Sep 28, 2022 12:05:33 PM | The Credit Gaps Facing Women Business Owners

Female entrepreneur

On paper, things seem better for women business owners. Yet there are a lot of systematic obstacles women entrepreneurs still face when it comes to starting and maintaining their businesses or getting the financing they require to flourish.

A research study by the National Association of Women Business Owners (NAWBO) shows that there were more than 11.5 million businesses owned by women in the U.S., employing more than 8 million people across the globe and generating at least $1.7 trillion in sales as of 2017. But these statistics only tell a pinch of the story. There are still significantly fewer businesses owned by women and they often face different hurdles than their male counterparts, with the credit gap taking the lead.


Reasons Behind the Gender Credit Gap

Generally, women face significant obstacles in accessing the necessary credit to build and expand their entrepreneurship. According to a 2014 Senate Report, women business owners apply for funding at the same rate as men, but only 39% of applicants receive conventional bank loans compared to 52% of their male counterparts.

Although stakeholders would like to address this gap, some factors, such as entrenched social and cultural norms and expectations may take time, even under legal frameworks. For example, Goldman Sachs and the International Finance Corporation launched a facility called the Women Entrepreneurs Opportunity Facility in 2014 to close the gender credit gap in selected countries. They committed more than $800 million to enable more than 100,000 women entrepreneurs to access capital to grow their businesses. But most women cannot freely access the funding, presumably due to cultural expectations and other factors discussed below.

1. Gender Discrimination

Gender restrictions in the form of unconscious gender bias and stereotypes have persisted for years and have disproportionate effects on the economic position of women in most societies. Even current jurisdictions that endorse equality in accessing business funding for unmarried women may radically restrict women’s rights once they enter marriage. On both an unconscious and overt level, gender restrictions have a track record of killing the innovative spirit and negatively affecting women's perceptions of their competence and the possibility of getting approved by financial institutions.

2. Legal Gaps

Most jurisdictions have clearly defined laws or civil codes when it comes to labor and women's equality. But do these laws hold for long in different perspectives? Most of them remain stand-alone abstract doctrines that are not backed by other powerful legal provisions and social and cultural practices. These laws are irrelevant if the substantial inequalities in social practices and expectations are not addressed, and may continue to hinder any programmed effort to curb the current gender credit gaps.

3. Gender Wage Gap   

The U.S. Equal Pay Act (EPA) requires women and men in the same workplace and performing substantially similar jobs to be given equal pay. But the women's pay still lags behind the men's wages in most cases. The National Women's Law Center emphasizes that white women working full-time in formal settings in the United States take home significantly less pay than their male counterparts. They predict that the gap may be even more significant for women of color.

4. Parallel Legal Systems

Some jurisdictions have parallel legal systems that limit the power and empowerment of women. For example, Sri Lanka has very firm legal systems that control the powers and rights of different religious or ethnic groups. The Islamic law that has gained prominence in some parts of Kenya occupied by Muslims has tension with civil law, particularly on matters of women's inheritance and property rights. Some of these statutes in Muslim law are strictly applied in the Kadhis' courts as directed in the country's constitution. The result is a significant financial gap between men and women.

5. Social Norms and Cultural Expectations

In most societies, legal principles of equality are hindered by social norms and cultural expectations. For example, there is no legal restriction that prevents women from moving or establishing businesses of their choice anywhere they want. But practically, women's mobility restrictions do exist. Women who work outside the home are often expected to take on dual responsibilities of managing business and family. Achieving this elusive work-life balance can limit women's mobility and entrepreneurial freedom.

6. Credit or FICO Scores

It is not a revelation that most legitimate lenders want to know about the assets and revenue flow of an applicant to determine their creditworthiness. Credit bureaus use these factors and others to generate credit scores. The more a person earns, the more assets and wealth they gain. In scenarios where women earn significantly less than their male counterparts, their credit and FICO scores are likely to remain low, limiting their ability to obtain financing. Even the most highly driven and successful women business owners may fall into this trap. In rare cases, their credit scores may not reflect the success of their businesses due to obstacles like structural bias.


How Can the Gender Credit Gap Field Be Leveled?

Despite the financial hurdles women face, the landscape is slowly but steadily changing.  Financial institutions, including Valliance Bank, are adopting more inclusive financing practices and increasing investments in women-operated businesses. Civil society, the media, and the government should protect and enforce women's economic rights so they are fully empowered.

What can you do to change the social norms and level women's financial ground? You can use these findings alongside others to create awareness and empower women directly or indirectly by advocating for reforms and more inclusive laws and regulations in legal systems.

Most financial institutions have funds to lend to small businesses, but not all women can access them freely in some societies. At Valliance Bank, we are working to level the ground by offering equal financing opportunities so women and all entrepreneurs can achieve their full economic potential. Contact us today to help us help you.