The Impact of Access to credit on Women’s Entrepreneurship

By Dr. Vera Fuein Kum

INTRODUCTION

This article explores how access to credit and financial resources can help women start and grow their businesses. Anchored within the paradigm of women’s entrepreneurship empowerment and social development, we will first examine from the literature some cases of access to credit in women’s entrepreneurship. A brief analysis of the significance of financial accessibility for female entrepreneurship development follows this. Finally, we will suggest some recommendations that can help decision-makers better formulate more inclusive policies to ensure equitability between males and females regarding credit accessibility for women.

EVIDENCE OF ACCESS TO CREDIT FOR FEMALE ENTREPRENEURSHIP

There has been a tremendous increase in entrepreneurship financing over the years. Its impact on economic growth and social development is evident as it adds to the gross domestic product of many nations across the world. Empowering women by encouraging female entrepreneurship tends to be linked with social and economic gains. Since women often make up more than half of the population in most countries, promoting them in the business sector has the potential to broaden their productive capacity by adding to the active population and the number of business enterprises. This would add to their higher tendency to start a business. According to Women in Business Statistics (2024), about half of all start-ups in the United States (US) are founded by women, whereas a third of businesses worldwide are owned by women. Businesses with gender-diverse executive teams are 25% more likely to have above-average profitability. The World Bank records that globally, 1 in 3 businesses has a woman among the main owners [1].  These figures show the importance of women’s contribution to entrepreneurship development. However, in several cases, access to credit for women’s entrepreneurship is not in tandem with the pace of entrepreneurship financing as a whole or at parity with men. Several studies indicate that there is still a widespread belief that female entrepreneurs are discriminated against in the credit market. For example, a recent report by Shannon and Sheperd [2] shows that there is gender bias when lenders evaluate entrepreneurs who apply for loans, which leads to women being denied loans more often than their male counterparts.

SIGNIFICANCE OF ACCESS TO CREDIT FOR WOMEN’s ENTREPRENEURSHIP

It is widely recognized that the availability of and access to finance plays an important role in the creation, expansion, and survival of businesses. For small- and medium-sized enterprises (SMEs), access to finance can play a pivotal role, especially in the early stages of growth [3]. Therefore, the lack of credit opportunities can be disadvantageous for the expansion of new enterprises, as well as lead to systemic issues in the economy. A possible limitation in credit markets is women’s discrimination and unequal access to bank loans, particularly given the substantial percentage of female entrepreneurs [4].

There is much theoretical and empirical evidence to show the importance of financial accessibility to female entrepreneurship development.

Scanning through a policy brief on “female entrepreneurship, access to credit and firm performance in Senegal,” it was deduced that from 2007 to 2014, the total share of female-owned firms in Senegal increased from 23.8% to 32.1%. Regarding the share of new start-ups, there was an increase from 25% in 2000 to 38.1% in 2010. Also, female-owned firms employed 16.2% more workers than their male counterparts [5]. This shows that promoting female entrepreneurship in Senegal can contribute to enhancing the productive capacity of the economy. This can be done by ensuring that there is adequate credit opportunity for both male and female entrepreneurs. The credit adequacy referred to here is associated with the elimination of all forms of discrimination and bias against women in accessing credit for business establishment, development, and survival.

The financing of SMEs is considered one of the most important strategies for poverty alleviation and entrepreneurship development in developing countries [6] It is argued that the availability of and access to credit for the establishment of start-ups, especially those owned by women in Africa (and other regions of the world) is important for their growth and expansion. For instance, women constitute half of the population [7] of Nigeria, and statistics show that if they have more access to credit, more businesses will be created and this will go a long way to reduce poverty and unemployment in the country. Findings from a study conducted in Rivers State (Nigeria) on the use of funds accessed from micro-finances by clients show that women micro-finance clients used their credits to solve problems like school fees, house rents, feeding, tending to husbands’ personal needs, boosting their businesses. The findings of the study suggest that if there exist no impediments to female access to credit, more businesses will be created, household problems will be solved, and more children will be enrolled in primary-level education. The issue of unemployment will decrease, and the overall economy will be boosted.

In an article that examines business creation in Cameroon from the perspective of women, it is obvious that women have a huge potential for the workforce with more than 50.5% of the population. They contribute immensely to virtually all food production that caters to the nourishment of people in urban areas. In effect, having access to credit for the creation and expansion of businesses is an effective way of empowering women to contribute to Cameroon’s formal and informal sectors [8].  If women in Cameroon have more guaranteed access to credit facilities, they will be more involved in diverse income-generating activities that will help to boost the country’s national wealth.

Additionally, the equitable access to credit for women in Cameroon, and Africa as a whole, will boost the creation of jobs that enhance the development of women and the family [9]. More access to credit for women will enable them to become more autonomous to shoulder family responsibilities. A joint 2009 report by the International Labour Organisation (ILO) and the African Development Bank (AfDB) on Cameroon indicates that the percentage of female-headed households in urban areas in Cameroon was 22.4%, while that of rural areas was 14.5%. Furthermore, women’s contributions to family life are vital because 73.55% of them (from 15-49 years old) contribute immensely to cover at least one family expenditure compared to 61.84% for men, though the sources of income are dominated by men [10]. This suggests that if more women have access to credit in Cameroon and other African countries, based on a conducive regulatory and unbiased financial environment, their living conditions will improve as more jobs will be created followed by an increase in levels of production. This will lead to an increase in the flow of money, hence an increase in their purchasing power, and eventually a boost in the country’s gross domestic product (GDP).

RECOMMENDATIONS FOR POLICYMAKERS AND FEMALE ENTREPRENEURS

• The government of Cameroon should strive for a level playing field for both women and men regarding access to credit for business creation, expansion, and survival.
• It is advisable for the government to enhance the institutional framework for women in social entrepreneurship and economic development as outlined in the National Gender Policy document. This will incentivize women’s participation in decision-making as well as lead to the improvement of their legal status, thereby enhancing their social entrepreneurship development [11].
• It is advisable for female entrepreneurs not to deviate from the original purpose of their loan application and to ensure the judicious use of the loans to better grow their businesses.