Investment for women-led businesses is missing ingredient African entrepreneurship
Women make up 58% of African’s self-employed population, yet there are still significant imbalances between opportunities to scale, access to funding and training between men and women-led businesses on the continent.
There is clear evidence of this in a recent World Bank report, Profiting from Parity, which shows that women entrepreneurs across sub-Saharan Africa continue to earn lower profits than men – 34% less on average.
There is an irony in these inequalities: for investors, women are, in many ways, a better bet than men. In general, women in Africa are more likely than men to choose entrepreneurship as they find themselves in situations where they need to put their natural problem-solving skills to use. In Africa, 5% of Chief Executive Officers are women – slightly higher than the global average of 4%. Moreover, research shows that technology firms led by women experience a 35% higher return on investment than those led by men.
Underwriting financial institutions
These are excellent reasons to take a look at women-led businesses and there are many social and economic benefits too, which can be measured against the UN’s SDG Goal 5.
It states that gender equality is a necessary foundation for a peaceful, prosperous, and sustainable world. In response, the African Development Bank has approved a Gender Equality Trust Fund (GETF) and Risk Sharing Mechanism in an attempt to close the gap. It is funded by foreign government donors to support the delivery of the AfDB’s ‘Affirmative Finance Action for Women in Africa’ (AFAWA). The first transaction, implemented by the African Guarantee Fund, will direct up to $2bn to underwrite financial institutions’ SME lending.
Yet there are other, more complex challenges that go beyond underwriting banks. So far, much of the focus within the African entrepreneurship and innovation ecosystem has been on technology companies, which are male-dominated.
Technology has not attracted nor retained as many female entrepreneurs and while that seems to be shifting, it remains a slow transformation. VCs and private equity have therefore for some time had a skewed perspective, favouring tech and digital unicorns that are typically male-led.
In 2019, less than 5% of VC funding for African startups went to companies with women co-founders. In addition, as a result of the COVID-19 pandemic, research shows that most female-led SMEs are more at risk of permanent business shutdown than men.
So, whilst the SME underwriting facilities provided by GETF are an important and effective way of mobilizing SME lending to women, it represents only one track of what must be a joined-up approach that provides seed-funding and practical startup services specifically for women-led startups. To truly liberate the potential of one half of the human race, the private investor community needs to recognize that women-led businesses are not only as profitable (if not more) than those led by men but more likely to lead businesses that make a positive social impact.
Policymakers must also recognise that with the right policies and interventions, there is a huge opportunity to unleash the potential of women entrepreneurs, boost economic growth and lift millions of people out of poverty in the process.
Currently, there is $42bn funding gap for female entrepreneurs in Sub-Saharan Africa, and it is estimated that 316bn GDP could be gained by 2025 if the gender gap in Africa is bridged. Within many African countries, women are discriminated against, often underpinning women’s lower access to some assets. While African governments have made progress eliminating gender discrimination in business law, family law often gives husbands control over property and land, vital sources of collateral. Patently, this has to change.
Gender-based economic policy
Governments can also improve access to funding for women-led businesses through gender-focused policies such as Gender Responsive Budgeting (GRB) in order to improve the effectiveness of allocation of public funds. According to the recently launched Djembe Insights Report, GRB, alongside legislation is one of the main ways of addressing gender bias and discrimination leading to greater public transparency.
There are opportunities for policymakers to develop gender smart stimulus packages that are designed and disbursed from a gender lens perspective to ensure that women-led businesses can and do benefit. External collateral requirements can also be relaxed or no longer be mandated by financial institutions for women-led businesses, whilst African governments should also consider tax breaks for organizations that invest in women-led SMEs.
Policymakers also need to talk about technology: women in Africa are about 45% less likely to be online than men. This translates into fewer African women SME owners participating in e-commerce or being noticed by foreign investors. The fintech revolution has also shifted access to funding online, which leaves women yet again at a disadvantage.
Without adequate financing, women-owned businesses will continue to struggle to survive or will grow at a much slower rate or stay in the informal economy and by limiting funds to male-dominated industries, the funding gap only widens.
Given the trickle-down effect of economically investing in women, it goes without saying that investing in them will accelerate the achievement of Sustainable Development Goals (SDGs), not just SDG5. For instance, recent research shows how economically empowering women is the best tool to combating climate change. Economically empowered women are more likely than male counterparts to make decisions that have a positive impact on the environment.
ShEquity’s purpose is to provide smart investments for African female entrepreneurs and innovators whilst also providing women-led startups with practical support to develop the kind of ‘soft skills’ needed to survive and flourish in business. These include interpersonal skills, leadership, presentation training, socio-emotional skills and critical thinking that are better suited for boosting confidence in African women entrepreneurs and innovators.
ShEquity then facilitates access to a pool of de-risked deals to investors with a potential of achieving triple bottom line: financial, social and environmental return.
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In parallel, ShEquity empowers female entrepreneurs with the financial resources and operational support needed to unlock their full potential. By investing in women-led businesses, ShEquity and other firms committed to building inclusive economic growth, are making a difference by supporting women-led businesses that address serious challenges faced by our continent. This delivers a win-win for everybody involved: investors, communities, value chains and women entrepreneurs themselves.