like Debbie Wosskow, co-founder of AllBright, have proven that women-led ventures can secure substantial investments when supported by the right networks.
But the UK isn’t alone in facing this issue. In India, women entrepreneurs encounter similar challenges. Despite several financial institutions implementing measures to enhance access to finance for micro, small, and medium enterprises (MSMEs), women-owned MSMEs often remain overlooked. According to a study by the International Finance Corporation (IFC), financial institutions in India show a lack of interest in women-led businesses, primarily due to entrenched societal biases.
One of the key reasons for this lack of interest is the perception that women-owned enterprises are high-risk. Around 97.5% of women-owned MSMEs in India operate in the informal sector as micro-enterprises, making them appear less attractive to traditional lenders. Additionally, cultural factors play a significant role. In patriarchal societies like India, women often lack ownership of immovable property, which limits their ability to provide collateral for loans. This gender-asset gap creates a cycle of financial exclusion for women entrepreneurs.
Banks in India have been slow to develop tailored products for women-led businesses. Only a handful of public sector banks, such as Canara Bank, SBI, and Punjab National Bank, offer specific products designed for women entrepreneurs. Private sector banks and non-banking financial institutions have largely ignored this market segment, missing out on a potential growth opportunity.
Bridging the $1.7 Trillion Gap
Globally, the financing gap for women entrepreneurs is estimated to be $1.7 trillion. Bridging this gap requires a shift in how financial institutions view and serve women-owned businesses. Financial institutions must recognise the untapped potential of women entrepreneurs and develop products and services that cater to their unique needs.
One approach is to simplify loan processes and make them more accessible to women entrepreneurs. Many banks require male family members to co-sign loan applications, reinforcing outdated gender norms. Removing these requirements and accepting women’s signatures for loan applications is a crucial step towards financial inclusion.
Another solution is to explore alternative forms of collateral, such as business assets or post-dated cheques, rather than relying solely on property ownership. Financial institutions should also consider partnerships with non-governmental organisations, microfinance institutions, and self-help groups to reach women entrepreneurs more effectively. These organisations often have a better understanding of local markets and can help reduce transaction costs and manage risks.
Technology can also play a key role in improving access to finance. Online banking, mobile banking, and branchless banking models can help women entrepreneurs overcome logistical barriers. Digital financial services can simplify the loan application process and reduce the need for physical visits to bank branches, making it easier for women to access funding.
The gender finance gap isn’t just about loans and credit. It extends to investment and wealth creation. Women are underrepresented as investors, both in terms of investing their own money and as decision-makers within financial institutions. According to the OECD, women receive 26% less income from pensions than men, highlighting the long-term impact of financial exclusion.
Meanwhile, in the Asia-Pacific region, less than 6% of startups have women founders, according to Google. The tech company announced last year it was launching a fund for women-founded artificial intelligence startups in India, Japan, and Korea. This initiative aims to address the stark underrepresentation of women in the tech sector, which remains one of the most challenging industries for female entrepreneurs.
Research suggests that women tend to be more cautious investors, which can result in higher returns. Yet, financial institutions have been slow to recognise the potential of women as investors. The global financial services industry could unlock an estimated $700 billion by better serving women as investors. Encouraging more women to participate in financial markets, both as investors and as employees in financial institutions, can drive societal progress and economic empowerment.
The lack of access to finance for women entrepreneurs is a multifaceted issue that requires a comprehensive approach. Financial institutions need to address both the practical barriers, such as loan processes and collateral requirements, and the cultural biases that hinder women’s access to finance.
Closing the gender finance gap isn’t just about fairness; it’s about unlocking economic potential. Studies show that if women started and scaled businesses at the same rate as men, it could add up to £250 billion to the UK economy alone. The benefits extend far beyond individual businesses – they contribute to stronger communities, more resilient economies, and a more inclusive financial system.
As Falguni Nayar aptly demonstrated with Nykaa, the key to overcoming funding challenges is a combination of grit, strategic thinking, and supportive ecosystems. Her journey exemplifies how closing the gender finance gap can unlock immense potential for women entrepreneurs globally.
