A version of this article originally appeared in Crowdfund Insider on 8 March 2019, International Women’s Day.
The number of women-owned businesses in Europe and Asia-Pacific have been steadily increasing since the 2008 financial crisis. Despite these encouraging statistics, studies have found that women are not only less likely to be approved for loans than men (61% approval rate for men-owned firms, versus 41% for women-owned firms) but on average receive smaller loan amounts and will often be charged higher interest rates from banks compared to men. Without equal access to finance to start or grow, women-owned businesses are operating at a disadvantage that makes it harder for them to do business––and that’s concerning.
In the lead up to International Women’s Day, we wanted to highlight these trends and start a discussion around potential solutions so we asked entrepreneurs and industry leaders about the role of fintech in reducing the gender gap in finance. What we found was a resounding commitment to making finance accessible for all business owners.
Fintech lenders are levelling the playing field for women entrepreneurs by making finance fairer and more accessible. Fintechs focus more on the numbers and effectively cut out the gender bias found in traditional lending that has historically disadvantaged women. A financial services industry, enabled by technology which creates inclusive products has the potential to empower female entrepreneurship––that’s something worth talking about.
Why women turn away from finance
A Boston Consulting Group study found that women have historically felt let down by the quality of service and availability of products from financial companies that often presume men are their target customers. Women entrepreneurs simply felt they were not being effectively served by traditional financial providers. Women cited poor advice, lack of respect and contradictory policies as reasons for feeling discouraged when it comes to seeking finance. Kate Carnell, the current Ombudsman at the Australian Small Business and Family Enterprise, said of her own experience, “when I got my first business loan, three banks knocked me back on the basis that I was 25 and a woman. There were a couple of questions in there like ‘when are you having babies?'” Another Spotcap customer also echoed this sentiment when summing up her experience with a bank, “we were growing 41 percent year-on-year, we went to the bank, but the response was pretty negative.”
Women-owned businesses tend to be smaller, younger, generate less revenue and operate more in the retail and service industries compared to male-owned businesses. Banks want customers that have a long-term credit history, and entrepreneurs with years of financial and administrative experience. This means that women-owned businesses look less favourable on paper and often don’t get the finance they need to do business.
How fintech is levelling the playing field
Empowered by technology, fintech companies offer financial products that overcome some of the challenges women entrepreneurs face at traditional banks. Institutions such as the Asian Development Bank recently reported on the difficulties women-led businesses face and point to fintechs as a “reasonable starting point for extending access to trade finance among this population.” That’s because fintechs do things a bit differently. While criteria like the size, age, and revenue of a business matter, they are just a part of the fuller picture that fintechs build to evaluate the health of a business.
Fintechs can incorporate hundreds of real-time data points which go beyond credit scores and revenue. Instead, robust credit algorithms factor in things like business cashflows, online reviews of the business and simultaneously account for seasonality. When a bank sees a relatively young business with no assets and thinks it’s too risky, a fintech might see a healthy business which is ready to scale.
Relying more heavily on real-time, gender-blind data fintechs are chipping away at some of the hurdles which prevent women-led businesses from accessing finance. The result? Data-driven financing practices are giving female entrepreneurs a better shot at obtaining the finance needed to start and sustain businesses.
Fintechs that offer business financing have made the loan process more objective for entrepreneurs of every gender. Spotcap Founder and CEO, Jens Woloszczak, points out that “fintechs like facilitate fair access to finance for all business owners. By leveraging our innovative technology and focussing more heavily on gender-blind data, we remove bias from our credit assessment process. As a result, our approval rates are the same for both men and women led-businesses.”
While we still have ways to go as an industry, we currently hold the keys to one day achieving #BalanceforBetter and improving access to finance for all. Most importantly, we need to push for the continued education about financial products and raise awareness about fintech offerings which are levelling the playing field for women-owned businesses. The time to start the conversation is long overdue and it’s about time we level the playing field by ensuring equal access to business funding.
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Originally published March 7 2019 , updated January 22 2020