Visa says it has a new strategy to help women entrepreneurs. On Tuesday the global lender announced the launch of its new Visa Foundation and with it, a contribution of $20 million to the nonprofit Women’s World Banking (WWB) to help “prioritize the growth of micro and small enterprises around the world.” The money, which will be distributed to WWB over a five-year period, will be used to boost opportunities for women-led businesses in underserved communities where banks and other financial institutions are limited or nonexistent.
According to Stephen Kehoe, Visa’s senior vice president for global financial inclusion, the new partnership will open a door for women-led enterprises.
“Women and women-owned businesses continue to be disproportionately excluded from accessing formal financial services, impacting hundreds of millions of individuals with a significant effect on families and communities,” said Kehoe.” “By supporting measures to include women, there is a strong multiplier effect in terms of increased financial health for all. For this reason, the Visa Foundation chose to focus its first grant on women-owned enterprises and has selected Women’s World Banking as our first grant recipient.”
“One billion women worldwide are unbanked, a significant number of them business owners,” said Mary Ellen Iskenderian, President and CEO of WWB. “Through this partnership, we will deliver solutions that drive women’s access and usage of innovative financial services, so that they create economic opportunity for themselves and their families.”
The two organizations have not said exactly how the money will be used, whether they will be distributed as microloans or grants and how applicants will be expected to qualify for the funds. However, Visa has laid out a series of objectives designed to develop products and services for eligible entrepreneurs and hopes to be able to provide services to as many as 50 million underserved business owners in Mexico, India, Egypt and Nigeria.
The microloan business has been growing in recent years, particularly in impoverished areas where farmers and entrepreneurs face difficult barriers in obtaining financing. According to a World Bank Enterprise Survey, ” smaller firms are less likely to have access to capital – a factor that constrains their ability to grow and become more productive.” Not surprisingly, the survey found ” [access] to finance is disproportionately difficult for smaller firms in the least developed countries (LDCs), with 41 percent of SMEs in LDCs reporting access to finance as a major constraint to their growth and development.” By comparison, 30 percent of firms in middle-income countries and 15 percent in high-income countries faced the same barriers.
That’s especially true for women-owned busnesses, says WWB. About one-third of the 200 million small businesses in emerging economies that have no or little access to loans and other forms of credit are owned by women. Studies have shown that increasing access to women entrepreneurs and aspiring business owners has, in the past, often translated to better living standards for impoverished families and more stable access to education for the business owner’s children.
But those stories of accomplishment and empowerment come from earlier days when small nonprofits, bent on helping impoverished families with no running water, no toilets and no collateral for loans had little hope of financial access, points out Smitha Radhakrishnan, associate professor in sociology at Wellsely College in Boston.
These days, Radhakrishnan notes, the road to success for low-income women business operators has become much more rocky and complex.
“[Today], microfinance has become a profitable industry that provides financial products to the poor that are too expensive for the rich, says Radhakrishnan, who quotes interest rates for microloans as often range “22- 90 [percent] per year.” [Profitable] microfinance companies around the world now consider themselves providers of ‘financial inclusion,’ and not women’s empowerment, poverty alleviation, or even enterprise development.”
That “mission shift,” say researchers Phil Mader and Sophia Sabrow, is an important factor, as it can define whether struggling and aspiring business owners in developing countries really can financially benefit from microloan options.
“The proclaimed shift in strategy is found to consist less of rational innovation towards the aim of poverty alleviation than of “myth and ceremony” for the sake of organisational self-preservation,” the writers argue.
And they aren’t the only researchers to question whether credit products and services work for rural and impoverished business operators. Anjini Kochar, India Program Director and Senior Research Scholar at the Stanford Center on Global Poverty and Development observed that “repayment of official loans was accompanied by significant loans from relatives, friends and professional moneylenders,” explains Emily Miller, who writes for the Center.
“High repayment rates, normally considered to be an indicator of the household’s strong financial position, actually hide very high levels of indebtedness to the informal sector,” said Kochar. At the time, Kochar was in India to study the link between credit indebtedness and child malnutrition.
Still, microloans are known to work when they are engineered for nonprofit or minimal-profit margins, and as Radhakrishnan notes, for women’s empowerment and poverty alleviation, not just financial inclusion of a disregarded population. Organizations like Meketa, a nonprofit from the UK that provides microloans to aspiring Ethiopian entrepreneurs in high-risk poverty settings have helped to turn around the fate of isolated communities where funding is really nonexistent. Other nonprofits with low repayment rates designed to self-fund the programs have contributed to the same kind of success.
The question that Visa and the World Women’s Bank will hopefully be working with, is whether credit products can really be designed to help lift women entrepreneurs out of debt, not just into the big, wide and expensive world of banking sector. They may find that microloan strategies continue to work best for their customers when the loans are underwritten by nonprofit organizations that can offer low repayment options and aren’t wrestling with a demanding profit margin.
Flickr image: Peter Haden