Supporting Women Entrepreneurs in Developing Countries

With this year’s International Women’s Day now adjourned, we have once again become aware of the challenges women face around the world, whether it be in the academic fields, in business, in politics and government, in society or at home. This year, I had the opportunity to attend various webinars and events, organised by a consortium of different international organizations, such as the International Labour Organization (ILO), the World Trade Organization (WTO) and the Organisation for Economic Cooperation and Development (OECD) dedicated to women’s issues in trade, sustainable development and the like, in developing and least developed countries. One area of significant importance that stood out to me was women-owned and women-led small businesses in developing countries. While we often hear of the benefits of female entrepreneurship, not enough is being done to support these ventures, particularly in poorer countries. This article aims to provide a brief outlook on female entrepreneurship, the challenges that hamper its development in developing countries and the ways that we, as policymakers (and determiners), can support female entrepreneurship effectively.

What are women-led MSMEs?

The technical term for small businesses is micro-, small and medium-sized enterprises, more commonly known by its abbreviation MSMEs. Today, 95% of companies across the globe are MSMEs, accounting for an astonishing 60% of the world’s total employment (WTO, 2022). The primacy of MSMEs for countries’ economies’ output and trade, particularly in developing countries, led the UN to recognize the importance of these businesses, designating June 27 as “Micro-, Small and Medium-sized Enterprises Day” and funding a programme aiming to facilitate developing countries’ capacities to improve MSME-supporting policies on a national scale, especially among women and youth.

Indeed, women play a significant role in MSMEs in developing countries. In rural areas, for instance, women are often actively involved in economic activities, not only as hired labour but as the leaders and managers of these activities. Traditional female skills have increasingly been turned into livelihoods, with women starting home-based businesses in areas such as agriculture, textile, catering, embroidery, boutiques, handicrafts and more. According to the World Bank, there are currently about 8 million to 10 million formal SMEs with at least one female owner. In India, specifically, women had the highest share of micro businesses within business sizes, with more enterprises in rural areas than urban parts of the country (Statista, 2021).

The contribution of women entrepreneurs to output, employment and growth of national economies is often frequently noted. However, women entrepreneurship plays a significant role in empowering women as well. Women’s participation in multiple entrepreneurial enterprises gives influence in social, economic, cultural and other areas. On a social level, not only do such initiatives directly positively impact the income and capital formation of a household, they also increase a woman’s bargaining power in the household and improve household resource allocation. Moreover, women-led businesses are often designed to address social equity issues impacting women themselves. For instance, a study by Rosca, Agarwal and Brem (2020), looking at four firms from two emerging markets, India and Colombia, found that women entrepreneurs are often highly motivated on social issues. As noted by the authors, female entrepreneurs often live through a personal experience, which becomes the founding identity and personal mission of their entrepreneurial projects. They give the example of Fruto Bendito, a venture started in Colombia by a female founder, whose experience of motherhood developed a strong empathy for the numerous mothers across Colombia who could not afford proper care for their infants. Such ventures, started by women, thus have wider positive impacts for other women in their communities as well.

What are some challenges that these businesses face?

Despite the importance of women-owned MSMEs for growth, job creation and social empowerment of women, these MSMEs still face many roadblocks that stunt the growth of their businesses. According to a research point by the World Bank that gathered observations on the state of women in small business in developing countries, three challenges in particular hinder women’s capacities to develop and successfully run an entrepreneurial venture in their environment.

Firstly, women often lack the combination of education, vocational and technical skills and work experience needed for the development of highly productive businesses. Male entrepreneurs, in comparison, are often more likely than female entrepreneurs to have been employed and have earned wages prior to starting a business, thus engendering a gap in skills and know-how between male and female entrepreneurs. In a similar vein, women are also less likely to afford or have access to information and communications technology (ICT), such as television, computers and mobile devices. When access to these devices is present, illiteracy to ICT, particularly among low-income women, further impede women’s capacities to start a business.

As a result of this lack of quality education and business, financial and management knowledge, female-led enterprises are therefore more often likely to fail (Kantor, 1999). Not only that, women in small businesses who do manage to succeed in starting a business, despite educational and know-how deficiencies, tend to find it difficult to sustain their businesses and encounter difficulties in engaging funding and investors to finance them.

A second prominent barrier is legal and institutional constraints, particularly, in family law and inheritance. According to the Women’s Legal Economic Empowerment Database – Africa (Women LEED Africa), only eight countries in the region included provisions in their legislature giving women the right to own property.

Evidently, such constraints are an issue since they prohibit even the legal entering of female entrepreneurs in the market. More significantly, however, such tight laws can hinder women’s access to assets that can be used as collateral when securing a loan. The overarching effect of such institutional constraints, as noted by Njeru & Njokas (2001), is that they do not afford women entrepreneurs to necessary legitimacy and acceptance that is essential for starting a business.

The third, and perhaps most important, barrier to the women in MSMEs is access to finance. According to a Gallup World Poll, there exist significant differences in access to financial services for women- and men-owned business in developing countries. Moreover, women on average have less access to basic banking services such as checking and savings accounts.

As a result of this, many female entrepreneurs tend to rely on their own savings, loans from family and friends, or micro-loans to finance their business needs. Financial constraints, even from these sources, may also lead female entrepreneurs to commit inexpensive resources to their businesses. In the study by Rosca, Agarwal and Brem (2020), for instance, the authors give the example of Sughavazhu, a female-founded, not-for-profit healthcare organisation in India that aims to provide healthcare services to the rural Indian population. Sughavazdhu used rented places to open their clinics and informal healthcare workers, instead of certified workers, to run its business. The use of inexpensive resources not only compromises the quality of services provided by female-led enterprises but may also risk creating inefficiencies arising from the deployment of sub-par resources.

What can we do to support these businesses?

Supporting the development of women-owned MSMEs will evidently require addressing the issues mentioned above. Indeed, various commendable interventions have been implemented around the world to foster female entrepreneurship with a particular view to deal with the above issues.

Tackling the issue of lack of access to finance, for instance, the Ministry of MSMEs in India, launched the Prime Minister’s Employment Generation Programme (PMEGP) in 2008, which was a credit-linked programme aiming to provide funds to micro entrepreneurs to set up their enterprises. Under the scheme, women entrepreneurs were covered under a Special Category whereby they were entitled to 25% and 35% subsidies to set up their projects, in urban and rural areas respectively. Since its inception up to 2019, around 30% of total projects set up under the PMEGP were by women. Conversely, an experimental study in Uganda by Fiala (2018) found that providing financial capital, while effective for men, did not have any impact on female-owned enterprise profits. Successful female entrepreneurship interventions thus need more than just access to financial capital.

A complementary intervention to financial capital has been provision of business and financial trainings that aim to improve female entrepreneurs’ know-how and skills for running a business. Indeed, a study by Rodriguez-Ramirez and Yang (2018) on Nicaragua’s Business of the Family Economy program found that business trainings significantly increased self-employed men and women’s real income, with a higher impact for women. This additional impact for women was attributed to the program providing soft-skills training, such as talks on the creation of business plans and networking, in addition to information on production techniques, business organization and administrative skills.

A pivotal aspect of any intervention aiming to support small female businesses often entails shifting the mindset of women who express desire but are reluctant to start businesses. Various interventions have been implemented with this goal in mind. For example, a personal-initiative program, run by the World Bank’s Gender Innovation Lab in Togo, offered psychology-based “mindset” training for both male and female business owners, covering soft skills such as goal setting, innovation and overcoming obstacles. Interestingly, the training program found business performance improvements for both male and female enterprises, with the main effect on women being attributed to an increase in women’s personal initiative.

To conclude…

An overview of the literature and impact evaluations suggests that successful interventions aimed at supporting women-owned and -led MSMEs must combine the provision of basic financial capital with business-skills training and, crucially, with training programs that aim to address deeper psychological and social constraints facing women. While, in practice, implementing such comprehensive interventions often prove to be challenging, suffering for example from high-dropout rates in training, low-cost effectiveness of combination programs, the long-term benefits to the economy and to female economic and social empowerment to be gained from supporting women-owned SMEs imply that such investments will be truly invaluable.

Khadija Zaidi
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