Women-owned/led very small enterprises (WVSEs), often semi-formal, comprise a vast unserved and underserved segment in business finance. FSPs lack sufficient information and documents to underwrite loans to them. Women also lack sufficient information and financial know-how to demand the appropriate finance for their businesses.
Create solutions that would improve the WVSE segment’s access to finance. (B2B, B2B2C or B2C)
Asia: South Asia—Bangladesh, India, Pakistan & Sri Lanka; Singapore.
Women-owned very small enterprises (WVSEs) fall between the upper end of micro and the lower end of SME lending and are often informal (not registered). The gap is roughly $1 trillion when informal women-owned businesses are included. These businesses are vital sources of income for millions of households. Yet they face compounded financing challenges because of incomplete financial statements and paper trails, lack of formal registration, limited business experience, being located in the home, and making sales based on community credit rather than cash.
To cater to these firms, some banks introduced cash-flow-based lending or began accepting co-guarantors in place of property titles (which are often a barrier for women seeking loans). However, these approaches can be expensive, and adoption by banks is not widespread. Supplier credit offers some respite, but that, too, has limitations and is irrelevant for many businesses. Supply chain finance has promise, yet it has not achieved scale.
Banks need faster and more efficient ways of underwriting loans to women-owned VSEs and SMEs, availing of the latest alternative information sources to create credit scoring models and assess multiple income sources, psychometric testing for likely repayment behavior, blockchain to establish collateral ownership, social networks to create co-guarantor mechanisms, and customer data to establish financing demand. Those who design these systems must be careful to safeguard against potential gender bias within data sources, algorithms and human-made lending decisions. Many core banking systems cannot work with alternative data sources.
Banks also need support in acquiring these customers. This includes current customers, because their MIS cannot identify women-owned/led businesses easily and many remain unknown in the consumer portfolio. They also need help with prospect customers—identifying them and reaching out to them in the marketplace.
In some cultural contexts, loan collection processes must also be adapted because the traditional recovery agent model does not work. While some fintechs have solved pieces of the equation, the market is still vastly underserved. This presents a huge B2B partnership opportunity for fintechs and banks, as well as a B2C opportunity for fintechs.
To know more download the “How Fintechs can profit from the Multi-Trillion-Dollar Female Economy” report