Published on February 22, 2014
Solutions for Supporting SME Business Growth: Access to Finance for Businesswomen in the Middle East and North Africa Executive Summary Vital Voices Global Partnership has partnered with the Middle East and North Africa Businesswomen’s Network (MENA BWN) and the International Finance Corporation (IFC) to survey the financial opportunities and challenges faced by women business owners in eight countries of the Middle East and North Africa (MENA). The forthcoming report will state the specific challenges women face in accessing formal finance in the MENA region with the aim of identifying practical solutions for organizations and institutions to implement. The Middle East and North Africa region is currently facing one of the most critical turning points in modern history. The Arab Spring was fueled by the desire for economic growth and justice in the face of poverty and unemployment. The development of strong economies and opportunities for citizens to pursue a livelihood without barriers is integral to the future of the region. Small and medium-sized enterprises (SMEs) in particular are increasingly proven as drivers of economic growth. Studies have shown that SMEs contribute up to 45% of employment and as much as 33% of GDP. SMEs tend to create more jobs than large firms, driving exports and contributing to innovation. Despite their importance and potential, SME growth has faltered largely due to institutional hurdles and inadequate financing. The growth of women-owned businesses is hampered by these same challenges. Around the world, women are much less likely to scale their businesses above micro level. Despite strong worldwide economic growth over the last 20 years, women-owned businesses are still estimated to account for less than 1% of corporate procurement spending globally, representing an enormous market opportunity for women entrepreneurs who are able to take their businesses to the next level.
At this critical time, women entrepreneurs are uniquely positioned to contribute to growing stronger economies. Understanding their challenges and needs is integral to indentifying real solutions to encourage the growth of women-owned enterprises. This report surveyed women business owners who are members of the MENA Businesswomen’s Network, representing Algeria, Bahrain, Egypt, Jordan, Lebanon, Morocco, Palestine and Tunisia. The survey findings are representative of the MENA BWN membership and this report will explore their business challenges while taking a solutions-oriented approach to improving women’s access to finance in MENA. Key Findings 85% of respondents owned at least half of their businesses Two-thirds of members surveyed say that access to capital is a very or extremely important issue MENA BWN members are the owners of young, growth-oriented businesses. Overall, nearly half (46%) have been in business for five years or less. These members are in a position to make decisions about their business and growth trajectory as 85% of respondents owned at least half of their businesses. And when asked what best describes their goal over the next three years, the vast majority chose growth-oriented responses such as “growth through expansion into new markets” (49%), “growth through greater profitability” (42%) or “growth through merger or acquisition” (12%). These businesswomen have a strong appetite for expansion and can contribute to national and regional economic growth. The top areas of concern to businesswomen in the MENA region are, not surprisingly: managing and maintaining business growth (83%), finding and keeping skilled employees (82%), and gaining access to new markets (81%). Access to capital, while a key business concern, comes behind the aforementioned growth management issues. Two-thirds (67%) of members surveyed say that access to capital is a very or extremely important issue along with keeping up with new technologies (which is very important to 69% of members). Basic economic viability and growth emerge as top concerns; and central to that as a facilitator, is access to capital. So while the level of importance of access to capital varies throughout the region, it is a consistent concern of MENA BWN members. Improved access to finance would facilitate business expansion and help to alleviate these other growth management concerns. Most businesswomen in MENA are “banked” – with 80% of those surveyed currently using personal checking accounts and 69% using business checking accounts. Given that a strong 88% majority of businesswomen surveyed have taken one or more steps toward formalization (including 67% who have registered their business name and 64% who have registered with a tax agency), it is not surprising that most members have bank accounts. Despite being personally “banked,” just 18% currently have a commercial bank loan and even less (just 10%) have a business line of credit. Instead of utilizing formal finance through financial institutions, a majority of women entrepreneurs are meeting their businesses’ capital needs through private sources, such as personal savings, family and friends (52%). Business earnings are also commonly used (at 36%). These conditions reflect that few businesswomen rely on financial institutions or outside investors as a business, but instead predominantly as private citizens. MENA businesswomen do have access to financial institutions, yet they are not accessing formal finance itself.
Access to Finance Women’s access to finance challenges: When asked specifically about difficulties seeking finance for their business over the past year, 64% of respondents had sought capital, and most of them – 41% overall – encountered difficulties in accessing this needed finance. Businesswomen ranked these difficulties in accessing finance as follows: • 7% cited high interest rates as the major hurdle. 6 There are, of course, regional differences, where interest rates are of even more concern. For example, 92% of women business owners in Tunisia and 87% in Egypt reported high interest rates as a challenge to securing finance. • 6% had difficulties due to lack of collateral 3 guarantees • 1% perceived the process as too complicated 3 • 7% lacked a business track record to secure 1 financing • 6% felt mistreated by banks due to being a woman 1 business owner 67% cited high interest rates as a hurdle they have encountered when seeking external financing. 70% found bank lending conditions were restrictive to the point of being prohibitive 71% of women entrepreneurs asserted that bank staff members lacked adequate knowledge and experience to handle SME customers effectively. In addition to these individual difficulties, 70% of MENA BWN members agree that lending conditions in their country are too restrictive and do not allow them to get the financing they need for growth. This is especially the case in Egypt (99%), Tunisia (76%) and Algeria (74%). Despite restrictive lending conditions, these women business owners would like a stronger relationship with their banks. Women surveyed felt that bank staff members often lack adequate knowledge and experience to handle SME customers effectively. Over two-thirds (67%) also say that they would like to meet more regularly with their banker so that bankers better understand their needs. With these current challenges, businesswomen are still very interested in accessing formal finance for their business growth needs. In terms of specific financial products, businesswomen are much more interested in long-term than short-term capital, and supply chain and equity financing are of interest as well. When asked which would be of greatest value to them in their businesses over the next year, interest is highest overall in long-term financing (36% would find it very useful, 34% somewhat useful). In contrast, just 19% would find short-term financing very useful (another 49% somewhat useful). One in five members overall would find supply chain financing (22%) and equity capital (19%) very useful.
Access to Information In addition to improved access to finance, businesswomen also expressed high demand for greater access to information in order to grow their businesses. Businesswomen said that learning about the following topics would be the most useful in leading their businesses moving forward: • General business management skills (76%); • sing financial products such as SME lending products or equity U capital (69%); • Exporting (66%); • Accounting and financial management (63%); • Selling to large, multi-national corporations (60%). The Report With a quarter of businesses surveyed selling mostly to fellow SMEs, targeted reforms and technical assistance for women-owned SMEs in the MENA region can have exponential impact. A majority of women business owners indeed plan to expand operations and ramp up employment in the coming months and years. Greater access to capital will be necessary to fuel this expansion. There is both a demand for formal financing arrangements as well as real difficulty in the pursuit of these key endeavors. Drawing on the survey responses, in which women themselves identify the most problematic issues associated with accessing financing, the report will make recommendations aimed at a range of stakeholders, including governments, commercial banks, women’s business associations, international financial institutions, and non-governmental organizations. All of these actors have the opportunity to bring different tools to address the problem and have much to benefit from providing access to finance for women. Recommendations will target: the need to improve access to existing sources of financing; developing tailored financial tools for women entrepreneurs; and addressing the structural barriers that prevent women from accessing financing. Recommendations will include both supply-side actions such as credit guarantee schemes or funds for women business owners, and demandside actions such as training to improve business skills or better manage finances. The forthcoming report, to be released in November 2012 by Vital Voices Global Partnership, the MENA Businesswomen’s Network and the International Finance Corporation, will further examine the findings presented here. The report will also explore specific challenges women face in accessing finance and assess the financial products most integral to their growth aspirations. The report will conclude with action-oriented recommendations for public and private actors at international, regional, national and local levels to improve women’s access to finance.
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