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Global Summit of Women 2008
NEW FINANCING MODELS: MICROINVESTING
Experiences from Financing Women Entrepreneurs By Siv Hellén Adviser to the President of Nordic Investment Bank
Access to financing is one of the major challenges to starting a business, especially for women. This is a global phenomenon and in certain areas there are still surprisingly many gender specific barriers. My hands-on experience relates mainly to the transition economies of Eastern Europe and the CIS countries. Traditional views on women's roles are prevailing which have also been reflected in the privatization process taking place there. In many countries there are problems with implementation of equal rights concerning land and property ownership. This in turn affects the access to collateral.
Although the number of self-employed women is still much lower than the comparable number of men, it is surprising to see that the average share of women entrepreneurs in the former CIS is in fact a bit higher than in Western Europe. Also, when we look at the education level of the population under 40 in almost all new member countries of EU, women entrepreneurs possess higher education than men. There seem to be great opportunities for mainstreaming gender into financial measures by supporting the small and medium sized companies and targeted programs, with special credit lines for SMEs. These kinds of gender focused actions may be used for raising the awareness of the rights of women entrepreneurs.
NIB and loans for female entrepreneurs My personal experience of financing for women entrepreneurs relates to my work in the Nordic Investment Bank, NIB. NIB is owned by the five Nordic countries and the three Baltic countries. NIB is an international financial institution, with similar activities as for example the IFC.
NIB is usually financing big infrastructure projects and SME financing is only done through intermediary banks. The closest NIB has come to microfinance was NIB's idea of establishing separate loan programs for women entrepreneurs in 1999. The loan programs have all been carried out through local banks. The purpose of these loan programs is to support and increase women's involvement in business and decision-making processes. The projects should be carried out by small and medium sized enterprises (SMEs) run or owned by women or by individual women entrepreneurs in the private sector. Priority is however given to projects creating new jobs; projects located in rural areas or in regions with high unemployment. Also, focus is on projects involving transfer and exchange of know-how, goods and services among local women entrepreneurs and their colleagues in NIB's member countries and projects involving interaction among women with different background. Loans are given according to sound banking practices. It is important to stress that loans cannot be granted unless the projects are bankable. A project should not be subsidized just because it is implemented by women. This means that requests for loans are considered on commercial and economic basis and in the assessment emphasis is put on the strategy of the potential borrower, on the competitiveness of the project idea and also on environmental aspects. There is flexibility on the expenditure to be financed at the same time as the availability of other financial resources is stressed.
The maximum maturity of the loans is five to seven years and the interest rate charged by the financial intermediary is based on market terms and set by the financial intermediary individually. However, it is stressed that the interest rate must remain favorable to the final recipients of the loans. The loans have to be adequately secured. The first loan program of one million euro was carried out by NIB alone in the three Baltic countries. It was established very quickly using local banks as financial intermediaries and all the loan funds were utilized, less than nine months after the loan program had become effective. The second loan program of 10 million euro to the Baltic countries was provided in equal parts by NIB and another international financial institution, namely the Council of Europe Development Bank (CEB).
These two loan programs together financed 388 projects, 66 in Estonia, 191 in Latvia and 131 in Lithuania. Through the projects 3 522 jobs were maintained and 834 new jobs were created.
The third loan program of 2 million euro NIB carried out in Russia . Encouraged by the success in the three Baltic countries NIB decided to establish a similar loan program for women entrepreneurs in Russia, more precisely in the St. Petersburg and Leningrad Oblast area. This program proved less successful and was discontinued.
Experience gained from financing women entrepreneurs Our experience is derived from numerous sources; first from surveys carried out on obstacles female entrepreneurs face in their business, such as getting credit, having access to advice and coping with family responsibilities; and secondly from post evaluations of the programs and last but not least from discussions with women from different parts of the world. Based on the surveys carried out before the loan programs were implemented our assumptions were · Women set up their companies with their own capital · Women think that they have the same opportunities as men to get credit · Women need more encouragement and support than men · Women want role models · Women do not have enough information about credit possibilities · Women are more careful and take less risks than men · Women are reluctant to expand their businesses
Based upon the feedback given by women who borrowed under the program; · Women found it positive that the loans were intended only for women and thought this would support women’s entrepreneurship · Women realised that they did not really have the same opportunities as men · While some women were disappointed with the conditions and requirements, others were positively surprised by the friendly and helpful reception and quick procedure in the banks · 50 per cent of the women thought they would probably need more financing in the future for their business both for continuing and for expansion of their businesses · Some kind of government support in the programme was considered to be important But the idea with the loan programs was also to look at the situation from the point of view of the local banks who were actually granting the loans. · Banks find it difficult to combine profitability and small credits · Banks are not used to address women's particular concerns · Banks should not give advice on how to prepare business plans · The quality of business plans prepared by external consultants was often not very good · Women in rural areas with start-up projects are difficult to reach · Loan applicants do not have sufficient collateral
The conclusions from these findings showed that our assumptions were correct: · Women like to be target clients · Women do not need generally better terms and conditions than men but they have different concerns · Women need good advice in preparing business plans (preferably from other entrepreneurs) · Women need more information on how to approach banks and apply for credit · Choosing the right local bank is essential · Banks need training in how to handle women entrepreneurs as clients · Expedient loan processing is essential · Collateral support is needed especially in rural areas and for start-up projects · Banks found a new group of clients Some of the reasons why the loan program did not fly in Russia were because the bank NIB chose was too big and whole-sale oriented and had its decision-making concentrated in Moscow. There was no clear strategy and procedures in place for small scale lending.
Final remarks The initiative of financing women entrepreneurs carried out by NIB has raised several questions; here are only a few of them: 1. Why special loans for women entrepreneurs? 2. Is it gender equality? 3. What is innovative with a program like NIB's? Here are some answers: 1. The programs have created a debate about women issues. 2. The programs have brought women as potential bank customers in focus in countries where banking is still very male dominated. 3. Women have been encouraged to expand their business 4. The loans have been intentionally designed not to distort competition and carry no real subsidies. 5. The projects financed have been assessed on their merits -not on the gender of the entrepreneurs. 6. The programs have educated the banks in focusing on administratively simplified procedures and on serving clients with different concerns.
And last but not least, the program has raised the awareness of women as a neglected source of competence and has put gender equality in the business community high on the agenda. As we know, micro business is the first step to create a functioning SME sector and the SME sector again is the key driver for economic growth. Therefore, two major issues needs to be focused on How to reach women and small businesses in rural areas ? How to encourage women entrepreneurs to expand their businesses ?
As a summary I think that any micro-finance program will be more successful if it is designed in a SMART way. You need to think about how to make it Simple and easy to comprehend You need to Market it to the target group You need to Adapt it to meet the concern of your target group You need to be Responsive in the process You need to Train not only the borrowers but also the bank managers
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