The gender gap: examining the disparity in women’s access to funding


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12th August 2021

Women in business face significant barriers to funding, with research suggesting they are subject to indirect discrimination when applying for loans and access to credit. But that will come as little surprise: despite positive moves in recent years to improve female representation and break down barriers for women, serious inequalities still exist.
According to the World Bank’s Global Findex Database, the number of women with bank accounts worldwide is 7 percentage points lower than for men (rising to 9 percentage points in developing countries). Women are also overrepresented when it comes to the world’s ‘unbanked’ – around 980 million do not have a bank account, representing 56% of all unbanked individuals globally. This is true even of countries where the unbanked population is relatively low. In Kenya, a country of more than 50 million people, only a fifth of adults are unbanked – yet two thirds of these are women.
Women are less likely to own a bank account than men – the gender gap is bigger in developing economies. Source: World Bank
In countries where the unbanked population is higher, the disparity is starker. Women make up nearly 60% of unbanked adults in China and India, while in Bangladesh 65% of unbanked adults are women.
Innovation and new technologies have the potential to make a real impact – but despite this, technological advancements are not guaranteed to close the gap. The World Bank found that women were less likely than men to own a mobile phone by as much as 10 percentage points in developing economies.

The gap in women's access to funding

There have been a number of studies into gender discrimination in banking over the last 20-30 years. Some expose what they claim is clear bias, while others cast doubt on whether inequalities really exist when it comes to accessing credit and loans.
In a more recent study – published in 2019 by Ralph De Haas and J Michelle Brock of the European Bank for Reconstruction and Development – the researchers found no evidence of direct discrimination against female loan applicants, but acknowledged that indirect discrimination was likely to have an impact on women.
Brock and De Haas observed over 300 employees of a large commercial bank in Turkey, who each evaluated 8 different credit applications. The researchers indicated the gender of each applicant by randomly assigning a male or female name to the application, so they could monitor the effects of an applicant’s gender on the decisions taken by bank employees.
When it comes to implicit bias, Brock and De Haas found that participants subconsciously associated business more with men than with women – a tendency that was actually stronger among the female participants than it was among the males. While they found no evidence of direct discrimination against female applicants, the pair did identify indirect bias against women.
For example, the loan officers were 30% more likely to require a guarantor for applications when they were presented as coming from a woman instead of a man. Loan officers who were less experienced, younger or displayed more implicit gender bias were more likely to ask for a guarantor.
Alarmingly, discrimination was concentrated among loans that performed well in real life. The researchers were able to determine this because the applications represented real cases recently handled by the bank. There was a much greater gender disparity for loans that were subsequently paid off, and a much lower disparity for loans that were ultimately defaulted, suggesting that banks face a financial burden from failing to tackle indirect discrimination in loan decisions.

'Little capital goes to female-led companies'

A paper published by the European Commission last summer found that women were disproportionately affected by poor access to external funding. “While women represent more than half of the EU population and create roughly a third of companies, female entrepreneurs have more difficulties than men in raising finance for their ventures,” authors Agnieszka Skonieczna and Letizia Castellano said.
The paper claimed that female-led businesses are often under-capitalised; use less external financing; rely more on personal savings and spousal support; and attract less early-stage equity investment. In the EU, companies with at least one female founder secure about 11% of overall VC funding, the report said.
That is in spite of the clear benefits of equal access. As well as ensuring fair treatment for female entrepreneurs, improving women’s access to funding would arguably have a positive impact on a company’s bottom line. Research from Christiansen et al (2006) suggests that diverse teams achieve stronger returns and outperform market benchmarks.
If the merit of equal access to funding wasn’t clear before – then it should be now.
It’s a problem that has only been exacerbated during the pandemic. The Dutch development bank FMO says that female entrepreneurs have been hit harder by the Covid-19 crisis, deepening existing inequalities. This is because women were more likely to work in affected industries such as hospitality and food services, had limited social protection and were more likely to be the primary family care-giver, FMO said.

How can we improve women’s access to funding?

What can we do to improve women’s access to funding and begin to close the gaping gender disparity? The UK government believes that the answer lies in greater transparency and a written commitment to improving access to services such as financial advice, resources and the funding needed to build a business.
In 2019 it partnered with 100 banks, venture capital firms and angel investors to launch the Investing in Women Code. In April, the collaborative initiative published its first report since the programme started. It found that institutions signed up to the code were more likely to invest in female-run businesses than other investors.
Women and men were equally successful in applications for bank finance under the scheme – albeit for smaller loans on average. And, among the angel investors who participated in the code, all-female teams had a higher success rate in being taken forward for further consideration than all-male teams.
Speaking at the time of the report’s launch in April, the UK government’s Exchequer Secretary Kemi Badenoch said: “A diverse and inclusive business environment is good for customers, jobs, entrepreneurs, and society. I welcome today’s findings and urge the finance community to build on the success of the code, sign up and help ensure that the innovation, creativity and drive of female entrepreneurs is fully realised through the next stages of our economic recovery.”
There are several examples of good female-led or female-founded businesses.
And in a June 2020 report, the European Investment Bank (EIB) claimed that a “lack of female representation among founders and investors, gender investment bias and risk aversion creates a vicious circle that is difficult to break”.
The EIB called for a series of measures that it said would help improve female entrepreneurs’ access to funding. These were expressed within the context of four key areas: policy, financing, advisory and awareness.
On policy, where the EIB claimed the most impact could be achieved, it recommended new gender metrics and KPIs in all relevant EU programmes as well as evidence-based guidelines on policy support for child or family care and employment protection. It also suggested an investor seal of excellence for gender-based investments.
On financing, it called for wider deployment of targeted facilities to banks and greater backing for first-time women-led funds or funds with a female investment focus.
On advisory, it recommended targeted fundraising support for female-led companies while on awareness, it suggested that information be disseminated among existing networks of investors and entrepreneurs to help improve understanding of the issues and the consequences they have.