Young women need tailored support and systemic action.
Entrepreneurship is one way to create work and incomes. For young people in low-income communities, entrepreneurship has become widespread response to low labour market demand, and is also a popular policy prescription youth underemployment. Nevertheless, high failure rates are common for new businesses, which means this option brings its own risks. In fact, many young people turn to self-employment through necessity, when there is little chance of securing a stable job.
For many, being young plus female makes it even more difficult to start and scale a business. Over 1.1 billion women worldwide do not use the formal financial system, according to the latest available World Bank Group Findex Report.29 In many cases, these young women do not have collateral, formal documentation, or credit history. The lack of formal papers makes it difficult for young women to access the formal financial systems that could help them to start or grow a successful business. So, what do young women need from financial service providers to support a business?
The legal context can make it difficult for both young women and men to gain financial freedom. Young people under 18 or 21 often are not considered legal adults and able to enter into ‘contracts needed to have a bank account’, presenting a ‘primary barrier’ for young people, according to the latest Alliance for Financial Inclusion (AFI) survey.30 This means young people, in many cases, do not have the financial freedom they need to seek and build opportunities.
Women, however, face added restrictive legal and cultural practices, particularly in areas of South East Asia, South Asia, and Sub-Saharan Africa in our survey.31 In some countries in these regions, young women face laws that prohibit them from inheriting land and property, opening bank accounts, and obtaining credit. The World Bank Women, Business and the Law Report 2021 highlights restrictive national legislation on women's inheritance and ownership of assets laws that persist.32 Headway is being made through reforms, the report shows. The report finds, for example, that legislative change in India, which now grants daughters the same inheritance rights as sons, has increased financial inclusion, among a range of other positive outcomes.33
We focus below on the latest understanding of and emerging barriers to young women’s entrepreneurship. The more traditional and well-documented constraints, however, persist, with almost half (47%) of the young women micro-business owners in our survey lacking collateral to access a business bank loan (see Graph 4: Barriers to access for young women entrepreneurs as they see them).
Nearly a quarter of young women entrepreneurs say they do not control their money for their business use, and 33% say they don’t have money of their own. A similar story is seen among all young women in the survey—almost 30% of young women were the main breadwinner in the survey, but when asked what they think about accessing financial products and services, 19% do not control their finances and 18% do not have money of their own. By not having control over their finances, female entrepreneurs often are not eligible for financial services because they lack a financial history and collateral.
There are a number of advantages to separating business from personal banking, such as increased credibility and consumer protection. For women, this may present the added opportunity to separate their business finances (their income) from their family personal banking. Of the young women who identify as entrepreneurs, 52% have personal bank accounts, but only 18% have business accounts, marking a difference of 34 percentage points.
Similarly, electronic banking adds credibility and increased scope and access, though young male entrepreneurs are 11 percentage points more likely to have electronic payment set up for their business than the young female entrepreneurs in our survey. Existing research and our stakeholder interviews highlight that digital inclusion is vital in building the resilience of businesses and people:
The starting point on just about everything is the mobile inclusion … Whether you are in a lockdown in Malaysia or whether you are fleeing tanks in Ukraine, that ability to make and receive payments is something that provides a tremendous amount of resilience to people involved.
A 2022 GSMA report, though, shows the digital gender gap remains a key barrier. GSMA found there are 234 million fewer women than men using mobile internet, and women are 7% less likely than men to own a mobile phone.34 Stakeholder interviews added insight into how the digital divide persists for young entrepreneurs:
Mobile money has become very accessible in many low- and middle-income countries. I think it's now more about how people use it and engage with it to build an economic ID.
A key enabler for financial inclusion among female entrepreneurs is the availing of digital literacy and business management skills training. Unilever is committed to building a fairer and more inclusive world by creating income opportunities, providing skills, training, and empowering women in our retail value chain to grow their own business.
In our survey, 41% of young women entrepreneurs said they do not have the right ID documents to be able to use financial services and products. According to the World Bank, 1 in 2 women in low-income countries do not have an ID.35 In this context, digital ID could be a “critical enabler” for women who are much less likely than men to have an ID.36 An excerpt from a stakeholder interview with the Mastercard Center for Inclusive Growth explains:
Women often don’t have the right collateral that banks require. For example, they might not have the land titles or the titles on the houses. And so, what we have been doing, in partnership with CARE, to unlock access to credit for women entrepreneurs is working with banks in Pakistan, Vietnam, and Peru to think creatively and take a women-centred financial service design approach. We are building the capacity of banks to actually design the right financial service products for women entrepreneurs that address both their needs and constraints.
Even if loans are approved, they come at very high rates. In the absence of collateral, credit history, or formal papers, a person or business is classed as ‘high risk.’ Traditional providers have higher interest rates for high-risk clients as a way to balance or manage the risk. Around 38% of both young male and female entrepreneurs in our survey found banks and financial service providers cost too much, compared to 19% among all respondents.
More enlightened providers, though, look at different ways to manage risk for young entrepreneurs. Informed formal providers also understand that young women are lower-risk clients. The IFC shows that there are lower non-performing loan rates for women,37 and the Economics of Banking on Women data consistently show women pay back their loans at faster rates than men.
Women face strong perception barriers—that they themselves believe—that they don’t need or qualify for what banks have on offer and are “more likely to self-select out of the credit market because of perceived low-creditworthiness.”38 The mix of constraints facing young women are well summarised in an earlier article as: “lower levels of education and financial literacy, lower income levels, lack of tangible assets or collateral, legal constraints, time and mobility constraints, socio-cultural constraints, inter-role conflicts from juggling domestic and professional roles, and a lack of market exposure”.39 Living in these complex contexts, many young women grow up with the belief that the formal financial system is not for them because they perceive the barriers to be too high or just assume that they are not eligible.
In our survey, women on the whole are less likely than men to want financial products and services. Graph 5 shows access to finance variations by gender. The responses suggest that young women are more likely to self-select out of the market for credit compared to their male peers and compared to older women. Young women are 15 percentage points less likely than over-35s to want a credit or loan from a bank. They are also 9 percentage points less likely to want a bank loan than young men. Young female entrepreneurs are 10 percentage points less likely to want to take out a loan for their business than young male entrepreneurs.
When asked, “how do you feel about accessing and receiving financial services?” women entrepreneurs in our survey, on the whole, say they feel “confident” and “well-informed” about their own ability to access financial products and services. This suggests that, in unequal structures, even women who feel financially confident and well informed in accessing financial products and services self-select out of the market for them.
EXAMPLE
Women’s World Banking and the Bank of Baroda, India joined forces in a pilot to reach underserved women with appropriate products and services. The innovative pilot ran at 101 Bank of Baroda branches across Mumbai, Delhi, and Chennai.
The report on the pilot shows how the Jan Dhan Plus product is designed to influence behaviour and tackle women’s perception barriers. The initiative starts from an understanding of low-income women’s approach to saving in the country—that women see their incomes as so low as to not warrant savings, and saving is only for those wealthy enough to save. Tackling perception is a key part of the solution. Jan Dhan Plus encourages regular saving among low-income women. It then enables women to “to use their account to access credit, insurance, and other financial products.”40 In doing so, it helps build resilience against shocks.41
“Jan Dhan Plus is a solution which combines a Jan Dhan account with an incentive to save Rs. 500 over four months, and in return the saver unlocks a Rs. 10,000 credit/overdraft facility. This solution also entailed the use of reminders and targeted “nudges” to encourage women to save.”42
As part of the scheme, “300 Business Correspondent” points were set up.43 These information points act as a touchstone for women and facilitate marketing messages such as “Regular saving. Regular progress.”44
The product is based on the Jan Dhan-AadharMobile (JAM) designed by the government of India for direct benefit transfers (Jan Dhan, an Aadhar Unique Identification Number, and a mobile phone).45 The scheme helps women directly receive benefits, potentially “removing intermediaries.”46
Building on lessons learned from the pilot in India, Women’s World Banking developed three principles to design for women:
To help support young women become the business owners they dream to be, financial service providers must open a dialogue with them. Jan Dhan Plus was born from understanding its market, the women whose lives it hopes to reach. It reached out to them through individual ‘business correspondents.’ In our stakeholder interview, Women’s World Banking explained:
Having a trusted source or touch point as an introduction to the formal financial system is really critical … We’re not going to reach women by expecting them to walk into a branch and try to initiate a relationship with a bank themselves.
Financial education and awareness are important factors in reaching young women.48 Policy toolkits and guides highlight it's particularly important for financial service providers to tailor support to the specific contexts women business owners operate within.49 This starts with engaging in a two-way conversation.50 Capacity building, market creation, and a functioning supply chain are all needed to support the financial health of individuals and businesses.
For young women, the “double-strike” of being young and female is a major obstacle to employment and achieving life goals.51 Entrepreneurship is a means to achieving financial independence for many young women, but they face systemic and individual barriers. Financial service providers can help tackle these barriers by focusing specifically on which products and services can help meet the needs of young women entrepreneurs. Also, as highlighted by many stakeholders, systemic action is needed for effective support, as the following interview summarises:
After a few decades of work on financial inclusion, there is consensus on fundamental issues and solutions—for e.g., we know we need agile regulations and interoperable systems. At the same time, inclusive finance is fast-moving, with new digital innovations and new types of finance; the challenge is to keep pace, leverage, and mold these innovations into opportunities for impact. Within ADB, we know that when risk-takers, policymakers, financiers, and technical experts work collaboratively, we co-create impact for access and empowerment for the poor and vulnerable. Recognizing the urgency, we need to ask ourselves, as professionals and institutions: Are we collaborating in the most efficient and effective way? Are we taking calculated risks? Are we too scared of failure? Are we willing to share good ideas for replication?
In the following section, we explore the financial health of young people in the survey. Young people need products and services that help support their financial health and help them meet their personal goals. The final section goes on to explore the role financial education has to play in supporting young people's access to the products and services that help them grow.
