Financial inclusion of women for sustainable business and growth

Pakistan has one of the lowest female entrepreneurship rates in the world with only 1 per cent of women choosing entrepreneurship versus 21 per cent of men. While there are some social and cultural barriers to entry of women, even those who choose entrepreneurship are severely limited by access to formal banking services.

According to the estimates, South Asia has almost 70 per cent of total clients, in which 89 per cent of them are women (Perez, Isquierdo, Torres; 2020). The main goal of the microfinance sector and its microfinance institute is to financially empower the poorest members of society and to foster sustainable development through their operations and assistance. Sustainable development is a buzz word defining, “The development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” (Perez, Isquierdo, Torres; 2020). This implies the principle of sustainable development and its strategies as adopted under financing the poor, with a commitment of upward growth towards a more equitable, just and wealthy environment ensuring sustainability of resources and gradual growth.

However, the practitioners and academics have addressed development related to sustainability, from different perspectives. Assuming that it is a great challenge to conceptualise and operationalise sustainability at the grass root level, primarily due to the complexity and variety of factors involved.

There is uneven distribution of poverty globally. And its dimensions vary from region to region. Also, extreme poverty is overwhelmingly rural, where the poverty rate in rural areas is more than three times greater than in urban areas. However, the urban poverty in itself is an overwhelming challenging situation after the pandemic. For obvious reasons due to poverty, low income clients seek microfinance in order to solve their basic needs, or the expansion of a small business for decent livelihood.

Over the years, microfinance researches have established a positive relationship in societies where there is higher levels of trust. These circumstances are however, directly related to financial facts like considering self-help groups while granting funding, which in turn are derived from local social issues, e.g. possible access to health services, especially in the case of women. Likewise, the repayment model is linked with the social issues, and in return benefits the socially deprived communities by benefitting from provisos of health, housing, etc. which otherwise are not easily accessible to such communities.

Accessibility to loans for women entrepreneurs:

Through these years, microcredit has embed in the policies and growth strategies in Asia including Pakistan. Government of Pakistan, under the Sustainable Development Goals (SDGs 5 and 8), is committed to promote economic and social empowerment of women. In line with the policy to support and revive economic activities in the country, State Bank of Pakistan (SBP) has taken measures for improving access to finance in underserved areas of the economy, especially for the women entrepreneurs. A refinance cum credit guarantee scheme is being launched for the women borrowers operating in the underserved areas of the country.

Under the scheme, banks and development finance institutions are required to provide financing facilities to women entrepreneurs to meet credit needs of their businesses. The scope of the new policy covers finance availability to women entrepreneurs in the underserved areas for a period of up to 5 years, including maximum grace period of up to six months. Maximum financing limit under the scheme is Rupees one and a half million (Rs. 1.5M). Financing under the scheme is mainly for the purpose of setting up of new business enterprises or for expansion of existing ones.

Challenges associated with lending loans:

There are, however, some core difficulties and challenges that need thorough debate. One basic issue in lending to the poor women in micro businesses is the cost associated with it. The loans are usually very small in amount, whereas on the other hand, the overhead cost linked with the loans is higher than the percentage of the loan. Thus the spending on the loan management by the organisation is more, rather than the loan itself. Therefore, the upward growth of the marginalised communities though microfinancing, is seen as a piece meal, rather than a sustainable solution.

It’s ironical to see that Pakistani Microfinance Banks (MFBs) are more, “Engaged with their borrowers but overall the outreach is significantly lower than the South Asian benchmark. Financial structure ratios reveal that Pakistani MFBs preferred equity over debt financing, indicating that Pakistani MFBs are more risk averse than South Asian MFIs,” (Bashir, Tariq; 2019).

Having a closer look into the actual situation, it has been observed that with the presence of Microfinance Institution (MFI) for marginalised communities, it has eased self-employed women to borrow loan for businesses like app based accounts; easy transfer of money; account opening with limited collaterals. This has positively impacted their economic performances from the previous decade. They are now independently handling their money related matters having access at their door steps. Yet, we cannot agree to the fact that these measures have been pivotal in alleviating poverty or bringing these women out from the poverty index, especially those coming from marginalised backgrounds. State Bank led national financial literacy programmes are meant to reach out to women at large. Opening of accounts and distribution of mobile sims for account opening is just a number that would eventually be added. On the other side, women remain entrenched in the poverty index, micro businesses and low market outreach. The slow upward growth of micro level women to the small and medium through microfinancing, lacks upward long term planning.

Loans and trainings for home-based workers:

Women home-based workers (WHBWs) play an essential role in the economy through the production of goods and services for multiple markets. However, they are usually not registered with the relevant authorities including tax, labour and social services. Moreover, weak management practices and lack of independent bank accounts for the enterprises mean their own account or self-employed businesses are often categorised as ‘informal enterprises’ and do not fall under the umbrella of formal markets. Their growth has been hindered primarily by lack of access to financial services, and COVID-19 has also had a detrimental effect on the progress of women-led enterprises. Lack of access, knowledge and understanding of microfinance banks within groups of home-based workers mean that credit services are not designed to reach women entrepreneurs at the grassroots level. Given the high number of home based workers who have potential to expand and contribute to the economy, there is room for linking them with microfinance banks, who will also be able to expand their portfolio.

The access to financial services is an even bigger barrier for micro enterprises, especially for women, running micro businesses from their homes. Their micro size, limited market access, informal structures and management skills limit their capability to access formal banking services.

Keeping in view the contextual analysis of the current issues and challenges being faced by women home based workers, Home Net Pakistan (HNP) with the support of Japan International Cooperation Aid (JICA) has designed and is implementing a three year project, ‘Data Collection Survey Project - Financial Inclusion of Home-based Workers’ Enterprises through Business Booster Loan and Trainings’. The project’s main aim is to understand the challenges faced by women entrepreneurs in the home based sector in accessing the financing services for sustainability and growth.

The initiative based on the ground realities, is conceptually embed in Financial Inclusion Support Framework (FISF), a World Bank Group initiative welcomed by the G20 Finance Ministers and Alliance for Financial Inclusion (AFI). FISF framework adopted worldwide, aims to catalyse private sector financing, knowledge and innovation to spur usage of financial products – payments, savings, insurance, credit etc.

Keeping the FISF framework, accessibility, affordability, availability, adequacy, awareness, in order to strengthen the capacities of the women micro entrepreneurs, focus on the capacity development of women in the home based sector has been designed for increased knowledge, skills and organising themselves for the opportunities to ensure smooth transition from informal to formal economic environment and developing peers’ business group capacities ensuring graduation and sustainability.

What women workers had to say:

Women doing businesses at micro level reported that approaching banking facilities and accessing the financial services are practically difficult without exact information of services and processes. Women from urban centers of Karachi reported women clusters doing micro businesses need financial support but the capacity to repay the loan amount with high interest rates is a major hindrance in accessing loans from micro finance institutions for sustainable business.

“As home based workers are now part of the government policies, therefore government should introduce new interest free loan schemes for WHBWs doing micro businesses,” said Fauzia, a group leader based in Karachi. As special provisions for women in home based micro businesses with disabilities, should be given exemption from interest on loans and one window or mobile operations system for ensuing accessibility.

“The financial literacy programme introduced by state bank and executed by HBL MFB is a good initiative. However, the financial literacy programme exclusively for women in home based micro businesses should be introduced,” suggested Shama from Karachi.

“WHBWs need finances especially after Covid to upgrade their business by purchasing raw material, equipment and effective support for marketing and digitalisation of business,” elucidated Rehana from Lahore. She also stressed the need of having accessibility and availability of technology for upgrading women’s micro businesses.

Based on the ground realities and live case studies, the hypothesis states that women informal enterprises have limited access to credit from the formal financial sector. This limitation is primarily due to an awareness and knowledge gap that exists both with the WIEs and financial institutions.

Women in informal businesses are not aware of the products and services that are available and can address their financing and banking needs. Mostly, they do not know how and where to access the financial products and services. In terms of available service and products offered, women do not know how the available products and services can be effectively used to benefit their enterprises and help them grow the business. Women lack primary business and management skills to deal with financial institutions, and present viable business propositions to meet requirements for loans.

At a larger end, the financial institutions have not currently defined Women In Enterprise (WIE) as a viable independent business segment. The institutions are not fully aware of the WIE segment’s financial needs working actively in the home based sector. The financial institutions also are not fully aware of the behavioural dynamics and challenges to develop relevant value propositions.

Enhancement of women, in informal enterprises for ensuing access to formal credit eventually, would offer an opportunity for financial institutions to service a new segment in line with home based workers policies and grow their business. In close coordination and collaboration with Pakistan Micro finance network and potentially HBL Micro finance bank, it will have promising impact leveraging access-to-finance as an incentive for women in informal enterprises transition from informal to formal economy.

*The writer is a development manager and can be reached @ lailazharali@gmail.com